what is your estimate of the growth rate for American Airlines?

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1. There are three ways to estimate growth rates for earnings, revenues, and dividends. These include (1) the growth rate of the firm’s past (operating) earnings, (2) obtain the information from analysts, and (3) estimate the rates from the firm’s fundamentals. Using each of these methods, what is your estimate of the growth rate for American Airlines?

2.Analysts normally must calculate a terminal value of a firm when preparing a discounted cash flow valuation. There are three ways to prepare this estimate, which include (1) assuming a liquidation value of the firm’s assets in the terminal year, (2) applying a multiple to earnings, revenues or book value, and (3) assuming the free cash flows will grow at a constant rate forever (a stable growth rate). Using each of these methods, what is your estimate of the terminal value for American Airlines?

Solution Preview

American Airline’s performance is always varying as observed from four years ago. The financial statements show the organizational ability to deal with challenges which affect their records. The best way to estimate the growth and development of a company is by taking through three main figures which include revenues, earnings as well as dividends. The operating earnings include all the funds invested in the business over a certain period of time covering different departments. The operating income varies depending on the kind of expenses required each financial year as the operations are never the same at a certain interval. American Airlines occur to be the largest in the industry with rising earnings per share in every annual analysis. The figures are also expected to rise from 2017 to 2018 from $5.50 to $ 6.50 (CNBC, 2018).

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