The specific objective of this graded written research exercise is to prepare an "executive level financial report" to the Chief Financial Officer (CFO) of a mythical company in which you are employed as a financial analyst. This report will pertain to the financial evaluation of a real, publicly-traded, company. It will require independent research (web-based or library), careful financial analysis, and the proper application of key financial theories and formulas.
SITUATION
You are a financial analyst with the mythical RenDicorporation. RenDi is a manufacturer of renewable synthetic diesel fuel. One of the emerging markets for this product is in ground support equipment (GSE) for the airline industry. A competitive technical and economic product evaluation has determined that Southwest Airlines (LUV), (a real publicly-traded company) is the best potential partner. The partnership entails an agreement that will allow Southwest to purchase renewable synthetic diesel at fixed rates for 5 years while RenDi studies the environmental costs/benefits of converting GSE to renewable fuel. RenDi would absorb all conversion costs for the GSE fleet of Southwest Airlines.
Based upon some serious concerns about the stability of companies in the airline industry, the CEO has asked your CFO to conduct a financial analysis of Southwest Airlines to determine if it is prudent to commit to a 5 year contract with this company. The cost of converting over to renewable synthetic diesel fuel is significant and any interruption in the agreement during the next few years would adversly affect RenDi's performance and profit. Specifically, the question is: will Southwest Airlines be financially viable over hte next two to three years?
YOUR SPECIFIC ASSIGNMENT
Your specific assignment is to research, analyze, and prepare a report for the CFO on the actual financial performance of Southwest Airlines for the years 2009, 2010, and 2011. In addition to reviewing the traditional financial performance indicators, you are also to review Southwest's past and current stock performance for the same respective periods. Your report is to consist of three parts:
(1) An evaluation of Southwest Airline's financial performance for the period 2009, 2010, & 2011.
(2) An evaluation of Southwest Airline's stock performance for the period 2009, 2010, & 2011
(3) Finally, a specific recommendation, with supporting rationale, as to whether or not Southwest's recent trend in financial and stock performance is of sufficient financial strength to warrant entering into a long-term commitment.
To assist you in your task, the CFO has provided the following general guidance. Since it is recognized that the airline industry is undergoing a major contraction, it is very important to comparatively evaluate Southwest's financial and stock performance trends against its Industry.
You are to consider all necessary and relevant financial performance and stock information, trends, and projections in supporting your recommendation. These factors include, but are not necessarily limited to financial statement analysis, financial ratio trends and industry comparatives, capital spending, stock growth, Beta values, credit rating service valuations, bond rating valuations, and management and investment reports - when these documents are available.
REPORT REQUIREMENTS
Your final report is to be an executive-level financial report, directed to the CFO. This report must be no longer than six (6) or seven (7) single-spaced typewritten pages. Include suitable comparative, quantitative and qualitative analyses and conclude with a specific and supported recommendation on the projected financial viability of Southwest Airlines for the next several years.
Essential research data, financial calculations and other documentation as necessary to support your recommendation should be referred to in summary form in your report and attached in detail as enclosures. All major sources should be referenced. There is no set limit to the size of the enclosures, but it is recommended that only essential enclosures be attached. You should use references and bibliography to identify any remaining supporting documents you wish to include.
Your report is to be submitted electronically and limited to a maximum of two files, one for the executive report and one for attachments. One file is acceptable with attachments included as separate pages at the end of your report. Only Word, Plain Text, Rich Text, and Excel file formats are acceptable.
This report is an individual effort and must be researched, developed and prepared by you. However, to maximize the learning benefit, you are encouraged to share freely or exchange sources of information (web sites), general approaches, alternatives, and discussion on general financial theory and applicability as related to the report.
All questions related to this assignment, should be referred to the mythical CFO (i.e., your instructor).