Financial Analysis of Flight Centre Travel Group (FLT) in 2021

This report provides a detailed analysis of FLT's financial performance in 2021, including key financial highlights, economic outlook, and ratio analysis. The report suggests that 2021 has been better for FLT than 2020, with an increase in sales revenue and profitability ratios. However, the company's liquidity and efficiency ratios have declined. The report recommends that FLT should focus on improving its days receivables and debt coverage ratios.

FLT
FIN600 T1 2022
NAME: STUDENT ID:

Student name – ID FIN600 T1 2022
Assignment – FLT
Executive Summary
The current study has given emphasis on evaluating the different types of financial
events that has affected the performance of organization. from the economic outlook it can
be mentioned that there is inclining trend of growth for the particular sector. The ratio analysis
shows the competitiveness, profitability, efficiency, liquidity and gearing of FLT. Future
expectations for the company are high. The company is not capable to attract the investors.
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Student name – ID FIN600 T1 2022
Assignment – FLT
Contents
Page Number
1 Introduction - Background and Business 2
2 Company Analysis - Current financial performance, Key financial highlights,
Economic outlook
3 Ratio Analysis
3.1 Profitability ratios
3.2 Efficiency ratios
3.3 Liquidity ratios
3.4 Gearing ratios
4 Recommendations and overall assessment
5 References/Bibliography
Appendices – attached Excel Spreadsheet
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Student name – ID FIN600 T1 2022
Assignment – FLT
1 Introduction - Background and Business
Financial analysis of company is concerned with evaluating the different statements of
organization in turn strategic decision-making can be done. In the current era, it is important for the
organization to give emphasis on having significant evaluation in the strategic decision via
identifying lacking areas can be done.
The present report is based on Fight Centre Travel agency that is concerned with having the
reliable ability of offering services in aviation sector. The different areas in which it operates
comprise FCM travel solution, corporate travel, etc. the present investigation will highlight on how
effectively FLT is performing by paying attention on its financial information.
Current investigation will pay attention on highlighting the financial and events conducted
in the year 2021 and offering economic outlook so that depth understanding of its monetary position
can be obtained. Present report will emphasize on calculations of ratios and its evaluation in turn
identifying its overall performance as compared to previous year. Political pressure & external
environment impact on FLT and suggestion for improvement on the basis of ratios will be involved
in current report. The decision for investing or not in FLT will be highlighted in the present study.
2 Current Financial Performance, Key financial highlights, Economic outlook
Financial performance is related with having the effective evaluation of organizational
monetary aspects by referring income, financial position and cash flow statement so that appropriate
insights for decision-making can be done (Palepu and et.al., 2020). FLT is one of the successful
organization operating on larger scale by focusing on different target market. For gaining the
reliable success in the current era, firm largely focuses on having reliable financial activities that
can positively its growth & development.
Financial highlights/events of 2021
In the period of 2021, the organization has given emphasis on developing different kinds of
the strategies so that higher productiveness and profitability can be achieved. 2021 is the year when,
taking crucial actions has become important in respect to get the higher profitability and
sustainability via overcoming impact of COVID 19. In the financial terms the firm has adversely
got affected due to the various restrictions prevailing in environment that has declined its operating
activities and affected overall performance. In the year 2021 the sales revenue of the organization
has inclined which is due to the increase in leisure and corporate h recovery in USA.100% client
retention has enabled the firm to get the appropriate which has allowed to get the ability to obtain
the appropriate position in leisure market share. This has provided assistance to get the appropriate
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Student name – ID FIN600 T1 2022
Assignment – FLT
ability to coordinate with changing circumstances via making effective evaluation has become
possible. In the current period as mentioned firm has taken the crucial action of implementing
proactive capital management strategy so that refinanced bank debt with extended covenant relief
achieving has become possible. On the basis of this, it can be mentioned that this particular action
in order to manage the financial activity for gaining the positive short term outlooks has given help
in gaining appropriate ability to achieve profitability & sustainability. The financial activity that is
taken into the consideration by the firm for gaining the reliable output involve paying attention on
prioritizing.
There is execution of the strong investment which tend to provide the company 98.5% client
retention in FCM. From the assessment of the financial performance as compared to the previous is
lower but company has given emphasis on providing the reliable returns to investors in turn
accomplishing the objective of higher retaining stakeholders for longer duration has become
possible. There has been reduction in the retained employee government subsidies which has
affected the functioning of the organization (Easton and et.al., 2018). The major growth drivers are
found from the evaluation of the year 2021 is that new businesses in Americas. There is declination
of cost as well which has certain impact on the financial position of the company has in 2021
reached to 601710 from the 848586 which is the expenses of year 2020. There is loss in the earning
per share as reduced to 552.2 from 217.5 that is the negative indication of its financial health. Cash
flows from the operating, financing and investment in the year 2021 is lower than year 2020 which
tend to show that there is requirement of taking certain crucial actions in order to gain profitability.
Economic Outlook
From the assessment it can be specified that there is positive outlook for the company. The
main reason behind this is to the removal of all the related restrictions which is helping the
company to operate successfully in order to generate profitability (Economic Performance of the
Airline Industry, 2022). There are distinct economic factors such as GDP, employment
opportunities, etc. which are positively affecting the performance of the organization that tend to
give higher results to comply with the expectations of firm. The main reason behind this is that
there is projected grow of 5% from the year 2020 to 2030. In addition to this, the economic outlook
is found to be positive for the specified organization as there is higher level of positive impact from
the inclined standard of the targeted customer can be seen. The global economic development is
helpful for the specified industry to gain the ability and support for the purpose of uplifting its
financial performance.
Economic outlook for the mentioned organization is found to be positive due to help from
the different types of the aspects so that achieving the higher performance via attracting & retaining
targeted audiences is possible for the organization. There is favourable change is found in having
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Student name – ID FIN600 T1 2022
Assignment – FLT
break-even load factor revenue, ASK growth, per passenger, post tax profit, etc. for this sector
which is indicating its success (UK & Europe on sale now, 2021). On the basis of this, it can be
mentioned that there is favourable economic outlook which is helpful for FLT to ensure its success,
profitability, etc. so that significant s value of firm can be derived. There are certain changes in fuel
taxes which can affect the functioning of firm.
3 Ratio Analysis
3.1 Profitability and Market ratios
(see appendix for
calculations)
2021 2020 Industry average
Return on equity -37.43% -48.70% 12.49%
Return on assets -11.99% -16.70% 5.64%
Net profit margin -109.48% -34.90% 6.19%
Expense ratio 283.25% 131.08% n/a
Cash flow to sales -230.42% -0.56% n/a
Earnings per share –
FLT recorded a
“Loss” per share
AUD-$2.175 AUD-$5.522
n/a
Dividends per share AUD$0.00 AUD$0.00 n/a
Dividend payout ratio 0% 0% 69.33%
Price earnings ratio -6.82 times -2.01 times 36.05 times
The profitability of FLT has improved in some segments and further became worse in some
of the areas. The return of equity, assets, expenses has improved while the net profit margin, cash
flow to sales ratio and price earnings ratio shows the unprofitability of the company. The loss per
share recorded previous year was -$5.522 the firm has incurred loss per share in the current year as
well but the loss has fallen to -$2.175.
The improvement in the ratios is due to less loss incurred in the current year as compared to
the previous year. The revenue earned by the firm has increased this year and the expenses have
also lowered this year in comparison to previous year. The decline in growth for the previous year
was due to the pandemic restrictions but as the restrictions on travel has been lifted the company is
stabilizing (Husain and Sunardi, 2020).
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Student name – ID FIN600 T1 2022
Assignment – FLT
3.2 Efficiency ratios
(see appendix for
calculations)
2021 2020 Industry average
Asset turnover 0.109 times 0.47 times n/a
Days receivables 276 days 61.48 days n/a
Times receivables
turnover
1.33 times 5.93 times n/a
The efficiency of the company has declined in comparison to the previous year. The assets
turnover ratio indicates the company’s efficiency to generate profits out of its assets employed. The
efficiency of FLT to generate revenue out of utilization of its assets has fallen. Days receivables
indicates in what number of days’ company is able to receive amount receivable from its debtors
that days for the year 2020 were around 61 days approximately company should have tried to
improve this collection period but the collection period increased to 276 days indicating the
inefficiency of the company. It is very important for the firm to improve its days receivable as
receiving the amount from the debtors on timely basis will enable the firm to make best use of the
money (Wanke and et.al., 2019). Also money is more valuable when received earlier. An efficient
company earns more by effectively utilizing the assets and funds invested.
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Student name – ID FIN600 T1 2022
Assignment – FLT
3.3 Liquidity ratios
(see appendix for
calculations)
2021 2020 Industry average
Current ratio 1.44:1 1.31:1 1.22:1
Cashflow ratio -0.72 times -0.005 times n/a
The current ratio of the company has improved from the past year. The improvement in the
ratio is due to decrease in the current liabilities of the company. The resultant cash flow of the
company decreased for the company in current year. FLT should try to maintain its liquidity ratio
and prevent it from increasing as the increasing current ratio will mean that the firm is not utilizing
its current assets optimally (Ardekani, Distinguin and Tarazi, 2020). It is essential for a company to
maintain its liquidity in order to remain capable enough to pay for the short term obligations of the
company. Although the current ratio indicates that the liquidity of the firm is good but in reality the
firm has incurred loss and cannot pay for its short term obligations. It indicates that the firm’s
current assets are not liquid enough meaning not convertible into cash easily. The reason is that the
debtors of FLT takes a longer time to pay for their obligations with the company.
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Student name – ID FIN600 T1 2022
Assignment – FLT
3.4 Gearing ratios
(see appendix for
calculations)
2021 2020 Industry average
Debt to equity ratio
(reported)
59.40% 33.98% 73.86%
Debt ratio 70.72% 65.71% 32.54%
Equity ratio 29.28% 34.29% n/a
Debt coverage -1.14 times -70.38 times n/a
Interest cover ratio -18.16 times -34.87 times n/a
The gearing ratios of the company has increased majorly as compared to the last year. These
ratios indicate that the company’s reliability or dependence on the debt source of finance has
increased. FLT has made this change in the capital structure of the company to raise funds for
meeting the need for the expansion and growth perspective of the company. Debt to equity ratio of
the firm are compared to the industry average is low it indicates that the company is more
dependent on equity for the finance than on the debt. FLT debt to equity ratio comparison of two
years shows that the company is moving towards increasing its debt to equity ratio by raising more
funds through debt. Debt ratio comparison of company from the industry average shows that the
average total liabilities to total assets ratio of the firm is high (Abed and et.al., 2020). It means that
FLT have high amount of total liabilities. Debt and interest coverage ratio of the firm is unfavorable
as it indicates that the firm is not capable in paying its current obligations and interest payments.
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Student name – ID FIN600 T1 2022
Assignment – FLT
4 Recommendations and overall assessment
Has 2021 been better than 2020 for FLT?
The year 2021 has been better for FLT than 2020. The company has recorded high sales than
the previous year. 2020 had been a tough year for the company because of the COVID-19 pandemic
circumstances. The quarter 4 of 2021 recorded rapid recovery in USA regarding leisure and
corporate. The return of equity, return on assets and expense ratio of the company indicates its
increase in the profitability. Net profit ratio of the company has fallen. It is recommended for the
company to spend more on the advertising the company this will help the company majorly to
increase its revenue sales.
The efficiency of the company needs to be improved (Flight Centre Travel Group
Introduces Targeted New Staff Retention Initiative. 2022). For increasing the efficiency of the
company it is recommended to improve the operations of the flights. Efficiency in operations can be
brought by using more advance and efficient technology.
The liquidity can be improved by the company by reviewing its assets and using them as
collateral in order to raise cash. The assets and SALB (sale and lease back) can also help the
company to get immediate cash (Liang and Parkinson, 2020). This will result in improving the
working capital position of FLT. Further company can look for the ways to reduce its costs in the
potential areas. Opportunities for defer payments can be grabbed successfully. Effective cash flow
management will help.
Will FLT succeed in the future?
With the gain in the momentum of vaccination programs globally the hope for the come to
experience further rise in the revenue has got stronger. The company is trying to invest more in the
online market, this decision by the will be very fruitful in the upcoming year. Relaxation in the
travel restrictions will impact the future of the company positively (Leamon and et.al., 2019). The
opportunities for the FLT to capture increasing market share are high. The new growth model of the
company has potentiality to succeed. The bank debt has been refinanced extended the covenant
relief for the company. The issue of convertible bonds of $AU400m will ensure the availability of
substantial funds with the company for growth perspective.
The likelihood of a merger or acquisition for FLT
On the basis of the ratios computation of FLT it is clear that in the current position of the
company the company is likely to merge with other company or get acquired by any other company
as the profitability and efficiency of the company is not good. There are various reasons based on
which and the ratio analysis of FLT is can be made clear.
The motive behind the company to merge or get acquired by other company can be to enjoy
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Student name – ID FIN600 T1 2022
Assignment – FLT
the benefits that comes with economies to scale. The market share of the firm can be increased
leading to increase in the revenue generation by the firm. This will enable the firm to increase its
profit margin (Segal, Guthrie and Dumay, 2021). Acquisition can also be done to acquire new
technology or expertise of some other competitive firm and earn high profits through the employing
the technology and expertise within the business. Mergers or acquisition will enable the firm in
value creation. FLT can diverse itself geographically either through a, merger or by being acquired.
The firm can integrate itself vertically (Flight Centre Travel Group's 2021 EOFY results released,
2022). As per keeping in view the profitability and efficiency of the firm it is less likely to get
acquired but more likely the firm can merge with other companies and both the companies can be
benefited together from their effective merger. According to the taxation aspect of the company the
company can also save taxes by doing this. Many opportunities get opened up through merger. FLT
is also likely to merge with other company based on the financial motives of the company.
The impact of the political competitive environment on the business
External factors that need to be taken into consideration
The impact of political pressure and other external factors can be better described and
understood through the PEST model. PEST is an external environment analysis tool that analysis
the political, economic, social and technological factors impacting the environment of the business
indirectly.
Political Factors: There is significant impact of political factors on the FLT. These factors
influence is visible in the long term profitability of the company. The company operates in various
nations that make it exposable to the political conditions of each nation in which it operates
(Olaganathan, 2021). Stability in the politics of the various nations impact the company positively.
The instability arising in the political condition of any country in which the company operates is
unfavorable for its smooth functioning. High tax in the related countries increase the costs for FLT.
Economic factors: Economic system that exist in the operating country implies its impact
over FLT. The stability in host country’s currency plays an important role. The level of education
impacts the company as it is linked with the availability of required personnel in the company. High
inflation and interest rates have negative impact over the company.
Social Factors: The increasing trend in society to travel entails positive impact over the
company’s operations. Increasing leisure interests of the population attracts more number of
consumers assuring more sales for the company.
Technology: Type of technology used in airline sector impacts the success of the company
majorly, as technology used is linked with the customer satisfaction (Navin, Weiler and Anderson,
2020). Utilization of recent advancements in the technology impacts the company positively as the
customer satisfaction gets maximized.
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Student name – ID FIN600 T1 2022
Assignment – FLT
Suggest what should FLT be doing help it succeed
Return on equity needs to be improved. The data and ratios calculation shows that the net
loss is generated by FLT for the year 2021 and 2020. The company can improve its return to equity
ratio by using financial leverage. Financial leverage can be used more by raising funds through debt
sources of finance doing this will enable the company to improve its returns on equity (Puigcorbé,
Masqué and Le Moigne, 2020). The focus should be on increasing the net margins of the company.
Return on assets ratio is suggested to be improve by prioritizing the increase in net income.
Total assets are suggested to decrease by eliminating the least profitable or unprofitable assets.
current assets require to made more efficient.
It is suggested for the company to increase its revenue. Revenue can be increased by
focusing on aggressive marketing activities aiming at maximizing the market attention. This will
lead the firm to earn more further the firm can follow cost reduction techniques to make its cost
optimum. Low cost strategy can be employed by the firm. The weight of the aircrafts can be
reduced by elevating the dead parts this will save the cost of fuel as less fuel will be consumed. Old
aircrafts are suggested for replacement; this will attract more passengers to travel in new aircrafts
(Sun and et.al., 2018). The routes for the flights can be reviewed and alternate airports can be used
for shorter routes. The flight prices can be made reasonable for inviting more customers.
Expense ratio can be improved by reducing the expenses of the firm. The firm’s expenses
over interest and finance charges are high the company should try to reduce these expenses. Cash
flow to sales ratio needs improvement. For improvement it is suggested for the company to keep a
check over its operating outflows. Operating outflows can be reduced by paying less salaries to
employees, getting materials from suppliers that low or discounted rates results in low payments of
cash to them. Cash collection from the customers can be improved by increasing sales or changing
the price strategy. Company can invest more to receive interest and dividends through increasing its
investing activities. Income tax payments can be lowered down seeking the means that results in
low tax payments.
Earnings per share can be increased by earning more profits by increasing sales volume and
reducing costs. Assets turnover ratio can be improved by increasing revenue generated from sales.
Improvements can be made in the managing the inventory. Assets can be sold off that are not
required. Further new assets are suggested to considered acquiring on lease rather than buying them.
The collection from the debtors is suggested for acceleration. Inventory management should be
computerized along with the order system (Lin, Chung and Lan, 2020). Inventory management will
enable the firm to forecast more accurately, opportunities for revenue gets optimized, inventory
control of multiple flights can be leveraged in real time, data visualization gets customized.
Further for improving the receivable ratio in times and days can be improved by increasing
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Student name – ID FIN600 T1 2022
Assignment – FLT
the good relationship with the consumers, invoice preparation should be accurate and timely,
payments terms should be included that made clear with the clients, payments terms should be
short. Faster payment collection can be done by providing discounts on early payments further
cloud based software can be used to keep track of accounts receivables. Billing structure is
suggested to be simplified. Frequent follow up from debtors could be of help.
Current ratio requires improvements to reach the ideal position. Current ratio is improved by
increase in the current assets and decrease in the current liabilities. The part of long term liability in
the current liability can be removed. Cash flow ratio can be improved by the company by reducing
the current liabilities and increasing the operating inflows of the company.
Debt to equity ratio indicates the capital structure of the company. The debt to equity ratio
must be balanced. The company should on depend over one source as a source of finance instead it
must have combination of sources of finance. Debt ratio of the company is suggested to be
improved by decreasing the total liabilities and increasing the total assets (Fcm, 2022). Total can be
increased by acquiring recent technological assets on lease. Liabilities can be decreased by paying
off the existing ones. A good debt ratio is suggested to be maintained for attracting investors.
Debt coverage ratio indicates the company’s ability to pay for its long term liabilities. The
firm has net cash outflow from its operating activities this results in incapability of the firm to pay
for its obligation from available cash flow of the company. Increase in net operating income will
improve the ratio. Interest coverage ratio is suggested to be improved by increasing the earnings
before interest and tax. High interest coverage ratio means that the company can pay for its interest
obligations easily.
Would you invest FLT?
Based on the analysis of ratios it is not viable to invest in the company as the profitability of
the company is not good. Company has been in loses for the past years. Keeping in view the current
financial position of the company is not ideal to invest in. The efficiency of the company is also not
promising. It is an inefficient organization. Net cash from the operating activities is negative. The
pandemic has hit the company badly. Firm has not distributed dividends from past two years. The
decision of investors is based on the debt coverage and interest coverage ratio of the company.
The company is not efficient enough of meet its current obligations also. Assets turnover
ratio indicates that FLT earns very less amount using its assets. The assets are underutilized by the
firm. Poor efficiency of the frim in recovering the amount from its debtors. Further the basis
regarding the decision of not investing in the company is also taken keeping in view that the
company has generated negative earnings per share (Roychowdhury, Shroff and Verdi, 2019). Price
earnings ratio which is major indicator of a firm’s profitability, indicates that the profitability of the
firm is poor. The price earnings ratio is negative for the company. All the factors that highlights in
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Student name – ID FIN600 T1 2022
Assignment – FLT
assessment made on the basis of ratio indicates that the firm is unattractive to receive invest from
the investors.
Conclusion
On the basis of the report the meaning and importance of financial analysis has been made
clear. The report has given a brief description of the Fight Centre Travel agency and the sectors in
which it operates.
This report has outlined the current financial performance of the company. Key financial
indicators has been highlighted along with the economic outlook of the company. The report has
analyzed the ratios of FLT, that indicates the profitability, efficiency, liquidity and gearing of the
company. Recommendations has been giving by discussing why year 2021 has been a good year for
the company as compared to the year 2020.
Future success aspect of the company has been evaluated. It has been concluded that the
company is likely to be merged with other company of have the benefits and improve its market
standing. An analysis of the external environment of the company has been done by using the PEST
analysis tool. Suggestions has been made for the company to improve its profitability, efficiency
and liquidity. Lastly why FLT is not worth investing has been justified.
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Student name – ID FIN600 T1 2022
Assignment – FLT
5 References/Bibliography
Books and Journals
Abed, I. A. and et.al., 2020. A Systematic Critical Review of Creative Accounting and Financial
Reporting. Technol. Rep. Kansai Univ. 62. pp.5113-5130.
Ardekani, A. M., Distinguin, I. and Tarazi, A., 2020. Do banks change their liquidity ratios based on
network characteristics?. European Journal of Operational Research. 285(2). pp.789-803.
Easton, P.D and et.al., 2018. Financial statement analysis & valuation. Boston, MA: Cambridge
Business Publishers.
Husain, T. and Sunardi, N., 2020. Firm's Value Prediction Based on Profitability Ratios and
Dividend Policy. Finance & Economics Review. 2(2). pp.13-26.
Leamon, M. A. and et.al., 2019. Sustainable skies: how the airline industry is addressing climate
change. Journal of Strategic Innovation and Sustainability. 14(2). pp.85-112.
Liang, N. and Parkinson, P., 2020. Enhancing liquidity of the US Treasury market under
stress. Hutchins Center on Fiscal and Monetary Policy at Brookings Working Papers. (72).
p.16.
Lin, K. Y., Chung, C. C. and Lan, C. C., 2020. Improving the dynamic force control of series elastic
actuation using motors of high torque-to-inertia ratios. IEEE Access. 8. pp.6968-6977.
Navin, J., Weiler, S. and Anderson, A., 2020. Wildlife strike cost revelation in the US domestic
airline industry. Transportation research part D: transport and environment. 78. p.102204.
Olaganathan, R., 2021. Impact of COVID-19 on airline industry and strategic plan for its recovery
with special reference to data analytics technology. Global Journal of Engineering and
Technology Advances. 7(1). p.33.
Palepu, K. G and et.al., 2020. Business analysis and valuation: Using financial statements. Cengage
AU.
Puigcorbé, V., Masqué, P. and Le Moigne, F. A., 2020. Global database of ratios of particulate
organic carbon to thorium-234 in the ocean: Improving estimates of the biological carbon
pump. Earth System Science Data. 12(2). pp.1267-1285.
Roychowdhury, S., Shroff, N. and Verdi, R. S., 2019. The effects of financial reporting and
disclosure on corporate investment: A review. Journal of Accounting and Economics. 68(2-
3). p.101246.
Segal, S., Guthrie, J. and Dumay, J., 2021. Stakeholder and merger and acquisition research: a
structured literature review. Accounting & Finance. 61(2). pp.2935-2964.
Sun, C. and et.al., 2018. Improving production of volatile fatty acids and hydrogen from microalgae
and rice residue: effects of physicochemical characteristics and mix ratios. Applied
Energy. 230. pp.1082-1092.
Wanke, P. and et.al., 2019. A dynamic network DEA model for accounting and financial indicators:
A case of efficiency in MENA banking. International Review of Economics & Finance. 61.
pp.52-68.
Online
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Student name – ID FIN600 T1 2022
Assignment – FLT
Appendices – FLT Appendix Excel Spreadsheet
Economic Performance of the Airline Industry. 2022. [Online]. Available through:
<https://www.iata.org/en/iata-repository/publications/economic-reports/airline-industry->
>>>>economic-performance---november-2020---report/>
Fcm .2022. [Online]. Available Through: < https://www.fcmtravel.com/en-in>
Flight Centre Travel Group Introduces Targeted New Staff Retention Initiative. 2022. [Online].
Available through:< https://www.fcmtravel.com/en/resources/news-hub/flight-centre-travel-
group-introduces-targeted-new-staff-retention-initiative >
Flight Centre Travel Group's 2021 EOFY results released. 2022. [Online]. Available through:
https://www.fcmtravel.com/en-us/resources/news-hub/fctg-2021-eofy-results-released
UK & Europe on sale now. 2021. [Online]. Available through:
<https://www.flightcentre.com.au/deals/europe-uk?int_source=int-
banner&int_medium=main-banner&int_campaign=fc_campaign_ukeurope>
leave this page blank and submit Appendix in .xls format as a separate file
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