Working Capital Management Project and Report

Gol Linhas Aereas Inteligentes S.A.

Navigator Holdings Ltd.

Alaa Alrushoud
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Table of Contents
Abstract..........................................................................................................................................3
Introduction: Gol Linhas Aereas Inteligentes S.A. and Navigator Holdings Ltd...................4
Financial Performance Analysis:.................................................................................................5
 Operating Profit Margin......................................................................................................5
 Net Profit Margin.................................................................................................................7
 Return on Assets..................................................................................................................8
 Return on Equity................................................................................................................10
 Return on Investment........................................................................................................11
Working Capital Management...................................................................................................13
 Inventory management......................................................................................................13
 Cash management..............................................................................................................13
 Account receivables and payables management...............................................................14
Important Working Capital Ratios............................................................................................15
 Current Ratio.....................................................................................................................16
 Quick Ratio........................................................................................................................17
 Cash Flow to Total Debt Ratio..........................................................................................19
 Days’ Inventory..................................................................................................................20
 Days’ Receivables..............................................................................................................22
 Days’ Payables...................................................................................................................23
 Cash Conversion Cycle......................................................................................................25
Analysis of Capital Structure.....................................................................................................26
Analysis of Cost of Capital..........................................................................................................29
Recommendations and Conclusion............................................................................................31
References.....................................................................................................................................33
Appendix.......................................................................................................................................34
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Abstract

This is the project about financial statement analysis of two companies of same industry. In this

regard the companies which were chosen to be analyzed are Gol Linhas Aereas Inteligentes

S.A & Navigator Holdings Ltd. Both the companies are involved in transportation business and

are dealing with the business for many years. The organizations are all well reputed in market

and arrangement in various assortments of transportation services.

This project report depends on investigation and analysis of financial performance, working

capital, capital structure and cost of capital of contending firms in the transportation business,

Gol Linhas Aereas Inteligentes S.A. furthermore, Navigator Holdings Ltd. To break down

financial performance, the use of performance ratios, for example, Operating Profit Margin, Net

Profit Margin, Return on Assets, Return on Equity and Return of Investment, is conducted. To

analyzing working capital management, the use of working capital ratios, for example, Current

Ratio, Quick Ratio, Cash Flow to Total Debt Ratio, Days' Inventory, Days' Receivable, Days'

payable and Cash Conversion Cycle, is conducted. For analyzing capital structure of both the

organizations, we used Debt-to-Equity Ratio. The assessment of cost of capital is done on the

premise of Weighted Average Cost of Capital (WACC). All the ratios in the report are figured

for period of five years from 2011 to 2015.

Introduction: Gol Linhas Aereas Inteligentes S.A. and Navigator Holdings Ltd.

GOL Linhas Aereas Inteligentes S.A. what's more, Navigator Holdings Ltd., both have a

place with the transportation business. GOL handling the airlines and cargo administrations

while Navigator Holdings Ltd. gives transportation of Gasses through ships.

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With regards to aircraft benefits amongst Brazil and South America, Gol is a major name

and is renowned for its modest and moderate services for air transportation. Through their

procedure, organization services have effectively pulled in numerous customers. The

organization is summoning around 800 flights/day covering 65 drop focuses. In addition,

organization is notwithstanding wanting to embed new advancements into their schedule that

will help administration to decrease expanses. Keeping this thing in objective, they are

additionally adherent of security importance and best administration (Gol, 2016).

In four divisions of GOL, initial one is GOL itself that’s for passengers’ transportation

via air, while 2nd area is client loyalty program where client acquires a few miles (points) on

some condition and get rewards. Third one is Gollog that utilizes air transportation however for

cargo services rather than passengers. It is likewise attempting to enhance business by keeping

low price with high quality services. Last one is Voe Facil that is somewhat credit or debit card

from GOL (Gol, 2016).

Navigator Holdings Ltd holds the business of Gas transportation as a primary capacity.

They are in the pioneer of melted or liquefied Gas transportation. They have delegated a decent

specialized technical group, which guarantees the quality administration and services in

transportation of Gas to gain the trust of their clients. Beginning from 20 th century, they began

providing facility of LPG, petrochemical, ammonia etc and also Gasses exchanges for different

energy organizations (Reuters, 2016).

Their fundamental concentration is to give Gas transportation via ship by advancing their

vessels since their start-up. They have few undertakings arranged for expanding their business in

future and also planning to present more vessels and different facilities for clients. Their stock

cost is around $7-$8 (Navigator Gas, 2016).

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Financial Performance Analysis:

The examination of budgetary arrangements or financial plans and estimation of the

performance of Gol Linhas Aereas Inteligentes S.A. what's more, Navigator Holdings Ltd. is

executed with the assistance of taking after performance ratios: (Mayo, 2015)

1. Operating Profit Margin

2. Net Profit Margin

3. Return on Assets

4. Return on Equity

5. Return of Investment

In the financial report, the financial ratios of GOL Linhas Aereas Inteligentes S.A. are

ascertained over the time of five years to analyze trend and in the meantime ratios of Navigator

Holdings Ltd. are computed to look at the execution and performance comparisons. Henceforth,

the both time arrangement and cross-sectional investigation of ratios are given due consideration.

 Operating Profit Margin

Operating margin is a margin ratio used to quantify an organization's evaluating system,

pricing strategy and operating proficiency. Operating margin is an estimation of what extent of

an organization's income is left over subsequent to paying for variable costs of production, for

example, wages, raw materials, and so forth. It can be computed by dividing an organization's

operating income (otherwise called "operating profit") amid a given period by its net sales during

a similar period. "Operating income" here refers to the benefit that an organization holds in the

wake of expelling operating expenses, (for example, cost of goods sold and wages) and

depreciation. "Net sales" here alludes to the aggregate estimation of sales less the estimation of
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returned products, stipends for harmed and missing merchandise, and markdown sales. It is part

of income which is available to pay non-operating costs.

Operating Profit
Operating Profit Margin= (Graham & Smart, 2012)
Net Sales

The following chart depicts the Operating profit margin of Gol Linhas Aereas Inteligentes S.A.

and Navigator Holdings Ltd. for the period of five years from 2011-2015.

Operating Profit Margin

0.50

0.40

0.30

0.20

0.10

0.00
2011 2012 2013 2014 2015
-0.10

-0.20

Operating Profit Margin of Navigator Holdings Ltd.

Operating Profit Margin of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The operating profit margin of Gol Linhas Aereas Inteligentes S.A. has been conflicting over

the time of five years from 2011 to 2015. In 2011, GOL's operating profit margins was - 0.03

which diminished to - 0.11 in 2012 and expanded in the next years. Meanwhile it was 0.03 in

2013 and 0.05 in 2014 and diminished to - 0.02 in 2015. The operating overall revenue of

Navigator Holdings Ltd. has exhibited expanding pattern over the time of five years from 2011

to 2015. In 2011, Navigator Holdings Ltd's. Operating profit margin was 0.24 and it expanded to

0.27 in 2012 and further expanded in the next years which were 0.29 in 2013 and 0.38 in 2014.
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At that point, again in 2015, it expanded to 0.41. The negative operating benefit of GOL speaks

to the inadequate administration of the organization's operating expenses. The expanding pattern

of Navigator Holdings Ltd. shows the successful operating costs control as the noteworthy extent

surplus incomes subsequent to deducting variable or operating costs is accessible with the

organization.

 Net Profit Margin

Net profit margin is the piece of performance ratios as it shows the percentage of net income in

the total income. To figure net profit margin, discover the organization's income, which

comprises of all sales, fees or other cash the business has gathered through the period. To

discover profits, subtract operating expenses, cost of goods sold (COGS), interest and taxes from

income. On the off chance that the business pays stock dividends, additionally subtract those

installments from income when figuring profit, yet don't consider normal stock dividends. It is

the piece of income which is disseminated to shareholders as profit. High net profit margin

reflects legitimate cost administration and fitting estimating approach of the organization.

Net Profit
Net Profit Margin= (Graham & Smart, 2012)
Net Sales

The following chart depicts the Net profit margin of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.
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Net Profit Margin

0.40
0.30
0.20
0.10
0.00
2011 2012 2013 2014 2015
-0.10
-0.20
-0.30
-0.40
-0.50

Net Profit Margin of Navigator Holdings Ltd.

Net Profit Margin of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The net profit margin of Gol Linhas Aereas Inteligentes S.A. has been conflicting over the time

of five years from 2011 to 2015. In 2011, GOL's net profit margin was - 0.10 which diminished

to - 0.19 in 2012. In 2013, it expanded marginally up to - 0.09 than diminished to - 0.12 in 2014

and so on it diminished definitely up to - 0.46 in 2015. The net profit margin of Navigator

Holdings Ltd. is vastly improved than GOL as it has positive qualities. It has exhibited

expanding pattern with the exception of in the year 2013. In 2011 and 2012, Navigator Holdings

Ltd's. Net profit margin was 0.21 which diminished to 0.17 in 2013 than expanded in the next

years which was 0.28 in 2014 and 0.31 in 2015. Contrasting the net profit margin of Gol Linhas

Aereas Inteligentes S.A. what's more, Navigator Holdings Ltd., obviously because of viable

general costs control, i.e. operating and non-operating, the huge extent of surplus incomes are

accessible for shareholders with Navigator Holdings Ltd. what's more, because of inadequate
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general costs control, no surplus incomes are accessible for shareholders with Gol Linhas Aereas

Inteligentes S.A.

 Return on Assets

Return on assets (ROA) is a part of performance ratio reflecting how profitable an organization

is in respect to its aggregate resources. ROA gives a thought with respect to how productive

administration is at utilizing its assets to generate income. Ascertained by dividing an

organization's yearly profit by its total assets, ROA is shown as a percentage. Some of the time

this is alluded to as "return on investment".

Net Income
Return on Assets= (Graham & Smart, 2012)
Total Assets

The following chart depicts the Return on assets of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.

Return on Assets
0.10

0.00
2011 2012 2013 2014 2015
-0.10

-0.20

-0.30

-0.40

-0.50

Return on Assets of Navigator Holdings Ltd.

Return on Assets of Gol Linhas Aereas Inteligentes S.A.

Interpretation:
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The return on assets (ROA) of Gol Linhas Aereas Inteligentes S.A. has been inconsistent over

the time of five years from 2011 to 2015. In 2011, GOL's ROA was - 0.07 which diminished to -

0.17 in 2012 and it expanded up to - 0.07 in 2013. Again it diminished to - 0.12 in 2014 and

diminished radically up to - 0.43 in 2015. The ROA of Navigator Holdings Ltd. is vastly

improved than GOL as it has positive qualities and has expanded over the timeframe. As regard

to Navigator Holdings Ltd's. ROA was 0.04 in 2011 & 12.It diminished marginally up to 0.03 in

2013 than expanded in the next years that was 0.06 in 2014 and in 2015. Looking at the ROA of

Gol Linhas Aereas Inteligentes S.A. also, Navigator Holdings Ltd., undoubtedly the ROA of

Navigator Holdings Ltd. is more noteworthy than the ROA of GOL. This shows the

administration group Navigator Holdings Ltd. is more productive than the administration group

of GOL in using organization's assets to create incomes and profits.

 Return on Equity

Return on equity (ROE) is a performance ratio that reflects the amount of net income returned as

a percentage of shareholders equity. Return on equity measures a corporation's profitability by

revealing how much profit a company generates with the money shareholders have invested.

ROE is expressed as a percentage and calculated as

Net Income
Return on Equity= (Graham & Smart, 2012)
Sharholder s' Equity

The following chart depicts the Return on equity of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.
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Return on Equity
3.00

2.00

1.00

0.00
2011 2012 2013 2014 2015
-1.00

-2.00

-3.00

Return on Equity of Navigator Holdings Ltd.

Return on Equity of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The return on equity (ROE) of Gol Linhas Aereas Inteligentes S.A. has been inconsistent

over the time of five years from 2011 to 2015. In 2011, GOL's ROE was - 0.34 which diminished

to - 2.06 in 2012 and then expanded marginally up to - 1.22 in 2013. It additionally enhanced up

to 2.41 in the year 2014 and on the other hand in 2015, it diminished to 0.98. The ROE of

Navigator Holdings Ltd. is vastly improved than GOL as it has positive qualities and has

expanded over the timeframe with the exception of in the year 2013. In 2011, Navigator

Holdings Ltd's. ROE was 0.05 and the same in 2012 was 0.07 and then diminished marginally up

to 0.06 in 2013. It expanded in the next years to 0.10 in 2014 and 0.11 in 2015. Looking at the

ROE of Gol Linhas Aereas Inteligentes S.A. also, Navigator Holdings Ltd., obviously the ROE

of Navigator Holdings Ltd. is more prominent than the ROE of GOL. This demonstrates

Navigator Holdings Ltd. uses shareholders' equity all the more effectively contrasts with GOL.
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 Return on Investment

A performance measure used to evaluate the efficiency of an investment or to compare the

efficiency of a number of different investments. ROI measures the amount of return on an

investment relative to the investment’s cost. It evaluates the efficiency with which the

invested capital is used by the company’s management.

The return on investment formula:

Net Income
Return on Investment=
Total Invested Capital(Long−Term Debt + Equity)

(Graham & Smart, 2012)

The following chart depicts the Return on investment of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.

Return on Investment
0.50

0.00
2011 2012 2013 2014 2015
-0.50

-1.00

-1.50

-2.00

-2.50

-3.00

Return on Investment of Navigator Holdings Ltd.

Return on Investment of Gol Linhas Aereas Inteligentes S.A.

Interpretation:
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The return on investment (ROI) of Gol Linhas Aereas Inteligentes S.A. has been inconsistent

over the time of five years from 2011 to 2015. In 2011, GOL's ROI was - 0.12. It diminished to -

0.30 in 2012 than expanded marginally up to - 0.17 in 2013 and then further diminished up to -

0.22 in 2014. On the other hand in 2015, it diminished radically to - 2.41. The ROI of Navigator

Holdings Ltd. is vastly improved than GOL as it has positive qualities. In addition, it has

expanded over the timeframe aside from in the year 2013. . In 2011 and 2012, Navigator

Holdings Ltd's. ROA was 0.04. It diminished marginally up to 0.03 in 2013. It expanded in the

next years. It was 0.07 in 2014 and in 2015. Looking at the ROI of Gol Linhas Aereas

Inteligentes S.A. furthermore, Navigator Holdings Ltd., obviously the ROI of Navigator

Holdings Ltd. is more prominent than the ROI of GOL. This demonstrates Navigator Holdings

Ltd. uses the aggregate contributed capital all the more effectively contrast with GOL.

Working Capital Management

Working capital management refers to a company's managerial accounting strategy

designed to monitor and utilize the two components of working capital, current

assets and current liabilities, to ensure the most financially efficient operation of the company.

The primary purpose of working capital management is to make sure the company always

maintains sufficient cash flow to meet its short-term operating costs and short-term debt

obligations. Working capital management is associated with current assets (short-term assets)

and current liabilities (short-term liabilities). Current assets include accounts receivables, bills

receivables, cash, inventory, stock, etc. Current liabilities include account payables, bills
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payables, accrued expenses, bank overdraft, etc. The main objective of working capital

management is determine the ability of business entity to continue day-to day business

operations and ability to meet short-term liabilities and operational expenses as and when they

arise. Working Capital is the tool to measure the excess of current assets over current liabilities.

Therefore,

Working Capital=Current Assets−Current Liabilities (Graham & Smart, 2012)

Working capital management is quite wide concept and includes the management of following

financial aspects:

 Inventory management

Stock management is connected with classifying stock (raw material, semi-completed goods

and completed goods) according to their need, esteem and volume. Besides, it helps in deciding

economic size of order, re-order point and a safety level of stock to maintain a strategic distance

from abundance and lack of stock and to control stock requesting and holding cost. Stock

management is additionally the act of supervising and controlling of amounts of completed items

available to be purchased. A business' stock is one of its real assets and speaks to an investment

that is tied up until the thing offers.

 Cash management

Cash management is the corporate procedure of gathering and overseeing cash, and in

addition utilizing it for (short-term) investing. It is a key component of guaranteeing an

organization's cash related solidness and solvency. Corporate treasurers or business

administrators are much of the time responsible for general money management and the related

responsibilities to stay solvent. It is the imperative organ of monetary planning and is identified
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with the way toward gathering, overseeing and dispensing the cash. It places critical accentuation

on liquidity to stay away from hazard connected with insolvency and guarantee the accessibility

of liquid cash to meet fleeting obligations.

 Account receivables and payables management

It is feasible for the organization to get by in short-term and to make progress in long-term by

deliberately dealing with its account receivables and account payables. Account receivables

develop out of credit offer of goods. The management account receivables empower the business

element to boost liquidity and lessen other related handling and administration costs. Account

payables rise on buying of goods on credit. The management of record payables is basic to profit

rebate advantages, to stay away from punishments and unfriendly effect on layaway rating of the

business in the market. Hence, it is informed to make collection with respect to account

receivables and installment of record payables on time.

The following chart depicts the working capital of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.

Working Capital
500.00
0.00
2011 2012 2013 2014 2015
-500.00
-1000.00
-1500.00
-2000.00
-2500.00
-3000.00
-3500.00

Working Capital of Navigator Holdings Ltd.

Working Capital of Gol Linhas Aereas Inteligentes S.A.
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Interpretation:

The working capital of Gol Linhas Aereas Inteligentes S.A. over the time of five years

from 2011 to 2015 is insufficient to meet costs of everyday business operations. In 2011, GOL's

working capital was - 458 (BRL in Million) and it was – 1974 in 2012. The condition enhanced,

to some degree, and the contrast between current assets and current liabilities of GOL in 2013

came to 119. The state of short-term finance decayed in the next years. It was - 1127 in 2014 and

- 3080 in 2015. The working capital of Navigation Holdings Ltd. is additionally conflicting over

the time of five years. In 2011, Navigation Holdings Ltd's. working capital was 19 (USD in

Million) which was expanded to 128 in 2012 and 137 in 2013. At that point, in 2014, it

diminished up to just 4 and then expanded marginally up to 33 in 2015. Contrasting the working

of Gol Linhas Aereas Inteligentes S.A. furthermore, Navigator Holdings Ltd., obviously the

short-term financial position of Navigator Holdings Ltd. is vastly improved the short-term

financial position of GOI, in this manner the organization can attempt its day by day business

operations easily and proficiently.

Important Working Capital Ratios

Working capital management of Gol Linhas Aereas Inteligentes S.A. and Navigator Holdings

Ltd. is analyzed on the basis of following ratios:

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1. Current Ratio

2. Quick Ratio

3. Cash Flow to Total Debt Ratio

4. Days’ Inventory

5. Days’ Receivable

6. Days’ payable

7. Cash Conversion Cycle

The working capital ratios of both companies are calculated and analyzed for the period of five

years starting from 2011 to 2015.

 Current Ratio

Current ratio is used to measure the ability of the company to meet short-term or current

liabilities with the help of its current assets. It is one of the important ratio to measure the

company’s liquidity position. The large proportion of current assets compared to current

liabilities guarantees the timely payment of future obligations.

Total Current Assets

Current Ratio= (Graham & Smart, 2012)
Total Current Liabilities

The following chart depicts the current ratio of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.
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Current Ratio
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2011 2012 2013 2014 2015

Current Ratio of Navigator Holdings Ltd.

Current Ratio of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The current ratio of Gol Linhas Aereas Inteligentes S.A. over the period of five years from 2011

to 2015 is quite low which represents the low level of company’s current assets to meet current

liabilities. The current ratio of 2:1 is considered to be ideal. In 2011, GOL’s current ratio was

0.87. In 2012, it decreased to 1.03. The condition improved, somewhat, and the current ratio of

GOL in 2013 reached to 1.03. The current ratio of GOL decreased drastically in the following

years. It was 0.71 in 2014 and 0.44 in 2015. The current ratio of Navigation Holdings Ltd. is also

inconsistent over the period of five years. In 2011, Navigation Holdings Ltd.’s current ratio was

2.58. It increased to 3.98 in 2012. It declined to 2.52 in 2013. Then, in 2014, it decreased up to

1.05. It increased marginally up to 1.36 in 2015. Comparing the current ratio of Gol Linhas

Aereas Inteligentes S.A. and Navigator Holdings Ltd., it is clear that Navigator Holdings Ltd.
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has sufficient amount of current assets and is more capable to meet current obligations and

expenses.

 Quick Ratio

Quick ratio is used to measure the ability of the company to meet short-term or current

liabilities with the help of its quick or most liquid assets. To get quick assets, the amount of

inventories is deducted from the total current assets. The large proportion of quick assets

compared to current liabilities indicates the better liquidity position of the company.

Total Current Assets−Inventories

Quick Ratio= (Graham & Smart, 2012)
Total Current Liabilities

The following chart depicts the quick ratio of Gol Linhas Aereas Inteligentes S.A. and Navigator

Holdings Ltd. for the period of five years from 2011-2015.

Quick Ratio
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2011 2012 2013 2014 2015

Quick Ratio of Navigator Holdings Ltd.

Quick Ratio of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The quick of Gol Linhas Aereas Inteligentes S.A. over the period of five years from 2011 to

2015 is quite low which represents the low level of company’s quick assets to meet current
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liabilities. The quick ratio of 1:1 is considered to be ideal. In 2011, GOL’s quick ratio was 0.83.

In 2012, it decreased to 0.48. The condition improved, somewhat, and the quick ratio of GOL in

2013 reached to 1. The quick ratio of GOL decreased drastically in the following years. It was

0.68 in 2014 and 0.41 in 2015. The quick ratio of Navigation Holdings Ltd. is also inconsistent

over the period of five years. In 2011, Navigation Holdings Ltd.’s quick ratio was 2.25. It

increased to 3.86 in 2012. It declined to 2.46 in 2013. Then, in 2014, it decreased up to 0.99. It

increased marginally up to 1.33 in 2015. Comparing the quick ratio of Gol Linhas Aereas

Inteligentes S.A. and Navigator Holdings Ltd., it is clear that Navigator Holdings Ltd. has

sufficient amount of quick assets and is more capable to meet current obligations and expenses.

 Cash Flow to Total Debt Ratio

Cash flow to total debt ratio is used to measure the ability of the company to provide

coverage to total debt with operating cash flow. Total debt includes short-term borrowings and

long-term debt. As the cash flow to total debt ratio increases, it indicates the higher ability of the

company to carry total debt.

Operating Cash Flow

Cash Flow ¿Total Debt Ratio= (Graham & Smart, 2012)
Total Debt

The following chart depicts the cash flow to total debt ratio of Gol Linhas Aereas Inteligentes

S.A. and Navigator Holdings Ltd. for the period of five years from 2011-2015.
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Cash Flow to Total Debt Ratio

0.50

0.40

0.30

0.20

0.10

0.00
2011 2012 2013 2014 2015
-0.10

Cash Flow to Total Debt Ratio of Navigator Holdings Ltd.

Cash Flow to Total Debt Ratio of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The cash flow to total debt ratio of Gol Linhas Aereas Inteligentes S.A. over the period of five

years from 2011 to 2015 is quite low which represents the inability of the company to carry total

debt. In 2011, GOL’s cash flow to total debt ratio was -0.07. In 2012, it increased to 0.02. It

increased further in the following years. It was 0.04 and 0.09 in 2013 and 2014 respectively. It

decreased drastically up to -0.04 in 2015. The cash flow to total debt ratio of Navigation

Holdings Ltd. is also inconsistent over the period of five years. In 2011, Navigation Holdings

Ltd.’s cash flow to total debt ratio was 0.43. It decreased to 0.14 in 2012. It further declined to

0.13 in 2013. It increased marginally in the following years and was 0.23 in 2014 and 2015.

Comparing the cash flow to total debt ratio of Gol Linhas Aereas Inteligentes S.A. and Navigator

Holdings Ltd., it is clear that Navigator Holdings Ltd. has more ability to provide coverage to

total debt with the help of its net operating cash flow.
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 Days’ Inventory

Day’s inventory is one of the efficiency ratios and part of the cash conversion cycle. It is

used to measure the time taken (number of days) by the company to convert its inventory into

sales. It indicates the company’s inventory holding period. The lower day’s inventory is

generally preferable.

Inventory
Day s' I nventory= ∗365 (Graham & Smart, 2012)
Cost of Goods Sold

The following chart depicts the days’ inventory of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.

Days' Inventory
40
35
30
25
20
15
10
5
0
2011 2012 2013 2014 2015

Days' Inventory of Navigator Holdings Ltd.

Days' Inventory of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The days’ inventory of Gol Linhas Aereas Inteligentes S.A. over the period of five years from

2011 to 2015 is quite low which represents the good efficiency of the company to convert

inventory into sales. In 2011, GOL’s days’ inventory was 10 days. In 2012, it decreased to 9

days. It decreased further in 2013 to 8 days. It increased in the following years. It was 9 days and
 23

11 in 2014 and 2015 respectively. The days’ inventory of Navigation Holdings Ltd. has

presented decreasing trend over the period of five years which indicates that the company is

working hard to improve its days’ inventory and trying to convert inventory into sales quickly. In

2011, Navigation Holdings Ltd.’s days’ inventor was 36 days. It decreased to 25 days in 2012. It

further declined to 19 days in 2013, 15 days in 2014 and 10 days in 2015. Comparing the days’

inventory of Gol Linhas Aereas Inteligentes S.A. and Navigator Holdings Ltd., it is clear that

Navigator Holdings Ltd. is making good efforts to improve its days’ inventory. The days’

inventory of GOL has been inconsistent during the period of five years, whereas the days’

inventory of Navigation Holdings Ltd. has decreased consistently.

 Days’ Receivables

Day’s receivables is one of the liquidity and efficiency ratios as well as also the important of

part of the cash conversion cycle. It is used to measure the time taken (number of days) by the

company to collect cash from its customer for its credit sales. The lower days’ receivables

indicates increase in liquidity and cash flows.

Account Receivables
Day s' Rece ivables= ∗365 (Graham & Smart, 2012)
Revenues

The following chart depicts the days’ receivables of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.
 24

Days' Reveivables
35

30

25

20

15

10

0
2011 2012 2013 2014 2015

Days' Reveivables of Navigator Holdings Ltd.

Days' Reveivables of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The days’ receivables of Gol Linhas Aereas Inteligentes S.A. over the period of five years from

2011 to 2015 has been low and inconsistent which represents that the good efficiency of the

company in collecting cash from its customers and maintaining the level of liquidity. In 2011,

GOL’s days’ receivables was 30 days. In 2012, it decreased to 23 days. It decreased further in

2013 to 8 days. It increased in the following years. It was 16 days and 19 in 2014 and 2015

respectively. The days’ receivables of Navigation Holdings Ltd. has also been inconsistent over

the period of five years. In 2011, Navigation Holdings Ltd.’s days’ receivables was 12 days. It

decreased to 10 days in 2012. It increased to 18 days in 2013. It decreased to 8 days in 2014, but

again increased to 22 days in 2015. Comparing the days’ receivables of Gol Linhas Aereas

Inteligentes S.A. and Navigator Holdings Ltd., it is clear that GOL collects cash from its

customers more quickly to keep its cash conversion cycle short.

 25

 Days’ Payables

Days’ payables is again the important part of cash conversion cycle. It is used to measure the

time taken (number of days) by the company to pay its suppliers. The lower days’ payables

indicates good working capital management, but for the purpose of liquidity and to shorten cash

conversion cycle, the higher days’ payables is opted for. However, the higher days’ payables

adversely affect the credit rating as it represents the inability of the company to make timely

payments to suppliers.

Account Payables
Day s' Payables= ∗365 (Graham & Smart, 2012)
Cost of Goods Sold

The following chart depicts the days’ payables of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.

Days' Payable
60

50

40

30

20

10

0
2011 2012 2013 2014 2015

Days' Payable of Navigator Holdings Ltd.

Days' Payable of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The days’ payables of Gol Linhas Aereas Inteligentes S.A. over the period of five years from

2011 to 2015 has been inconsistent and has increased gradually which represents that the
 26

company is making successful efforts to make its cash conversion cycle short. In 2011, GOL’s

days’ payables was 27 days. In 2012, it increased to 33 days. It decreased to 0 days in 2013 and

2014. It increased drastically up to 49 days in 2015. The days’ payables of Navigation Holdings

Ltd. has also been inconsistent over the period of five years. In 2011, Navigation Holdings Ltd.’s

days’ payables was 36 days. It increased to 41 days in 2012. It further increased to 44 days in

2013. It decreased to 18 days in 2014, but again increased to 36 days in 2015. Comparing the

days’ payables of Gol Linhas Aereas Inteligentes S.A. and Navigator Holdings Ltd., it is clear

that GOL delays greater in the payment to its suppliers to shorten its cash conversion cycle.

 Cash Conversion Cycle

Cash conversion cycle is one` of the efficiency ratio and is used to measure the company’s

efficiency to manage working capital. It assesses the time for which the cash of company is

locked up in working capital, mainly inventories and account receivables. The main components

of cash conversion cycle are days’ inventory, days’ receivables and days’ payables. The cash

conversion cycle is considered better, if it is short, i.e. inventories are sold and account

receivables are recovered quickly as well as account payables are delayed as long as possible.

Cash ConversionCycle=Day s' Inventory + Day s' Receivables−Day s' Payables (Graham

& Smart, 2012)

The following chart depicts the cash conversion cycle of Gol Linhas Aereas Inteligentes S.A. and

Navigator Holdings Ltd. for the period of five years from 2011-2015.
 27

Cash Conversion Cycle

30

25

20

15

10

0
2011 2012 2013 2014 2015

Cash Conversion Cycle of Navigator Holdings Ltd.

Cash Conversion Cycle of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The cash conversion cycle of Gol Linhas Aereas Inteligentes S.A. over the period of five

years from 2011 to 2015 has been low and inconsistent which represents that the cash of

company is locked up in working capital for short duration. In 2011, GOL’s cash conversion

cycle was 13 days. In 2012, it decreased to 0 days. It increased to 23 days in 2013 and 25 days in

2014. Then, it decreased to 0 days in 2015. The cash conversion cycle of Navigation Holdings

Ltd. has also been low and inconsistent over the period of five years. In 2011, Navigation

Holdings Ltd.’s cash conversion cycle was 12 days. It decreased to 0 days in 2012 and 2013. It

increased to 5 days in 2014, but again decreased to 0 days in 2015. Comparing the cash

conversion cycle of Gol Linhas Aereas Inteligentes S.A. and Navigator Holdings Ltd., it is clear

that the overall trend of cash conversion cycle of Navigator Holdings Ltd. over the period of five

years is better and able to keep its conversion cycle short more consistently compared to GOL.
 28

Analysis of Capital Structure

One of the important function of financial management is to determine the optimal capital

structure. The capital structure is the combination of various sources of funds used by the

company to finance business operations. It is basically associated with the raising long-term

finance. Different sources of funds used for capital are categorized in two classes:

1. Equity Capital: Equity capital includes common stocks, preferred stocks and retained

earnings.

2. Debt Capital: Debt Capital includes debentures, bonds, long-term notes payable as well

as short-term debt specially used for working capital.

The company having high proportion of equity in the capital structure incurs high cost of

capital, whereas the company having high proportion of debt in the capital structure poses high

risk for investors. Thus, it is necessary to analyze properly before deciding the proportion of debt

to get optimize capital structure. The proportion of debt to equity should be optimal in such a

way the debt helps to get benefit of tax as well as does not pose high amount of risk for

investors. Debt-to-Equity ratio is widely used to analyze the capital structure.

Debt
Debt−¿−Equity Ratio= (Graham & Smart, 2012)
Equity

The capital structure of Gol Linhas Aereas Inteligentes S.A. is composed of both Equity and

Debt. The total equity of company as on December 31, 2015 was -4,546 (BRL in Million). The

total debt of company was 14,915 (BRL in Million), which includes short-term debt of 5,542

(BRL in Million) and the long-term debt of 9,373 (BRL in Million) as on December 31, 2015. In

this way, the total capitalization of company was 10,368 (BRL in Million) as on December 31,

2015.
 29

The capital structure of Navigator Holdings Ltd. is also composed of both Equity and Debt.

The total equity of company as on December 31, 2015 was 910 (USD in Million). The total debt

of company was 661 (USD in Million), which includes short-term debt of 92 (USD in Million)

and the long-term debt of 568 (USD in Million) as on December 31, 2015. In this way, the total

capitalization of company was 1,571 (USD in Million) as on December 31, 2015.

The following chart depicts the debt-to-equity ratio of Gol Linhas Aereas Inteligentes S.A.

and Navigator Holdings Ltd. for the period of five years from 2011-2015.

Debt to Equity Ratio

20.00
15.00
10.00
5.00
0.00
2011 2012 2013 2014 2015
-5.00
-10.00
-15.00
-20.00
-25.00

Debt to Equity Ratio of Navigator Holdings Ltd.

Debt to Equity Ratio of Gol Linhas Aereas Inteligentes S.A.

Interpretation:

The debt-to-equity ratio of Gol Linhas Aereas Inteligentes S.A. over the period of five

years from 2011 to 2015 has been quite high and has increased gradually which represents that

the company is highly leveraged and poses high risk for its investors. In 2011, GOL’s debt-to-

equity ratio was 3.83. In 2012, it increased to 11.32 days. It increased further in the following

years and reached to 15.34 in 2013. In 2014 and 2015, the value of equity comes to negative and

the debt-to-equity ratio turns to -20.26 in 2014 and -3.28 in 2015. The debt-to-equity ratio of
 30

Navigation Holdings Ltd. has also been inconsistent over the period of five years, but it is much

better than the debt-to-equity ratio of GOL. In 2011, Navigation Holdings Ltd.’s debt-to-equity

ratio was 0.30. It increased to 0.86 days in 2012. It decreased marginally to 0.84 in 2013. It

decreased to 0.70 in 2014, but again increased to 0.73 in 2015. Comparing the debt-to-equity

ratio of Gol Linhas Aereas Inteligentes S.A. and Navigator Holdings Ltd., it is clear that the

capital structure of Navigation Holdings Ltd. is quite better as it has manageable level of debt

and equity in the capital structure.

Analysis of Cost of Capital

The cost of capital is one of the important factors, which is analyzed critically, while

making decisions regarding the capital structure of the company. The term cost of capital refers

to investor’s expected rate of return for supplying business finance. The cost of equity is the

dividend paid to the shareholders. Equity investors get return in form of dividend for undertaking

providing capital and undertaking risk. The cost of debt is the interest paid to the debt-holders.

The cost of equity is calculated by using the following formula:

Dividend (Earning Per Share)

Cost of Equity= (Graham & Smart, 2012)
Market value of Stock

The cost of debt is calculated by using the following formula:

Interest Expense−Tax
Cost of Debt= (Graham & Smart, 2012)
Amount of Debt

The average rate of return is calculated which the company is expected to pay for all means of

sources used by it for business finance, and it is known as a weighted average cost of capital

(WACC). It is calculated by using the following formula:

 31

Market Value of Equity Market Value of Debt

Weighted Average Cost of Capital= '
∗Cost of Equity+ ∗Cost of Deb
Total Fir m s Value Total Fir m' s Value

(Graham & Smart, 2012)

In 2015, Gol Linhas Aereas Inteligentes S.A. incurred net loss of 4,461 (BRL in Million).

Therefore, it has neither distributed dividend nor it has retained earnings. Therefore the weighted

average cost of capital of GOL for 2015 is composed of only cost of debt.

Hence,

GOL’s Cost of Debt (2105) = (886 -844) / 14,915 = 0.28%

The cost of equity of Navigator Holdings Ltd. as per Capital Asset Pricing Model (CAPM) is as

follows:

Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market -

Risk-Free Rate of Return)

Navigator Holdings Ltd.’s Cost of Equity = 1.79410000% + 1.28 * 7.5% = 11.3941%

Navigator Holdings Ltd.’s Cost of Debt = 28.085 / 586.5765 = 4.788%

Therefore,

Navigator Holdings Ltd.’s Weighted Average Cost of Capital

= (0.4043 * 11.3941%) + (0.5957* 4.788% * (1 - 0.915%))

= 7.43%
32
 33

Recommendations and Conclusion

The interpretation of performance ratios such as operating profit margin, net profit

margin, return on assets, return on equity and return on investment indicates the financial

performance of Navigator Holdings Ltd. is better than Gol Linhas Aereas Inteligentes S.A. The

management of Navigator Holdings Ltd. effectively make use of assets and investment to

increase business profits. In the period of five years, the net income of GOL has been fluctuating

significantly and has incurred net loss in couple of years. GOL is required to manage its

operating costs, non-operating costs, assets and investments effectively to improve these ratios.

While analyzing working capital, it has been observed that GOL’s does not have

sufficient amount of working capital to deal with day-to-day business operation. The

interpretation of various calculated working capital ratios such as current ratio, quick ratio and

cash flow to total debt ratio, reveals the ineffective management of working capital management

by GOL, and hence need work effectively in this area. On the other hand, Navigator Holdings

Ltd. has adequate working capital and its management is done properly. Days’ receivables, days’

payables, day’s inventory and cash conversion cycle of GOL and Navigator Holdings Ltd. are

better. Both companies make good efforts to shorten the locking period of cash in working

capital.

The debt-to-equity ratio calculated to get the overview of capital structure represents the

inefficiency of GOL’s capital structure and lack of sufficient equity to handle the amount of debt.

It is require to maintain appropriate debt-to-equity ratio to avoid the risk of liquidation. The debt-

to-equity ratio of Navigator Holdings Ltd. is comparatively much better, but still the level of debt

is somewhat high. The comparison of cost of capital of both companies is difficult as GOL has
 34

not declared dividend from the last few years, whereas WACC of Navigator Holdings Ltd. seems

to be quite high.
 35

References

Gol. (2016). GOL announces 1Q16 results. Retrieved on Oct 16, 2016 from

https://www.google.co.in/url?

sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0ahUKEwjJ4rLRodjPAhUJwI8KHW

4jCkAQFggmMAI&url=http%3A%2F%2Fri.voegol.com.br%2Fdownload_arquivos.asp

%3Fid_arquivo%3D2A4D65D2-21DB-40E5-BC1D-

08169B0C5DC8&usg=AFQjCNEAa_UMN8xHMddpwHply28mHj9z9A&sig2=O5auv

WpvUoO1t0dLQx1qTA&cad=rja

Gol. (2016). who we are. Retrieved on Oct 16, 2016 from http://www.voegol.com.br/en-us/a-

gol/quem-somos/marcas/paginas/default.aspx

Navigator Gas. (2016). Navigator Gas. Retrieved on Oct 16, 2016 from

http://www.navigatorgas.com/

Reuters. (2016). Navigator Holdings Ltd (NVGS.N). Retrieved on Oct 16 2016 from

http://www.reuters.com/finance/stocks/NVGS.N/key-developments

Graham, J., & Smart, S. B. (2012) Introduction to Corporate Finance: What Companies Do.

Mason: Cengage Learning.

Mayo, H. B. (2015). Basic Finance: An Introduction to Financial Institutions, Investments, and

Management. Boston: Cengage Learning.

 36

Appendix

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Operating Profit (BRL in Million) -245 -906 266 507 -180
Net Sales (BRL in Million) 7539 8104 8956 10066 9778
Operating Profit Margin -0.03 -0.11 0.03 0.05 -0.02

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Net Profit (BRL in Million) -752 -1513 -797 -1246 -4461
Net Sales (BRL in Million) 7539 8104 8956 10066 9778
Net Profit Margin -0.10 -0.19 -0.09 -0.12 -0.46

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Net Profit (BRL in Million) -752 -1513 -797 -1246 -4461
Total Assets (BRL in Million) 10655 9027 10638 9977 10368
Return on Assets -0.07 -0.17 -0.07 -0.12 -0.43

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Net Profit (BRL in Million) -752 -1513 -797 -1246 -4461
Equity (BRL in Million) 2206 733 651 -518 -4546
Return on Equity -0.34 -2.06 -1.22 2.41 0.98

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Net Profit (BRL in Million) -752 -1513 -797 -1246 -4461
Total Invested Capital (BRL in Million) 6296 4966 4685 5579 1851
Return on Equity -0.12 -0.30 -0.17 -0.22 -2.41

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Current Assets (BRL in Million) 3138 2088 3566 2986 2462
Current Liabilities (BRL in Million) 3596 4062 3447 4213 5542
Working Capital -458.00 -1974.00 119.00 -1227.00 -3080.00

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Current Assets (BRL in Million) 3138 2088 3566 2986 2462
Current Liabilities (BRL in Million) 3596 4062 3447 4213 5542
Current Ratio 0.87 0.51 1.03 0.71 0.44
 37

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Current Assets - Inventories (BRL in Million) 2987 1950 3449 2847 2263
Current Liabilities (BRL in Million) 3596 4062 3447 4213 5542
Quick Ratio 0.83 0.48 1.00 0.68 0.41

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Operating Cash Flow (BRL in Million) -603 133 404 969 -599
Total Debt (BRL in Million) 8499 8294 9988 10495 14915
Cash Flow to Total Debt Ratio -0.07 0.02 0.04 0.09 -0.04

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Inventory (BRL in Million) 151 138 117 139 199
Cost of Goods Sold (BRL in Million) 5513 5360 5395 5457 6736
Days' Inventory 10 9 8 9 11

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Accounts Receivables (BRL in Million) 610 506 377 434 521
Revenues (BRL in Million) 7539 8104 8956 10066 9778
Days' Reveivables 30 23 15 16 19

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Account Payables (BRL in Million) 415 480 0 0 901
Cost of Goods Sold (BRL in Million) 5513 5360 5395 5457 6736
Day's Inventory 27 33 0 0 49

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Account Payables (BRL in Million) 415 480 0 0 901
Cost of Goods Sold (BRL in Million) 5513 5360 5395 5457 6736
Day's Inventory 27 33 0 0 49

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Days' Inventory 10 9 8 9 11
Days' Reveivables 30 23 15 16 19
Days' Payable 27 33 0 0 49
Cash Conversion Cycle 13 0 23 25 0
 38

Gol Linhas Aereas Inteligentes S.A. 2011 2012 2013 2014 2015
Debt (BRL in Million) 8449 8294 9988 10495 14915
Equity (BRL in Million) 2206 733 651 -518 -4546
Debt to Equity Ratio 3.83 11.32 15.34 -20.26 -3.28

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Operating Profit (USD in Million) 21 40 70 115 129
Net Sales (USD in Million) 89 147 238 305 315
Operating Profit Margin 0.24 0.27 0.29 0.38 0.41

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Net Profit (USD in Million) 19 31 41 84 98
Net Sales (USD in Million) 89 147 238 305 315
Net Profit Margin 0.21 0.21 0.17 0.28 0.31

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Net Profit (USD in Million) 19 31 41 84 98
Total Assets (USD in Million) 451 832 1325 1370 1571
Return on Assets 0.04 0.04 0.03 0.06 0.06

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Net Profit (USD in Million) 19 31 41 84 98
Equity (USD in Million) 347 448 721 806 910
Return on Equity 0.05 0.07 0.06 0.10 0.11

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Net Profit (USD in Million) 19 31 41 84 98
Total Invested Capital (USD in Million) 439 789 1236 1291 1478
Return on Equity 0.04 0.04 0.03 0.07 0.07

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Current Assets (USD in Million) 31 171 227 84 125
Current Liabilities (USD in Million) 12 43 90 80 92
Working Capital 19.00 128.00 137.00 4.00 33.00
 39

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Current Assets (USD in Million) 31 171 227 84 125
Current Liabilities (USD in Million) 12 43 90 80 92
Current Ratio 2.58 3.98 2.52 1.05 1.36

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Current Assets - Inventories (USD in Million) 27 166 221 79 122
Current Liabilities (USD in Million) 12 43 90 80 92
Quick Ratio 2.25 3.86 2.46 0.99 1.33

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Operating Cash Flow (USD in Million) 45 55 79 130 150
Total Debt (USD in Million) 104 384 605 565 661
Cash Flow to Total Debt Ratio 0.43 0.14 0.13 0.23 0.23

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Inventory (USD in Million) 4 5 6 5 3
Cost of Goods Sold (USD in Million) 41 72 116 124 113
Days' Inventory 36 25 19 15 10

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Accounts Receivables (USD in Million) 3 4 12 7 19
Revenues (USD in Million) 89 147 238 305 315
Days' Reveivables 12 10 18 8 22

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Account Payables (USD in Million) 4 8 14 6 11
Cost of Goods Sold (USD in Million) 41 72 116 124 113
Day's Inventory 36 41 44 18 36

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Days' Inventory 36 25 19 15 10
Days' Reveivables 12 10 18 8 22
Days' Payable 36 41 44 18 36
Cash Conversion Cycle 12 0 0 5 0
 40

Navigator Holdings Ltd. 2011 2012 2013 2014 2015

Debt (USD in Million) 104 384 605 565 661
Equity (USD in Million) 347 448 721 806 910
Debt to Equity Ratio 0.30 0.86 0.84 0.70 0.73