Financial Statement Analysis Of Flight Centre Travel Group Limited Essay.

1. Identify significant (or change in) accounting policies in preparation of the statement/ relevant notes to the financial statement should be taken into consideration (i.e.revenue recognition…)

2. Identify trends and items that might be different from the industry norm 

Industry Situation and Company Plans

Flight Centre Travel Group Limited is one of the largest travel groups in the world. The group was started in Australia where its current headquarters are. The group home office is in Brisbane Australia (About Us, n.d). The company started as a small travel agency which has grown over the years into this well-recognized travel group. Currently, the company operates in over twenty-three countries worldwide with its main geographic activities being in six main regions. These regions include Europe, South Africa, the United States, Asia, Middle East and New Zealand. Even with such wide market coverage, the company's main activity has remained the provision of travel services with its main brands being leisure, corporate and wholesale travels.

Currently, the company is fairing on well financially with its stock price standing at $A 48.060 as at 7^th September 2017. On the same date, the dividend per share was $A 1.39 (Sydney Morning, n.d). These two values are relatively high compared to those of other players in this industry. This excellent performance has been achieved under the leadership of the group chief executive officer, Mr. Graham Turner. The company’s annual performance can be seen in details in its annual reports which are published at the end of the group’s fiscal year.

The group fiscal year ends on 30^th June of every year. This means that the latest fiscal year date was 30^th June 2016. At the end of every fiscal year, the group normally publishes its audited financial statements for the public viewing. The current external auditors for the group are Ernst and Young audit firm also based in Brisbane Australia. The work of the external auditors is to give an independent opinion on the group's financial statement. According to the external auditor's opinion on the 30^th June 2016 annual report, Flight Centre Travel Group financial statements have been prepared and presented in accordance with the Corporation Act 2001 (Annual Reports, 2016). The external auditors have also stated that the preparation and presentation of the group’s financial statements have complied with the International Financial Reporting Standards (IFRS). Last but not least, the external auditors have also given reasonable assurance that the financial statements for the year ended 30^th June 2016 present a true and fair view of the group operations and position.

Flight Centre travel group limited operates in the travel agencies industry. This is a very dynamic industry characterized by massive competition. Technological changes are a major influencer in this market. This is because of the opportunities that are driven by technological innovation. With the increased use of technology in this sector, new business ideas and strategies have been developed by the various players in this industry. These technologically driven ideas have seen the growth of these companies and increased revenue generation. Therefore in the travel agencies industry adaptability to new technological changes is the key to staying ahead of your competitors in the market.

Financial Statement Analysis

Another recent trend in this industry is the consumers’ experiences. The entire global industry is changing very fast to ensure the consumer experience is nothing but excellent. This has seen a shift in the way different companies in this industry sell and serve their different traveling brands. The main common strategy taken by most players in this industry is the travel merchandising. Several partnerships have been formed and customer relationship improved to ensure that the consumer has a say in their travel experience. This has the different companies in the industry to offer better services to consumers leading to increased consumer satisfaction. Another way this trend has been actualized is by the turning of the different travel agencies services into brands.

Flight Centre travel group is no exception to the current industry trends and has, therefore, come up with a number of future plans to enable it to stay on top of the industry. These plans are meant to help the company become more competitive and gain more market share. The company number one future goal is to increase its marketing team by averagely 7%. This will result in an increase in its workforce to approximately 20,000 people (Annual Report, 2015). As a result of the increased sales team, the company believes that its brand awareness will increase globally translating into increased sales volumes.

Similarly, the company plans on exporting more of its brands and launching its corporate traveler in two new countries namely New Zealand and Mexico. This move has been driven by the rising tourism demand in these two countries. Therefore Flight Centre travel group believes that by introducing their corporate traveler in these countries, it will be able to capitalize on the rising new market. Last but not least, the company intend on promoting rapid growth in the emerging brands by expanding its range of IAPs. This will also contribute to the forecasted increased in sales which will, in turn, lead to increased net income.

The financial statement of any company is normally presented in an accounting language that is not normally easy to understand and interpreted by most people. Moreover, the statement does not usually come with instructions on how to interpret the figures. Financial statement analysis is, therefore, the only way of helping different users of a company's financial statement understand the information presented in these statements. The statements presented in the annual report are normally four in number. These include the statement of financial performance, statement of financial position, statement of changes in equity and statement of cash flow (Needles & Powers, 2014; Lewis, 2010). However, for the purpose of this analysis, I am going to use just three of these statements. The three include the statement of financial performance, statement of financial position and statement of cash flow.

This statement shows how the company fared during the year in terms of revenue and profit generation. For the purpose of this analysis, I am going to use both common-size analysis and trend analysis (Williams, 2010). But before performing this analysis on this statement, I want to compare the company’s gross profits, operating income and net income across the company’s most current fiscal year. The table in appendix 1 shows this comparison.

It is evident from the table that the company's gross profit and net income have not been consistent. Both gross profit and net income increased in 2013 from 2012, dropped in 2014, increased in 2015 and decreased again in 2016. The operating income, on the other hand, has increased from 2014 all the way to 2016.

Furthermore, we can analyze this statement by performing a common size and trend analysis. Appendix 2 shows the company time series common size statement of financial position. The common base used is the total revenue.

Statement of financial position is a like a snapshot of a company’s operation during the year. It shows the company’s position as at the date the company’s books were closed. This statement is made up of three main sections namely assets, liabilities and shareholders’ equity. It is from this statement that the accounting equation is derived. The table in Appendix 3 illustrates this equation (Annual Report, 2014; Annual Report, 2012). It can be seen that when the total liabilities and shareholders’ equity are summed up and the sum compared to assets value in the financial statement, the variance is zero meaning the accounting equation have been satisfied.

In addition to the accounting equation, this analysis also discusses the company's time-series common-size statement of financial position as shown in appendix 4. This statement shows the different items in the statement of financial position as the percentage of a common base making it easy to compare different balance between periods (Sinha, 2012). From the table, an increase or decrease in the balances can be clearly seen.

Cash flow statement is a very important statement because it shows the actual amount of cash available in the company. From it is clear that Flight Centre travel group operating cash is more than its net income indicating that the company is liquid enough (Davies & Crawford, 2012). This is further supported by the overall net cash increase with the five years.

From the cash flow statement, it is also clear that the main source of financing for this company is equity. This information can be seen from the cash flow from investing section of the statement. From this section, the amount paid as dividends to shareholders is very high meaning the amount of equity is also high (Annual Report, 2013). Making this source of funding the most used source.

Ratio analysis is a common technique used in financial statement analysis. The main ratios include liquidity ratio, profitability ratio, solvency ratio, and solvency ratio (Soffer & Soffer, 2009) the table in appendix 7 shows the company’s ratios for the year 2016 all the way back to 2012. Based on these ratios, the company’s performance in terms of its liquidity, solvency, profitability and cash flow adequacy can be determined.

we can conclude that the company's liquidity has declined in the recent years as shown by a reduction in the current ratio. We can also conclude that the company's profitability is not consistent. This inconsistency is explained by the inconsistent profit margin ratios. The solvency of the company is also low as indicated by the high leverage shown by the relatively high debt to equity ratio (Weiner, 2007). Unlike the other ratios, the company’s free cash flow is relatively high indicating that the company has enough cash flow.

Conclusion and Recommendation

From the analysis above, it is recommended to the management of Flight Centre Travel Group to reduce their current liabilities to increase liquidity. I would also suggest less usage of debt as a source of funding. Finally, I would suggest that the management controls it expenses to ensure the profits are consistent. In a nut shell, the company's financial health is not good and there is a need for improvement based on this analysis.

References

About Us. (n.d.). Retrieved September 08, 2017, from https://www.fctgl.com/about-us/

Davies, T., & Crawford, I. (2012). Financial accounting. Harlow, England: Pearson. Dividends News. (n.d.). Retrieved September 08, 2017, from: https://www.smh.com.au/business/markets/quotes/dividends/FLT/flight-centre-travel-group-limited

Flight Centre Travel Group Limited. (2016). Annual Reports 2016. Retrieved fromhttps://www.fctgl.com/investors/annual-reports/

Flight Centre Travel Group Limited. (2015). Annual Reports 2015. Retrieved fromhttps://www.fctgl.com/investors/annual-reports/

Flight Centre Travel Group Limited. (2014). Annual Reports 2014. Retrieved fromhttps://www.fctgl.com/investors/annual-reports/

Flight Centre Travel Group Limited. (2013). Annual Reports 2013. Retrieved fromhttps://www.fctgl.com/investors/annual-reports/

Flight Centre Travel Group Limited. (2012). Annual Reports 2012. Retrieved fromhttps://www.fctgl.com/investors/annual-reports/

Lewis, R. (2011). Advanced Financial Accounting. Harlow: Pearson Education Ltd.

Needles, B. E., & Powers, M. (2014). Principles of financial accounting. London: South-Western Cengage Learning.

Sinha, G. (2012). Financial statement analysis. Place of publication not identified: Prentice-Hall Of India.

Soffer, L. C., & Soffer, R. J. (2009). Financial statement analysis: a valuation approach. Taipei: Pearson Education Taiwan Ltd.

Weiner, D. (2007). Financial accounting as a second language. Hoboken, NJ: Wiley.

Williams, J. R. (2010). Financial accounting. Boston: McGraw-Hill/Irwin.