About Flight Centre Travel Group
Flight Centre is a leading travel agency group in Australia. The company started its business in 1980s and has earned a remarkable growth to become a $20 billion business. It has more than 40 brands and operates in 23 countries along with a travel management network which is spread across more than 90 countries. The group is listed on Australian Securities Exchange with a ticker ASX: FLT. FCTG has approx. 2800 shops, more than 20000 employees, operates under various retail and corporate brands and has fully owned operations in countries like Australia, New Zealand, Singapore, Hong Kong and many more. The vision and mission of the group is to create a specialized brand that facilitates the company to capture and grow ley market segments. The current market price of its share is AUD$ 54.32 (Flight Centre Travel Group 2018).
It is one of the tool used for measuring the changes in the items of final accounts over past years. It computes year to year change in the items and represent it in form of dollars and percentage. The calculation is performed by taking one year as a base and then the change is been estimated for the corresponding year. In other words, analysis reflect the increase or decrease in the items of the statement (Weygandt, Kimmel and Kieso, 2009).
Appendix 1 contains a horizontal analysis of FCTG’s income statement and balance sheet of the past three years which are 2015, 2016 and 2017. The analysis reflects the trend in the net profit of FCTG. It can be seen that in 2016, the profit has been reduced by 5% and the same continues to fall in 2017, by 10%. The maximum profit was earned in 2015 amount to $256,533 million.
Ideally, in order to run a business, % increase in sales should be more than % increase in the expenses. A positive trend was there in the company’s total revenue. The analysis shows that there was an increase in the total revenue by 1%. In 2016, revenue increased by 11% and in 2017, the same rises by 12% as compare to the revenue of 2015. Another item reported in the income statement was ‘other income’, which was highest in 2016 amounted to $12,691 and shown an increase of 102%. The same was reduced by 68% in 2017 (Appendix 1).
Talking about the expenses of the company, its sales and marketing expenses has reduced in 2017 by 11%, when compare to 2015. The same figure was rose by 24% in year 2016. Employee benefits and rental expenses shows a minor increase whereas a 17% and 10% increase was notice in depreciation and other expenses respectively. Along with this, income tax expenditure of the company has also risen by 14% in 2017 as compare to that of in 2015. Due to such upsurge in the expenses, company has reducing trend in its net profits.
Horizontal Analysis
Referring to Appendix 1, the horizontal analysis of FCTG’s balance sheet shows percentage increase or decrease in each of its items.
It is observed that, company’s total assets has increased by 8% and 15% in year 2016 and 2017 respectively. The reason behind such rise is the huge upsurge in FCTG’s property plant and equipment by 31% in 2017. Under the head, non-current assets, the amount of its property and plant was $256,196 million and the same in 2015 was $196,300 million. A huge increase in the investments and other financial assets has also been noticed in the analysis.
Along with total assets, the total liabilities of the company has also risen in past three years, but comparatively less than total assets. An upsurge of 12% in them was there in 2017. The short term borrowings of the company reported an increase of 134% in 2016 and a reduction of 70% in the next year. Accounts payable and the provisions has also risen over the past three years. Under head, Non-current Liabilities, deferred tax liabilities and accounts payable has risen to a great extent. They reported an upsurge of 8679% and 250% respectively in year 2017, as compare to year 2015 (Appendix 1).
As far as, company’s equity is concerned, same percentage increase was there as of total liabilities. The retained earnings rises by 10% and 21% in 2016 and 2017 respectively. Along with, 1% increase was there in group’s contributed earnings but the reserves reported a decrease of 65% in 2017 (Appendix 1).
It is another method used for financial statement analysis which involves the measurement of the relationship between various items of the statements. On income statement, each item is presented as a percentage of total sales or revenue and on balance sheet, the same is shows as a percentage of total assets and liabilities (Godwin and Alderman, 2012).
Appendix 2 covers vertical analysis of FCTG’s statement of profit and loss and statement of financial position for the past years 2015, 2016 and 2017. Looking at the analysis of income statement, it is observed that net profit of the company was 8.62% of the total sales in 2017. In 2015, the same figure was 10.70% of the total revenue. This implies that the net profit has been reduced over the years. In addition to this, group’s EBIT has also decreased in term of percentage. The figure was 16.37% of total sales in 2015 and was reduced to 13.22% of the sales in year 2017. Among all the expenses, employee benefits has highest percentage of sales which was 54.20% in 2017 and 53.55% in 2015. Expenditures like finance costs and depreciation form a minor part of the total sales in the three years.
Vertical Analysis
The analysis of the group’s balance sheet shows that the current asset of the company are 77% of its total asset in 2015 and the number reduces to 73% in 2017. The reverse trend was noticed in the non-current assets of FCTG, as in 2015 they were 23% of total assets and in 2017, the number increased to 27%. Cash in 2017, represents 40% of the total assets which was 49% and 44% in 2015 and 2016 respectively. Talking about the liabilities, current liabilities of the firm were more than its non-current liabilities. They form a major part of the company’s total liabilities, though reduced in the span of three years. In 2015, current liabilities were 96% of total liabilities and the remaining portion was denoted by non-current liabilities. The same figure decreases to 93% in 2017, which increases the portion of non-current liabilities to 7% of total liabilities. The reason behind such huge difference is the accounts payable of the company reported under the head ‘Current Liabilities’, which has been increased during the last three years. They contribute 86% of company’s total liabilities in both years 2016 and 2017. However, the same figure was 65% in 2015. Talking about the equity of the company, retained earnings has the major portion of 71% of total equity and contributed equity has a portion of 28% in 2017. The percentage of retained profits has been increased over the years, which maintains the financial position of the group (Appendix 2).
It is the most common method or technique used for measuring a company’s financial performance. By calculating various categorized ratio, one can clearly have an idea about the performance and position of the organization in the market. Appendix 3 contains a ratio analysis of Flight Centre’s financial accounts which shows its performance in the past three years (Bragg, 2012).
From the above graph and the analysis in Appendix 3, it is seen that the current ratio and quick ratio of the company are almost same and both have reduced in the span of 3 years. Though, the current ratio is less than the ideal ratio of 2:1 and but still FCTG has enough current assets to pay off its current liabilities. Similarly, the quick ratio is more than its ideal ratio of 1:1 which is favourable for the company. Cash ratio has been reduced because of the decrease in amount of cash. Similarly, the cash flow from operating activities has also decreased in 2017 which resulted in the reduced ratio of 0.11 in same year (Appendix 3).
Ratio Analysis
These ratios include debtor and creditor turnover along with inventory and asset turnover ratio. Referring to Appendix 3, the DTR of FCTG has been reduced in 2017 whereas the same figure reported an increase in 2016. Along with this, average receivables days has also increased. This shows that company is not collecting its debtors timely and efficiently. The inventory, compare to the sales was very low and has reduced in the recent past year, which boosted up the ITR from 1520.49 times to 1808.40. This resulted in the reduction of cash amount in the business. Talking about Asset turnover ratio, it shows the amount of revenue generated from the assets of the business. The ratio has decreased which shows a reduction in company’s capability for making revenue out of its assets (Appendix 3).
These are the ratios which shows the profitability position of the organization. All the ratios including return on equity, operating profit margin and return on assets has been reduced over the three years. In 2015, ROE of FCTG was 22% which, in 2017 was 11%. The OPR of the company was 16% in 2015 and the same was 13% in 2017. Likewise, ROA was reported at 15% in 2015 and it reduces to 11% in 2017. One reason behind such decline is the reduction in the amount of net profits. It was the profits of the company which make reduction in these ratios (Appendix 3).
The ratios which reflects the structure of capital of a company are known as capital structure ratios. In Appendix 3, debt to equity ratio shows the portion of company’s assets financed through debt and the portion financed through equity. There was a slightest increase in the ratio which means company’s’ debt has increased and more assets are financed through it. Debt ratio is the one which shows the risk factor of the company. If it is high that means the business has more borrowings and is risker. FCTG’s debt ratio was 0.55 in 2016 and 2017, which means company has maintain its level of debt and has not borrowed any more funds. The equity ratio reduces, along with that, interest coverage also decreases. This implies that group’s potential of making interest payments from its earnings is reduced (Appendix 3).
Conclusion
From the above analysis it can be said that Flight Centre Travel Group is performing quite well in financial aspects. Although its profits and equity returns are reduced, but the company is very good at maintain its debt portion which makes it less risker than the other ones operating in the same industry. From horizontal analysis, it is observed that its total revenue has increased along with the share of profit. Increase in investment and reduction in short term borrowings is also there.
Vertical analysis shows that major part of company’s liabilities is been taken by its net assets. This implies that it has enough assets to pay off its liabilities. Also the retained earnings has increased and form a major part of company’s equity.
Lastly, the result of ratio analysis shows that FCTG has strong position of liquidity but its position of profitability is slightly weak. In addition to this, its efficiency has also reduced. But on a whole, FCTG has performed well and shown positive results in past three years.
Bragg, S.M., (2012). Financial analysis: a controller’s guide. 2nd ed. New Jersey: John Wiley & Sons.
Flight Centre Travel Group (2018). About Us – Flight Centre Travel Group. Retrieved 14 March 2018, from https://www.fctgl.com/about-us/
Godwin, N. and Alderman, C., (2012). Financial ACCT2. USA: Cengage Learning.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., (2009). Managerial accounting: tools for business decision making. 5th ed. New Jersey: John Wiley & Sons.
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