Delta Airlines – Cash Flow and Cash Management

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Cash Flow Analysis

Cash flow from operations are vital for the business to exist, and it reflects how much amount of cash generated from sales minus the COGS and SGA. Delta generated $7.2(b) in the year 2016 from its operations much above its competitors; American Airlines $4.23(b), and Southwest airlines $6.5(b). Positive cash flow and significant change in cash flow from $4.9(b) in 2014 to $7.2(b) signals a strong growth of the company. To sustain the business growth in the upcoming years, Delta has invested $3.3(b) in capital expenditures and paid a total dividend of $0.53(b) in the year 2016, which is 50% above the base year, 2014 $0.25(b). Delta Airlines reported positive operating cash flow of $6.6(b) for the fiscal year 2016, which shows cash from its operations can cover its day-to-day operations. Out of $6.6(b) Delta has currently reinvested only 0.4 % of Operating cash flow for the purchase of capital expenditures plant, machinery, and equipment. Thus, free cash flow amounts to, $5.95(b) which shows that Delta can run profitably with small reinvestment needs. However, with predicted growth in end-market demand, Delta will be re-investing approximately 50% of its future operating cash flow back into its business. Delta plans to invest nearly $2.5(b) to $3(b) into the advancement of technology, products, fleet, and facilities. (Mehta, 2018) Of course, investing in your fleet requires a substantial amount of capital, fortunately, Delta has applied some risk management measures, as the purchase of the new airplanes is spread out over several years. ('What Will Delta Air Lines Do With Its Billions of Free Cash Flow?', 2016)


Without an adequate gross margin, a company is unable to pay for its operating expenses. In general, a company's gross profit margin should be stable unless there have been changes to the company's business model. Delta showed a slight increase in Gross Profit Margin from 58% in 2015 to 59.8% in 2016. This was due to a decrease in the cost of goods sold from 2015 to 2016. Delta has a return on assets of 8.53%. Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives us an idea as to how efficient a company's management is at using its assets to generate earnings. For every dollar Delta invested in assets in 2016 they generated about $0.08 cents of net income. In relation, Delta has a return on equity of 35.59%. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ('Return on Equity - ROE', n.d.) Delta’s ROIC is 19.53% while its competitor; American Airlines has a ROIC of 13.00%. This means that Delta’s business generates a higher return on investment than American Airlines. (Daniel, 2017)

In summary, Delta is improving its Gross Profit Margin year over year from 43.1% in 2014 to 59.8% in 2016 this tells us the company is generating $0.59 cents in profit for every dollar of sales it has achieved. Delta has focused their investments in assets resulting in an increase in return on assets from 1.22% in 2014 to 8.53% in 2016 and it is above the industry average of 7.30%. Another important factor is the return on equity, Delta has managed to increase its return on equity from 7.5% in 2014 to 35.6% in 2016, meaning it has generated $0.35 cents for each dollar given by investors. Delta is efficiently managing its investments in assets to increase the return on equity of shareholders.

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