Financial Analysis of Webjet Limited: Profitability and Liquidity Analysis

The report analyzes the financial performance of Webjet Limited over the last five years using ratio analysis technique. The report evaluates profitability, liquidity, and solvency position of the company and compares it with its main competitor Flight Centre Travel Limited. The report provides insights for decision-making process for developing strategies to foster the company’s future growth and development.

Fundamentals of Value Creation in Business
1

Executive Summary
The report has been developed to undertake the financial analysis of Webjet Limited with
the use of ratio analysis technique. In this context, the report has particularly evaluated
profitability, liquidity and solvency position of the company with the use of ratio analysis
technique. In addition to this, the financial performance of the company is compared with that of
its main competitor Flight Centre Travel Limited for carrying out a competitive analysis as well.
2

Introduction
Webjet Limited is known to be a digital travel company that provides its services to the
consumers across the globe. The company conducts its operations across Australia, New
Zealand, North America and other countries across the world. The company is listed on the
Australia Securities Exchange (ASX) and is recognized as a leader in the world of digital travel
businesses. The company conducts its business with the help of two distinct segments that are
business to consumer travel and business to business travel segments. It is involved in providing
comparing, combining and booking domestics and international air travel, hotel
accommodations, holiday packages, travel insurance, rental cars and offering digital marketing
consultancy services (Webjet Limited, 2018).
The present report is developed for analyzing the financial performance of the selected
company over the last five years. This has been carried out by examining the profitability,
liquidity and solvency analysis of the company using ratio analysis technique. The key financial
ratios are analyzed for examining the financial performance of the selected company in the
specific areas. The financial performance analysis carried out with the use of ratio analysis
method is carried out for presenting the outcomes in the form of a report to the company’s
manager. The financial results gained are depicted with the use of charts and tables for making
them attractive for the readers. The report will guide the manager during the decision-making
process for developing strategies to foster the company’s future growth and development. This is
because the ratios depict the financial position of a company through extracting information from
the financial statements and thus helps in gaining an analysis into the problematic areas that a
company needs to resolve for sustaining in the future. In addition to this, the key financial ratios
of the company are compared with the Flight Centre Travel Group Limited for comparing the
financial performance of Webjet Limited with its main competitors.
Profitability Analysis
The analysis of the profitability position of a company is carried out for developing an
insight into its ability to generate profit from its primary operations. The profitability analysis is
mainly undertaken for examining the ability of a company to sustain in the future by creating
return for its shareholders.
3

The profitability analysis of Webjet Limited is carried out by calculation and analysis of
the following ratios as follows:
Profitability ratios of Webjet for last five years
Ratios Formula 2013 2014 2015 2016 2017
Return on equity
Net income after
tax /Average
shareholder equity
13.84% 29.42% 27.81% 19.20% 13.97%
Net Profit margin Profit (after tax) /
Net Revenue 8.67% 19.37% 17.70% 14.54% 10.94%
Return on Assets
Net income after
tax /Average
Total Assets
6.90% 14.52% 12.71% 7.74% 5.90%
(Note: Financial data is provided in appendix section)
Profitability ratios of Flight Centre Travel for last five years
Ratios 2013 2014 2015 2016 2017
Return on equity 23.98% 23.65% 20.20% 20.00% 16.44%
Net Profit margin 12.65% 11.76% 10.86% 10.25% 9.23%
Return on Assets 11.30% 11.73% 9.86% 9.64% 7.97%
Return on Equity (ROE): This can be regarded as a major financial indicator of the
profitability position of a company. It indicates the level of profit generated by a company from
equity and creating return for the shareholders. The formula for its calculation is as follows:
Formula: Return on Equity=Net Income after Tax/Shareholder’s Equity
The return on equity of the company has depicted a decreasing trend over the financial
years from 2013-2017. This depicts that the company’s ability to create value for the
shareholders has declined that cannot be regarded as good for its future growth. The ratio is an
indicator of its sustainability position as an increasing trend of ROE ensures that it will be
4

sustainable over the long-term. This is a strong indicator of the efficiency of a company to create
a balance capital structure that can provide returns to the shareholders (Diamond, 2017).
The comparison of the movement in Webjet Limited and Flight Centre Travel Group ROE’s has
been depicted by the following graph:
2013 2014 2015 2016 2017
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
13.84%
29.42% 27.81%
19.20%
13.97%
23.98% 23.65%
20.20% 20.00%
16.44%
Return on Equity (Webjet vs Flight Centre
Travel)
Percentage
Webjet’s ROE can be regarded as better in comparison to the ROE of Flight Centre
Travel as it has reached the best of industry average in the year 2014 to 29.42% while the best
ROE generated by Flight Centre Travel is up to 23.98%. Therefore, it can be said that
maintaining a competitive ROE is essential for the company to maintain existing investment
levels and attracting new investors. However, the major point of concern that can be stated in this
context is keeping an analysis of the ability of a company to maintain an increasing trend of ROE
in the future context. The decreasing trend of ROE both in Webjet and Flight Centre Travel can
be attributed to increase in the operational expenses incurred for the use of online technologies
and tools for providing travel services to the customers (Annual Reports: Webjet Limited, 2018).
Net Profit Margin: Net profit margin ratio is an indicator of the ability of a company to
generate revenue after meeting all the expenses and deducting them from the sales realized. The
formula used for its calculation is depicted as follows:
5

Formula: Net Profit Margin=Net Income/Total Revenue
The net profit margin has depicted an increasing trend from the year 2013-2014 and
thereafter it has significantly decreased from 2014 to 2017. This indicates the significant increase
in the operational expenses of the company that have resulted a decline in its net profit margin.
This cannot be regarded as good for the future growth and profitability of the company as net
profit depicts its ability to meet up all its operational expenses effectively and achieving a
residual profit after covering them up (Bragg, 2012).
The comparison of the net profit of the company with that of its competitors Flight Centre Travel
is depicted by the following graph:
6

2013 2014 2015 2016 2017
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
8.67%
19.37%
17.70%
14.54%
10.94%
12.65% 11.76% 10.86% 10.25% 9.23%
Net Profit Margin (Webjet vs Flight Centre
Travel)
Percentage
The net profit margin of the company has recorded an optimum value of 19.37% in the year 2014
that can be regarded as best value as compared to the industry benchmark. However, the highest
net profit margin recorded by Fight Centre Travel Group is 12.65% and therefore it can be said
that Webjet Limited has maintained a competitive edge in its net profit position over its
competitor. However, the company is recommended to adopt the use of effective measures for
sustaining this trend for measuring to maintain its competitive position within the travel industry
of Australia (Annual Reports: Webjet Limited, 2018).
Return on Assets: Return on assets can be regarded as a financial ratio that depicts the ability of
a company to generate profit from effective utilization of its asset resources. The ratio can be
calculated using following formula:
Formula: Return on Assets=Net Income/Average Total Assets
The ratio for Webjet Limited has depicted an increasing trend form the year 2013-2014
while it has significantly declined from the year 2014-2017. The major reason for the declining
the return on assets of the company can be regarded due to its non-efficiency for generating
income from the use of assets (Robinson, 2015). The comparison of Return on Assets of the
company with its main competitor is depicted by the following graph:
7

2013
2014
2015
2016
2017
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%
Return on Assets (Webjet vs Flight Centre Travel)
Webjet Limited return on assets has reached an optimum value of 14.52% in the year 2014 that
can be regarded as best of the industry. However, Flight Centre Travel has attained an optimum
value of 11.30% over the last five years 2013-2017. Therefore, it can be stated that Webjet return
on assets on an average can be regarded as better in comparison to Flight Centre Travel. This can
be attributed due to great success achieved by the company in B2B market that has enabled it to
provide best services to the customers by providing them the most appropriate product offering
as per their diverse needs and requirements (Padarth, 2015).
Liquidity Analysis
The liquidity analysis is carried out for depicting the efficiency of the company for meeting its
financial obligations as they become due. The liquidity analysis of Webjet is carried out by the
calculation of the following ratios:
Liquidity ratios of Webjet for last five years
Ratios Formula 2013 2014 2015 2016 2017
Current Ratio Current Assets/Current
Liabilities 1.27 1.59 1.34 1.05 1.46
Acid Test Ratio Quick Assets/Current 1.27 1.59 1.34 1.05 1.46
8

Liabilities
Cash Ratio
Cash and Cash
Equivalents/Current
Liabilities
0.95 1.05 0.87 0.59 0.79
Liquidity ratios of Flight Centre Travel for last five years
Ratios Formula 2013 2014 2015 2016 2017
Current Ratio Current Assets/Current
Liabilities 1.39 1.50 1.48 1.44 1.43
Acid Test Ratio Quick Assets/Current
Liabilities 1.39 1.50 1.48 1.44 1.43
Cash Ratio
Cash and Cash
Equivalents/Current
Liabilities
0.89 0.95 1.00 0.95 0.84
Current Ratio: The current ratio provides a measure of the ability of a company to meet its
current liabilities with its current asset base. It is calculated using following formula:
Current Ratio=Current Assets/Current Liabilities
The ratio provides a fundamental measure of the ability of a company to transform its asset base
into cash for paying up its short-term liabilities and thereby predicting its future continuity of
operations. The current ratio of the company has shown an increasing trend from the year 2013-
2014 but has gradually declined from the year 2014-2014. However, overall the company has
shown improvement in is liquidity position over the past 5 financial years. It has maintained a
current ratio of above 1 for over the selected financial period and thereby it can be said that it has
maintained an effective base of asset for meeting its short-term obligations (Kline, 2007). The
comparison of the current ratio trend of the company over the last 5 financial years with that of
Flight Centre Travel Group is depicted as follows:
9

2013 2014 2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
1.27
1.59
1.34
1.05
1.46
1.39 1.50 1.48 1.44 1.43
Current Ratio (Webjet vs Flight Centre Travel)
Times
It can be stated from analysis of the above graph that both the companies have maintained a
healthy current ratio over the five-period that are being assessed. However, the current ratio of
Webjet has trended up to the highest value of 1.59 in the year 2014 as compared with that of its
competitor Flight Centre Travel that has only reported a maximum value of 1.50 in the similar
year. Therefore, it can be said that Webjet has maintained a healthier current ratio over the past
five financial years in comparison n to its competitor (Annual Reports: Webjet Limited, 2018).
Acid Test Ratio: The ratio provides a measure of the ability of a company to adopt the use of its
most liquid assets such as cash for meeting the current liabilities instantly. The ratio can be
calculated with the use of following formula:
Acid Test Ratio=Current assets less stocks/Current Liabilities
The acid-test ratio of the company has depicted an increasing trend over the past five financial
years assessed. It can be stated that there is improvement in the company’s ability to meet its
short-term liabilities by having a strong cash flow position (Annual Reports: Webjet Limited,
2018). The comparison of the acid-test ratio of the company with its competitor Flight Centre
Travel is depicted by the following graph:
10

2013 2014 2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Acid Test Ratio (Webjet vs Flight Centre Travel)
Times
The comparison of the quick ratio of both the companies reveals that they have shown an
increasing trend over the past five financial years from 2013-2017. However, Webjet has
maintained a higher average growth rate of the ratio in comparison to that of Flight Centre
Travel. Thus, it can be stated that the company liquid asset base is stronger as compared to its
competitors (Annual Reports: Webjet Limited, 2018).
Cash Ratio: The ratio can be described as the proportion of cash equivalents possessed by a
company in comparison to the current liabilities. It can be calculated using following formula:
Cash Ratio=Cash Equivalents/Current Liabilities
The cash ratio of Webjet Limited have depicted a decreasing trend over the financial year period
of 2013-2017. It can be due to less capital inflows in the company that can be stated as a main
point of concern for its liquidity (Annual Reports: Webjet Limited, 2018). The comparison of the
ratio with its competitors is depicted by the following graph:
11

2013 2014 2015 2016 2017
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Cash Ratio (Webjet vs Flight Centre Travel)
Axis Title
There is a declining trend presented by both the companies in their cash ratio. However, the
decline in the ratio of Webjet is sharper as compared with that if Flight Centre. Thus, it can be
stated that cash flow position of Webjet is relatively weak in comparison to the competitor
(Annual Reports: Webjet Limited, 2018).
Solvency Analysis
The analysis helps in depicting the ability of the company for meeting its long-term financial
obligations. The solvency position of Webjet can be calculated using following ratios:
Liquidity ratios of Webjet for last five years
Ratios Formula 2013 2014 2015 2016 2017
Debt Ratio Total Liabilities/Total
Assets 54.74% 46.38% 59.35% 59.89% 56.10%
Net Interest
Coverage
ratio
EBIT/Interest Expenses 0.00 100.52 77.86 25.95 24.36
Debt to Total 63.23% 120.95% 86.50% 145.98% 149.32%
12

Equity
Ratio
Liabilities/Shareholders
Equity
Liquidity ratios of Flight Centre Travel for last five years
Ratios Formula 2013 2014 2015 2016 2017
Debt Ratio Total Liabilities/Total
Assets 56.75% 54.46% 54.44% 55.15% 55.29%
Net Interest
Coverage
ratio
EBIT/Interest
Expenses 10.96 11.44 13.89 13.02 11.62
Debt to
Equity
Ratio
Total
Liabilities/Shareholder
s Equity
131.20
%
119.57
%
119.50
%
122.99
%
123.66
%
Debt Ratio: The ratio is used for depicting the proportion of the assets of a company that are
financed by debt. It is calculated using following formula:
Debt Ratio=Total Liabilities/Total Assets
The debt ratio of the company has significantly increased from the year 2013-2017 with only
depicting a declining trend in the year 2014. This indicates the increasing use of debt by the
company for asset financing (Friedlob, 2003). The comparison of the ratio of the company with
its competitor is depicted in the graph:
13

2013 2014 2015 2016 2017
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
56.75% 54.46% 54.44% 55.15% 55.29%54.74%
46.38%
59.35% 59.89% 56.10%
Debt Ratio (Webjet vs Flight Centre Travel)
Percentage
It can be stated from the comparison made in the graph that Webjet Limited have shown an
increasing trend whereas Flight Centre Travel have depicted a decreased trend in its debt ratio.
Thus, it can be said that the competitor of Webjet is adopting less use of debt in financing its
asset base and this an be regarded as major financial risk for the company in the future context.
This is because less use of debt lowers significantly the financial risk and increase n debt
increases the risk of default on the part of the company (Annual Reports: Webjet Limited, 2018).
Interest Coverage Ratio: It examines the efficiency of a company to pay interest on its debt
obligations and is calculated with the use of following formula:
Interest Coverage Ratio=EBIT/Interest Expenses
The interest coverage ratio of the company ahs shown a positive trend reaching to a maximum of
about 13. 89% in the year 2015. This can be regarded as good sign of growth for the company in
the future as it is highly efficient in meeting its debt obligations (Griff, 2014). The comparison of
the ratio of the company with that of its competitors is depicted by the following graph:
14

2013 2014 2015 2016 2017
0.00
20.00
40.00
60.00
80.00
100.00
120.00
0.00
100.52
77.86
25.95 24.36
10.96 11.44 13.89 13.02 11.62
Interest Coverage Ratio (Webjet vs Flight Centre
Travel)
Times
The interest coverage ratio of Webjet can be regarded as better as compared to Flight Centre
Travel. There is an increase in the ratio of both the companies but the ratio of Webjet has
increased largely as compared with that of its competitor depicting that it is more efficient in
meeting off its debt obligations as compared to Flight Centre Travel (Annual Reports: Webjet
Limited, 2018).
Debt to Equity Ratio: The ratio is used for depicting the relative proportion of equity and debt
used for financing the assets by a company. The ratio can be calculated with the use of following
formula:
Debt-Equity Ratio=Debt/Equity
The debt-equity ratio of Webjet has shown an increasing trend that depicts that the company is
adopting larger use of debt as compared to equity in its capital structure. The comparison of the
ratio of Webjet with that of its Flight Centre Travel can be depicted by the following graph:
15

2013 2014 2015 2016 2017
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
63.23%
120.95%
86.50%
145.98% 149.32%
131.20%
119.57% 119.50% 122.99% 123.66%
Debt to Equity Ratio (Webjet vs Fliight Centre
Travel)
Percentage
Webjet has shown an increasing trend while Flight Centre Travel has depicted a declining trend
over the past five financial years assessed. Thus, it can be said that Flight Centre Travel is
adopting less use of debt in its capital structure as compared to Webjet and this can prove to be a
major point of concern impacting to the Webjet future growth and development (Nikolai,2009).
Conclusion
Webjet can be regarded as a leading online travel company of Australia having its
operations across the globe. The company operates in a highly volatile marketplace and thus
sudden changes in the global economy can negatively impact the continuity of its operations.
The report has analyzed the profitability, liquidity and solvency position of Webjet in
comparison to its competitor Flight Centre Travel. It ahs been identified using ratio analysis
technique that Webjet profitability and liquidity position is better as compared with that of its
competitor. This indicates the effective management of the company that ahs facilitated it in
maintaining healthy net profit margin and current ratio both of which are better than industry
benchmarks. The solvency position of the company is not good as compared to its competitor
and it is using more debt in the capital structure that reflects a financial risk regrading its future
growth and development. As such, it is recommended to the investors to invest in the company
as it is presently in a phase of growth and development but need to carefully analyze its solvency
position for reducing the financial risk.
16

References
Padarth, R. (2015). 3 reasons Webjet Limited is a likely takeover target. Retrieved 20 September,
2018, from https://www.fool.com.au/2015/11/13/3-reasons-webjet-limited-is-a-likely-
takeover-target/
Diamond, S. (2017). Finnancial Accounting and Its Environtment: Financial Accounting.
Bukupedia.
Kline, B. (2007). How to Read and Understand Financial Statements when You Don't Know
what You are Looking at. Atlantic Publishing Company.
Nikolai, A. (2009). Intermediate Accounting (Book Only). Cengage Learning.
Robinson, T. (2015). International Financial Statement Analysis. John Wiley & Sons.
Griff, M. (2014). Professional Accounting Essays and Assignments. Lulu Press, Inc.
Friedlob, G. (2003). Essentials of Financial Analysis. John Wiley & Sons.
Bragg, S. (2012). Business Ratios and Formulas: A Comprehensive Guide. John Wiley & Sons.
Annual Reports: Webjet Limited. (2018). Retrieved 20 September, 2018, from
https://www.webjetlimited.com/annual-reports/
Webjet Limited. (2018). Retrieved 20 September, 2018, from https://www.webjetlimited.com/
17

Appendixes
Financial Data of Webjet used to calculate the profitability ratios
Financial
Data 2012 2013 2014 2015 2016 2017
Shareholder
Equity
$
32,953,000
$
60,743,000
$
69,284,000
$
82,455,000
$
151,561,000
$
216,338,000
Average
Shareholders’
Equity
$
46,848,000
$
65,013,500
$
75,869,500
$
117,008,000
$
183,949,500
Net income
after tax
$
13,613,000
$
6,484,000
$
19,127,000
$
21,103,000
$
22,465,000
$
25,702,000
Net Revenue $
57,745,000
$
74,807,000
$
98,744,000
$
119,243,000
$
154,550,000
$
234,877,000
Total assets $
53,790,000
$
134,210,000
$
129,218,000
$
202,822,000
$
377,867,000
$
492,819,000
Average
Total Assets
$
94,000,000
$
131,714,000
$
166,020,000
$
290,344,500
$
435,343,000
Financial Data of Webjet used to calculate the Liquidity ratios
Financial
Data 2012 2013 2014 2015 2016 2017
Current Assets $
39,156,000
$
88,848,000
$
78,112,000
$
117,729,000
$
206,370,000
$
330,024,000
Current
Liabilities
$
18,235,000
$
69,977,000
$
49,113,000
$
87,580,000
$
197,065,000
$
225,722,000
Inventory $
-
$
-
$
-
$
-
$
-
$
-
Quick Assets $
39,156,000
$
88,848,000
$
78,112,000
$
117,729,000
$
206,370,000
$
330,024,000
Cash and Cash $ $ $ $ $ $
18

Equivalents 33,761,000 66,812,000 51,792,000 76,230,000 116,215,000 178,125,000
Financial Data of Flight Centre used to calculate the Liquidity ratios
Financial
Data 2012 2013 2014 2015 2016 2017
Current
Liabilities
$
1,154,694,000
$
1,287,501,000
$
1,261,221,000
$
1,452,500,000
$
1,566,724,000
$
1,634,896,000
Cash and
Cash
Equivalents
$
1,032,467,000
$
1,227,019,000
$
1,261,682,000
$
1,377,985,000
$
1,315,984,000
$
1,281,648,000
Financial Data of Webjet used to calculate the Liquidity ratios
Financial Data 2012 2013 2014 2015 2016 2017
Total assets $
53,790,000
$
134,210,000
$
129,218,000
$
202,822,000
$
377,867,000
$
492,819,000
Shareholder
Equity
$
32,953,000
$
60,743,000
$
69,284,000
$
82,455,000
$
151,561,000
$
216,338,000
Interest
Expenses
$
-
$
102,000
$
264,000
$
1,032,000
$
1,266,000
$
3,386,000
Total
Liabilities
$
20,837,000
$
73,467,000
$
59,934,000
$
120,367,000
$
226,306,000
$
276,481,000
EBIT $
17,697,000
$
10,253,000
$
20,556,000
$
26,779,000
$
30,841,000
$
34,942,000
Financial Data of Flight Centre used to calculate the Liquidity ratios
Financial
Data 2012 2013 2014 2015 2016 2017
Total assets $ $ $ $ $ $
19

2,120,258,000 2,372,544,000 2,410,387,000 2,787,966,000 3,001,316,000 3,195,488,000
Shareholder
Equity
$
857,129,000
$
1,026,194,000
$
1,097,798,000
$
1,270,121,000
$
1,345,945,000
$
1,428,755,000
Interest
Expenses
$
30,413,000
$
31,524,000
$
32,987,000
$
26,115,000
$
28,604,000
$
28,503,000
Total
Liabilities
$
1,263,129,000
$
1,346,350,000
$
1,312,589,000
$
1,517,845,000
$
1,655,371,000
$
1,766,733,000
EBIT $
280,415,000
$
345,427,000
$
377,300,000
$
362,864,000
$
372,475,000
$
331,196,000
20