Qantas: Financial Analysis And Performance Review

Income Statement Analysis

Qantas is the largest Australian global and local airline. It is also viewed as the sturdiest brands and prominent airline in Australia. The company operates more than 2,000 flights in every week to around 56 metropolitan, international and regional destinations across the country. The company also holds wider portfolio of investment and businesses ranging from Qantas Freight, Qantas Loyalty, Jetstar, Qantas Holiday, Qantas Link as well as Qantas Catering that create assorted income streams and generate a lot of values for investors and its customers.

The company recorded outstanding performance in 2016/2017 having a total profit before taxation of around $1,401 million which is considered as the second highest in its 97 years of its operations. This shows that the company margin advantage over global and local rivals have advanced which is underpinned by the completion of its major transformation.

Qantas strong outcome are evident via mixed global trading situation with 2% decline in its revenue being offset partially by the total cost improvement of around 1%.  The company remain more focused on creation of chief strategic airline partnership with some strong airline partners as well as optimising its key network. It brings about domestic strength as well as unrivalled client offering of the Qantas Loyalty.  This enables the company to continue building resilient as well as sustainable operation throughout its transformation. It chief operation ranges from operation of both local and global air passage, delivery of the cargo as well as regular flyer trustworthiness programs operations to its customers.

For any organization, the main objective is usually to generate income. The primary objective of the income statements is mostly to report an organization’s total or net profits to the managers, shareholders and potential investors over a given period, so as they could comprehend how the organization is performing it operations or its economic operations. Besides, income statement help reveal significant insights into how efficiently the management would be controlling most of its expenses and costs, amount of interest charged on income, as well as amount of tax paid. Based on horizontal and vertical analysis, it is evident that the company net revenue increased in 2015 to 2016 then decreased in 2017. Its total expenditures decreased with a minimal margin. On the other hand, the company net income increased in 2015 to 2016 then decreased in the year 2017.

Based on Appendix 8.1, 8.2 and 8.3, it is evident that Qantas gross profit increased for the last three financial years; 2015, 2016 and 2017. Its operating income trend increased significantly for the first two years 2015 and 2016 but later decreased in 2016. This is said to result in consistent increase in net income in 2015 and 2016 but a consistent decrease in its net income in 2017.

Balance Sheet Analysis

Besides, through vertical and horizontal analysis under Appendix 8.3 and 8.2 respectively, sales revenue for Qantas experienced a significant growth in 2016 of around 2.62 but the growth decreased in 2017. The growth was followed by significant decrease in its cost of sales resulting in a consistent increase in gross profit over the same period. Its expenditure as the percentage of total sales was significantly high ranging from 93.3% in 2015, 89.86% in 2016 and 91.47% in 2017. Furthermore, its net profit as percentage of the sales remained relatively low from 3.54% in 2015 to 5.31% in 2017.

This is also referred to balance sheet which is viewed as the snapshot of an organization’s financial position or condition. In essence, the statement of the financial position indicated if an organization’s activity was being financed by either liabilities or owners’ equity. It usually indicates how much an organization owns in term of assets as well as how much it owes others in terms of liabilities while the difference between these two components is the equity also referred to as the shareholders’ equity. Based on figure 1 below, the company total assets decreased inconsistently over the last four years. In addition, the total liabilities as well as shareholders’ equity also decreased over time.

In essence, based on Appendix 8.4, 8.5 and 8.6, the company total assets seem to have experienced a slight decrease in 2016 of around 4.71, nonetheless, the total assets in 2017 increased with 3.09% margin from the previous year. Its current liabilities experienced a slight decrease over the past three years. Nonetheless, it total non-current liabilities increase in 2017 with 2.63% resulting to an overall increase in the total liabilities over the same year. Further, the company total equity decreased in 2016 but increased in 2017 with a significant margin of 8.66%.

The cash flow entails or details how organization cash has been used and generated within the period. Besides, it is the form of the financial statement showing or indicating how variations within statement of the financial positions items and profit and loss affect cash in an organization. This comprises of three main segments; that is, cash flow from the operating activities, investing activities as well as financing activities. It assists in determining short-run viability of an organization, especially its capacity to settle its bills. In other words, this is mostly concerned with how cash flow into and out of the firm.

Cash Flow Analysis

Cash flow from the operating activities:  based on the analysis, cash from its operations increased with a significant margin. The capacity for the firm in generating strong cash inflow is not alarming at all.

Cash flow from its investing activities: The cash flow from its investing activities decreased over time.

Cash flow from its financing activities:  The figure decreased over time. The decrease would have been as a result of natural calamities.

ROA: This ratio is viewed as the indicator of how an organization is doing relative to the total assets. It usually provides a general overview as to how efficient an organization’s management. Based on Figure 1 below, it is clear that the entity management was effectual enough in utilizing its assets in generating income.

Return on Equity:  This is viewed as amount of the net profit as the percentage of the total shareholders’ equity. The ratio helps in measuring organization’s profitability by indicating how much income the firm could generate using its shareholders’ equity. The firm ROE decreased and increased inconsistently. The increase and decrease is caused by variation in net income over the period.

These ratios are utilized in assessing how well a given organization utilizes its total assets as well as its liabilities internally. Some of these ratios include the inventory turnover, asset turnover, debtors average days, debtors turnover, creditors turnover credit average days as well as inventory average days. In Figure 1 below, debtors’ turnover has been indicating promising trend over the years with increase over time. The increase means improved efficiency and speedy collection of the amount receivable. Its creditor’s turnover decreased over the past four years. This is a clear signal of reduced capacity in settling debts. The increase in its inventory turnover or inventory days from 15.22 days to 19.79 days is a signal that the company is taking longer in selling its inventories.

Table 1: Efficiency Ratio

Figure 4: Debtors turnover

These are financial ratios utilized in calculating the capacity of a business in settling or repaying its short-term commitments. The ratios examine the capacity of the firm in settling its short-term debts commitment when they come due. In this case, current ratio, cash ratio, cash flow to total debt, quick ratio as well as cash flow to sales ratios would be analysed. The current and acid test ratios for the past four years show that Qantas has not been performing any better in settling its short-run debts commitments. In other words, the relatively low acid test and current ratio is a clear indication that the company has been struggling in settling its short-run obligations. Cash flow to sales is also very low, similarly to cash flow to the debt ratio. Such figures are clear indication of how the company has been struggling in repaying its debts from the operations. In essence, ratio of 0.129 means the company would take around 13 days in settling its principal amount.

Efficiency Analysis

Table 2: Liquidity analysis

Cash flow to debt and cash flow to sales ratios: According to Qantas (2017), cash flow to sales usually compares an organization’s operating cash flows to the total sales or revenue. It provides investors and analysts a signal regarding the capacity of the firm in generating cash from sales or revenues. Furthermore, it shows an organization’s capacity in turning sales or its revenue into cash. Cash flow to debts on the other hand compares organization’s operating cash flow to the total debts. It helps in determining how long the company would take in repaying or settling its total debt commitments in case all the cash flow is devoted to debt repayments.

These ratios also referred to leverage ratios are the financial ratios used in measuring long-run structure and stability of a given organization. They entail degree of the long-term financing of the company. In this case, debt ratio, gearing ratio, debt to equity, interest ratio, as well as equity ratios were computed and analysed. As from Table 1 below, debt to equity of Qantas decreased over the last four years. It also experienced a corresponding decrease in its debt ratio over the same period. Nonetheless, the company equity ratio increased over the period which is culminated in 21% in 2017. This is a clear indication that the company is utilizing equity finance than debt finances.

Table 3: Capital structure

1. Conclusion

Based on the above analysis, it is evident that Qantas experienced significant variation between 2014 and 2017 in its financial performance. Its revenue shows significant growth over the last four years. Besides, based on the above analysis, it is evident that the company is financially weak. Hence, it calls for necessary measures in order to boost its financial performance and health over time. Besides, it can be concluded that Qantas has an outstanding financial performance over the past three years having recorded significant total profit before taxation which is considered as the second highest in its 97 years of its operations. This shows that the company margin advantage over global and local rivals have advanced which is underpinned by the completion of its major transformation.

Based its profitability ratios, it can be stated that the company experienced strong financial results in 2015 and 2016 followed by significant deterioration in the financial year 2017. Its liquidity ratios and capital structure ratio results are clear signs that the company is in greater risk in settling all both its short- and long-term debts commitments.

Income Statement

Ratio analysis-GP margin

Ratio analysis-ROA

Ratio Analysis- ROE

Ratio analysis- Efficiency Analysis

Ratio Analysis – Liquidity Ratios

Ratio analysis – Debt to equity Ratio

 Capital Structure Analysis – Debt ratio

Capital Structure Analysis – Equity ratio

References

4-Traders. (2018). Qantas-Airways-Limited; Retrieved at 30^th April 2018 from; https://www.4-traders.com/QANTAS-AIRWAYS-LIMITED-24735912/strategies/

Infront Analytic. (2018). Ratios valuation of Qantas Airways Limited ( QAN | AUS); Retrieved at 30^th April 2018 from; https://www.infrontanalytics.com/fe-EN/90146AA/Qantas-Airways-Limited/financial-ratios

Investing.com (2018). Financial analysis of Qantas: Retrieved at 30^th April 2018 from; https://www.investing.com/equities/qantas-airways-limited-ratios

Investors. (2018). Qantas Airways Ltd (QAN); Retrieved at 30^th April 2018 from; https://investor.qantas.com/investors/?page=annual-reports

Ipa Journal. (2010). Financial analysis of Qantas: Retrieved at 30^th April 2018 from; ttp://ipajournal.com/uploads/2010/04/Financial-Analysis-of-Qantas.pdf

Morningstar. (2018). Qantas financials; Retrieved at 30^th April 2018 from;  https://financials.morningstar.com/ratios/r.html?t=QUBSF

Qantas (2015). Qantas annual report 2015; Retrieved at 30^th April 2018 from; https://www.asx.com.au/asxpdf/20150828/pdf/430xk0tbkt6ps0.pdf

Qantas. (2014). Qantas annual report 2014; Retrieved at 30^th April 2018 from; https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2014AnnualReport.pdf

Qantas. (2016). Qantas annual report 2016; Retrieved at 30^th April 2018 from; https://www.qantas.com/infodetail/about/corporateGovernance/2016AnnualReview.pdf

Qantas. (2017). Qantas annual report 2017; Retrieved at 30^th April 2018 from; https://investor.qantas.com/FormBuilder/_Resource/_module/AH_NGR9NxUaXc0W8Qv3Kfg/docs/QantasAnnualReport2017.pdf

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