International Domestic Airlines Australia †Myassignmenthelp.Com

Question: Discuss About The International And Domestic Airlines In Australia? Answer: Introduction Qantas Airlines was established in 1920 in the rural Queensland. It is one of the largest international and domestic airlines in Australia (MELBOURNE, 2011). Furthermore, it is the leading long-distance airways across the world and the strongest brands operating in Australia. It is the flag carrier airway in Australia and the largest airline by size, international destination and international flights. Furthermore, it is the third oldest airline carriers in the globe (Qantas, 2011). The company operates in the world most dynamic and exciting sectors and have continued to be successful and grow all the years. It flies to over 200 destinations across the globe in over 45 nations. It owns low-fare carrier Jetstar and regional carrier QantasLink, both of which are said to operate in Asia/Pacific and Australi region. On overall, its fleet comprises of 300 aircrafts. Qantas also generate its revenues from catering, touring and cargo operations (Qantas, 2016). The company believes in development of its diverse workforce. Thus, it is its priority to reflect a wide range of clients it serve across the globe and acknowledging diverse cultures across its workforce. To achieve this, the company has set up different programs aimed at attracting and retaining personnel from diverse cultural and personal backgrounds. Qantas have built reputation for it excellence in operational reliability, maintenance, customer service, engineering and safety (MELBOURNE, 2011). It key operation is usually transportation of client using its two complementary airline brands; that is, Jetstar and Qantas. In addition, Qantas operate other subsidiary business such as other business and airlines in the specialist markets like Q Catering (Qantas, 2016). Its brands operate domestic, international and regional services. With these considerations, this paper aims to present analysis of Qantas financial performance based on its 2016 annual report. This will be based on anal ysis of its competitors, and financial statements. It financial health would be analysed on the basis of liquidity, market performance, efficiency and profitability ratios Competitors Qantas chief competitors are United Continental Holding, LAN Airlines, Cathay Pacific Airways, Virgin Australia Holding and Singapore Airlines. Nonetheless, despite of these rivals, Qantas one of the largest airline operating in Australia, has shown no signal of violent completion in the international flights as it add extra volume (Qantas, 2016). The speedy growth experienced in the past one year had obligated this company to bid some exceptional airfare reductions hurting the travel airlines and agents (MELBOURNE, 2011). This was as a result of growth in international competitor by 11% forcing the company to reduce its airfares, sending ticket revenues per the international seat downward by around 9% and making its earnings from international operations to decrease by 22%. Critical Analysis of Qantas Financial Statements Ratio analysis This entails quantitative analysis of financial information of an organization. This is mainly based on the line items in income statement, cash flow and income statement. In addition, ratio analysis is utilized in assessing numerous aspect of the organizations financial and operating performance like liquidity, solvency, efficiency and profitability (Altman, 1968). This helps in checking whether an organization is deteriorating or improving. Basically, financial ratios help in measuring financial performance of a given organization. To be more specific, financial ratio analysis is the method of analysis which is utilized in obtaining quick signal of the organizations financial performance in numerous key sections (Chen Shimerda, (1981). The most common ratios used in analysing financial performance of Qantas is the profitability ratios, efficiency, liquidity, capital structure and solvency ratios. Profitability ratios These financial ratios try to measure an organizations success in terms of income generation. They usually reflect combined impact of an organizations debt and asset management (Altman, 1968). In this case, profitability ratios such as profit margin, ROA and ROE are used in measuring or evaluating Qantas financial performance. Profit margin The ratio shows dollar amount in terms of income that an organisation earns on every dollar of revenue (Chen Shimerda, (1981). Given these considerations, Qantas profit margin for the years was as shown below; 2014 2015 2016 Profit margin -18.76% 3.59% 6.52% ROA shows dollar amount in income earned by an organization on its total assets. It shows how effective the management is in managing its assets or in turning its assets to income (Altman, 1968). With these facts, Qantas ROA for the years was; 2014 2015 2016 ROA -16.42% 3.18% 6.16% This shows the dollar amount of the income that is earned by an organization on its equity. It displays or indicates how effective the management is in utilizing its equity to generate income. With these facts, Qantas ROE for the years was; 2014 2015 2016 ROE -99.34% 16.27% 31.61% Based on the profitability ratio computed above, it is evident that Qantas is financially stable and healthy. This is based on the fact that the company ROA, profit margin and ROE increased over the past three years. The increase is a clear signal that the company management is able to effectively use its shareholders equity as well as assets in generating income. Efficiency ratios These financial ratios are important in highlighting effectiveness of an organization in using its assets. The ratios are usually measured in relation to an organizations total sales. Basically, some of the efficiency ratios that would be used in this case include inventory turnover as well as asset turnover (Lev Sunder, 1979). The ratios are also crucial since they display extent to which total assets of an organization is used and managed in order to meet the firms cash flow expenses and requirements. Receivable turnover This ratio is used in assessing an organizations management effectiveness in managing its account receivable (Lev Sunder, 1979). This means that higher ratio is more preferred since it shows or displays that an organization is collecting its receivable sooner. Given these considerations, receivable turnover for the years was as shown below; 2014 2015 2016 receivable turnover 12.67 16.20 19.85 Asset turnover This ratio is useful since it help in measuring how productively an organization is managing its total assets in generating revenue (Chen Shimerda, (1981). Given these considerations, Qantas profit asset turnover was as shown below; 2014 2015 2016 asset turnover 0.88 0.89 0.94 Inventory turnover The ratio is used in measuring organizations management of the inventory, meaning that higher ratio is an indicative of better management performance (Chen Shimerda, (1981). Given these considerations, Qantas inventory turnover for the years was as shown below; 2014 2015 2016 Inventory turnover 23.98 22.18 19.68 Based on the efficiency ratio analysis above, it is evident that Qantas is more effective in terms of its asset management. This is evidence by increased receivable and asset turnover over the past three years. Working capital management ratios These are the financial ratios used by an organization in managing its working capital. The chief working capital management ratio used in analysing Qantas is working capital ratio (Lev Sunder, 1979). Working capital This is a financial ratio used in assessing how effective the firm is managing its working capital. It helps in determining solvency and liquidity level of an organization (Lev Sunder, 1979). In this case, working capital for Qantas for the past three years was; 2014 2015 2016 working capital (2,593.00) (2,421.00) (3,570.00) Based on the working capital analysis above, it is evident that the company was unable or was experiencing hard times in managing its working capital. This is evidence by decreased or negative working capital in the last three years with the year 2016 recording the lowest working capital. Liquidity ratios These ratios are very useful since they highlight the capacity of an organization to meet its short-term financial needs (Lev Sunder, 1979). Some of the liquidity ratios considered in this case are the quick as well as the current ratios. Quick ratio This ratio is very dynamic while comparing an organization capacity is more dynamic and take into account more readily or liquid assets in settling an organization short-term debts (Lev Sunder, 1979). It tries to measure capacity of an organization in settling its key obligations based on its most liquid assets like account receivables and cash. Given these considerations, Qantas quick ratio for the years was as shown below; 2014 2015 2016 quick ratio 0.61 0.63 0.44 Current ratio The ratio is crucial since it assists in measuring the capacity of a given firm to meet all its short-term arrears using its current assets. Here, a decrease in the ratio would means that needs or requirements of current liabilities would be fulfilled by its long-term assets (Chen Shimerda, (1981). Given these considerations, Qantas current ratio for the years was as shown below; 2014 2015 2016 current ratio 0.66 0.68 0.49 On overall, based on the above analysis, it is evidence that Qantas was experiencing some difficulties in settling its short-term debt obligations using its short-term assets. In essence, it can be stated that for the last three years Qantas was not able to settle its short-term financial needs. Solvency ratios These ratios are utilized in measuring the capacity of an organization to meet its long-term debt commitments. In other words, these ratios are used in showing whether an organizations cash flow is adequate in meeting its long and short-term liabilities (Lev Sunder, 1979). With these considerations, debt to equity and interest coverage is used in measuring Qantas leverage level. Debt to equity The ratio shows level at which financial leverage is being used by an organization. An increasing debt to equity shows higher interest expenses (Chen Shimerda, (1981). Given these considerations, Qantas debt to equity for the years was as shown below; 2014 2015 2016 debt to equity 5.05 4.09 4.13 Interest coverage The ratio is used in measuring an entitys capacity to meet its interest expenses on all its debts using its operating income. This means that a higher ratio shows that an organization is in better position in covering all its interest (Altman, 1968). Given these considerations, Qantas interest coverage for the years was as shown below; 2014 2015 2016 interest coverage -13.88 2.19 4.32 On overall, given the above solvency ratios analysis, it is evident that for the last three years, Qantas has had easier time in settling its interest expenses. This is evidenced by increasing interest coverage ratios. Further, based on debt to equity, it is evident that for the last few years, Qantas has been able to reduce its expenses on debt. Trend-analysis In assessing the financial trend of Qantas financial statements, horizontal analysis is used. Horizontal analysis is crucial since it would assist in highlighting changes or variations in numerous aspects of its financial statements considering the financial year 2014 as base year (Chen Shimerda, (1981). In this case, horizontal analysis of the companys statement of the financial position, cash flow as well as income statements is conducted. Horizontal analysis of the Balance sheet Based on horizontal analysis of Qantas balance sheet as shown in Appendix 1 below, it is evident that most of the items experienced significant decrease as from 2015 going all the way to 2016. For instance, the company cash and cash equivalents decreased with -3.2% in the year 2015 and in 2016 it decreased further in -46.9%. Inventories on the other hand are found to have increased in 2015 with 1.6% and in 2016 it increased by 4.2%. Further, on overall total current assets are said to have increased in 2015 with 2.3% while it decreased with -46% in 2016. In addition, the company property, plant and equipment increased with 2.4% in 2015 and increased further in 2016 to 8.1%. Despite the tremendous increase in the company total non-current assets with 0.2% in 2015 and 5.8% in 2916, it is evident that total assets for the company increased with 1.2% in 2015 but decreased with 4.9% in 2016. Further, liabilities both current and non-current liabilities are found to have experienced signif icant decrease with an overall decrease in total liabilities. Nonetheless, its total equity in found to have increased with 16.9% in 2015 but decreased in 2016 with around 5.7%. Horizontal analysis of Qantas Income statement From Appendix 2 below, it is evident that Qantas total revenue increased in 2015 with around 2.43% while in 2016 it increased with 1.60%. On the other hand, the gross profit for the company increased with around 9.98% in 2015 and with 8.54% in 2016. Furthermore, the company recorded vast increase in its operating income in 2015 with around 617.5% and in 2016 the increase was not as much as in 2015 by it was also high at around 37.73%. In addition, income before taxes increased with about 603.93% in 2015 and in 2016 it increased with around 44.59%. On overall, net income for the years increased with 610.41% in 2015 and in 2016 net income increased with 45.87%. Horizontal analysis of Qantas Cash flow As from Table 3 below, it is evident that Qantas cash flow from the operating activities increased with 47.8% in 2015 and with around 27.35% in 2016. On the other hand, its cash flow for the investing activities decreased with around 13.2% in 2015 but in 2016 it increased with 50.91%. Its net cash flow from the financing activities increased with around 114.2% in 2015 and in 2016 it increased with around 33.26%. On overall, the net change in cash increased with around 284.9% in 2015 and with around 89.98% in the year 2016. The tremendous increase in the company cash flows for the last three years is a clear indication that the company is effective in generating cash flow and that it is financially healthy and stable. Conclusion In conclusion, it is evident that Qantas is financially health. This is based on the fact that the company profitability, efficiency and solvency ratios for the last three years have increased significantly.To be more specific, with the increased profit margin, ROA and ROE, it can be concluded that the company management is effective enough in managing its shareholders equity and assets to generate income. Furthermore, with high or increasing interest coverage, it is evident that the company is having easier time in settling its interest expenses. Hence, it would be recommendable for any potential investor to invest in Qantas in order to enjoy high returns given that it has been experiencing significant increase in its sales, gross profit and net profit. References Altman, E., I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The journal of finance,23(4), 589-609. Chen, K., H., Shimerda, T., A. (1981). An empirical analysis of useful financial ratios.Financial Management, 51-60. Lev, B., Sunder, S. (1979). Methodological issues in the use of financial ratios. Journal of Accounting and Economics,1(3), 187-210. MELBOURNE. (2011). ustralian Airline Industry: High fuel prices and strong competition keep profit grounded PRWEB; Retrieved at 12th September 2017 from https://www.prweb.com/releases/2011/11/prweb8983438.htm Qantas. (2011). Qantas airways limited and controlled entities Appendix 4D and consolidated interim financial report for the half-year ended 31 December 2011, Qantas, Retrieved at 12th September 2017 from; https://www.qantas.com.au/infodetail/about/investors/2011HYResults.pdf Qantas. (2016). Qantas airways annual report; Retrieved at 12th September 2017 from; https://www.qantas.com.au/infodetail/about/.../2016AnnualReport.pdf