Westjet analysis

November 15, 2011 Company Overview Westjet, established in1996, is a low-cost Canadian airline company specializing in flights to various destinations in Canada, the United States, the Caribbean and Mexico. It is a non-union, self-run employee organization that focuses on world-class guest experience at an affordable rate.

Westjet prides itself on a corporate culture that blends devoted employees with efficient service. Westjet’s business plan, since day one, has been focused on a distinct advantage over other airlines: lower costs and increased customer satisfaction. It executes this plan by investing in one type of aircraft to serve main cities in North America instead of investing in different aircrafts needed to reach all cities and communities. Industry Westjet operates in a very afflicted, declining industry. Because the airline industry is one closely tied with economic growth and trade it is continuously changing. In fact, twenty-eight domestic airlines have disappeared in the past twenty years due to reduced numbers.

Although one can confidently say Westjet financial statements are continuously prepared in accordance with GAAP principles, we may look into further detail. First, it is useful to consider the application of preparing the financial statements. Westjet has a distinct management team separate from other managing authorities that prepare the statements. This segregation of duties allow for a faithful representation. This shows strong internal control.

To assist, Westjet’s statements are audited by independent directors from the KPMG LLP group. All statements are presented in Canadian Dollars, displaying an easily comparable figure to our own economy. Westjet’s financial statements are prepared on both an interim and annual basis. That is, statements are prepared and presented to the public quarterly and annually and follow a standard calendar year. This, in accordance with the time-period assumption, has been the process since the establishment of Westjet in 1996.

In order to develop global accuracy and comparability, Westjet is transitioning into the practice of IFRS standards. As many organizations are moving in this direction, this allows the financial statements to be compared to other domestic airlines across the world. However, Westjet still recognizes GAAP principles in their current statement. Financial Analysis Looking at the current financial statements, it is evident that Westjet shows strong numbers. In particular, it shows revenues in 2011 already at $2. 2billion, $1.

3billion in cash and cash equivalents and $6million in share capital. However, we must look further and decipher information from these numbers to truly recognize their value. Profitability It is always important to measure the earnings or operating success for a company. Being a fairly new company, Westjet earned profits very quickly, but is it necessary to understand the progress and growth. First, let’s consider the Earnings per Share. This will show the shareholder’s benefit of the company.

It is also important to recognize how the competition is performing. A look at Westjet’s two strongest competitors, Air Canada and Air Transat, indicates that these companies are actually at a decline in their profits. Earnings per Share for Air Canada 2009 2010 2011(Q1)2011(Q2)2011(Q3) (0. 8) 0. 38 (0.

07) (0. 17) (0. 45) Earnings per Share for Air Transat 2009 20102011(Q1)2011(Q2) 2011(Q3) 1. 85 1. 73 (0. 51) (0.

Fortunately, Westjet has a high current asset value while minimizing their liabilities (as shown below). *All numbers are stated in thousands Before even calculating any ratios it is evident that Westjet has a strong asset section as over 42% of all assets are current. This means in a time of immediate crisis, Westjet would more than likely be able to recover because of the liquidity their assets have. We can also look at the liabilities section to compare with assets. *All numbers are stated in thousands. Because Westjet has many liabilities, it is appropriate to measure their ability to actually pay off these debts.

Furthermore, is it worth investing into the company or will they be stuck in a debt crisis in the near future? To measure this we can calculate working capital. Using the values for 2011, we can concur that Westjet has a working capital of 473, 748 thousand. 1, 449, 415 – 975, 677) This illustrates that even in a difficult time for airline companies, Westjet has a great capability of paying off their liabilities. Looking at the 5 year trend this proves more believable. *All numbers are stated in thousands 2006| 2007| 2008| 2009| 2010| -8418| 127128| 176003| 363447| 436538| This indicates that Westjet has had consecutively increasing working capital, in other words a stronger ability to pay debt, over the past 5 years.

07: 1 Even though these companies still currently hold positive ratios, they are clearly less efficient. This is more than likely due to Westjet’s ability to maintain low-costs while producing large profits. Once again, it seems as though Westjet is the leader in the industry. Solvency For potential long-term creditors or prospective shareholders a company’s long-run solvency proves very important. Especially in such a tough industry, it is necessary to see who has the ability to survive over a long period of time. Furthermore, it shows who has the ability to pay debts effectively.

For this we consider the Debt to Total Assets Ratio. For this figure we will consider the totals of both assets and liabilities, as opposed to just current. This will provide is with a strong analysis because it shows complete debts including long-term liabilities. This means not only will the company be able to pay interest as it comes due, but also to the repay the face value. For 2011, Westjet’s Debt to Total Assets = , 147, 108 / 3, 494, 560 = 0.

Rated one of the more friendly staff in the world, shareholders can expect not only cheaper flights but efficient, comfortable environments too. Personally, I can agree with this as I have flown with Westjet multiple times and received great service on each occasion. Overall, Westjet is a growing, progressing company that is definitely worth consideration. Works Cited 1. Westjet Corporate Website http://www. westjet.

com/guest/en/media-investors/index. shtml 2. SEDAR http://www. sedar. com/FindCompanyDocuments.