Flight Centre Travel: Company Overview

Company History and Operations

Flight Centre Travel is a travel agency which was established in the year 1982 and is headquarter in Australia. The company operates and functions under various names in the United States, South Africa, China, Australia, South Africa, United Arab Emirates, Mexico, Hong Kong, Singapore, and Canada, and certifies its name in the additional 80 countries. Thus, in the US, the company functions under the Travel Associates and Liberty Travel retail brands & GOGO International Vacations as the wholesale brand. Hence, it also operates FCM Travel Solutions, Campus Travel, Healthwise, Stage & Screen, StudentUniverse, Corporate Traveler, and ciEvents. By the end of FY 2020, the company employs around 6,000 people. The Umapped platform combines curated content, real-time location, bookings into the mobile and social tool for travelers via online Umapped API (application programming interface) or Trip Publisher.

In addition, the company also runs its Shep platform for the business travel and FCM Events & Meetings brand combine the international network with a local field. Furthermore, the company was severely influenced by the Coronavirus pandemic, which observed a decline of around 80% in the group’s share price, termination of a formerly announced dividend, & a postponement in the shares trading from March 2020 – April 2020. By the end of 2021, the company generated a net revenue of around $395,907 and on the other hand, it suffered from net loss of around $ (433,456).

Flight Centre Travel Limited mainly operates and runs as the travel agency group. The travel-related brands of the group include the following: Travel Managers Group, Topdeck, GOGO Vacations, Flight Centre, Travelsmart, and many more. The company delivers the services of foreign currency exchange through Travel Money NZ and Travel Money Oz, employee benefit facilities through Moneywise and Healthwise, bike retailing facilities through the FC Business School and FC Travel Academy (TEXTS,2018). It is considered to be the world’s greatest travel agency groups or collections, with more than around 2,000 wholesale, leisure, and corporate businesses in the 11 countries.

The FLT’s key financial highlights and a brief overview are discussed and presented below:

• The company recorded a net loss before tax of around $507.1million throughout the FY2021.
• Underlying FY20 and FY21 losses were moderately similar, though around $660 million in the underlying net losses were sustained in fast weakening conditions throughout the previous four months of 2020, after $150 million underlying PBT for the 8 months of the financial year (Robinson, 2020).
• Whereas, on the other hand, the net sales till June 30, 2021 inflated around 48% in comparison to the previous year (2020). Hence, this solid development or growth, with expenditures increasing diffidently, up to around 8%.
• In the financial year 2021, the United States experienced a strong recovery in both the corporate and leisure travel.
• In addition, the company’s EPS (Earnings Per Share) turns in negative to around $2.17
• The worldwide corporate business donated around 55% of the historic levels of TTV by the year-end of 2021 and generally have been influenced more severely by tighter discretionary travel limitations and cancellations.

• Favourable growth or development in both the corporate and leisure travel, with TTV around 11.2% international throughout the period & chronic to track at the record levels in Jan and Feb.
• While deciding the dividend returns to the shareholders, the company’s board consider various components, which includes the anticipated cash needs to fund its operational and growth plans & current and upcoming economic conditions.
• Further growth in the leisure e-commerce, along with the company’s online businesses creating around $1.2 billion in the TTV throughout the FY2020 after an extremely strong first half.

Financial Ratio Analysis is considered to be the most famous tools for analysing the organization’s financial statements with a purpose of examining the financial health of the organization. The tool assists in delivering valuable insights with respect to the profitability, efficiency, solvency, market, and liquidity position of an organization (Jackson,2021). The computed financial ratios based on the various numerical formulas & quantitative ratios may help the company’s management in measuring their weaknesses & strengths and consequently may simplify the process of financial decision-making. Thus, the different key financial accounting ratios for the financial year 2021 and 2020 have been analysed, presented, and calculated as follows:

This part of the report tries to analyse or inspect the overall profitability performance of the firm with the help of various profitability ratios. However, on the basis of financial calculation, it can be observed that the FLT’s overall profitability position has severely deteriorated in the year 2021 in comparison to prior year 2020. The return metrics have not fared favourably or positive for the company (Griffin & Mahajan, 2019). For instance, the company’s return on equity which is the profitability metric that evaluates the potential or ability of the firm in producing net profits varying exclusively on the shareholders’ funds. But over here, it can be seen that the return on equity was in negative from the past two years which stands at -37.43% in 2021 and -11.59% in 2020 and is also considerably lower than the industry average. Thus, this is exclusively due to a significant net loss produced by the firm in 2021 in comparison to 2020. Moreover, as mentioned above due to the net loss, the return on assets will also be in negative as the firm has not generated any income from its total assets and has not utilized it efficiently. When it is compared to the industry average, the return ratios are not favourable as it is in negative.

Umapped Platform and Shep Platform

In addition, it is not only the return metrics which reflects the unfavourable or weakened profitability position because the various margin ratios also signify the same picture. The group’s net profit margin for 2021 and 2020 stands at -109.48% & -34.88% and is lower than the industry average which is calculated at 6.19%. There are various reasons why the company has suffered from net loss. The primary reason is that Covid-19 pandemic has severely impacted its business operations or it might have more amount debts than the assets which implies that the company is bankrupt or insolvent are some of the reasons behind net loss both in dollars and in percentage. When the costs of production are more than the net revenue for a particular period, then the net profit margin is in negative. However, not only the company has suffered from net loss but it also cannot control its costs that is quite evident from the reduction in the expense ratio from 131.08% in 2020 to 283.25% in 2021. FLT was not being able to cut corners on specific operating expenditures such as depreciation, raw materials, freight costs, impairment charges, external costs, and repairs which all does not cause in the cost savings for the company also contributing to an unfavourable profitability position (Fridson & Alvarez, 2022). Finally, the cash flow to sales ratio also turns in negative in the current year to -230.42% due to a considerable reduction or loss in the operating cash flows for FLT.

On the other hand, the market financial metrics also reflects the FLT’s market performance which is way more crucial from the viewpoint of an investors and shareholders. Due to the net loss which the company was suffering from the past two years, the earnings per share was also in negative that is from AUD$5.522 in 2020 to AUD$2.175 in 2021. Negative EPS indicates that the firm has negative or unfavourable accounting profits. Additionally, on analysing the dividend per share it can be seen that the group has not paid any dividends from the past two years. As it is but obvious if the group has not any dividends paid then ultimately the dividend payout ratio was also zero and is also unfavourable when it is compared with the industry average. Lastly, the company’s price earnings ratio was also in negative and has increased from 0.020 times in 2020 to 0.06 times in 2021. Hence, it must be noted that comparative to a marginal increase in the earnings, the company’s stock price has increased which implies the stock of FLT is not undervalued. Moreover, when it is compared to industry average, the company is not at par as its value is in negative which does not support the fact that stock price of FLT is not undervalued which does not have any considerable growth in the future.

The organization’s efficiency ratios are extremely crucial because somehow, they manage to reflect on the operational efficiency of the group. The three primary ratios that has been selected for analysing or inspecting the FLT’s efficiency positions are the asset turnover, days receivables, and times receivables turnover (Easton et al., 2018). Hence, on the basis of financial ratio computation, it can be observed the overall operational efficiency position of the company has deteriorated in the current year (2021) as compared to previous year (2019). The FLT’s asset turnover reflects on the efficiency or effectiveness with which the resources and total assets of the group are not capable of generating net sales. The metric has decreased significantly to 0.10 times in 2021 from 0.47 times in 2020. Due to a considerable reduction in total net sales, the total resources which is being owned by FLT have also decreased which were not used efficiently in terms of generating net revenue. In addition, the days receivables ratio reveals on the number of days that has been taken by the organization in order to gather credit from the debtors in contraction of accounts receivables due to credit sales. Hence, the metric has increased considerably to 276.07 days in 2021 from 61.48 days in 2020 thus implying the process of credit collection was quite inefficient because the receivables balance has increased considerably in 2021 as compared to 2020. Lastly, the receivables turnover ratio for 2021 and 2020 is calculated at 1.32 times and 5.93 times, indicating that the group is observing more delinquent customers who are not paying or clearing its payment on time.

Financial Ratio Analysis

The organization’s liquidity position is also authoritative because it reflects upon the company’s capability in order to meet its short-term or current obligations by varying upon the short-term assets. Thus, the liquidity performance of the company can be best determined by examining the current ratio and cash flow ratio (Williams & Dobelman,2017). Based on the table and calculation that has been mentioned above, it can be observed that FLT’s liquidity position has deteriorated in the year 2021 as it is clear evident from the calculation of cash flow ratio. The company’s current ratio refers to a liquidity ratio which suggests the total capability of the group for covering or meeting its current debts from its available current assets. On analysing the current ratio of FLT, it can be observed that there is no significant change in the metric in 2021 but the value is greater than one which means that the company is having sufficient cash or liquid assets to cover its debts obligations from its total current assets. Hence, the current ratio pertaining to 2021 and 2020 is calculated at 1.44 times & 1.31 times. When it is compared with the industry average, it can be seen that the company has surpasses the metric marginally. The primary reason behind this is that the value of current assets exceeds the value of current liabilities. The company is also managing or controlling its working capital management efficiently. Lastly, the cash flow ratio of the company indicates the capability of an organization in order to cover its short-term debts from the total amount of cash flows created in the normal course of business operations. Hence, the result has turned into negative into -0.72 times in 2021 and -0.005 times in 2020, which implies that the company has not generated enough net revenues from its essential business operations, & thus it is important to create an extra positive cash flow either from investing or financing activities.

Gearing ratios is also known as a financial leverage ratio or solvency ratios which is considered to be another significant class of financial accounting ratios which assists in measuring the organization’s capability in covering their long-term debts and liabilities. Thus, the ratios also deliver information with respect to the financial leverage, risk of default, and capital structure for a specific organization (Ahmed & Safdar, 2018). On the basis of financial leverage ratio calculation, it can be seen that the overall solvency position has deteriorated severely in 2021 in comparison to 2020. FLT does not seem to relish favourable solvency or leverage position with the high risk of default. Furthermore, the debt-to-equity ratio increased significantly to 59.40% in 2021 from 33.98% in 2020 which implies that FLT of being high geared & having the high financial leverage which increases the financial risk default. Whereas, on the other hand, the debt & equity ratio of the company reflects on the assets total amount which are financed as a consequence of equity financing and debt financing respectively. Hence, it can be seen that the FLT’s debt ratio has increased from 65.71% in 2020 to 70.72% in 2021 while the equity metric has reduced to 24.11% in 2021 from 34.29% in 2020. This implies that FLT’s debt dependency has increased in 2021 which delivers for an unfavourable solvency performance for the company. Hence, the debt ratio is also not at par with that of the industry average which stands at 32.54%, thus implying that the solvency or financial leverage can be more better in comparison to the other players in the sector. Additionally, in the case of debt coverage, the metric was in negative from the past two years and has reduced to -1.14 times in 2021 from -70.38 times which implies that the FLT’s incapability of covering its non-current liabilities from its existing operating incomes have decreased. Lastly, the company’s interest coverage ratio also turns into negative to -18.16 times in 2021 from -34.87 times in 2020, implying that the current earnings of FLT being insufficient to cover its outstanding debt.

Profitability Ratios

On analysing or examining the financial accounting ratios of FLT & comparing the outcomes with previous performance it may be evaluate that the FLT has had an overall weaken financial year & the FY21 has been more unfavourable than the FY2020. With respect to profitability position, the company was suffering from net loss over the past two years and this mainly happens due to Covid-19 pandemic which has severely affected the net revenue of the company. Whereas, on the other hand, the group’s market performance was also not better or favourable and the stocks are also having low growth potential. Moreover, in the case of liquidity position, the group has enhanced its liquidity position which is evident from the calculation of current ratio but the cash flow ratio has deteriorated the position. Finally, with respect to solvency or financial leverage position, the company demonstrates an unfavourable position & is highly geared which increases the financial leverage, consequently maximizing the financial risks of defaults and it also does not have an optimum net capital structure.

2021 has not been a successful year for FLT due to the Covid-19 pandemic which may be indicated by an analysis of the key financial accounting ratios (Yhip & Alagheband, 2020). Hence, as per the discussion mentioned above, it can be said that the company is not likely to perform or function efficiently in 2022 & there are various performance signs which does not reflect upon the potential of growth or development that have been worsened and disused as follows:

1. Inconsistent growth of net revenue with respect to dollar through 2020-2021.
2. Return ratios are in negative over the past two years particularly return on assets and return on equity.
3. Reduction in the earnings per share & the company has not paid any dividend from the past two years.
4. Overvalued stock prices with the lower growth potential which is suggested by the price earnings ratio.
5. Unfavorable liquidity position.
6. The capital structure was not optimum & an unfavorable financial leverage position.

Since the FLT’s vulnerability is extremely high as depicted by the weak financial and operating performance & the group is also not well placed or positioned in order to develop in the upcoming years which is evident from various indicators, hence the likelihood of FLT getting acquired or merging by another firm is not possible.

The external components which must be considered in the case of FLT are discussed and mentioned below:

• Political Factors
• Economic Factors
• Social Factors
• Technological Factors
• Legal Factors
• Environmental Factors

The key financial accounting ratios indicate that the financial performance of FLT is not sound and favourable. Hence, the operational efficiency metrics are where the company’s performance has slightly deteriorated. FLT must efficiently use all its total assets for producing net revenue. Moreover, the company must also concentrate upon the process of credit collection & enhance upon its process in order to see an enhancement in its efficiency ratios.

On the basis of above discussion and analysis, it can be said that investing in the FLT’s stocks cannot be recommended to the possible investors considering the current situation of the group’s financial affairs. 

References

Ahmed, A. S., & Safdar, I. (2018). Dissecting stock price momentum using financial statement analysis. Accounting & Finance, 58, 3-43.

Easton, P. D., McAnally, M. L., Sommers, G. A., & Zhang, X. J. (2018). Financial statement analysis & valuation. Boston, MA: Cambridge Business Publishers.

Fridson, M. S., & Alvarez, F. (2022). Financial statement analysis: a practitioner’s guide. John Wiley & Sons.

Griffin, P. A., & Mahajan, S. (2019). Financial Statement Analysis. Finding Alphas: A Quantitative Approach to Building Trading Strategies, 141-148.

Jackson, A. B. (2021). Financial statement analysis: a review and current issues. China Finance Review International.

Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.

TEXTS, I. A. (2018). Financial statement analysis. Instructor.

Williams, E. E., & Dobelman, J. (2017). Financial statement analysis. Quantitative Financial Analytics. London: World Scientific, 109-69.

Yhip, T. M., & Alagheband, B. (2020). Financial Statement Analysis. In The Practice of Lending (pp. 47-94). Palgrave Macmillan, Cham. 

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