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Background of Qantas Airways

Discuss about the Transparency Of Financial Statement.

The current study elucidates in detail about performance of the firm Qantas by way of effectual financial analysis namely horizontal analysis, vertical analysis and key financial ratio. In addition to this, financial analysis carried out for the firm Qantas helps in understanding the entire procedure of evaluation of businesses along with varied projects. Also, financial analysis in-depth analysis of whether a business entity is essentially stable, solvent, profitable as well as liquid. Moving further, this study also analyses business environment of the firm using SWOT analysis. Thereafter, this study at hand presents analysis of the external environment of the firm using PEST analysis. Also, the present study also examines the competitive position of the firm in the market by undertaking competitor analysis. In the end, the study presents the suggestions for improvement of the business and the financial condition of the firm.

As rightly indicated by Wahlen et al., ( 2014), vertical analysis as well as horizontal analysis is necessary for particularly managerial accounting since these processes of evaluations are very effectual for various internal users of financial assertions.

In case of vertical analysis, each amount in the income statement is expressed and restated as a percentage of sales (Dalnial et al., 2014). Essentially, this process of evaluation provides corporation a heads up in case of the cost incurred for goods sold or any other expends seem to be too high in comparison to sales (Lin et al., 2015). Vertical analysis of balance sheet statement shows that gross profit is 58.10% of the revenue of the firm in 2016 and 58.70% of the revenue of the firm in 2017. Again, the operating income of the firm is 10.39% of the sales in 2016 and 9.94% of the revenue in the year 2017.

As suggested by Wahlen (2014), horizontal analysis carries out comparison of account balances along with ratio over different period. Horizontal analysis carried out for Qantas reveals the fact that revenue of the firm has decreased by around 0.66%, however, gross profit of the firm has increased by 0.36%. Again, net earnings of the corporation have decreased by around 17.20%. On the other hand it can be said that operating expends of the firm has increased by approximately 1.51%, while interest expends of the firm has decreased by around 17.25%.

Again, cash as well as cash equivalents of the corporation have decreased by nearly 10.35% as well as the total current assets of the corporation has also decreased by around 9.80%. However, total assets of the firm have in all increased by around 3.09%, replicating a favourable financial condition of the corporation. Furthermore, the current liabilities of the corporation Qantas has increased to approximately 0.95% and the total liabilities of the firm have increased by around 1.76%.  The assets of the firm have increased by a higher percentage in comparison to the liabilities of the corporation.

Financial Analysis of Qantas Airways

Ratio analysis of financial statements helps in understanding financial condition as well as financial soundness of the business concern (Ehiedu, 2014).

Liquidity Ratio replicates capability of the corporation to make payments and disburse different short liabilities or in other words obligations of the corporation (Grant, 2016).

Current ratio of the firm Qantas shows a decreasing movement during the time period 2016 and 2017 although insignificant. Current ratio of the firm Qantas is recorded to be 0.43 in 2017 as compared to 0.43 in 2016. This shows an unfavourable financial condition of the corporation with regards to liquidity of the firm Qantas. Essentially, the standard current ratio is 2:1. This implies that assets of the company are double in terms of its liabilities. The company is therefore said to have enough liquidity to repay all its payment obligations particularly during the short term period (MacQueen et al., 2016).

Quick Ratio calculated for the firm Qantas Airways also indicates towards a declining trend during the specified time period (FY 2017 and FY 2018). Quick ratio is recorded to be 0.25 in 2017 in comparison to 0.28 in 2016. This shows an unfavourable financial condition when considered in terms of liquidity that is to say, the firm’s potential to repay the short term obligations using quick assets of the corporation has declined (Gong, 2017).

As rightly indicated by Drake et al., (2017), efficiency ratio is primarily utilized for the purpose of evaluating how well as specific firm is utilizing assets as well as liabilities.

Days Receivable: This ratio is enumerated by dividing accounts receivable by the annual sides and that divided by total number of days in a year (365 days) (Brigham et al., 2016).  Days Receivable of the firm Qantas is recorded to be 18.38 in 2016 and 18.25 in 2017. Thus, it can be said that days receivable has decreased in comparison to the year ago period. In this case, a low ratio can be regarded to be more desirable as it implies that corporation acquire cash from different customers and can utilize cash for diverse operations (Omar et al., 2014). In essence this reflects the fact that accounts receivables are quite good.

Days Inventory:  Days inventory indicates towards day’s inventory outstanding (Ball et al., 2015). This enumerates the total value, flows of cash as well as liquidity. In essence, both financiers as well as creditors intend to understand how valuable the inventory of a firm is. The day’s inventory is recorded to be 18.54 in 2016 and 19.7 in 2017. This replicates an upward rising trend during the specified period of time. This increase in days inventory can be considered to be an unfavourable financial condition on the part of the firm Qantas.

Horizontal and Vertical Analysis

Titman et al., (2017) suggests that days payable is an important financial ratio that enumerates the mean time that a business concern takes to disburse amount for payment of bills as well as invoices. The formula for days payable takes in three different parts namely, accounts payable, costs incurred for sales and the total number of days. As rightly indicated by Armstrong et al., (2015), accounts payable indicates towards the total money that a business concern owes a specific vendor or else vendor/supplier for specifically purchase that carried out on credit. Again, costs of sales refer to the total cost borne by a corporation for carrying out the operations.

Days payable is calculated to be 109.63 in 2016 and 116.51 in 2017. The increase in days payable can be considered to be an unfavourable financial condition for the firm. This is so because it shows that the firm is taking longer time period to make payments to vendors as well as suppliers than a corporation with days payable.

Profitability ratio: As correctly put forward by Keller & Kotler (2016), profitability ratio refers to financial dimensions that can be utilized for analyse ability of a firm to generate  earnings in comparison to expends as well as other pertinent costs that is incurred during the specified time period.

Return on Assets: Sheth & Sisodia (2015) says that return on assets is essentially a profitability ratio that enumerates net income generated by total assets during a specified time period.  The return on assets of the firm Qantas is registered to be 6.15 in the year 2016 that again declined to 4.94 in the year 2017. The return on assets of the corporation is said to have decreased during 2017 in comparison to the year ago period 2016. This decrease in ratio is said to be unfavourable to financiers of the firm as it reflects that the firm is more effectually handling assets to generate higher amounts of net earnings (Goworek & McGoldrick, 2015).  

As correctly mentioned by Sheth & Sisodia (2015), return on equity is necessarily a profitability ration that can enumerate potential of a corporation to generate profits from particularly investment of shareholders in the corporation. The return on equity is registered to be 31.61 in 2016 that decreased to 24.08 in 2017. A higher return on particularly equity can be considered to be improved than the lower ones as this signifies that the corporation is utilizing funds of the financiers’ more effectually. Therefore, in this case, decline in this particular ratio shows an undesirable financial condition of the firm in terms of profitability. 

Ratio Analysis

Debt equity ratio: the debt equity ratio has decreased for the firm Qantas in the year 2017 in comparison to the previous period. This reveals a favourable financial condition for the firm representing

Strengths

- Qantas Airways has a strong transnational as well as domestic presence

- The company is backed by the Australian government that helps in giving it a strong business presence

-It is one of the oldest operators of airlines in the entire world (Huang et al., 2015).

-The company possesses nearly 80 transnational along with domestic destinations

-Qantas practices appropriate process of brand building by means of advertising as well as sponsorship (Huang et al., 2015).

-Qantas Airways possesses over and above 25000 employees

-Qantas delivers great service such as lounge, frequent flyer programs and many others for loyal customers of the firm

Weaknesses

- The company Qantas Airways encounters issues such as fixing price, different events and many others that have damaged the reputation of the company in the past

-Limited global presence of the company Qantas Airways as compared to different leading airline corporations

Opportunity

-There is an opportunity for the company Qantas Airways to be a leader in specifically Australasia along with Asian continent

-More worldwide destinations particularly in Asia

-Tie-ups and collaboration with worldwide airlines for a collective service offering to the customers

Threat

-Enhancing prices of fuel can exert impact on operations

-Increasing prices of labour can exert influence on operations of business (Johnson, 2016)

-Enhancing presence of other worldwide airline can exert influence on business of Qantas Airways

Main competitors of the firm Qantas Airways include Singapore Airlines, Malaysia Airlines, Etihad, Emirates, British Airways, United Airlines and many others. Qantas essentially has better opportunity to develop on particularly regional front (Johnson, 2016). Essentially, brand of the company, different trunk routes along with financial strength can be utilized as chances to compete against other regional airlines that fly to particularly Australia, for example, Malaysian, Thai Airways and Singapore Airlines and many others. Qantas Airways has the highest percentage of market share. Qantas nearly has 16.3% of the global seats operated in Australia while, Emirates has 10.2%, Singapore Airlines has 8.5% and Cathay Pacific has 6.9% of the market pie. The increasing number of competitors took a relaxed tactic to the process of partnership proposal, provided huge steps to develop through partnerships particularly with Etihad, Air New Zealand, Singapore as well as Delta.

PEST illustrates different facets affecting the corporation under the following areas:’

Political legal facets:

Ø  Liberal policy environment has favoured different entrants (Khan & Quaddus, 2015).

Ø  Whilst domestic airline segment is deregulated to a large extent, global airline industry of Australia remains regulated particularly at the level of Commonwealth

Ø  Global aviation strategy of Australia has several designations

Ø  Industry deregulations of the year 1990s has directed the way towards to a more controlled competition between the company Qantas and Virgin.

Economic facets:

Ø  The recent past incidents such as SARS has exerted immense impact on security of flights particularly in the eyes of clientele

Ø  Every environmental concern counting the influence of enhancement of fuels that either influences fundamental costs of flights or affects the likeability of clients to book a specific flight (Khan & Quaddus, 2015).

Socio Cultural facets

Ø  Labour markets is regarded to be tight, particularly in skilled fields calling for higher level of motivation

Ø  Demand for personnel in distant nations can enhance the requirement of training in foreign language

Ø  Industrialization along with augmented technology have increased levels of education

Ø  Generational gap- Corporations can encounter challenges of bridging the existent gap between different generations

Technological facets:

Ø  The development of particularly information is generating a knowledge-reliant global community. In this case, information is considered as the primary commodity of more industries.

Recommendations and Conclusions

Analysis of financial statement of the firm during the specified period 2016 and 2017 reveals the fact that current ratio of the firm has declined, directing towards decrease in capability of the firm to pay off the short term obligations. In that case, management of the firm can work towards enhancements of the current assets of the corporation. Also, quick ratio of the firm has also decreased during the FY 2017. Therefore, management of the firm can devise strategies for lessening quick assets of the corporation. Furthermore, administration of the firm can augment days inventory and days payable for enhancement of efficiency of operations. Also, analysis of profitability of the firm reveals that the firm has an unfavourable financial condition as return on assets as well as return on equity has declined during the year 2017. In this case, management can devise strategies for enhancement of return earned by the firm out of the resources. The firm might concentrate on enhancement of revenue as well. The management might consider diversification strategy and expansion strategy for augmentation of growth potential of the firm.

Referencess

Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2015). Marketing: an introduction. Pearson Education.

Ball, R., Li, X., & Shivakumar, L. (2015). Contractibility and transparency of financial statement information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal of Accounting Research, 53(5), 915-963.

Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.

Dalnial, H., Kamaluddin, A., Sanusi, Z.M. & Khairuddin, K.S., (2014). Detecting fraudulent financial reporting through financial statement analysis. Journal of Advanced Management Science, 2(1).

Drake, M. S., Quinn, P. J., & Thornock, J. R. (2017). Who Uses Financial Statements? A Demographic Analysis of Financial Statement Downloads from EDGAR. Accounting Horizons, 31(3), 55-68.

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.

Gong, Z., (2017). Comparing the development of two communication technology companies using financial statement analysis: Using examples of Huawei and Ericsson. GRIN Verlag.

Goworek, H., & McGoldrick, P. (2015). Retail marketing management: Principles and practice. Pearson Higher Ed.

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

Huang, J., Guo, P., Xie, Q., & Meng, X. (2015). Cloud Services Platform based on Big Data Analytics and its Application in Livestock Management and Marketing. Proceedings of science.

Johnson, G. (2016). Exploring strategy: text and cases. Pearson Education.

Keller, K. L., & Kotler, P. (2016). Marketing management. Pearson.

Khan, E. A., & Quaddus, M. (2015). Examining the influence of business environment on socio-economic performance of informal microenterprises: content analysis and partial least square approach. International Journal of Sociology and Social Policy, 35(3/4), 273-288.

Lin, C.C., Chiu, A.A., Huang, S.Y. & Yen, D.C.,( 2015). Detecting the financial statement fraud: The analysis of the differences between data mining techniques and experts’ judgments. Knowledge-Based Systems, 89, pp.459-470.

MacQueen, M., Bergevin, P. & Mitchell, L., (2016). Financial Statement Analysis: Content and Context.

Omar, N., Koya, R. K., Sanusi, Z. M., & Shafie, N. A. (2014). Financial statement fraud: A case examination using Beneish Model and ratio analysis. International Journal of Trade, Economics and Finance, 5(2), 184.

Sheth, J. N., & Sisodia, R. S. (2015). Does marketing need reform?: Fresh perspectives on the future. Routledge.

Titman, S., Keown, A. J., & Martin, J. D. (2017). Financial management: Principles and applications. Pearson.

Wahlen, J., (2014). Financial Reporting, Financial Statement Analysis and Valuation/James Wahlen, Stephen Baginski, Mark Bradshaw. Cengage Learning.

Wahlen, J., Baginski, S. & Bradshaw, M.,( 2014). Financial reporting, financial statement analysis and valuation. Nelson Education.

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