1 / 21

Module 4 and 5 Regional Airlines - jetBlue

Module 4 and 5 Regional Airlines - jetBlue. Michelle Kelly. Mod 4-Calculation of 2013 Values. Compared Q3 2013 to Q3 2012 to get growth rate Applied to December 31, 2012 numbers to compute 2013 values Exception: Operating Expenses (% of revenue). Mod 4-Calculation of 2013 Values.

ashton
Download Presentation

Module 4 and 5 Regional Airlines - jetBlue

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Module 4 and 5Regional Airlines - jetBlue Michelle Kelly

  2. Mod 4-Calculation of 2013 Values • Compared Q3 2013 to Q3 2012 to get growth rate • Applied to December 31, 2012 numbers to compute 2013 values • Exception: Operating Expenses (% of revenue)

  3. Mod 4-Calculation of 2013 Values

  4. Mod 4 – Return on Net Enterprise Assets (RNEA) • Growing from year to year • Stable

  5. Mod 4 – RNEA Comparison • Cannot compare to Spirit because they are in growth stage • Significantly below competitors

  6. Mod 4 – Breaking Apart RNEA – Enterprise Profit Margin (EPM) • EPM is stable • Indicates that the firm is doing a good job of keeping costs steady and • maintaining their operating profit margin.

  7. Mod 4 – Breaking Apart RNEA – Enterprise Asset Turnover (EATO) • EATO is stable but growing • Being more productive with assets • Fairly Low

  8. Mod 4 – RNEA Comparison • JetBlue has the lowest RNEA of the four firms because it has a lower EPM and EATO than most competitors. • Indicates that the company has lower operating margins and is not as effective at using assets to generate revenue.

  9. Mod 4 – Forecasting Sales Growth

  10. Mod 4 – Forecasting Sales Growth • Assumption – Sales Growth of 9% • Conservative compared to average of 12.5% • Slightly higher than Southwest and Delta but much lower than Spirit • Reflects the company’s desire to expand and grow in the next five years

  11. Mod 4 – Forecasting EPM

  12. Mod 4 – Forecasting EPM • Assumption – EPM of 4.46% • Average of the last three years • Reasonable in comparison to competitors • Slightly above Southwest because they have lower costs • Much lower than Spirit which as a “barebones” airline has minimal costs • Delta’s EPM is to volatile to compare against

  13. Mod 4 – Forecasting EATO

  14. Mod 4 – Forecasting EATO • Assumption – EATO of 1.15 • Average of the last three years • Conservative as the company will probably use assets more effectively as they grow. • Continues to be lower than all other competitors

  15. Mod 4 - Forecast • Assumptions: • Sales Growth – 9% • EPM – 4.46% • EATO – 1.15

  16. Mod 5 – Valuing JetBlue

  17. Mod 5 – Discounting Back FCF • Discount rate of 10% • Sum of PV FCF is ($942)

  18. Mod 5 – Present Value of Perpetuity • Expected FCF for 2019 is ($242) • Value of perpetuity is equal to the expected cash flow divided by the required rate of return minus the growth rate • ($242)/(.1-.05) = ($4,833) • The expected growth rate in perpetuity has been decreased from 9% to 5% in order to provide a more conservative and realistic expectation of growth • Must discount the total value of the perpetuity to the present • ($4,840)/(1.1)^5 = ($3,001)

  19. Mod 5- Present Value of Enterprise • Sum of the PV FCF + PV of Perpetuity = Enterprise Value • ($942)+($3001) = ($3,943) • For Comparison, the Enterprise Value of the Firm per the Balance Sheet is $5,047.

  20. Mod 5 – USING DCF Analysis • Benefits • Easy to calculate and understand • Evaluates projects which enhance shareholder value • Disadvantages • Very subjective analysis based on inputs for growth etc. • Focused more on long term projects • Not good at valuing companies with a negative FCF • Makes companies seem like a bad investment which will not generate a profit. However, many companies with negative case flows generate increasing earnings and increased stock prices.

  21. Questions?

More Related