Financial Statement Analysis Of Qantas Limited: An Essay.

Discuss about the Project Report Accounting For The Business.

Analyzing over the financial statement of an organization is one of the methods to evaluate the investment position and the returns from the company. Financial analyst is a process which examines the financial items and information of an organization to reach over a decision about the business. Financial analysis process includes the balance sheet, income statement and the cash flow statement of an organization to measure the changes and compare the financial statement of the company with other company to identify the market position. This process makes it simple for the financial analyst to measure that what changes have occurred into the financial presentation of the corporation in last few years. It offers the information to the financial managers, employees, customers, stockholders, suppliers, financial institutes etc of the company about the financial performance of the company.

In the report, financial investigation learning has been done on Qantas limited. The financial statement of the company of last 3 years has been evaluated along with the financial statement of Virgin Australia limited, competitor of Qantas limited. The financial statements of the company has been evaluated through identifying the changes into the financial statement of the company in last few years as well as through conducting the study of ratio analysis on the company. The report offers recommendation to the investors of the market to invest into the company.

Qantas airways limited are based in the Australian market. The company offers the airline services to its customers as domestic level as well as international level. Mainly, the company is involved in the operations of domestic air transportation services and international domestic air transportation services, frequent flyer loyalty program and the provision of freight services (Reuters, 2018). The company is operating its business through various segments. Some of the segments of the company are Qantas domestic, Jetstar group, Qantas international, Qantas loyalty, Qantas freight and corporate. The segment of Qantas international, Qantas domestic and Jetstar group are involving into the passenger flying business (Our Company, 2018).

The Qantas freight segment is engaging into the freight express business and air cargo. Further, the other segments are also offering the different services to the customers of the company. The company has diversified its market at international level as well as to enhance the market share and manage the operations of the company. The company is the oldest airline company in Australian market and it is among the largest airline companies in Australia.

Financial Statement Analysis

Financial statement analysis is a process which takes the concern of income statement, changes in equity statement, cash flow statement and the balance sheet of the company to measure the financial performance of the company. Financial statement analysis and the outcome of financial statement analysis make it simple for the company to measure the performance of the company. The financial statement analysis of Qantas has been conducted and evaluated the changes which have occurred into the financial performance of the company in last few years. The financial statement analysis of the company is as follows:

Income statement is the final financial statement which includes the revenue, cost of revenue, various operating expenses and net income which has been generated by the company in a particular time period. The income statement of an organization is one of the most scrutinized financial statements which are required to issue by every organization. The various information from income statement of the company could be calculated and measure to identify the current performance of the company and the changes into the organizations of the company.

Income statement of Qantas limited has been estimated to measure the financial performance of the company. On the basis of annual report (2017) of the company, it has been measured that the total revenue of the company has been lowered by 0.66%% from 2016 in 2017. However, it has been found that the gross profit of the company has been enhanced by 0.36%. Further evaluation on the income statement of the company briefs that the operating income of the company has been lowered by -19.07% and the operating expenses of the company has been enhanced by 3.36%. It leads to the net income of the company which has been faced decrement of -17.20%.

The income statement of the company has been compared to the virgin Australia holdings limited and on the basis of the annual report (2017), it has been found that the revenue of the company has been enhanced but due to high operating expense, the net income of Virgin Australia limited has been lowered by -15.71% (Appendix).

It explains that the net profit level of both the companies have been reduced due to changes into the industry position and increment in the prices. However, it has been found that the internal changes and the policies of the company have been better and the operations of the company have been affected due to industry changes only.

Income Statement Analysis

Cash flow statement is the final financial statement which includes the cash flow from operating activities, investing activities and the financial activities which have been generated by the company in a particular time period. The cash flow statement of an organization is evaluated by the financial analyst and the financial officer of an organization to evaluate the cash and liquidity position of the company. The various information from cash flow statement of the company could be calculated and measure to identify the current cash position of the company and the alternations into the cash position of the company.

Cash flow statement of Qantas limited has been estimated to measure the cash flow position of the company. Annual report (2017) of the company explains that the total cash flow from operating activities of the company has been lowered by -4.08% from 2016 in 2017. The changes have taken place due to huge cost of revenue of the company. Further, it has been found that the cash flow from investing activities and financing activities of the company has been enhanced by 6.4% and -53.21%. Further evaluation on the cash flow statement of the company briefs that the free cash flow of the company has been enhanced by 11.24%. It explains that the overall cash position of the company has been better.

The cash flow statement of the Qantas limited has been compared to the virgin Australia holdings limited and it has been found that the free cash flow of Virgin Australia has been lower by 64.41%.  It explains that the cash flow position of Qantas limited is far better than the Virgin Australia limited.

Financial position statement (Balance sheet) is the final financial statement which includes the non-current assets, current assets, liabilities, stockholder’s equity etc. of an organization on a particular day. The financial position statement of an organization is one of the most scrutinized financial statements which are required to issue by every organization. The various information from balance sheet of the company could be calculated and measure to identify the current position of the company and the changes into the organizations of the company.

Final financial position statement of Qantas limited has been estimated to measure the financial position of the company. On the basis of annual report (2017) of the company, it has been measured that the total current assets and non-current assets of the company have been enhanced by -9.8% and 6.45% from 2016 in 2017. It further explains that the total assets of the company have been enhanced by 3.09%. Further evaluation on the liabilities of the company briefs that the total liabilities of the company have been lowered by 3.09% and the stockholder’s equity of the company has been enhanced by 8.66% (Appendix). It leads to the conclusion that the net worth of the company has been enhanced by 3.09%. It explains that the financial position of the company has been stronger from last year.  

Cash Flow Statement Analysis

However, the balance sheet of the Qantas limited has been compared to the virgin Australia holdings limited and it has been found that the total worth of the company has been enhanced by 5.21%. It explains that the industry is achieving the growth. It explains that the financial position of both the companies have been enhanced due to changes into the industry position. It explains that the financial position of the company has been better.

After evaluating the financial statement of the company, ratio analysis study has been conducted on the Qantas limited to measure the liquidity position, profitability position, market position, investment position, and efficiency position etc of the company. Ratio analysis is a tool of financial statement analysis which measures the important factors of final financial statements of the company and measure the financial performance of the company (Saunders and Cornett, 2014). The ratio analysis study of Qantas limited has been analyzed below:

Return on assets is a financial and profitability ratio which measures the net profit of the company in relation to the total assets of the company. Return on assets explains about the total income which could be generated by the company on the basis of the total available resources. The return on assets ratio of Qantas limited has been measured to identify the performance of the company. The return on assets of the company of last 3 years is as follows:

Return on assets of the company is 4.95% in 2017 whereas it was 3.18% and 6.16% in 2015 and 2016. The ROA explains that the performance of the company was quite better in 2016 (Morningstar, 2018). However performance and the profitability position of the company in 2017 is also better. It explains that the company is generating 4.95% net income on the basis of total resources of the company.

The return on assets position explains that the profitability level of the company has been enhanced from 2015 and the company is a good choice for the purpose of investment.

Inventory turnover is a financial and efficiency ratio which measures the total time period in which the inventory is sold and replaced by the company. Inventory turnover explains about the efficiency position and the working capital position of an organization.  The inventory turnover day ratio of Qantas limited has been measured to identify the efficiency position of the company. The Inventory turnover of the company of last 3 years is as follows:

Financial Position Statement Analysis

Inventory turnover of the company is 416.45 days, 18.55 days and 19.79 days in 2015, 2016 and 2017. The inventory turnover days explain that the inventory turnover days of the company have been enhanced in 2017. It explains that the company has blocked more amounts in the inventory and due to which more working capital would be required for the activities and daily operations of the company. The efficiency and working capital position of the company has been lower. And it explains that the company is required to reduce the level of inventory days.

The inventory turnover day position explains that the efficiency level of the company has been worst from 2015 and the company. The company is required to reduce the level of inventory to manage the position.

Quick ratio is a balance sheet and liquidity ratio which measures the total short term debt payment obligation the company. Quick ratio explains about the liquidity position and the short term debt payment position of an organization (Glajnaric, 2016). The quick ratio of Qantas limited has been measured to identify the liquidity position of the company. The quick ratio of the company of last 3 years is as follows:

Quick ratio of the company is 0.63, 0.44 and 0.39 in 2015, 2016 and 2017. The quick ratio explains that the liquidity position of the company is continuously decreasing. It explains that the company has reduced the level of the current assets in context with the current liabilities of the company to measure the liquidity position of the company. The quick position of the company has been lower. And it explains that the company is required to enhance the level of the current assets to manage the performance and the liquidity position again.

The quick ratio position explains that the liquidity level of the company has been worst from 2015 and the company is required to reduce the level of current liabilities to manage the short term debt obligation position of the company.

Price earnings ratio is a market ratio which measures the total earnings per share of the company in relation to the current share price of the company. Price earnings ratio explains about the investment and market position of an organization (Deegan, 2013). The price earnings ratio of Qantas limited has been measured to identify the market position of the company. The price earnings ratio of the company of current years is as follows:

Price earnings ratio calculations of the company explain that the current PE ratio of the company is 13.74. It explains that the company EPS of the company is 0.46 and the market stock price of the company is 0.46. The market position of the company has been enhanced. And it explains that the investment into the company would be a better option for the investors.

The PE ratio position explains that the investment level of the company which has better and it explains that the investment into the company would offer high returns to the company.

The corporate governance structure, various management approaches of the company, investment activities, business operations, industry size, major competitors, market share etc of the company has been evaluated to measure the performance of the company and the investment option in the company.

Initially, the annual report (2017) of Qantas limited has been studied and it has been found that the corporate governance structure of the company is quite strong. HSBC Custody Nominees (Australia) Limited is the largest shareholder of the company. This company has 40.21% of total stock of the company. Further, it has been found that no directors have invested more than 2% in the total stock of the company. In addition, no directors have substantial interest in the stock of the company.

The integrity policy of the company explains that the company has followed the Accounting standards and the IFRS rules to prepare the annual report of the company. All the relevant information has been added by the company into the annual report and a brief description of all the activities have also been given in the annual report of the company (Lee, 2006). The company has focused on the integrity concept so that no fake information could be provided to the stakeholders of the company.

The management approaches of the company have also been studied and it has been found that the company is always ready to take the risk for the betterment of the company and to achieve the goals of the company. The company has followed the IFRS and AASB rules to prepare the annual reports of the company. Further, the company has presented all the required financial information in the annual report to disclose all the accounting and financial process of the company (Laux and Leuz, 2009).

As discussed, the main operations of the company are to offer the air services to its customers. The main services of the company include variation services, catering business, low price planes, high cost services etc. The investment activities explain that the company has launched various new segments to approach the new market and enhance the market base of the company.

The industry size of the company is also bigger and the Qantas limited is oldest and one of the largest firms on the Australian aviation industry. The main competitors of the company are Virgin Australian Holdings limited in Australian market and South west airlines at international level. The market share of Qantas limited at international market is around 28% (Anna Aero, 2018) whereas the market share of virgin Australia and South west airlines are 8% and 34% at international market (Euro Monitor, 2018).

On the basis of the above study, it has been found that the financial and non financial performance of the company is quite strong in the market. The company has followed the accounting rules to manage the performance of the company as well as the ratio analysis study and financial analyst study of the comapny also explains about the better position of the company.

It explains that the investment into the company would offer high return to the investors of the company and thus the investors should invest into the company. Long term as well as short term investment is profitable for the company (Centre for aviation, 2018). The case explains that the management of the company is also strong. It has managed all the activities of the company at better level.    

Conclusion:

To conclude, Qantas limited is an Australian aviation company which is operating its business at international and domestic level both. The annual report and the analysis over the company briefs that the financial and management performance of the company is quite better and if the investors would invest into the company than they would be able to earn short term as well as long term returns from the company.

References:

Anna Aero. 2018. Qantas is averaging 28% passenger share in international markets; steadily losing domestic market share despite growth; next stop Beijing. . (Online). Available at: https://www.anna.aero/2016/10/20/qantas-is-averaging-30-percent-passenger-share-in-its-top-international-markets/ (Accessed 18/05/2018).

Annual report. 2017. Qantas airways limited. (Online). Available at: https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2017AnnualReport.pdf (Accessed 18/05/2018).

Annual report. 2017. Virgin Australia Holdings limited. (Online). Available at: https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/2017-annual-report.pdf (Accessed 18/05/2018).

Centre for aviation. 2018. Australia domestic airline market outlook: Qantas Group reins in capacity as Virgin continues growth. (Online). Available at: https://centreforaviation.com/analysis/reports/australia-domestic-airline-market-outlook-qantas-group-reins-in-capacity-as-virgin-continues-growth-218946 (Accessed 18/05/2018).

Deegan, C. 2013. Financial accounting theory. McGraw-Hill Education Australia.

Elliott, B., and Elliott, J. 2007. Financial accounting and reporting. Pearson Education.

Euro Monitor. 2018. Ranked: Top 20 Global Airline Brands by Market Share. (Online). Available at: https://blog.euromonitor.com/2017/11/top-20-global-airline-brands-market-share.html (Accessed 18/05/2018).

Glajnaric, M., 2016. The importance of dividend paying stocks. Equity, 30(2), p.6.

Laux, C. and Leuz, C., 2009. The crisis of fair-value accounting: Making sense of the recent debate. Accounting, organizations and society, 34(6), pp.826-834.

Lee, T.A., 2006. The FASB and accounting for economic reality. Accounting and the Public Interest, 6(1), pp.1-21.

Morningstar. 2018. Competitors. (Online). Available at: https://financials.morningstar.com/competitors/industry-peer.action?t=QUBSF&region=usa&culture=en-US (Accessed 18/05/2018).

Our company. 2018. Qantas airways limited. (Online). Available at: https://www.qantas.com/travel/airlines/company/global/en (Accessed 18/05/2018).

Reuters. 2018. Qantas airways limited. (Online). Available at: https://www.reuters.com/finance/stocks/companyProfile/QAN.AX (Accessed 18/05/2018).

Saunders, A., and Cornett, M. M. 2014. Financial institutions management. McGraw-Hill Education,.