Strategic Finance Issues of Qantas Airways Limited (QAN)

Question: 1. An analysis of the information contained in the latest Annual Report and Financial Statements of the company, commenting on the strengths and weaknesses of the company over two years by applying ratio analysis in the categories listed above; 2. Suggestions or recommendations for improving the business, based on the analysis; 3. Full referencing of your sources of information, which may include any external sources such as the financial press, commentators and the internet that you may have used to strengthen your analysis. Answer: Introduction Financial statement helps to provide a clear and precise idea about the company financial position in the market. The report helps to throw light on the financial aspect of the company with the help of the ratio analysis which are calculate don he basis of the financial statement produced at the end of the each fiscal year of the company (Erickson, 1989). The company Qantas airways limited is considered to be one of the most leading airline service providers in Australia. Financial health of the company is determine by the profitability, efficiency, solvency ( short term and long term) and other key aspect such a market based ratio of the company which are analyse thoroughly over the period of two year. The paper helps to provide an in depth analysis of the company financial health of the Australian airlines services, Qantas Airways Ltd. With the help of the critical analysis of the financial statement of the company from 2012 and 2013 help to provide a clear a idea about the research study (Fridson Alvarez, 2002). Established in the year 1920, Queensland and Northern territory Air Services (QANTAS), from a domestic airline service provider the company grows rapidly and become one of the most global airline services across the world providing more than 150 destinations in more than 50 countries. Financial Analysis of Qantas Airways Ltd (2012 2013) Financial statement consist of the three key element which are balance sheet, income statement and cash flow statement which help to provide key business activities which are carried by the company over the given fiscal year which help to provide the financial prison of the company in the market (Gibson Frishkoff, 1979). Balance sheet helps to provide a clear and precise idea about the company financial aspect which consists of the asset and liabilities of the company which eventfully help the user to determine the financial stability of the company regarding the utilisation of the company resource (Golbe Schachter, 1985). Income statement help to provide a clear idea on the revenue generated by the company over the given fiscal year which eventually help the company to determine the net profit or loss the company suffered during the given year which help to provide as platform to forecast or predict the company future profit figure with proper strategic procedure (Hacioglu Dincer , n.d.). Cash flow statement of the company help to [provide a clear and precise idea about the company three basic activities which involves financing activities, operating activities and investing activities. Financial statement provide the platform for the ratio calculation such as from balance sheet company provide a clear idea on the several business risk with the help of the current ratio, quick ratio, debt ratio, financial leverage and short term and long term debt. Income statement helps to throw light on the company profitability aspect (Helfert, 1987). The financial analyses on the basis of their financial statement are as follows, Profitability ratio The profitability aspect of the Qantas has been analysed and determined with the help of the net profit margin (Hickman, Lester Hickman, 1996). Tax rate, asset turnover, return on asset, financial leverage, return on equity, return on invested capital and interest coverage. From the analysis of the profitability ratio of the company it is evident that the company net margin of profit increase as in the year 2012 the net profit margin of the company was negative which increased in the year 2013 to 0.03. Profitability ratio of the company help to identify and reveal the company current state of generating profit, it is significant to analyse and determine the current potential fro investment of a company as it is directly related to the increased earnings per share (Horrigan, 1967). It is considered to be one of the most critical and vital criteria for QAN investor to take effective decision. Asset turnover ratio of the company remains stable on the consecutive two year 2012 and 2013. The asset turnover ratio implies that the company is effectively managing its resource higher the value of the asset turnover ratio is favourable. Return on asset also helps to throw light on the profitability aspect of the company (Langsen, 1988). Higher value of ROA is considered to be favourable which signifies that the company is making money with the investment on the asset, however from the financial data it is evident that the company Qantas was making loss in the year 2012 on the investment which is increase in the year 2013. Return on equity is considered to be primary factor of the profitability of the company. Higher value of the ROE is considered to be one of the most crucial and significant as it indicates that the firm is able to generate income from the new investment. Return on equity seems to be improving for the Qantas Airways ltd as the company in the year 2012 was making huge loss from the investment as the figure are in negative while the company in the year 20 13 making money from the investment which is evident from the ratio analysis of the company. From the profitability ratio analysis it is evident that the company is making profit in the year 2013 when compared with the year 2012 (Lien Shrestha, 2010). Efficiency Ratio Efficiency ratio help to provide a clear and precise idea about the company overall capability manage its resource which eventually help the company to earn profit for the given fiscal year. Efficiency ratio is determined and analysed with the help of the days sale outstanding, days inventory, payable period , receivable turnover, inventory turnover, fixed asset turnover and asset turnover ratio which help to provide clear and precise idea about the perfect utilization of resource of the company (Miller, 1972). Days sales outstanding is considered to be one of the most basic measure of the efficiency of the company, as it is evident that it is easy to convert the sales into cash easily. Therefore it is recommended that the lower value of sales outstanding is recommended for the organization whereas the higher value of the sales outstanding is unfavourable for the organization. The days sale outstanding for the company is increasing which is not favourable of the company as it signifi es that the company is inefficient in credit sales collection. Inventory days value must be lower which helps to provide the business to decrease the level of investment in the inventory. The inventory days of the company must be lower, it is evident from the analysis of the Qantas company it is lower which is favourable for the company (Myer, 1969). Payable period is considered to be one of the most significant measures which help to provide a clear idea on the company short term liquidity aspect. Higher value of the payable period indicates that the company is making their dues cleared to their supplier quickly. Qantas payable period indicate higher value of the payable period which signifies that the company is clearing the due related to their supplier quickly. Account receivable helps to provide a clear and precise idea on the efficiency of the business in collecting and generating the credit sales. The receivable turnover ratio of the company Qantas is decreasing which indicate that the company is not able to collect its credit properly wh ich result in the poor credit sales generation from the company end (Oxenbridge, Wallace, White, Tiernan Lansbury, 2010). Fixed asset turnover is also considered to be one of the significant measure which helps to provide a clear and precise idea on the company efficiency ratio. Fixed asset turnover helps the company to determine whether the fixed asset is generating revenue or not. From the figure of the fixed asset turnover of the company Qantas it is evident that the fixed asset is generating revenue for the company as the fixed asset turnover increase over the year. Solvency Solvency of the company is related with the debt and liabilities that the company have incurred during the given fiscally year and ability to meet its short term obligation and long term obligation which eventually helps to determine and identify whether the company is susceptible to solvency risk. Short-term solvency Short term solvency includes several key aspects which are current ratio, quick ratio, long term debt and other long term liabilities. Current ratio helps to provide a clear and precise idea about company ability to meet its current obligation. Current ratio of the Qantas airways is increasing which indicate that the company current liabilities exceed the current asset. The company which have current ratio below 1 indicates that the company is not able to meet its current obligation as the value of the current ratio for the Qantas Company is less than one. Similarly quick ratio is also considered to be one of the significant measures of the short term solvency which help to determine the ability of the company to meets its short term obligation (Palmer, 1983). Quick ratio helps to determine the liquidity aspect of the business as it provide a clear and precise idea about the ability of the firm to pay all of its debt with the help of the available liquid asset. Quick ratio of the Qan tas airways is below one which indicates that the company is not able to repay all its debt with the help of available liquid asset. Quick ratio of the company should be above one which indicates that the company have sufficient liquid asset to repay its debt. The other key aspect of the short tem solvency is short term debt and short term liabilities which indicate that the Qantas Company have consistent short term debt which provide a clear picture that the company debt remains constant for two consecutive years which is a negative indication for the company liquidity aspect (Pettit, 2007). Long term solvency Long term solvency of the company is considered to be one of the significant measures to determine the ability of the company regarding the solvency risk related to its business operation. Long term debt, long term liabilities, financial leverage and debt/equity are considered to be one of most important element to determine the long term debt of the company (Robinson, 2009). Lower the value of the long term debt is considered to be favourable for the company which indicate that they are less susceptible to the risk of solvency. Lower value are favourable where as higher value of the long term solvency are not favourable as the business primarily depend on the external lenders thus it increase the risk related to the overall business operation which is more susceptible to solvency risk specifically at higher interest rate. A debt/ equity ratio is the percentage of the asset of the business finance by debt and by shareholders. Financial leverage is also determined as the trading on equity where there is a utilization of debt to acquire the new asset. Financial leverage of the company is decreasing which is not favourable as the chance to utilise the debt is less if the leverage decreases. Therefore the company should focus to increase the financial leverage which helps the company to utilise the debt to purchase new asset which will help to decrease the risk related to long term solvency of the company. Leverage is also referred as gearing, leverage is considered to be one of the most key measurements for a firm to determine the long term financial solvency. It is considered to be one of the most important measures to assess the risk related to the company which is finance by external sources (RIEDL SRINIVASAN, 2010). In the year 2013 QAN laid down a key strategy which decreases the debt to octal asset ratio indicating that the company QAN is less dependent on their creditors and they can clear the due to their customer and stakeholder without any financial burden. Market based ratios Market based ratio 2013 Services industry (Industrials sector) P/E ratio 12.4 14.6% Dividend yield 0 Price earnings ratio is considered to be one of the most critical and significant measure o evaluate how much the market current value for $1 of profit a company earn for the given share which eventually help to indicate that the expectation for a company growth which will be analysed in the given report to provide a clear and precise idea about the company market based ratios (Steffy, Zearley Strunk, 1974). With the help of the industrial sector analysis the company can utilised the rate of the proper service sector as a standard or a benchmark. With the help of the industrial sector analysis with the QAN P/E makes it clear that the QAN shares are undervalued relative to the overall industry average. The indicator with the help of comparison lead to a proper measure which provide that the investor have less expectation regarding the QAN growth and thus greater loss since the 2012 fiscal year (Wild, Bernstein Subramanyam, 2001). QAN Major airlines industry 2013 Dividend yield 0.00% 27% Dividend yield provide a clear measure that eh return the shareholder receive for each share in each period. The average repayment rate distributed by the airline industry is 27% for the year 2013 however the Qantas airline are only pay 0%. Conclusion and Recommendation From the analysis of the financial statement which eventually helps to calculate financial ratio force the flying kangaroo to focus for a increased market share primarily in the competitive environment. The analysis helps to provide clear and precise idea on the weakness and strength of QAN, along with external threats and opportunities (Velez-Pareja Davila, n.d.). Weakness and threats Decreased ROA and ROE leads to a decreased net profit margin which eventually lead to the poor profitability factors. Slow debtor and asset turnover signifies that the business operation is low. Low value of current and quick ratio signifies liquidity and solvency risk. P/E and dividend is less than the industry average signifies that QAN market based performance consists of share prices. Strength and Opportunities Relatively low and satisfactorily debt to total asset ratio. Enhanced strategic policy with proper and accurate direction to overcome the challenges in the international market. With the help of the SWOT analysis it is evident that the company Qantas is struggling to overcome the issue related to the business operation. QAN has been continuously lagging behind which is clearly indicated in the overall efficient and profitability two primary indicator of long term adversity. 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