JetBlue is an American based airline company operating within the United States its surrounding regions of the Caribbean, Latin America and South America. In the first two years of operation, the company’s profits had grown extensively despite the fact that the airline industry in the United States faced big challenges during this period. In order to support the massive growth and expansion of the company, the management decided to use the public equity offering (IPO) to raise additional capital (Neeleman, 2002). IPO creates liquidity for the company, enables it to achieve its maximum value, and increases its access to funds.
The company’s revenues increased rapidly from US $ 105 million in 2000 to approximately US $ 321 million in 2001, a 206% increase in revenues. The earnings also rose from a deficit position of US $ 35.4 million in 2000 to an approximate profit of US $ 21.6 million, approximately 160% increase in profits. This was an indicator of the progression of the company. The company’s financial viability increased between 2000 and 2001. The liquidity company gently due increased from 0.66 to 0.74 and from 0.65 to 0.73 as shown by the current ratio and quick ratio respectively. The figures below represent the current ratio and acid-test ratio analysis respectively. The company also had an increasing cash ratio from 0.38 in 2000 to 0.61 in 2001 indicating its increased ability to pay its short-term debts in cash (Neeleman, 2002).
Using the Altman Z-Score test identifies that the stability of the company is increasing with time. The score in 2000 was very low (-0.24) but this increased in 2001 by 330% to a score of 0.56. It also shows that the performance of the company was steadily increasing (Neeleman, 2002).
Profitability ratios of the company also shows very interesting results hence the high IPO subscription by the investors. The ratios show that the company’s profitability is on the increase promising higher returns on their investments (Brigham & Ehrhardt, 2013). The net profit edge of the firm progressed from -20.39% to 12.03% in 2001. This represented a 159% rise in the net profit margin. This upward trend shows that the company is fast growing and have prospects of further growth in the future. The figure below illustrates the changes in net profit margin over the two-year period of 2000 and 2001.
The debt/equity ratio of the company increased from -7.35 to -21.95 putting the company in a high debt position. The company, therefore, incurred higher costs in paying interest. Such positions reduces the liquidity of the company. With the new issue, the debt equity ratio will reduce significantly (Drury, 2004).
The return on assets also recorded a 192% increase from -6.20% to 5.72% in 2001. The return on equity also increased tremendously by 408% from 0.39 in 2000 to -1.20 in 2001. The investors, therefore, will obtain a high return for their investments. The company doesn’t pay dividends to its investors as the profits are reinvested in the company to produce even higher returns. These figures also indicate that the company will pay higher dividend in the future and hence considered as a Greenfield investment by most investors.
The earnings per share of the company has also shown a notable rise over the years. The increased revenues and reduced cost per unit revenue resulted to increased earnings per share. The basic EPS grew steadily from 1999 to 2001. The figure below reflects the changes in the EPS over the years. The figure below illustrates the growth in EPS of the company over the years (Neeleman, 2002).
An IPO, therefore, was a perfect move for JetBlue to increase its capital base and subsequently, its operations. With increased share capital, the company would expand its operations to other regions, increase their local investment and, as a result, experience growth. It also gives the will also enable the company to realize more revenue (Brigham & Ehrhardt, 2013). For JetBlue Airways, this is an avenue for greater development and expansion. The net value of the firm is likely to increase. In addition to this, the company will have the benefits of being listed in the New York Stock Exchange. Given the case, the company should have its IPO at $ 32. This is almost the price of Delta. It promises it even more returns.
| 2001 | 2000 | ||||
| US $ ‘000’ | |||||
| Current ratio | = | Current assets | 144,265.00 | 59,913.00 | |
| Current Liabilities | 194,126.00 | 91,024.00 | |||
| 0.74 | 0.66 | ||||
| Acid-Test Ratio | = | Current assets-Inventory | 142,055.00 | 58,780.00 | |
| Current Liabilities | 194,126.00 | 91,024.00 | |||
| 0.73 | 0.65 | ||||
| Cash ration | = | Cash & Cash equivalent | 117,522.00 | 34,403.00 | |
| Current Liabilities | 194,126.00 | 91,024.00 | |||
| 0.61 | 0.38 | ||||
| Altman Z-score | = | 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + .999T5 | |||
| T1 | = | Working Capital | (49,861.00) | (31,111.00) | |
| Total Assets | 673,773.00 | 344,128.00 | |||
| (0.07) | (0.09) | ||||
| T1 | = | Retained Earnings | (33,117.00) | (54,684.00) | |
| Total assets | 673,773.00 | 344,128.00 | |||
| (0.05) | (0.16) | ||||
| T1 | = | Earnings before interest and Tax | 56,047.00 | (14,174.00) | |
| Total Assets | 673,773.00 | 344,128.00 | |||
| 0.08 | (0.04) | ||||
| T1 | = | Market Value of Equity | (32,167.00) | (54,153.00) | |
| Total Liabilities | 696,302.00 | 398,281.00 | |||
| (0.05) | (0.14) | ||||
| T1 | = | Revenues | 320,414.00 | 104,618.00 | |
| Total Assets | 673,773.00 | 344,128.00 | |||
| 0.48 | 0.30 | ||||
| Z-Score | = | 0.56 | (0.24) | ||
| Profitability ratios | 38,537.00 | 21,330.00) | |||
| Net profit Margin | = | Net Income after tax x 100 | 320,414.00 | 104,618.00 | |
| Sales | 12.03 | (20.39) | |||
| 38,537.00 | 21,330.00) | ||||
| Return on Assets | = | Net Income after tax x 100 | 673,773.00 | 344,128.00 | |
| Total Assets | 5.72 | (6.20) | |||
| 38,537.00 | (21,330.00) | ||||
| Return on Equity | = | Net Income after tax x 100 | (32,167.00) | (54,153.00) | |
| Total Equity | (1.20) | 0.39 | |||
| Leverage Ratios | 705,940.00 | 398,281.00 | |||
| Debt/Equity ratio | = | Total Debt | (32,167.00) | (54,153.00) | |
| Total Equity | (21.95) | (7.35) | |||
- Brigham, E. & Ehrhardt, M., (2013). Financial Management: Theory and Practice. Cengage Learning. London.
- Drury, C., (2004). Management and Cost Accounting.Thomson Learning, London.
- Lucey, T., (2012). Management Accounting. DP Publishers Limited, London.
- Neeleman, D., (2002). JetBlue Airways IPO Valuation. Darden Business Publishers, Virginia.
