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FINA6017 - Financial Management - Report

   

Added on  2020-03-01

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FINANCIALMANAGEMENTQANTAS – A Turnaround StorySTUDENT ID:[Pick the date]

Financial ManagementExecutive SummaryQantas is the national carrier of Australia and along with Jetstar operates domestic andinternational flights. The objective of the given report is to critically analyse the financialstatements using ratio analysis and trend analysis in order to understand the financialperformance of the company in the last five years. Further, the report aims to picture thelikely future performance of the company based on current turnaround in the company. Also,the report highlights the ethical implications of bankruptcy along with potential externalfactors for mergers and acquisitions in the context of Qantas. Lastly, the role of the politicalenvironment in the context of airline industry and more specific Qantas has also beenhighlighted. Based on the above discussion, recommendation has been provided with regardsto investing in the Qantas stock.IntroductionQantas Airways Limited (QAN) is a well-known Australian air transportation company.Qantas is a listed company on ASX which operates on both international as well as domesticroutes with revenue almost equally divided between the two. The strength of the workforce isnearly 28,000 who are predominantly working in Australia. The Chairman of Qantas AirwaysLimited is Mr. Leigh Clifford and Chief Executive of the company is Mr. Alan Joyce. Themain headquarters of Qantas is located in New South Wale Australia. In the year 2016, thetotal revenue of Qantas Airways Limited was $16,490 million (including other and salesrevenues). Till now, the company has owned fleet of 299 aircrafts which includes 11 fulltimefreighters aircrafts. The main airlines brands of Qantas are Jetstar and Qantas. However,company also operates other businesses and airlines such as Q-Catering, Qantas freight,Qantas frequent flyer (Qantas, 2016). Jetstar – Domestic and internationals routes mainly in Australia, Japan and New Zealand.Approximately, 4000 flights in single week to more than 60 destinations across 17 countries(IBIS, 2017b).Qantas – Huge network of domestic and international flights with four travel classes. Fulldomestic network makes it more of a regional airline in Australia. Nearly, 2000 flights in asingle week (IBIS, 2017b).Q- Catering – Snap fresh and Q- catering which run nearly five catering and foodservice/production centres in Australia. (IBIS, 2017b).

Financial ManagementQantas frequent flyer –One of the imperative program of Qantas which is based on loyalty ofmore than 10 million users (IBIS, 2017b).Analysis of Financial StatementsThere are three main financial statements namely the income statement, balance sheet andcash flow statement which need to be analysed in order to provide a glimpse about the overallfinancial position and operational performance of the selected company.Income StatementBased on the income statement of the last five years, it is apparent that the revenue growthhas been rather muted due to which there is negligible top line growth. This may be attributedto the fierce competition that the company faces in both domestic and international flights. Indomestic flights, the company faces high competition from Virgin Australia and hence thecompany has actively focused on increasing flight capacity and market share. Going forwardalso revenue growth is not expected in this sector. In international travel, the company facescompetition from various international players particularly Emirates which is responsible formuted topline (Qantas, 2014). With regards to operating profits, it is apparent that 2014 was aparticularly difficult year for the company since the company reported huge losses and alsoasked for government support. However, the EBITDA margins of the company havecontinuously improved which augers well for the business especially when topline growth isabsent. This improvement in topline may be attributed to the transformation programundertaken by the company to rationalise costs and because of the declining fuel costs. Afterreporting a net loss of $ 2.84 billion in FY2014, the company has turned around to report aprofit after tax of $ 0.58 billion and $ 1.03 billion in FY2015 and FY2016 respectively(Qantas, 2016).Balance SheetWith regards to balance sheet, a noticeable trend has been the decrease in short term and longterm borrowings over the years which augers well for the company especially at a time whenthe company is upgrading the fleet to increase capacity and improve services. Also, it isnoticeable that in FY2016, there is a decrease in the share capital caused due to the sharebuyback announced by the company (Qantas, 2016). Further, owing to a huge loss inFY2014, the retained earnings of the company even in FY2016 continue to be negative,however with high earnings in both FY2015 and FY2016, the losses have been largely

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