Long-Term (Fixed) Assets

On average, for the past four fiscal years, Frontier Airlines fixed assets accounts for about 51.16% of its total assets, which means that the company is focused on investing long-term. This focus is long-term oriented on their future initiatives for Frontier customers. The fiscal Year 2018 was the year Frontier fluctuated, but the company has stayed above 60% in long-term assets.

Frontier leases a majority of its airplanes both domestically and internationally. They do so based on varying demand for air travel and advancing Frontier's structural advantage in fuel and operating expenses efficiency versus the industry. As a result, Frontier is focused on returning the airline to full utilization while remaining flexible to address the future unpredictability of pandemics on airline bookings.

On average, Frontier Airlines PPE Turnover has been about 5.30 for the past five fiscal years. The company receives about $5.30 of sales for every dollar invested in property, plant, and equipment.

Fixed assets are depreciated using the straight-line method over the deemed "useful life" of the investment. According to the company's 2021 10-K, Frontier experienced heavy maintenance activity as a result of the decrease in capacity and the replacement of older aircraft in their new fleet of new planes, which did not require as much heavy maintenance early in their life cycles as well as a reduction in spending on non-heavy maintenance capital that was offset by a higher total gross capital. Competitors in the industry typically have resembled methods of straight-line depreciation.

Working Capital Accounts

Receivables:

Over the past four fiscal years, Frontier Airlines has maintained a relatively low account receivable as a percent of total assets, which is the proportion of money owed to the company from previously provided services. ULCC average for the past four years is 1.61% which means that there is only a minuscule percent of money/assets that the company is awaiting payment for. As seen in the figure above, there is a slight decrease in Fiscal Years 2020 and 2021, which can be attributed to Covid and the company's re-shaping.

Days Sales Outstanding (DSO) measures the average amount of days it takes Frontier to collect payments and clear up its accounts receivables. On average, for the past four fiscal years, Frontier Airlines has collected payments in about 22.93 days which is relatively short-term and efficient as they do not let accounts stay unpaid for more than a month. Over the four years, DSO has fluctuated slightly and increased drastically in FY2020, contributing to COVID and times of economic uncertainty.

Inventories:

For airline companies such as Frontier Airlines, the cost method comes down to areas such as fuel. ULCC and its leading competitors use the FIFO for inventory, such as fuel. Although the average costing method helps to inflate Frontier's gross profit due to the decrease in average fuel price in the past four fiscal years, Frontier believes maintaining the average costing method is a better choice from a long-term perspective since fuel price fluctuates frequently. In addition, the frontier method of FIFO uses less allowance for obsolescence to account for inventories charged to expense when dispensed.

On average, Frontier Airlines keeps a low amount of inventory on hand, such as fuel, with only about 0.73% of total assets over the past four fiscal years. However, as seen in the figure above, the company has reduced the amount of inventory since FY2018, and in FY 2019 and 2020, the planes were grounded from the pandemic.

Inventory turnover is the number of days that it takes a company to sell through its entire inventory. On average, over the past four fiscal years, Frontier Airlines has had an inventory turnover of 4.15 days which is extremely low. This is because the company has a small percentage of inventory as total assets, most of which is fuel for the planes. The turnover is so fast because planes fuel and re-fuel upon departing and arrival.

Payables:

Days Payable Outstanding (DPO) determines how long it takes a company to pay back its debts to suppliers. For example, Frontier Airlines has had an average DPO of 13.50 days over the past four fiscal years, which means it takes less than two weeks for the company to pay its suppliers. This amount has been consistent; besides, during the pandemic, it took a little longer, which may have been due to the disruption in supply chains for fuel and payment delays. A lower DPO for Frontier means the company has a good relationship with its supplier and is seen as trustworthy, which leads to solid business relationships in times of need.

Cash Collection Cycle (CCC):

The Cash Conversion Cycle (CCC) measures the days a company takes to convert cash into inventory and then back into cash after the inventory is sold. It is calculated by taking Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding. Over the past four years, Frontier Airlines has had an average Cash Conversion Cycle of 13.58 days, meaning it takes the company about two weeks to complete one cycle. As seen in the figure above, Frontier Airlines had a CCC of 50.74 days during the pandemic, which the pandemic and all the factors can explain held constant. Overall, this fast cycle turnover is an excellent sign because it indicates efficient business operating measures and shows the company can quickly convert its inventory to cash and pay off its debt faster.

Liquidity

The liquidity ratios calculated above are crucial because they indicate how quickly Frontier Airlines can turn assets into cash and its ability to pay off short-term obligations. The current ratio measures a company's ability to pay off its current liabilities using its current assets. For example, Frontier Airlines (ULCC) has had an average current ratio of 0.955 over the past four fiscal years, meaning that for every $1 of liabilities, the company has $0.95 in assets to cover it. This could be better because their current liabilities are more significant than their current assets. However, Frontier can cover most of its short-term obligations. As seen in the figure above, the current ratio for Frontier Airlines has fluctuated throughout the four fiscal years and had a sharp increase from FY2020 to 2021 due to the pandemic, which caused companies to increase the amount of cash they kept on hand.

The cash ratio measures the ratio of a company's cash to its current liabilities and the ability to pay off short-term debts with cash and cash equivalents. Over the past four fiscal years, Frontier Airlines had an average cash ratio of 0.645, meaning that for every $1 in current liabilities, the company has $0.64 in cash to cover it. This is unrealistic because anything below one indicates that the company needs more money and equivalents to pay off its short-term liabilities. This could also be a result of Frontier being heavily focused on their long-term assets to cover their debts which, as they saw in the pandemic, is very difficult when they need cash fast. The pandemic could explain the increase in cash ratio in FY 2021 and the increase in money they kept on hand.

Days Cash on Hand measures how many days a company takes to pay off its expenses with the money they have on hand. Over the past four fiscal years, Frontier Airlines had an average Days Cash on Hand ratio of 579.93 days. This means it takes the company over a year and a half to pay off its expenses with the cash they have on hand. This puts the company in lousy standing because it takes them too long, so they can't prepare for unexpected circumstance. Frontier dramatically increased its day's cash on hand during the pandemic, like many other companies.