Essay: Financial Analysis Of Qantas Co." (47 Characters)

Financial analysis of the Qantas Company

Discuss about the Financial Analysis Of The Qantas Company.

This report emphasizes upon the financial analysis of company and depicts the results of the financial performance of company. The horizontal analysis, vertical analysis has been used to evaluate the annual financial data of Qantas Company to identify whether company has been performing well or not in the market. In this report, Qantas Company has been chosen for this report. The first section of this report will cover horizontal analysis, vertical analysis and ratio analysis to evaluate the financial performance of company. After that, SWOT analysis section has been used to identify the strength, weakness, opportunity and threats of the company. The Competitor analysis has also been used to evaluate the financial and business performance of other rivals in the same industry. The ethical consideration has also been used to identify whether Qantas has been working efficiently to increase the sustainable future of organization. The external environmental analysis has also been used to evaluate the threats and opportunity available to company in market. This analysis will reveal the possible outcomes and effective work function of the competitors and Qantas Company. In the end, the possible recommendation has been given for the better and effective functioning of the Company. This recommendations will divulges the advice to investors whether they should invest their capital in Qantas company or not Qantas, (2017

This financial analysis has been done by using the ratio analysis, horizontal analysis and vertical analysis tools (Flannery, 2016).

The Horizontal analysis

This analysis is used to evaluate the changes in the amounts of corresponding financial statement items over a period of time. It is useful tool to analyze the financial trend of the company (Ehiedu, 2014).

(Qantas Company's  INCOME STATEMENT Horizontal analysis
Fiscal year ends in February	2017	2016	Increase or Decrease
($ in Million)	Amount	Amount	Amount	Precent
Revenue	16,057	$           16,200.00	-143	-1%
Cost of revenue	14,687	$           14,557.00
Gross profit		$             4,010.00	-4,010	-100%
Operating expenses		$                        -	0	#DIV/0!
Salary and wages	4,033	$             4,033.00	0	0%
Fuel	3,039	$             3,250.00	-211	-6%
Aircraft operating variable	$             3,436.00	$             3,250.00	186	6%
Depreciation and amortization	$             1,382.00	$             1,224.00
Non-cancellable aircraft operating lease rentals	$                356.00	$                461.00	-105	-23%
Interest Expense	$                  46.00	$                  65.00	-19	-29%
Total operating expenses	$           12,292.00	$           12,283.00	9	0%
Operating income	853	$             1,029.00	-176	-17%
Earnings per share	$                  46.40	$                  49.40	-3	-6%
Net income from continuing operations	$      30,07,190.00	$           80,447.00	29,26,743	3638%

Interpretation

After evaluating the data by using the horizontal analysis, it is inferred that company has decreased its overall revenue and profitability. It is evaluated that company has increased its operating expense which has ultimately resulted to the negative results throughout the time (Baños-Caballero, García-Teruel & Martínez-Solano, 2014).

Revenue received in advance	$             3,685.00	$                 3,525.00	$                   160.00	5%
Interest-bearing liabilities	$                433.00	$                    421.00	$                     12.00	3%
Other financial liabilities	$                  69.00	$                    203.00	$                 -134.00	-66%
Provisions	$                444.00	$                    252.00	$                   192.00	76%
Total Current Liabilities	$             6,698.00	$                 6,387.00	$                   311.00	5%
Non-current liabilities
Revenue received in advance	1,424	1,521	$                   -97.00	-6%
Interest-bearing liabilities	$             4,405.00	$                 4,421.00	$                   -16.00	0%
Other financial liabilities	$                  56.00	$                      61.00	$                     -5.00	-8%
Provisions	$                353.00	$                           -	$                   353.00	#DIV/0!
Deferred tax liabilities
Total liabilities	$           19,634.00	$               18,777.00	$                   857.00	5%
Stockholders' equity			$                          -
issued capital	3,259	$                 3,625.00	$                 -366.00
Total stockholders' equity	$             3,540.00	$                 3,255.00	$                   285.00	9%
Total liabilities and stockholders' equity	$           23,174.00	$               22,032.00	$                1,142.00	5%

Interpretation

After evaluating the data by using the horizontal analysis of the balance sheet, it is inferred that company has increased the overall investment in the current assets and non-current assets. The total assets of company have decreased by 1% which reflects the negative outcomes to the society. In addition to this, company has also damaged its work functions which have resulted to negative results to its organization. Qantas has destructed its financial performance due to less return on capital employed and increased blockage of funds (White, Sondh, and Fried, 2015).

Qantas Company 's INCOME STATEMENT Vertical analysis
Fiscal year ends in February	2017		2016
($ in Million)	Amount	% of Net sales	Amount	% of Net sales
Revenue	16,057	$               1.00	16,200	1.000
Cost of revenue	14,687	$               1.00	14,557	1.000
Gross profit			$             4,010.00
Operating expenses
Salary and wages	4,033	$               0.25	4,033	24.90%
Fuel	3,039	$               0.19	$             3,250.00	20.06%
Aircraft operating variable	$             3,436.00	$               0.21	$             3,250.00	20.06%
Depreciation and amortization	$             1,382.00	$               0.09	$             1,224.00	7.56%
Non-cancellable aircraft operating lease rentals	$                356.00	$               0.02	$                461.00	3.17%
Interest Expense	$                  46.00	$               0.00	$                  65.00	0.40%
Total operating expenses	$           12,292.00	$               0.77	$           12,283.00	75.82%
Operating income	853	$               0.05	1,029	6.35%
Earnings per share	$                  46.40		$                  49.40
Basic

Horizontal analysis

Interpretation

The vertical analysis is used to analysis the entity by evaluating the three major assets categories such as accounts, assets and liabilities in balance sheet. It is evaluated that the company has increased its operating income as compared to last year data. In addition to this, the operating expenses have also increased which will eventually reduce the overall earning of company (Qantas, 2017).

(Qantas Company's BALANCE SHEET Vertical analysis
Particular	2017	% of Total Assets	2016	% of Total Assets
Assets
Current assets
Cash and cash equivalents	$                     1,775.00	9%	$                        1,980.00	10%
Receivable	$                        784.00	4%	$                            795.00	4%
Assets	$                        100.00	0%	$                            209.00	1%
Inventories	$                        351.00	2%	$                            336.00	2%
Assets held for sales	$                           12.00	0%	$                              17.00	0%
Other current assets	$                           97.00	0%	$                            101.00	1%
Total current assets	$                     3,119.00	15%	$                        3,438.00	17%
Non-current assets
Receivables	$                        123.00	1%	$                            134.00	1%
Other financial assets	$                           43.00	0%	$                              46.00	0%
Total assets	$                        214.00	1%	$                            197.00	1%
Property, plant and equipment	$                  12,253.00	60%	$                      11,670.00	58%
Intangible assets	$                     1,025.00	5%	$                            909.00	5%
Deferred tax assets			$                              39.00
Others	$                        444.00	2.18%	$                            252.00	1.25%
Total assets	$                  20,340.00	100.00%	$                      20,123.00	100.00%
Liabilities and stockholders' equity		0.00%		0.00%
Liabilities		0.00%		0.00%
Current liabilities		0.00%		0.00%
Payables	$                     2,067.00	10.16%	$                        1,986.00	9.87%
Revenue received in advance	$                     3,685.00	18.12%	$                        3,525.00	17.52%
Interest-bearing liabilities	$                        433.00	2.13%	$                            421.00	2.09%
Other financial liabilities	$                           69.00	0.34%	$                            203.00	1.01%
Provisions	$                        444.00	2.18%	$                            252.00	1.25%
	$                     6,698.00	32.93%	$                        6,387.00	31.74%
Non-current liabilities
Revenue received in advance	1,424	665.42%	1,521	772.08%
Interest-bearing liabilities	$                     4,405.00	35.95%	$                        4,421.00	37.88%
Other financial liabilitie	$                           56.00	5.46%	$                              61.00	6.71%
Provisions	$                        353.00	#DIV/0!	$                                     -	0.00%
Deferred tax liabilities		0.00%		0.00%
Total liabilities	$                  19,634.00	96.53%	$                      18,777.00	93.31%
Stockholders' equity
issued capital	3,259	16.02%	$                        3,625.00	18.01%
Total stockholders' equity	$                     3,540.00	17.40%	$                        3,255.00	16.18%
Total liabilities and stockholders' equity	$                  23,174.00		$                      22,032.00

Interpretation

The vertical analysis of the balance sheet shows that company has increased its equity portion to 17.04% which is 1% higher as compared to last year data. It is also observed that company has increased its investment in the assets of the company which has resulted to increased cost of capital. The vertical analysis shows that company has to lower down its investment otherwise it will have to face high financial risk in its business which might affect its sustainability in long run (Mak, 2015).

Liquidity ratio

This ratio reflects the liquidity position of company throughout the time.  The current ratio shows company’s ability to pay off its short term and long term debts from its current assets. The current ratio of company has gone down to .47 points as compared to last year data. In addition to this, quick ratio has also decreased by .8 points in 2017 which reveals the fewer blockages of cash in its busienss (Qantas, 2017).

Liquidity ratio		2017	2016
cash ratio	Cash equivalents + Cash / Current liabilities	0.27	0.31
Current ratio	Current assets/current liabilities	0.47	0.54
Quick Ratio	Current assets-Inventory/current liabilities	0.41	0.49

Profitability ratio

The profitability ratio divulges company’s ability to earn profit from its overall turnover. The overall net profit company has decreased by 1.2% in just one year which is not good indicator. In addition to this, returns on total assets have also gone down due to the negative market factors. The financial leverage has shown increased financial risk due to the sluggish market condition.

Description	Formula	Qantas Company's
Profitability		2017	2016
Net profit ratio	Net profit/ total Sales	5.3%	5.3%
Return on assets	Net profit/Total assets	4.19%	0.00%
Financial leverage	EBIT / EBIT - Interest	1.057001239	1.057001239
Asset turnover	total assets / total sales *365	462.3590957	7344895
Earkings per share	Net income - pref div / shares outstanding	0.240960452	1.63205E-05

Efficiency ratio

This ratio shows company’s ability to use the capital in the business functioning of organizing. It has observed that company has lower down its receivable turnover which shows that company will have to engage more capital in its operating activities. The inventory turnover has also increased which shows that company will block more funds to keep the inventory in warehouse.

Efficiency ratio		2017	2016
Receivable turnover	Receivables/ Total sales*365	17.82	2,90,175.00
Inventory turnover	Inventory / cost of goods sold *365	10.42	1,60,204.24

Solvency ratio  

This ratio reflects company’s capital structure and ability to manage its financial risk. It is observed that company has increased the overall interest payment since last one year.

Solvency  ratio		2017	2016
Times interest earned	EBIT / Interest expenses	18.54	18.54
Cash coverage ratio	EBIT + non-cash expenses / interest expenses	18.54	18.54
Debt to Equity Ratio	Debt/ Equity	5.55	5.77

The debt to equity of company has also increased the debt portion which has eventually resulted to the decrease value of its assets in long run. The gearing ratio also shows that company has reduced its profitability which may increase the financial risk of its business (Tseng, & Chiang, 2016).

Horizontal analysis of the Income Statement

The Swot analysis emphasizes upon the strength, weakness, opportunity and threats of company.

Strength ·         Strong brand image ·         Optimum debt to Equity ·         Strategic alliance with other organizations .	Weakness Complex busienss structure High employee turnover Paying high amount of penalties .
Opportunities ·         Increased business outputs ·         Invested most of its capital in its Air jets and advance machines ·         Motivating employees and making them more efficient	Threats ·         High amount of economic growth will resut to high amount of threats from the existing business organizations and new rivals. ·         Threat from the offering of the other organizations (Tseng, & Chiang, 2016).

Strength

The strength of the company is strong brand image which will eventually help it to diversify its business in other business sector. The debt to equity capital is also optimum which increases its return on capital employed and profitability at large.
Qantas also indulged in the strategic alliance with other organizations to reduce its overall cost of production which will increase its sustainability in future (Grant, 2016).  The investment plan project undertaken by Qantas will increase its profitability in near future.  Company has also used the product line strategic plans and long term investment procedure to create value on the investment. It has also increased the funding of its investment which may also reduce the complex structure and increase the overall outcomes of the business at large

Weakness

The main weakness of Qantas is related to complex busienss structure and less managed business functioning. Company has been paying high amount of penalties which have resulted to the high cost of production. The high employee turnover will also lower down its business efficiency.  Qantas has invested most of its capital in its fixed assets which will render the negative business outcomes (Mak, 2015). It has also followed penetration strategy to win over the market. It will eventually increase the overall cost of capital of business.  Highly attractive discounts and offers given by rivals may also result to decrease the turnover of the business Opportunity

With the ramified economic growth, Qantas has felt increased business outputs which have shown that company will have strong future in near future. The client’s inclination towards the advance technologies will also increase the overall output of the business. Qantas has invested most of its capital in its Air jets and advance machines will increase the overall output. It has also implemented strong HRM practice which indulged in motivating employees and making them more efficient. Company has established strong brand image which will eventually increases the overall outcomes and business output in near future. It has also focused on creating value on the investment by increasing the debt portion. It will eventually increase the overall return on capital employed.

Threats

The Airline business has been gaining momentum and showing high amount of economic growth. It has been observed that Qantas will have to face high amount of threats from the existing business organizations and new rivals.                                                

Horizontal analysis of the balance Sheet

It has also faced threat from the offering of the other organizations which might impact the business functioning of Qantas in long run (Tseng, & Chiang, 2016).

The main rival of the Qantas is Vrigin America who has given its best efforts to implement the effective busienss decision. It has been observed that The Virgin America has estimated revenue of $ 1.5 billon which is highest of all other Airline companies. However, Qantas has created core competency in offering highly advance and clients oriented services to clients. It has also increased its overall revenue of Air France which shows that company has increased its overall outcomes by increasing its market share. In context with the earning, Monarch Airlines have increased its value in the market (Mwangi, and Murigu, 2015).  The same target market is hold by the Virgin America in context with the Qantas Company (Weygandt,., Kimmel, & Kieso, 2015).  The same Technologies and cyber computing system have been used by these Airlines services to win over the market. The core competency of the Qantas is to offer customized services to increase the client’s satisfaction. On the other hand, Virgin America followed cost leadership strategy to increase its overall market share.   It has been observed that company will have to give high offers to clients with the increasing competition in Airline business. Monarch Airlines have grabbed 12% market share in the airline services. It has used advance technologies and attractive offers to win over the market.  Therefore, now in the end, it could be inferred that Qantas will pose high threats to other rivals in Airline Industry by using its advance technologies and core competency in market (Tseng, & Chiang, 2016).

It is observed that Qantas has followed profit based dividend policies to offer dividend to its shareholders. It is observed that company has strong sustainable future as it is showing good business trend in near future. It is observed that current situation of Qantas is very negative which shows that company has been decreasing its overall profitability. In addition to this, it has also shown negative outcomes to society which will lower down the value of its share capital.  The total assets of company have decreased by 1% which reflects the negative outcomes. In case, if company goes for the winding up and dissolution then it will destruct the business functioning and eventually reduce the overall output throughout the time. Now in the end, it could be inferred that company has destructed its business which will soon result to closure of its business. However, the strong brand image and increased capital investment may save company from the negative outputs. The main business outcomes are related to its changing business model which will make its business more clients oriented. If in case, company is gone for winding up then the value of its assets will be distributed to creditors and lenders. It will assist creditors to collect their capital from the organization. This ratio reflects the liquidity position of company which shows that company has adequate capital to meet its current demand and operating expenses. The attractive offers of Virgin America may pose high amount of threats to the business functioning of Qantas and may result to reduction overall profitability throughout the time. As per the current condition, Qantas may face high global threat and high financial leverage in its busienss activities (McKercher, Mak,  & Wong, 2014).

Vertical analysis of the Income statement

The external environment analysis emphasis upon the global threats and strengthen government policies which needs to be complied by the Qantas for the effective busienss functioning.

The aviation industry is accompanied by the several rules and regulation which needs to be complied by the airline business companies to strengthen their corporate governance and safety procedure. However, due to the high amount of penalties and government intervention, quality check of Qantas needs to be upgraded on timely basis. The economic condition of Australia is strengthening foreign exchange reserve shows that the clients in Australia will be more inclined towards buying the airline services from the Qantas. It is evaluated that the company has increased its operating income as compared to last year data which will eventually increases the airfare of Qantas. Therefore, due to the increased costing, it will have to keep the prices of its Airline services high. It may affect the overall sales of company in near future. The Australian government has also strengthened its policies and laws which may require high capital to set up effective corporate governance.  The main weakness of Qantas is related to complex busienss structure and less managed business functioning. Company has been paying high amount of penalties which have resulted to the high cost of production. The global linkage with the local centers and merger with the Singapore Airline has also stopped due to the legal policies and governance program. Qantas Business Travel and the Jetset Travel world Retail Group, completed a merger with Stella Travel Services PTY. LTD has shown the positive outlook for its international business (White, Sondh, and Fried, 2015). It might happen again that Qantas will have to enter into the merger and amalgamation with other organization.

After evaluating the financial data of company, it could be inferred that the current ratio of company has gone down to .47 points as compared to last year data which reduces its liquidity throughout the time. If in case, market gives the positive indicator then it will be hard for company to increase its overall sales in context with the demand of the market.

The capital structure of Qantas is also showing high financial leverage. If in case company will have low profitability then it will face high financial risk to cover its interest payment from its profitability. Therefore, company should lower down its debt portion to increase the sustainability of the business in long run (Jordan, 2014).

In context with the SWOT analysis, it is found that Qantas has strong brand image on international level. It should follow forward and backward integration strategy to increase its business outcomes. The investment plan project undertaken by Qantas will increase its profitability in near future.

Company should enter into the global strategic alliance with other organization which will eventually lower down its cost and increase the profitability.

The present investment strategies taken by the board of directors of the Qantas was to proposed $5.9bnmerger between Qantas and British Airways which was undertaken to increase its international market share Qantas, (2017

After analyzing all the details and financial data of the company, it could be inferred that investors should invest their capital in Qantas for long run only. If they invest their capital in short term then it will destruct the value of their investment. Therefore, they should invest their capital in long run only.

In context with its rivals, it has been observed that company will have to give high offers to clients with the increasing competition in Airline business. Monarch Airlines have grabbed 12% market share in the airline services by using the attractive offers. Qantas should use proper strategic plans and attractive offers to win over the market.

Conclusion

After evaluating the annual report, and market external factors, it could be inferred that company has been faced high financial leverage and less profitability in its busienss. It has been observed that company should expand its busienss on international level due to the positive outlook of the Airline business industry. In addition to this, the financial analysis shows that company has to lower down its investment otherwise it will have to face high financial risk in its business which might affect its sustainability in long run.

References

Baños-Caballero, S., García-Teruel, P.J.& Martínez-Solano, P., (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), pp.332-338.

Ehiedu, V.C., (2014). The impact of liquidity on profitability of some selected companies: The financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5), pp.81-90.

Flannery, M.J., (2016). Stabilizing large financial institutions with contingent capital certificates. Quarterly Journal of Finance, 6(02), p.1650006.

Grant, R.M., (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Jordan, B., (2014). Fundamentals of investments. McGraw-Hill Higher Education.

Mak, L.M., (2015). Travel agencies’ perception of ISO 9001 certification. The TQM Journal, 27(6), pp.741-751.

McKercher, B., Mak, B. & Wong, S., (2014). Does climate change matter to the travel trade?. Journal of Sustainable Tourism, 22(5), pp.685-704.

Mwangi, M. and Murigu, J.W., (2015). The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).       

Qantas, (2017), annual report, Retrieved from https://investor.qantas.com/investors/?page=annual-reports

Tseng, F.M. & Chiang, L.L.L., (2016). Why does customer co-creation improve new travel product performance?. Journal of Business Research, 69(6), pp.2309-2317.

Weygandt, J.J., Kimmel, P.D. & Kieso, D.E., (2015). Financial & managerial accounting. John Wiley & Sons.

White, G.L., Sondh, A.C. and Fried, D., 2015. Analysis of Financial Statement. Analysis.