Air New Zealand Financial Analysis

This assignment presents a detailed financial analysis of Air New Zealand. It examines key financial ratios like profitability and liquidity, employs capital budgeting methods like payback period, and analyzes the company's attrition rate as a non-financial indicator. The report concludes with recommendations for improving profitability and financial health.

Running head: ACCOUNTING STATEMENT ANALYSIS
Accounting Statement Analysis
Student’s Name:
University Name:
Author Note

1
ACCOUNTING STATEMENT ANALYSIS
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Comparative balance sheet with horizontal trend analysis:...................................................3
Significant ratios....................................................................................................................6
Conclusion................................................................................................................................10
References................................................................................................................................11

2
ACCOUNTING STATEMENT ANALYSIS
Introduction
The current study critically evaluates the financial as well as non-financial
performance of a firm with special reference to the operations of Air New Zealand. Air New
Zealand is essentially a big passenger and flag carrier airline company with operations based
in Auckland. Essentially, this airline runs scheduled passenger flights to nearly 21 domestic
as well as 31 transnational destinations in around 19 nations. Essentially, this report stressing
on analytical evaluation of performance of the company using non-financial measures refers
to quantitative measures/dimensions of performance that are not reflected in monetary terms.
Again, critical analysis of the corporation Air New Zealand using financial dimensions
namely horizontal trend analysis can help in assessment of different components of financial
assertions that in turn can assist in gaining better understanding of the position and
performance of the corporation.
Discussion
The current section carries out horizontal trend analysis of the financial statements of
Air New Zealand that reflects the changes in the overall amounts of corresponding items of
financial assertions over a specific time period. Essentially, this can be considered to be an
important tool that can be used for analysis of trend analysis.
In this, the financial assertions for two periods are utilized in horizontal trend analysis.
Essentially, the earliest period is normally referred to as the base period and diverse items on
the pecuniary pronouncements for later period can be compared with different other items of
the base period.

3
ACCOUNTING STATEMENT ANALYSIS
Comparative balance sheet with horizontal trend analysis:
AIR NEW ZEALAND LTD BALANCE
SHEET
Incre
ase
Fiscal year ends in June. NZD in millions
except per share data.
2016-
06
2015-
06
Amo
unt
Percenta
ge
Assets
Current assets
Cash
Cash and cash equivalents 1594 1321 273 20.66616
2
Short-term investments 92 103 -11 -
10.67961
165
Total cash 1686 1424 262 18.39887
64
Receivables 300 298 2 0.671140
94
Inventories 103 120 -17 -
14.16666
667
Prepaid expenses 73 71 2 2.816901
408
Other current assets 177 69 108 156.5217
391

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ACCOUNTING STATEMENT ANALYSIS
Total current assets 2339 1982 357 18.01210
898
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 6314 6845 -531 -
7.757487
217
Accumulated Depreciation -2253 -2360 107 -
4.533898
305
Net property, plant and equipment 4061 4485 -424 -
9.453734
671
Equity and other investments 428 230 198 86.08695
652
Goodwill 0
Intangible assets 102 127 -25 -
19.68503
937
Other long-term assets 202 70 132 188.5714
286
Total non-current assets 4793 4912 -119 -
2.422638
436
Total assets 6775 7251 -476 -

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ACCOUNTING STATEMENT ANALYSIS
6.564611
778
Liabilities and stockholders' equity 0
Liabilities 0
Current liabilities 0
Short-term debt 46 239 -193 -
80.75313
808
Capital leases 207 225 -18 -8
Accounts payable 448 453 -5 -
1.103752
759
Deferred income taxes 20 54 -34 -
62.96296
296
Deferred revenues 1055 1111 -56 -
5.040504
05
Other current liabilities 352 389 -37 -
9.511568
123
Total current liabilities 2128 2471 -343 -
13.88101
983
Non-current liabilities 0

6
ACCOUNTING STATEMENT ANALYSIS
Long-term debt 616 841 -225 -
26.75386
445
Capital leases 1453 1262 191 15.13470
681
Deferred taxes liabilities 228 164 64 39.02439
024
Other long-term liabilities 385 405 -20 -
4.938271
605
Total non-current liabilities 2682 2672 10 0.374251
497
Total liabilities 4810 5143 -333 -
6.474820
144
Stockholders' equity 0
Common stock 2286 2252 34 1.509769
094
Retained earnings -351 -351
Accumulated other comprehensive income 30 -144 174 -
120.8333
333
Total stockholders' equity 1965 2108 -143 -
6.783681
214

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ACCOUNTING STATEMENT ANALYSIS
Total liabilities and stockholders' equity 6775 7251 -476 -
6.564611
778
Significant ratios
The ratios that are essential in estimating the trends of business that is the situation in
which the entity is currently in and the ways in which the business will react to the upcoming
future events are called significant ratios. The ratios that are analysed below are the Quick
ratio, Debt Equity ratio and the Net Profit ratio (Bodie, 2013).
Quick ratio
Quick Ratio
Current
Liabilities
($M)
Current Assets
($M)
Inventory
($M)
Current Assets -
Inventory Ratio
FY 2012 1683 1700 170 1530 0.909
FY 2013 1710 1858 155 1703 0.996
FY 2014 1872 1827 169 1658 0.886
FY 2015 2128 1982 120 1862 0.875
FY 2016 2471 2339 103 2236 0.905
Quick ratio = Total Current Assets - Inventories/Total Current Liabilities
The quick ratio represents the entity’s liquidity on a short term basis. An entity has
both short term and long term obligations. The short term obligations are those that are
needed to be paid within the current financial year. Essentially the quick ratio measures the
capability of the liquid assets of the entity in order to pay off the short term obligations. For
instance a quick ratio of 1.8 reveals that $1.80 of liquid assets that is available for the purpose
of covering the $1 worth of current liabilities. Therefore higher the liquidity or quick ratio of
an entity better is its liquidity position (Healy & Palepu, 2012).

8
ACCOUNTING STATEMENT ANALYSIS
In the above table the quick ratio of Air New Zealand has been calculated for the past
five financial years. The total current assets have been identified from the annual reports of
the respective financial years and according to the formula the inventories have been
subtracted from it and then divided by total current liabilities. Therefore the quick ratio that
has been arrived at show the liquidity position of the company. In the financial year of 2012
the liquidity position of the group seems to be fine. In the financial year of 2013 the quick
ratio even improves more lifting the entity to a much better liquidity position. Though the
liquidity position of Air New Zealand worsens in the following two financial years but the
entity seems to improve in the financial year of 2016 thus stabilizing the liquidity position of
the entity (de Andrés, Landajo & Lorca, 2012).
Debt Equity Ratio
Debt Equity Ratio
Total Liabilities ($M) Shareholder's Equity ($M) Ratio
FY
2012 3771 1688
2.234
0
FY
2013 3796 1816
2.090
3
FY
2014 3978 1872
2.125
0
FY
2015 4810 1965
2.447
8
FY
2016 5143 2108
2.439
8
Debt Equity Ratio = Total Liabilities/ Shareholder's Equity
Shareholder's Equity = Total assets - Total liabilities
The Debt Equity ratio essentially measures the financial leverage of the entity. The
debt equity ratio is measured by dividing the total liabilities of an entity by its share holder’s
equity. The specific forecast or indication that is measured by the debt equity ratio is that the

9
ACCOUNTING STATEMENT ANALYSIS
amount of debt that a company has been utilizing in order to finance its assets in relation to
the value that is there in the shareholder’s equity. The debt equity ratio is also known as risk
or gearing ratio. In case of a debt equity ratio the total liabilities is compared to the
shareholder’s equity because this will specifically show the extent till which the entity is
utilizing debts or borrowed sources of money in order to fund the projects of the company.
Aggressive practices related to financial leveraging are often not recommended. This is
because such activities are associated with high levels of risk. The earnings that are incurred
by the entity may result in volatile earnings due to additional interest expense (Li, 2015).
The above table shows a more or less constant debt equity ratio. But such a value is
high enough to indicate that the entity heavily indulges in financing from outside sources.
The ratio though decreases in the financial year of 2013 but it increases in the following
financial years. The entity indulging in financing from outside sources may continue such
operations associated with high levels of risk, if and only if the returns from the project offset
the cost of financing loans from outside. But if this is not the case then the group runs the risk
of going bankrupt. Therefore initiative on the part of the management should be taken to look
into the current situation and lower the rate of financial leverage of the entity (Weygandt,
Kimmel & Kieso, 2015).
Net Profit Ratio
Net Profit Ratio
Net Revenue
($M)
Net Profit
($M) Ratio
FY 2012 715 71 10.0704
FY 2013 898 182 4.9341
FY 2014 1013 262 3.8664
FY 2015 1161 327 3.5505
FY 2016 1542 463 3.3305

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ACCOUNTING STATEMENT ANALYSIS
Net Profit ratio = Net Revenue / Net Profit
The net profit ratio is calculated by dividing the net revenue that is incurred by the
entity and is arrived at by deducting the operating expenses from the gross revenue, by the
net profit that is incurred by the firm. The net profit ratio indicates the profitability of the
entity and is always prepared for a row of past years in order to measure the performance of
the entity on a continuous basis (Needles, Powers & Crosson, 2013).
In the above table as it can be observed the net profit ratio of the entity in the financial
year of 2012 reaches great heights and obtains a value of 10.074, thus signifying a strong
profitability position of the entity. But after 2013 the profitability falls steeply and becomes
stable from the financial year of 2014. Therefore there should be much investigation into the
fact that as to why the entity had incurred such high levels of profit in the financial year of
2013 and why the profitability abnormally did decrease after 2013. A major issue that should
be noted while analysing the net profit ratio is that this ratio estimates or measures the
performance of the firm on a short term basis and does not provide insight into the long term
possibilities of the entity (Weil, Schipper & Francis, 2013).
Capital Budgeting
Methods Capital Investment
Payback Period =1688/1055=1.6
From the above analysis, it can be inferred that payback period of the organization is on the
lower side, which is a very good sign for the organization