A main measurement of a company’s solvency is their debt- to-asset ratio. “This ratio indicates the proportion of total assets that are financed by debt. ” (text) If this ratio is high it indicates a greater financing risk. In 2007 WestJet’s debt-to-asset ratio was 68. 2%, it decreased in 2008 to 66. 9%. This means they are financing more of the assets with equity in 2008 compared to 2007. When we compare this ratio to Air Canada we see a telling story. In 2007 Air Canada’s debt-to-asset ratio was 77. 8%, but in 2008 it rose to 91. 6% mainly due to a rise in current liabilities.
This shows that Air Canada is relying greatly on debt to finance their assets. When comparing the two, it is obvious that WestJet’s financing strategy is less risky as well that WestJet’s ratio was more consistent in 2007 and 2008. In order to get a complete look at WestJet’s financial performance we need to break from the main four financial statements and look at a few industry specific indicators.
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The first indicator is Revenue per Available Seat Mile (RASM). This is the total revenue divided by total guest capacity. WestJet’s RASM for 2008 is 14. 88 cents up from 14. cents in 2007. It has grown year after year since 2004. Air Canada’s RASM for 2008 is 17. 9 cents up from 16. 9 cents in 2007. This makes sense based on WestJet’s low cost strategy. The second key indicator is the Cost per Available Seat Mile (CASM). This is simply the operating expense divided by total guest capacity. In 2008 WestJet’s CASM was 13. 17 cents up from 12. 34 cents in 2007. These numbers are quite low compared to Air Canada’s CASM of 17. 9 cents in 2008 and 16. 3 cents in 2007. This indicates that WestJet does a better Job of controlling expenses than Air Canada.