Question: Reproduced below are portions of the president’
Reproduced below are portions of the president’s letter to stockholders and selected income statement and balance sheet data for the Wright Brothers Aviation Company. Wright Brothers is a national airline that provides both passenger service and package delivery service.
To Our Stockholders:
Required:
1. What trends do you detect in revenues, operating income, and net income for the period 2015–2019?
2. What happened to working capital over the 2015–2019 period? To what do you attribute this result?
3. The price of Wright Brothers stock declined steadily throughout the 2015–2019 period. Do you consider this decline to be a reasonable reaction to the financial results reported? Why or why not?
Transcribed Image Text:
In 2019, the airline industry began to show some life. As fuel prices leveled and travelers showed an increased willingness to fly domestically, it was generally perceived that a gradual recovery was in place. The worldwide increase in the demand for air travel throughout the year translated into improved demand for the Company's services. In fact, revenues for both the passenger and packa ge segments improved in every quarter of 2019. Most importantly, the Company started generating cash from operations in the last half of the year, and the pas- senger segments returned to generating profits in the third quarter. With improved operating performance as the basis for negotiating a financial restructur- ing, the next critical step for the Company is to satisfactorily restructure its obligations in order to insure that the Company can operate effectively in the future. With that in mind, a strategic decision, albeit a difficult one, was made in February 2019-the Company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. 2019 2018 2017 2016 2015 Revenues: Passenger services Package services Total revenues S 141,343 35,199 176,542 S 136,057 60,968 197,025 $354,246 145,940 500,186 S 390,080 203,675 593,755 $ 337,871 202,615 540,486
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