Describe about the Financial Performance Analysis of Qantas Airlines and Virgin Airways?
Profitability Ratios - The profitability of a company can be determined by the following ratios which includes the gross profit margin , net profit margin , return on assets and return on equity.
The profitability ratios determine the positive and negative trends in the earnings of the organization. If the profit margin of the company is positive, it will be reflected by the gross profit margin and the net profit margin. The rise in the profitability of the organization will determine the growth of the organization which is essential to drive the share price.
Gross Profit margin – The gross profit margin of Qantas Airways has declined from 2013 to 2014. There has been drop in the revenue of the organization due to rise in the fuel charges.
On the other hand it is seen that the gross profit margin of Virgin Australia airways is negative. The company is suffering from huge loss. The rise in the fuel charges has affected the profit margin.
Net Profit margin - The Net profit of Qantas airways has declined from 2013 to 2014. This is due to the rise in the fuel costs. 2014 was the culmination period for Qantas airways.
The net profit margin of Virgin Australia Airways has declined from 2013. This is due to loss of the company.
Return on assets – Qantas Airways and Virgin Australia Airways has declined from the period 2013 to 2014. This is due to the fall in the income of the both the companies from 2013 to 2014.t The rise in the fuel charges has resulted in the fall of the income of both the companies.
Return on equity – In 2014, the equity share holder of both the airline has experienced negative returns. For Qantas Airways the return of the equity share holders in the year 2013 was nil but in 2014, the trend of the return was negative (Vandyck, 2006).
Efficiency Ratios - The asset turnover ratio for Qantas Airways has been 90% in the year 2014 and it was 80% in the year 2013. It shows that the company has been using its assets efficiently.
The asset turnover ratio for Virgin Australia Airways is has been 94% for the year 2014 and 90% for the year 2013. This shows that the company has been utilizing its assets efficiently to generate sales (Tracy, 2012).
Liquidity Ratios – The liquidity ratio shows the ability of the company to utilize its current assets and liabilities in an efficient manner. The ideal current ratio is considered to be 2:1. But it is seen that the current ratio of the company is less than 2:1. The company is not using its current liabilities in an efficient manner. The ideal quick ratio is 1:1. But the quick ratio of 2014 and 2013 shows that the company is not managing its current assets efficiently.
The current ratio for Virgin Australia Airways shows that the company is not using its current assets and quick assets in an efficient manner. They must manage the current liabilities efficiently and manage the current assets in an efficient manner (Peterson Drake & Fabozzi, 2006).
Capital Structure Ratios: The debt to equity ratio of Qantas Airways and Virgin Australia Airways shows that the companies are highly debted companies. The liabilities of the company has been increasing every year. The debt component of both the companies has increased from 2013 to 2014.
Market Performance Ratios – The price earnings ratio of Qantas Airways has been positive for 2013 but the return of the shareholders has been negative in the year 2014. As the company is making loss, the share price has declined.
The price earnings ratio of Virgin Australia Airways has been negative. This means that the investors have been receiving negative return from investments. As the companies are making loss, the investors’ confidence has declined (Desai et al., n.d.).
Overall Assessment of the Financial Performance
The financial performance of Qantas Airways and Virgin Australia Airways has been done using the profitability ratios, Efficiency ratios, capital structure ratios and market performance ratios. The ratio analysis shows that the performance of the companies has been declining from 2013 to 2014. The company has suffered from huge loss. The loss is mostly due to the rise of the fuel charges.
Conclusion
The financial performance analysis of Qantas Airways and Virgin Australia Airways has been done. It shows that the company has been suffering from huge loss. The fuel charges have increases exceedingly. The low cost airlines are in high debt.
References
Desai, R., Palepu, K., Gibson, C., Healy, P., Bernard, V., & Wright, S. et al. Analysis of financial statement information.
Peterson Drake, P., & Fabozzi, F. (2006). Analysis of financial statements. Hoboken, N.J.: Wiley.
Qantas.com.au,. (2015). Flights to Australia | Australia travel | Qantas. Retrieved 6 February 2015, from https://www.qantas.com.au/travel/airlines/home/in/en
Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to ... (pp. 6-50).
Vandyck, C. (2006). Financial Ratio Analysis: A Handy Guidebook (pp. 1-100).
Virgin Australia,. (2015). Virgin Australia | Book flights & holidays with Virgin Australia. Retrieved 6 February 2015, from https://www.virginaustralia.com/au/en/
