Ratio Analysis and Stock Returns
Starting service to a new market, such as Havana, Cuba, is a major capital budgeting project for Southwest Airlines (ticker symbol: LUV). A project of this scale requires coordinated planning across all functions of a business that you are studying in your Integrated Core classes. Choose and discuss three items on the income statement and balance sheet that you think will be impacted by this new undertaking (a total of six items). Explain why you chose those particular items, and how those items are impacted by the marketing, management and operations decisions of the company.
Income Statement Items
Advertising costs which may lower the overall net profits
As the company penetrates the new market, it has to embark on extensive marketing to inform the prospective customers about the presence of the company in the country. Marketing in this case would include airing adverts through the local Cuba media, personal promotion and road shows, philanthropic works, and social media marketing among others. These marketing endeavors would cost the firm a substantial amount of money which must be offset against its profits (Higgins, 2012). This item is selected because it may have a negative effect on the net profits of the firm. The firm may lower these costs by entering into merger and acquisition agreements with the airlines operating in the region to alleviate the need to extensively market itself.