Analyzing Business and Financial Statements

Running head: BUSINESS VALUATION AND FINANCIAL ANALYSIS
Business Valuation and Financial Analysis
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BUSINESS VALUATION AND FINANCIAL ANALYSIS1
Table of Contents
Introduction.................................................................................................................................................2
MACROECONOMIC ANALYSIS.............................................................................................................3
Industry Analysis.........................................................................................................................................6
Evaluating the level of competition in the industry where Flight Centre Travel Group operates in and uses
Porter’s five forces model............................................................................................................................6
Rivalry from existing competitors...........................................................................................................7
Threats of new entrants.........................................................................................................................10
Threats of substitute products................................................................................................................11
Bargaining power of customers.............................................................................................................11
Bargaining power of suppliers...............................................................................................................12
Business strategy Analysis:.......................................................................................................................14
Accounting analysis:.................................................................................................................................18
Conclusion.................................................................................................................................................21
Reference List............................................................................................................................................23

BUSINESS VALUATION AND FINANCIAL ANALYSIS2
Introduction
In the modern world, with the advent of science and technology each and every organization
functioning in the economy evaluates their performance with respect to the industrial benchmark of the
economy where the company operates (Bernini and Cagnone 2014). This paper specifically deals with the
assessment of the financial statement for Flight Centre Travel Group by taking assistance of variable
reliable sources like the annual report of the firm in order to gather information. The financial report of
the organization aids in providing information with respect to the operations of the business. Flight Centre
Travel Limited has been found to be one of the biggest retail outlets with the geographical region of
Australia. Flight Centre Travel Limited is an Australian Stock Exchange listed organization and operates
in the travel industry.
The company has been reaping profits for the last few years and with the rise in the level of
competition there has been a requirement for undertaking an analysis of the financial statements of the
firm. The annual report of the organization aids in providing information with respect to the operations of
the business. Furthermore, the use of various analytical techniques that includes macroeconomic analysis,
business strategy analysis, industry analysis and the accounting evaluation for Flight Centre Travel Group
would be helpful in constructing the paper in an effective manner. The paper even analyses the degree of
competition that is present in the travelling industry of the region where Flight Centre Travel Group
functions (Morrison 2013). Porter’s five forces model has even been utilised in this paper as it aids in
evaluating the external environment of Australia and their travelling industry.

BUSINESS VALUATION AND FINANCIAL ANALYSIS3
MACROECONOMIC ANALYSIS
Economic environment of the Flight Center travel group
Economic environment refers to the external variables in the business marketplace and wider
economy that impact on the business (Srisaeng 2015). The economic goal of flight centre travel group
(FCTG) is to positively contribute to the destination economies they work, stay and travel. Economic
environment is broadly classified into two parts that includes- macro environment and microenvironment.
Both these type of economic environment plays a crucial role in assessing this company’s success. They
also ensure that the advantage and burden of tourism are equally shared in the business. The economic
performance of the society to which this organization is connected through their business is vital for this
travel company. As worldwide travel business, FCTG is one of the stakeholders in overall communities
where they mainly operate and the communities where their customers travel. The company focuses on
the key priorities that the helps them in providing data on economic liability for consultants and
generating resources for assisting the education of their customers. They also conduct reviewing of
products that aims in identifying commodities that are potentially detrimental and beneficial on the
economic level.
Global and individual economy influencing this company over the 5 years
Uncertainty in the global economy leads to delay in the growth of FCTG Company over the last
five years. Global recession occurred during the period of 2008-2009 affected the financial performance
of every organization in the world (Vasigh and Fleming 2016). However, FCTG also faces huge losses
during this economic depression period due to reduction in arrivals of foreign tourist. Moreover, this led
to increase in unemployment rate of the Australian economy. As the FCTG Company faces huge loss
during this financial crisis, they strategize to fire their employees in order to maintain their profitability
level. Therefore, this economic slowdown adversely affected their organizational performance over the
years. In addition, economic changes in emerging and less developed economies influence the travel
sector in Australia. Adoption of new economic policies highly influences the FCTG business as number
of foreign visitors reduces. Moreover, implementation new visa policies of the individual economies also
affect the business growth of FCTG.
Future prediction
As the GDP of the Australian economy has been continuously growing over the years, it is
predicted that this FCTG enterprise will expand their business as the credit demand increases. In addition

BUSINESS VALUATION AND FINANCIAL ANALYSIS4
expansionary policy adopted by the Reserve Bank of Australia (RBA) will also help this nation to lower
their inflation rate below the target level (2%). This will reduce the purchasing power of the visitors and
hence this will increase their travel demand ( Woodford 2013). Owing to this, the financial performance
of FCTG will improve and hence this would expand their business in the globe.
Macroeconomic factors influencing company’s performance
The macroeconomic factors are broad economic variables that affect the financial performance
and growth of the business (Mankiw 2014). These factors include- interest rate, GDP, Inflation, oil prices
and population growth. GDP refers to final goods and services that is produced in Australia within the
geographical border of the nation. This macroeconomic indicator is used to measure the economic activity
within Australia. GDP growth rate of the nation is directly related with the financial performance of the
organization. As the Australian GDP has expanded to 0.3% in the current period, it improves the
financial performance of the FCTG Company. Moreover, cyclical fluctuations that are typified by boom
and recession period affects the credit demand of this company. As the GDP of Australia declined during
the recession period (2008-2009), the credit demand decreased and this adversely affected the company’s
profitability. However, during expansion period (2010-2017) the Australia’s GDP again increased and
this raised the credit demand leading to higher profitability growth in FCTG Company.
The rate of interest helps in measuring the return rate that the lenders expect for using their
money. Higher rate of interest curbs the investment in the business and this lowers the profitability level
of the organizations (Goodwin et al. 2013). This is because increase in interest rate shrinks positive NPV
investments in the business. On the contrary, lower rates of interest provide the entities with huge
opportunities of borrowing money at low rate and thus leading to higher profitability. As the Reserve
bank of Australia (RBA) sets lowers the interest rate to 1.5% for the current year, this raises FCTG’s
business spending leading to increase in profitability. Hence, this reduces the financial risk and enhances
the business growth.
Rate of inflation relates to change in goods price level within the economy over a certain period.
Change in rate of inflation influences the consumer’s purchasing power and business cost. However, high
inflation rate reduces the purchasing power owing to low money value and hence decreases goods and
services demand (Frechtling 2013). In addition, it also increases the production cost leading to reduction
in company’s profitability. As the inflation rate rose to 4.4% during the recession period, this increased
the airfare and hence reducing the number of tourist. As a result, the revenue and profitability level of
FCTG Company decreased. After this period, the inflation rate of the Australian economy lowered and

BUSINESS VALUATION AND FINANCIAL ANALYSIS5
this increases the consumer’s purchasing power. Thus, the company’s financial performance improved in
the current period.
Volatility in the oil industry poses risk to this travel agency company. An increase in prices of crude oil
lifts the input cost of the FCTG (Borio 2014). On the other hand, reduction in prices of oil lowers the
airfares and hence spurs travel demand. This however pushes the travel company to expand their business
and attain higher profitability.
Fluctuations in foreign currency rate influences expenditure in destination. Appreciation in
foreign exchange rate adversely affects the financial performance of FCTG owing to lower number of
tourist (Ashimov et al. 2012). Moreover, currency fluctuations expose FCTG to economic uncertainties
and risk in foreign exchange. At present situation, depreciation in foreign exchange rate increased the
number of visitors leading to increase in profitability. However, FCTG fianciak performance improved
from the previous years.
Industry Analysis
Evaluating the level of competition in the industry where Flight Centre Travel Group operates in
and uses Porter’s five forces model
This section mainly deals with external environmental analysis for Flight Centre Travel Group
where the company operates in travel industry in Australia (Flight Centre Travel Group Limited. 2017).
Here, Porter’s five forces model had been used in the study to find out the underlying forces that governs
external environment of the travel industry in Australia. Below is the diagram of Porter Five Forces
Model that had been segregated into five broad forces such as bargaining power of suppliers, bargaining
power of customers, threat from suppliers, threat from customers and competitive rivalry (Flight Centre
Travel Group Limited. 2017).