Financial Performance Analysis Of Qantas Airways

Background and Business – Qantas

Qantas airways the Australian airline company which is one of the largest fleet sizes company in the Australia. The company is the third oldest airline in the international level. The company has been founded in 1920 and from that, the company is continuously raising the business and the growth rate of the business is also higher. Currently, the fleet size of the business is 126 and the company is performing its business at 85 destinations. At the domestic market, company has 65% share and it carries 14.9% of all the passengers who are travelling out and in of Australia (Annual report, 2018).

The financial statement of the business explains that the turnover of the business has been reduced in 2017 from 2016 due to share in the domestic passengers of the company. The financial performance of the business has been improved from last year as well as the overall cash position of the business has also been improved (Bloomberg, 2018).

The current evaluation on the final financial statement of the business expresses the overall performance of the business has been changed in some way as compared to the last year. It has been measured that the income statement, balance sheet and cash flow statement express that how the financial performance, position and cash level of the business has been affected from last year (Morningstar, 2018).

On the basis of the income statement of the company, it has been found that the sell of the Sydney Domestic Terminals have affected the total revenue of the company as well as higher expenses have also affected the net profit of the business. Due to which, the overall net profitability level of the business has been reduced. The evaluation on balance sheet express that the sales of the fixed assets and the issues of new shares are the main reason behind the changes into the financial performance of the company (FT, 2018). Lastly, the cash flow statement adds that the free cash flow of the company has been improved due to the sales of fixed assets and issue of shares.

Economical performance of Airline industry and Australia brief the changes into the government policies and new regulations have affected the total revenue of the airline industry. Entry of Virgin Blue in the industry has also affected the total share of Qantas limited due to which the market share and turnover of the business has been reduced. The decline in the international tourism has also affected the overall performance of the business. Around 24% reductions have been seen in the total tourism of the business. The increment in the terrorist attack is also a reason behind the less turnover of the business (MLA, 2017). The research explains that the customer of Qantas is also reducing by a huge level.  

Further, it has also been realized that the changes into the currency and technological factors have also affected the overall performance of Qantas airways in the Australian market. 

Ratio analysis is a tool which evaluates the profitability level, liquidity level, solvency level, efficiency level etc on the basis of the final financial statement of the business.

Company Analysis

Profitability ratios measure the capability of the business to generate the profit and manage the return of the stakeholders of the business (Fridson & Alvarez, 2011). Profitability ratios of Qantas are as follows:

(Morningstar, 2018)

In this company there is a downfall in return on assets ratio from 6.16 (Year 2016) to 5.03 (Year 2017). This is a good indicator of generating revenue from investment. Major reason of downfall in the ratio is, decrease in the profit as compared to last year profit. The last year profit was high as there was net gain on sale from the Sydney Domestic Terminals. However, Total assets were increased during 2017 due the purchase of New Airplanes and engines (Qantas Annual Report. 2017, p.70). But as compared to industry average which is 2.82, company’s return on assets ratio is relatively high. This seems that Qantas is effectively managing assets to produce a greater amount of income in 2017.

There is also a downfall in return on equity ratio from 32% (Year 2016) to 25% (Year 2017). Major reason of downfall in the ratio is, decrease in the profit as compared to last year profit. The last year profit was high as there was net gain on sale from the Sydney Domestic Terminals (Reuters, 2018). However, Total equity has also been improved due to new share issue in the market.

Return on invested capital also explains about the downfall from 22.70% (Year 2016) to 20.10% (Year 2017). Major reason of downfall in the ratio is, decrease in the profit as compared to last year profit. The last year profit was high as there was net gain on sale from the Sydney Domestic Terminals. However, Total capital has also been improved due to new projects and the investment of the business.

The net profit margin of the business has been lowered from 6.35% to 5.31% in the year of 2017. Major reasons behind these changes are lower net profit as compared to year 2016. The last year profit was high as there was net gain on sale from the Sydney Domestic Terminals which has helped the business to improve the net profit margin (Financial times, 2018). But as compared to industry average which is 5.48%, company’s net profit margin is relatively low. This seems that Qantas is required to manage the performance effectively.

Further, gross profit margin calculations explain that the profitability margin of the business has been improved from 56.62% to 57% in the year of 2017. These changes have occurred due to relations with the suppliers and diversification of the business. Raw material prices have impacted on the gross profit margin level (Gapenski  & Reiter, 2008).

Expenses ratios have been measured further and it has been found that the overall expenses of the company has been improved due to which the other profits factors of the business has been hampered. The expenses ratio has been enhanced due to higher operating expenses.

The total cash return on sales has been lowered. It explains that the passengers have cancelled tickets lower in 2017 as compared to the 2016. These changes have occurred due to new policies of the business regarding the cancellation of tickets.

Analysis of financial statements of the business

Earnings per share of the business were $0.46 and $ 0.49 in 2017 and 2016 respectively. It explains about downfall in the EPs position of the business. These changes have occurred due to lower net profitability position.

Price earnings ratio of the business has been improved due to better market position of the business. It has been found that the stock price of the business has been improved from last year and it has helped the business to manage the performance in the industry (Yahoo Finnace, 2018).

The earnings yield has also been affected by the net profit. Changes into the net profit position has affected on all the profitability factors of the business.

The dividend amount of the business is similar in both the years. It explains that the company is following the relevant dividend policies to impress and manage the shareholders.

Efficiency ratios measure the capability of the business to manage the working capital and the daily operations of the business. Efficiency ratios of Qantas are as follows:

(Babalola & Abiola, 2013)

In this company there is a downfall in asset turnover ratio from 0.97 (Year 2016) to 0.95 times (Year 2017). This is a good indicator of managing the business in lower working capital. Major reason of downfall in the ratio is, decrease in the sales of the business due to lower share at domestic level. The last year sales were high as there was great market share. However, Total assets were increased during 2017 due the purchase of New Airplanes and engines (Qantas Annual Report. 2017, p.70).

The total cash return on sales has been lowered. It explains that the passengers have cancelled tickets lower in 2017 as compared to the 2016. These changes have occurred due to new policies of the business regarding the cancellation of tickets and it has impacted positively on the overall position of the business (4 Traders, 2018).

In this company there is a downfall in asset turnover ratio from 1.22 (Year 2016) to 1.14 times (Year 2017). This explains about better efficiency position of the business. Major reason of downfall in the ratio is, increment in the fixed assets as New Airplanes and engines has been purchased by the business (Qantas Annual Report. 2017, p.70).

Liquidity ratios measure the capability of the business to pay the short term debt obligations to the stakeholders of the business. Liquidity ratios of Qantas are as follows:

(Higgins, 2012)

In this company there is a downfall in current liquidity ratio from 1.22 (Year 2016) to 1.14 times (Year 2017). This explains about lower growth rate in current liabilities as compared to the current assets. Major reason behind this decrement is increment in the cash position due to the fixed assets sale (Annual report, 2018). But as compared to industry average which is 0.78, company’s current ratio is relatively lower (madhura., 2015). This seems that Qantas is required to effectively manage the current assets to improve the performance.

In this company there is a downfall in quick liquidity ratio from 0.49 (Year 2016) to 0.44 times (Year 2017). This explains about lower growth rate in current liabilities as compared to the quick assets. Major reason behind this decrement is changes in the inventory level of the business.

Ratio Analysis

Gearing ratios measure the capability of the business to manage the debt, equity and other sources of funds of the business. Gearing ratios of Qantas are as follows:

(Babalola & Abiola, 2013)

In this company there is a downfall in debt to equity ratio from 173% and 136% (Year 2016) to 147% and 125% (Year 2017). Major reason behind this decrement is increment in the equity position due to issue of new shares (Morningstar, 2018). But as compared to industry average which is 120%, company’s performance is relatively better. This seems that Qantas is effectively managing the performance and capital structure.

In this company there is a downfall in debt ratio from 80.48% (Year 2016) to 79.44% (Year 2017). Major reason behind this decrement is changes in the capital structure position of the business. But as compared to industry average which is 40%, company’s performance is relatively better. This seems that Qantas is effectively managing the performance and capital structure.

In this company there is increment in equity ratio from 20% (Year 2016) to 21% (Year 2017) (Annual report, 2018). Major reason behind these changes is increment in the equity position.

In this company there is reduction in equity ratio from 21% (Year 2016) to 20% (Year 2017). Major reason behind these changes is reduction in the debt level of the business and increment in the cash position of the business.

Lastly, the interest coverage ratio of the business explains that the overall position of the business has been improved (Morningstar, 2018). The reasons behind this are decrement in the interest expenses as the debt amount of the business has also been reduced.

On the basis of the above analysis, it has been measured that the overall performance of the business has been improved in 2017. However, at some of the point, few issues have been faced by the company due to changes in the market and new policies of the business such as decrement in the net profit level of the business.

The evaluation express that the future performance of the business would be better as the growth rate of business is better as well as the profitability ratios brief that the performance of the company is better than the industry. The gearing position express about stability. Though, the business is required to maintain the liquidity level. The likelihood of merger is higher as it would help the business to diversify the business and perform better.

Further, the ethical consideration of the business has been studied and it ha s been found that the business is managing the performance at better level. The stock price and market share has also been taken into concern while conducting the report. The Qantas is suggested to evaluate the operating expenses against and must maintain the liquid performance to improve the position of the business. It is suggested to the investors to invest into the company for long term to get great return.

References:

4 Traders. (2018). Qantas Airways. Retrieved from: https://www.4-traders.com/QANTAS-AIRWAYS-LIMITED-6491449/consensus/

Annual report. (2018). Qantas Airways. Retrieved from: https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2017AnnualReport.pdf

Babalola, Y. A., & Abiola, F. R. (2013). Financial ratio analysis of firms: A tool for decision making. International journal of management sciences, 1(4), 132-137.

Bloomberg. (2018). Qantas Airways. Retrieved from: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=224857084

Financial Times. (2018). Qantas Airways. Retrieved from: https://markets.ft.com/data/equities/tearsheet/summary?s=QAN:ASX

Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner’s guide (Vol. 597). John Wiley & Sons.

Gapenski, L. C., & Reiter, K. L. (2008). Healthcare finance: an introduction to accounting and financial management. Chicago, IL: Health Administration Press.

Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.

Madhura, L. (2015). Financial management. Tata McGraw-Hill Education.

MLA, M. J. J. S. (2017). RE INQUIRY INTO REGIONAL AIRFARES IN WESTERN AUSTRALIA.

Morningstar. (2018). Qantas Airways. Retrieved from: https://www.morningstar.com/stocks/XASX/QAN/quote.html

Reuters. (2018). Qantas Airways. Retrieved from: https://www.reuters.com/finance/stocks/company-profile/QAN.AX

Yahoo Finnace. (2018). Qantas Airways. Retrieved from: https://au.finance.yahoo.com/quote/QAN.AX/

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