What is Revenue Per Available Seat Mile ?

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Revenue per available seat mile (RASM) is a unit of measurement commonly used to compare the efficiency of various airlines. It is obtained by dividing operating income by available seat miles (ASM). Generally, the higher the RASM, the more profitable the airline under question. Revenue is represented in cents and is not solely limited to ticket sales, as other factors of efficiency and profitability are taken into account.

Definition

Revenue per Available Seat Mile (RASM) is a metric used to measure the efficiency of airlines. It is calculated by dividing operating revenue by available seat miles (ASM). A higher RASM generally indicates a more profitable airline. Revenue is expressed in cents and includes ticket sales as well as other income sources.

Origin

The concept of RASM originated from the need within the airline industry to better assess and compare the operational efficiency of different airlines. As the industry globalized and competition intensified, RASM became a crucial financial metric.

Categories and Features

RASM can be broken down into different revenue sources, such as passenger revenue, cargo revenue, and other ancillary income. Its features include providing a comprehensive reflection of an airline's overall profitability and operational efficiency. High RASM typically indicates strong performance in pricing, route selection, and cost management.

Case Studies

For instance, Delta Air Lines reported an increase in RASM in a particular quarter, primarily due to successful pricing strategies and route optimization. Another example is American Airlines, which significantly boosted its RASM by enhancing customer service and increasing ancillary service revenue.

Common Issues

Investors often misunderstand RASM as being solely related to ticket revenue, overlooking the impact of other income sources. Additionally, a high RASM does not always equate to strong profitability, as it does not account for cost factors.

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Liquidity risk refers to the potential difficulty an entity may face in meeting its short-term financial obligations due to an inability to convert assets into cash without incurring a substantial loss. This risk is inherent in both financial institutions and corporations, significantly impacting their operational and financial stability.Liquidity risk is often characterized by two main aspects: market liquidity risk and funding liquidity risk. Market liquidity risk is associated with an entity's inability to execute transactions at prevailing market prices due to insufficient market depth or disruptions. On the other hand, funding liquidity risk pertains to the inability to obtain sufficient funding to meet financial obligations.Liquidity risk is not confined to any particular sector, as it is an important consideration across banks, financial institutions, corporations, and even some individual investors. For banks and financial institutions, liquidity risk management is underscored by regulatory frameworks that mandate certain liquidity standards to ensure financial stability and protect depositor interests. Corporations, too, need to be vigilant in managing liquidity risk to ensure they have adequate cash or credit lines to meet their operational and financial commitments. The ability to manage liquidity risk is essential for ensuring it has enough cash on hand to meet its short term needs and obligations.

Zero-Proof Bookkeeping

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Zero-Proof Bookkeeping

Zero-proof bookkeeping is a manual bookkeeping procedure used in accounting in which posted entries are systematically subtracted from an ending balance to check for errors. In zero-proof bookkeeping, a balance of zero when all entries have been subtracted is proof that the accounting entries have been entered correctly. In this way, this practice is quite similar to keeping a balance sheet, which is a common financial statement issued by firms that balances assets with liabilities and shareholder's equity - such that subtracting the left side from the right side of the balance sheet results in a sum of zero.Zero-proof bookkeeping is employed as part of a double-entry bookkeeping system, where credits (liabilities) and debits (assets) are kept track of simultaneously.

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Equity Multiplier

The term equity multiplier refers to a risk indicator that measures the portion of a company’s assets that is financed by shareholders' equity rather than by debt. The equity multiplier is calculated by dividing a company's total asset value by the total equity held in the company's stock. A high equity multiplier indicates that a company is using a high amount of debt to finance its assets. A low equity multiplier means that the company has less reliance on debt. The equity multiplier is also known as the leverage ratio or financial leverage ratio and is one of three ratios used in the DuPont analysis.