Investment Decisions - Qantas Airways Limited

Running Head: INVESTMENT DECISIONS 1
INVESTMENT DECISIONS

INVESTMENT DECISIONS
Contents
Overview..........................................................................................................................................3
Horizontal Analysis.........................................................................................................................3
Vertical Analysis.............................................................................................................................5
Next year budget propositions.........................................................................................................6
Recommendations............................................................................................................................8
Innovator’s dilemma........................................................................................................................8
References........................................................................................................................................9

INVESTMENT DECISIONS
Overview
Qantas Airways Limited is an airline service that is largest airline by its size,
international coverage and the flights. The company that was predominantly founded in
Queensland, on 16th of November in the year 1920, by Hudson Fysh, Paul mc Ginness and
Fergus McMaster. The total fleet size of the company is 132 and the total destinations covered
by the airline are 85. The company is traded as QAN on Australian Stock exchange and there are
primary as well as secondary hubs where Qantas operates.
Virgin Australia, on the other hand is also one of the largest airline service provider who
commenced its operations in the years 2000. It abruptly wound up as a significant carrier in
Australia's local market after the breakdown of Ansett Australia in September 2001. The aircraft
has since developed to legitimately serve 42 urban communities in Australia, from center points
in Brisbane, Melbourne and Sydney.
Horizontal Analysis
Horizontal examination is the process in which the transactions of the previous year are
analyzed with respect to the current year. This technique for examination is otherwise called
pattern investigation. Horizontal Examination permits the appraisal of relative changes in various
things after some time. It additionally shows the conduct of incomes, costs, and other details of
budget reports through the span of time. Further, in this section the horizontal analysis has been
undertaken for Qantas Airways and Virgin Australia (Efinance management.com, 2019).
The horizontal analysis states that revenue has increased from 4.88% and the cost have
also increased from 4.02%. Due to the increase in the cost of sales and other operating expenses

INVESTMENT DECISIONS
it can be seen that the company is ultimately facing decline in the income. The provision for the
taxes has been decreased in comparison to the previous year and this implies that company still
has the potential to improve the margins. The position defined by the incomes statement is
satisfactory and the company shall take necessary measures to improve the net profits
(Goldmann, 2017).
While observing the balance sheet of the company, it can be seen that the major increases
are in areas like cash, other financial assets and other current assets. As per the balance sheet, it
can be seen that assets are growing and this is the opportunity for the company to utilize them
wisely. The cash increased by 27.33% and the other financial assets have increased by 64.29%,
but when the liabilities side has been observed it can be figured out that payables have also been
increased from $2220 to $2470 and the interest bearing liabilities have also been enhanced by
57.18% and the income tax liabilities have also increased to 1514.29%. Moreover the other
financial liabilities have also seen an upward graph by 92%. This also implies that leverage of
the company has been increasing and which is not a good sign but the company can revamp the
situation. The stockholder’s equity on the other hand has been declined by 25% implying the
company has its attention shifted to debt more rather than equity (Khan & Jain, 2018).
Whereas in case of Virgin Airlines, the horizontal analysis depicts that the revenue even
if have increased by 7.5% yet the cost of the revenue has increased 8.71% and this clearly states
that the company is moving in the wrong direction. Further, the operating expenses have
increased by 9.28% and the financial liabilities have also seen the upward direction and reached
till $189.20. This clearly resulted in decline of the profits by 51.72% (Dev, 2018). Hence overall
it can be seen that profits have declined due to the costs being higher than the revenue. In terms
of the balance sheet the key significant areas are other financial assets which have seen as