Accounting Financial Analysis Report for Qantas Airways

This report analyzes the financial performance of Qantas Airways using ratio analysis and external factors affecting the airline industry. It also provides recommendations for future investments.

Running Head: Accounting Financial Analysis Report
1
Project Report: Accounting Financial Analysis Report

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Executive summary
This report has mainly prepared to recognize the financial performance of Qantas airways. It
mainly concentrates on the overall financial position and the internal and external factors to
measure that why the financial performance of the business has been affected and what is the
future perspective of the business. It also measures that whether the return of the business
would be better or what is the investment position of the business. Through evaluating the
performance, it has been measured that the long term investment would offer huge return.

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Contents
Introduction.......................................................................................................................4
Company analysis.............................................................................................................4
Ratio analysis....................................................................................................................4
Profitability and market ratio............................................................................................4
Return on assets............................................................................................................5
Return on equity...........................................................................................................5
Return on invested capital............................................................................................5
Net profit margin..........................................................................................................6
Gross profit margin.......................................................................................................6
Expenses ratio...............................................................................................................6
Cash return on sales......................................................................................................6
Earnings per share.........................................................................................................6
Price earnings ratio.......................................................................................................6
Earnings yield...............................................................................................................7
Dividend per share........................................................................................................7
Efficiency ratio.................................................................................................................7
Asset turnover...............................................................................................................7
Cash return on assets....................................................................................................7
Fixed asset turnover......................................................................................................8
Liquidity ratio...................................................................................................................8
Current ratio..................................................................................................................8
Quick ratio....................................................................................................................8
Gearing ratio.....................................................................................................................9

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Debt to equity ratio.......................................................................................................9
Debt ratio......................................................................................................................9
Equity ratio...................................................................................................................9
Cash debt coverage.......................................................................................................9
Interest cover ratio......................................................................................................10
Recommendation and overall assessment......................................................................10
References.......................................................................................................................11

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Introduction:
Qantas airways the Australian airline company which is one of the largest fleet sizes
company in the Australia. The company is the third oldest airline in the international level.
The company has been founded in 1920 and from that, the company is continuously raising
the business and the growth rate of the business is also higher. Currently, the fleet size of the
business is 126 and the company is performing its business at 85 destinations. At the
domestic market, company has 65% share and it carries 14.9% of all the passengers who are
travelling out and in of Australia (Annual report, 2018).
Company analysis:
The financial statement of the business explains that the turnover of the business has
been reduced in 2017 from 2016 due to share in the domestic passengers of the company. The
financial performance of the business has been improved from last year as well as the overall
cash position of the business has also been improved (Bloomberg, 2018).
The current evaluation on the final financial statement of the business expresses the
overall performance of the business has been changed in some way as compared to the last
year. It has been measured that the income statement, balance sheet and cash flow statement
express that how the financial performance, position and cash level of the business has been
affected from last year (Morningstar, 2018).
On the basis of the income statement of the company, it has been found that the sell of
the Sydney Domestic Terminals have affected the total revenue of the company as well as
higher expenses have also affected the net profit of the business. Due to which, the overall net
profitability level of the business has been reduced. The evaluation on balance sheet express
that the sales of the fixed assets and the issues of new shares are the main reason behind the
changes into the financial performance of the company (FT, 2018). Lastly, the cash flow
statement adds that the free cash flow of the company has been improved due to the sales of
fixed assets and issue of shares.
Economical performance of Airline industry and Australia brief the changes into the
government policies and new regulations have affected the total revenue of the airline
industry. Entry of Virgin Blue in the industry has also affected the total share of Qantas
limited due to which the market share and turnover of the business has been reduced. The
decline in the international tourism has also affected the overall performance of the business.

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Around 24% reductions have been seen in the total tourism of the business. The increment in
the terrorist attack is also a reason behind the less turnover of the business (MLA, 2017). The
research explains that the customer of Qantas is also reducing by a huge level.
Further, it has also been realized that the changes into the currency and technological
factors have also affected the overall performance of Qantas airways in the Australian
market.
Ratio analysis:
Ratio analysis is a tool which evaluates the profitability level, liquidity level, solvency
level, efficiency level etc on the basis of the final financial statement of the business.
Profitability and market ratio:
Profitability ratios measure the capability of the business to generate the profit and
manage the return of the stakeholders of the business (Fridson & Alvarez, 2011). Profitability
ratios of Qantas are as follows:
(see appendix for calculations) 2017 2016 Industry
average
Return on assets 5% 6% 2.82%
Return on equity 25% 32% %
Return on invested capital 20.10% 22.70
%
Net profit margin 5.31% 6.35% 5.48%
Gross Profit Margin 57% 56.62
%
n/a
Expense ratio/Cost to Income
ratio
91% 90% n/a
Cash return on sales 17% 17.40
%
n/a
Earnings per share $0.46 per
share
$0.49
4 per share n/a
Price earnings ratio 12.4
times
5.7
times
n/a
Earnings yield 8% 17% n/a

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Dividends per share $0.07 $0.07 n/a
(Morningstar, 2018)
Return on assets:
In this company there is a downfall in return on assets ratio from 6.16 (Year 2016) to
5.03 (Year 2017). This is a good indicator of generating revenue from investment. Major
reason of downfall in the ratio is, decrease in the profit as compared to last year profit. The
last year profit was high as there was net gain on sale from the Sydney Domestic Terminals.
However, Total assets were increased during 2017 due the purchase of New Airplanes and
engines (Qantas Annual Report. 2017, p.70). But as compared to industry average which is
2.82, company’s return on assets ratio is relatively high. This seems that Qantas is effectively
managing assets to produce a greater amount of income in 2017.
Return on equity:
There is also a downfall in return on equity ratio from 32% (Year 2016) to 25% (Year
2017). Major reason of downfall in the ratio is, decrease in the profit as compared to last year
profit. The last year profit was high as there was net gain on sale from the Sydney Domestic
Terminals (Reuters, 2018). However, Total equity has also been improved due to new share
issue in the market.
Return on invested capital:
Return on invested capital also explains about the downfall from 22.70% (Year 2016)
to 20.10% (Year 2017). Major reason of downfall in the ratio is, decrease in the profit as
compared to last year profit. The last year profit was high as there was net gain on sale from
the Sydney Domestic Terminals. However, Total capital has also been improved due to new
projects and the investment of the business.
Net profit margin:
The net profit margin of the business has been lowered from 6.35% to 5.31% in the
year of 2017. Major reasons behind these changes are lower net profit as compared to year
2016. The last year profit was high as there was net gain on sale from the Sydney Domestic
Terminals which has helped the business to improve the net profit margin (Financial times,

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2018). But as compared to industry average which is 5.48%, company’s net profit margin is
relatively low. This seems that Qantas is required to manage the performance effectively.
Gross profit margin:
Further, gross profit margin calculations explain that the profitability margin of the
business has been improved from 56.62% to 57% in the year of 2017. These changes have
occurred due to relations with the suppliers and diversification of the business. Raw material
prices have impacted on the gross profit margin level (Gapenski & Reiter, 2008).
Expenses ratio:
Expenses ratios have been measured further and it has been found that the overall
expenses of the company has been improved due to which the other profits factors of the
business has been hampered. The expenses ratio has been enhanced due to higher operating
expenses.
Cash return on sales:
The total cash return on sales has been lowered. It explains that the passengers have
cancelled tickets lower in 2017 as compared to the 2016. These changes have occurred due to
new policies of the business regarding the cancellation of tickets.
Earnings per share:
Earnings per share of the business were $0.46 and $ 0.49 in 2017 and 2016
respectively. It explains about downfall in the EPs position of the business. These changes
have occurred due to lower net profitability position.
Price earnings ratio:
Price earnings ratio of the business has been improved due to better market position of
the business. It has been found that the stock price of the business has been improved from
last year and it has helped the business to manage the performance in the industry (Yahoo
Finnace, 2018).
Earnings yield:
The earnings yield has also been affected by the net profit. Changes into the net profit
position has affected on all the profitability factors of the business.
Dividend per share:

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The dividend amount of the business is similar in both the years. It explains that the
company is following the relevant dividend policies to impress and manage the shareholders.
Efficiency ratio:
Efficiency ratios measure the capability of the business to manage the working capital
and the daily operations of the business. Efficiency ratios of Qantas are as follows:
2017 2016 Industry
average
Asset turnover 0.95 times 0.97 times n/a
Cash return on assets 0.16 times 0.17 times n/a
Fixed Asset turnover 1.14 times 1.22 times n/a
(Babalola & Abiola, 2013)
Asset turnover:
In this company there is a downfall in asset turnover ratio from 0.97 (Year 2016) to
0.95 times (Year 2017). This is a good indicator of managing the business in lower working
capital. Major reason of downfall in the ratio is, decrease in the sales of the business due to
lower share at domestic level. The last year sales were high as there was great market share.
However, Total assets were increased during 2017 due the purchase of New Airplanes and
engines (Qantas Annual Report. 2017, p.70).
Cash return on assets:
The total cash return on sales has been lowered. It explains that the passengers have
cancelled tickets lower in 2017 as compared to the 2016. These changes have occurred due to
new policies of the business regarding the cancellation of tickets and it has impacted
positively on the overall position of the business (4 Traders, 2018).
Fixed asset turnover:
In this company there is a downfall in asset turnover ratio from 1.22 (Year 2016) to
1.14 times (Year 2017). This explains about better efficiency position of the business. Major
reason of downfall in the ratio is, increment in the fixed assets as New Airplanes and engines
has been purchased by the business (Qantas Annual Report. 2017, p.70).

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Liquidity ratio:
Liquidity ratios measure the capability of the business to pay the short term debt
obligations to the stakeholders of the business. Liquidity ratios of Qantas are as follows:
2017 2016 Industry average
Current ratio 0.44:1 0.49:1 0.78:1
Quick ratio 0.39:1 0.44:1
(Higgins, 2012)
Current ratio:
In this company there is a downfall in current liquidity ratio from 1.22 (Year 2016) to
1.14 times (Year 2017). This explains about lower growth rate in current liabilities as
compared to the current assets. Major reason behind this decrement is increment in the cash
position due to the fixed assets sale (Annual report, 2018). But as compared to industry
average which is 0.78, company’s current ratio is relatively lower (madhura., 2015). This
seems that Qantas is required to effectively manage the current assets to improve the
performance.
Quick ratio:
In this company there is a downfall in quick liquidity ratio from 0.49 (Year 2016) to
0.44 times (Year 2017). This explains about lower growth rate in current liabilities as
compared to the quick assets. Major reason behind this decrement is changes in the inventory
level of the business.
Gearing ratio:
Gearing ratios measure the capability of the business to manage the debt, equity and
other sources of funds of the business. Gearing ratios of Qantas are as follows:
2017 2016 Industry average
Debt to equity ratio (calculated) 147% 173%
120%
Debt to equity ratio (reported) 125% 136%
Debt ratio 79.44% 80.48% 40%

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Equity ratio 21% 20% n/a
Cash debt coverage 20% 21% n/a
Interest cover ratio 5.5 times 6.0 times n/a
(Babalola & Abiola, 2013)
Debt to equity ratio:
In this company there is a downfall in debt to equity ratio from 173% and 136% (Year
2016) to 147% and 125% (Year 2017). Major reason behind this decrement is increment in
the equity position due to issue of new shares (Morningstar, 2018). But as compared to
industry average which is 120%, company’s performance is relatively better. This seems that
Qantas is effectively managing the performance and capital structure.
Debt ratio:
In this company there is a downfall in debt ratio from 80.48% (Year 2016) to 79.44%
(Year 2017). Major reason behind this decrement is changes in the capital structure position
of the business. But as compared to industry average which is 40%, company’s performance
is relatively better. This seems that Qantas is effectively managing the performance and
capital structure.
Equity ratio:
In this company there is increment in equity ratio from 20% (Year 2016) to 21%
(Year 2017) (Annual report, 2018). Major reason behind these changes is increment in the
equity position.
Cash debt coverage:
In this company there is reduction in equity ratio from 21% (Year 2016) to 20% (Year
2017). Major reason behind these changes is reduction in the debt level of the business and
increment in the cash position of the business.
Interest cover ratio:
Lastly, the interest coverage ratio of the business explains that the overall position of
the business has been improved (Morningstar, 2018). The reasons behind this are decrement
in the interest expenses as the debt amount of the business has also been reduced.

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Recommendation and overall assessment:
On the basis of the above analysis, it has been measured that the overall performance
of the business has been improved in 2017. However, at some of the point, few issues have
been faced by the company due to changes in the market and new policies of the business
such as decrement in the net profit level of the business.
The evaluation express that the future performance of the business would be better as
the growth rate of business is better as well as the profitability ratios brief that the
performance of the company is better than the industry. The gearing position express about
stability. Though, the business is required to maintain the liquidity level. The likelihood of
merger is higher as it would help the business to diversify the business and perform better.
Further, the ethical consideration of the business has been studied and it ha s been
found that the business is managing the performance at better level. The stock price and
market share has also been taken into concern while conducting the report. The Qantas is
suggested to evaluate the operating expenses against and must maintain the liquid
performance to improve the position of the business. It is suggested to the investors to invest
into the company for long term to get great return.

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References:
4 Traders. (2018). Qantas Airways. Retrieved from: http://www.4-traders.com/QANTAS-
AIRWAYS-LIMITED-6491449/consensus/
Annual report. (2018). Qantas Airways. Retrieved from:
http://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpg
yw/file/annual-reports/2017AnnualReport.pdf
Babalola, Y. A., & Abiola, F. R. (2013). Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), 132-137.
Bloomberg. (2018). Qantas Airways. Retrieved from:
https://www.bloomberg.com/research/stocks/private/snapshot.asp?
privcapid=224857084
Financial Times. (2018). Qantas Airways. Retrieved from:
https://markets.ft.com/data/equities/tearsheet/summary?s=QAN:ASX
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's
guide (Vol. 597). John Wiley & Sons.
Gapenski, L. C., & Reiter, K. L. (2008). Healthcare finance: an introduction to accounting
and financial management. Chicago, IL: Health Administration Press.
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Madhura, L. (2015). Financial management. Tata McGraw-Hill Education.
MLA, M. J. J. S. (2017). RE INQUIRY INTO REGIONAL AIRFARES IN WESTERN
AUSTRALIA.
Morningstar. (2018). Qantas Airways. Retrieved from:
http://www.morningstar.com/stocks/XASX/QAN/quote.html
Reuters. (2018). Qantas Airways. Retrieved from:
https://www.reuters.com/finance/stocks/company-profile/QAN.AX
Yahoo Finnace. (2018). Qantas Airways. Retrieved from:
https://au.finance.yahoo.com/quote/QAN.AX/

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