Detailed Financial Analysis of Air New Zealand Limited: A Ratio Report

This report presents a financial ratio analysis of Air New Zealand Limited, examining the company's performance for the year 2016. The analysis includes profitability ratios, financial stability metrics, and asset utilization assessments, providing insights into the company's ability to generate earnings, manage its finances, and efficiently use its assets. The report also delves into the share market performance, price-earnings ratio, and non-financial information, including environmental and social issues. The conclusion provides recommendations for the company, focusing on cost control, revenue generation, debt management, and customer service improvements. The report utilizes data from financial statements and industry benchmarks to provide a comprehensive overview of Air New Zealand Limited's financial health and market position.

Running head: FINANCIAL RATIO ANALYSIS
Financial ratio analysis
[Document subtitle]
[DATE]
[Company name]
[Company address]

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FINANCIAL RATIO ANALYSIS
Table of Contents
Introduction to Company..............................................................................................................2
Ratio Analysis.................................................................................................................................2
Profitability of the Company........................................................................................................2
Financial Stability of the Company.............................................................................................5
Asset Utilization of the Company................................................................................................6
Movement in Share Price of Company........................................................................................7
Price Earnings Ratio......................................................................................................................7
Definition.....................................................................................................................................7
Factors which influence Price Earnings ratio..............................................................................8
Share Market Ratio.......................................................................................................................9
Statement of Accounting Policies...............................................................................................10
Non-Financial Information.........................................................................................................10
Environmental and Social Issues...............................................................................................10
Conclusion and Recommendation..............................................................................................11
REFERENCES............................................................................................................................12
Appendix.......................................................................................................................................13

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FINANCIAL RATIO ANALYSIS
Introduction to Company
Air New Zealand Limited is national airline based in New Zealand. The airline executes as per
the scheduled flights of the passenger to international and domestic destinations in various
nations near United Kingdom and Pacific Rim. Since the year 1999, the airline is a part of Star
Alliance. This report will analyze the financial performance and operations of the corporation for
the year 2016. This report aims to provide an analysis and assessment of the financial position,
performance, liquidity and profitability of the Air New Zealand Limited using the figures from
statements of fiancé for the year 2016. Financial ratios, in analysis, were utilized to earn
significant review of particular area of examination of performance of company. In the following
sections, the Profitability, financial stability and asset utilization of the company have been
discussed. Furthermore, the share market and price earnings ratio as well as the Non-Financial
information is detailed in this report to provide an overarching view of the company and give the
advice regarding investment decision in this company.
Ratio Analysis
Profitability of the Company
Profitability ratios are considered as most famous metrics to analyze the financial information.
They are significant as they are used for different comparative studies like industry benchmark
analysis and competitive analysis. They also assess the ability of the business to create more
earnings than the expenses.
Particulars Ratios (2013) Ratios (2014) Ratios (2015)

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FINANCIAL RATIO ANALYSIS
RETURN ON EQUITY 10.40 14.21 17.04
RETURN ON ASSETS 3.29 4.57 5.18
EARNINGS PER SHARE 0.17 0.23 0.29
As it can be viewed that the return on equity ratio for Air New Zealand Limited is getting higher
every year which indicates that shareholders are getting increased amount on their investment
every year. Also, the ratio of return on Assets measures the effectiveness of the Air New Zealand
Limited to earn return against the investments in the assets ("Air New Zealand Limited:
Financials, earnings estimates and forecasts for Air New Zealand Limited | AIR | 4-Traders",
2017). A high ratio is favorable to the investors as it depicts that Air New Zealand Limited is
managing effectively the assets to generate more income. The trend of profit is upward as each
year the ratio is getting up. Earnings per share ratio is similar to the market prospect or
profitability ratio ("NZX Markets", 2017). Higher earnings is better than lower earnings per share
ratio as it indicates that Air New Zealand is has more amount of income to be distributed to the
shareholders.

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FINANCIAL RATIO ANALYSIS
Figure 1 Income statement Evaluation

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FINANCIAL RATIO ANALYSIS
Financial Stability of the Company
Particulars Ratios (2013) Ratios (2014) Ratios (2015)
Debt to equity Ratio 0.81 0.82 1.05
Financial Leverage 3.09 3.13 3.45
Current ratio 1.09 0.97 0.93
Figure 2 Balance Sheet Evaluation
The higher current ratio is considered as more favorable which is opposite in the case of Air New
Zealand Limited. The current assets in the company are less as compared to current labilities.
Therefore it indicates that company is not able to make enough money from support or operating
activities. The debt to equity ratio of Air New Zealand is lower which implies that the company

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FINANCIAL RATIO ANALYSIS
is more stable. Unlike equity financing, the debt amount is repaid to the giver of money. The
debt equity ratio rose significantly in 2016 which is a matter of concern for Air New Zealand
Limited.
Asset Utilization of the Company
Particulars Ratios (2013) Ratios (2014) Ratios (2015)
Total assets turnover ratio 0.83 0.77 0.78
Fixed Asset utilization ratio 1.53 1.47 1.38
Debtor’s turnover ration 14.99 14.62 16.53
Total asset turnover ratio is a kind of efficiency ratio which measures the effectiveness of the
company which uses all the assets. Air New Zealand Limited is having lower turnover ratio
which indicates that company is not making use of its assets efficiently and also the company is
having production or management problems. The debtor turnover ratio was high in 2016 as
compared to 2013 and 2014 which means that company was able to collect the amount from the
debtors quickly in 2016. Also the company has generated the revenue by utilizing the fixed
assets of the company more in 2013 and lesser in 2015.

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FINANCIAL RATIO ANALYSIS
Movement in Share Price of Company
The share price of Air New Zealand Company is $2.40 which is higher than the previous year’s
share price which was 2.19
Figure 3 Movement in Share Price of Air New Zealand Limited
In the year 2014, the share price of the company was around 2.15 throughout the year. In 2015
the value of the share got increased to 2.5 and it revolved around this value.
Price Earnings Ratio
Definition
The price to earnings ratio is a ratio of market prospect which calculates the value of stock in
market related to the earnings by making comparison between the earning per share and market
price per share ("Air New Zealand Ltd, AIR:NZC financials - FT.com", 2017). The price to
earnings ratio depicts about the market which is willing and agreeing to pay for the stock on the
basis of the present earnings.

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FINANCIAL RATIO ANALYSIS
Factors which influence Price Earnings ratio
 Earnings
The price earnings ratio is based on the 12 months earnings which is equal to the net
income less preferred dividends. The drivers which enable increased earnings involve
combination of high sales volume from cost controls, new geographic markets and new
products.
 Growth
PE ratio depends on earnings in future as the stock market intend to look in future. Small
companies have high PE ratios instead of market or industry averages as they have
increased earnings and sales growth rates ("What Influences the Price-to-Earnings
Ratio?", 2017).
 Economy
Conditions of economy influence the PE Ratio as they affect the financial markets and
earnings of corporates. A combination of low inflation and economic growth may
enhance the PE ratio because the flow of funds influence the anticipation of dividend
growth and strong earnings.
 Considerations
Generally, the stocks are valued more than its worth if they are being traded above their
PE ratio in historic days or the market based PE ratio. The investors of Buy and Hold
nature buy the stocks which are undervalued and wait for price of market to conform to
the fundamentals, while the momentum investors buy the stocks with momentum of
strong price, which implies with high ratio of Price-Earnings. Price Earnings Ratio of Air
New Zealand Limited is 7.6 which is lower than the industry average that is 11.0

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FINANCIAL RATIO ANALYSIS

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FINANCIAL RATIO ANALYSIS
Share Market Ratio
Particulars Ratios (2013) Ratios (2014) Ratios (2015)
Dividend payout ratio - - 28.4
Dividend yield - - 0.15
Net tangible asset backing 31.15 30.65 27.49
The dividend payout ratio is significant for Air New Zealand Limited if their investors want to
see a steady and sustained stream of the sustainable dividends from the company. It is more
significant to have a consistent rend instead of any low or high ratio. If Air New Zealand is
having downward or lower trend of the payout which is alarming to the investors. For 2013 and
2014, Air New Zealand Limited is not having any dividend to pay out but in 2015, the company
had a ratio of 28.4. Similarly the dividend yield ratio was 0.15 in 2015 and in 2013 and 2014
there was no dividend yield. Net tangible Asset backing is the ratio which shows the value of
assets of the company which are attributable towards every share on its issue. Tis ratio was
highest in 2013 and lowest in 2015.

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FINANCIAL RATIO ANALYSIS
Statement of Accounting Policies
The accounting policies should be disclosed by the organization which is the reporting entity as
it is a requirement but the GAAP and must describe and identify the principles of accounting
which it is following, the ways in which these principles are applied, how these decisions may
affect the changes and determination of the position of finance and the appropriateness and
exactness of the principles of accounts while recognizing the revenue and allocating the cost.
Non-Financial Information
Environmental and Social Issues
 Social Issues: As a part of strategic pursuance of the organizational goals, the company
has made different efforts to commit and conduct its services to preserve the environment
and CSR courses. This social responsibility of the corporate is shown to its goals which is
being the most environment friendly and sustainable airline in the world ("Income
Statement for Air New Zealand Ltd (ANZFF) from Morningstar.com", 2017). The airline
is looking for innovative methods to increase the friendliness of the environment in every
sector of the operations.
 Environmental Issues: The airline was successful to show a major example in reducing
the emission of carbon in all the operations of flights by making sure that huge saving is
done on usage of fuels. The corporation has undertaken various engagement into the
various projects in which they desire to lower the emission of carbon by approximately
130000 tons every year.

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FINANCIAL RATIO ANALYSIS

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FINANCIAL RATIO ANALYSIS
Conclusion and Recommendation
Conclusion
Air New Zealand Limited is embarking on situation which is loss making and it should be
considered significantly. The business solvency is positive and the corporation is also capable to
manage the finance on daily basis, however, in long term the corporation may experience the
difficulties in finance and to manage the debts in long term because it is geared heavily.
Recommendations
 Controlling the cost is significant for the company to recover and get above from the
situation of loss ("Air New Zealand Ltd, AIR:NZC financials - FT.com", 2017). Rate and
insurance are major drivers of loss and being the fixed costs, the Air New Zealand
Limited needs to generate high sales by putting in new offers and services and increasing
the quality.
 The company has huge cash which is stocked in the receivables therefore, it must recover
these funds as well as give more bookings on cash basis.
 Debts of Long term is high for this airline and the corporation needs to provide money for
these debts. Repaying the debts of long term early will enable the interest savings and
will also drive increased profits.
 Consideration needs to be given on ways which can improve the services of customers by
creating the loyalty in brand and high fess of membership by offering more facilities.

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FINANCIAL RATIO ANALYSIS
REFERENCES
NZX Markets. (2017). Nzx.com. Retrieved 5 April 2017, from https://www.nzx.com/
Income Statement for Air New Zealand Ltd (ANZFF) from Morningstar.com. (2017).
Financials.morningstar.com. Retrieved 5 April 2017, from
http://financials.morningstar.com/income-statement/is.html?t=ANZFF&region=usa&culture=en-
US&ownerCountry=USA
Air New Zealand Ltd, AIR:NZC financials - FT.com. (2017). Markets.ft.com. Retrieved 5 April
2017, from https://markets.ft.com/data/equities/tearsheet/financials?s=AIR:NZC
Air New Zealand Limited : Financials, earnings estimates and forecasts for Air New Zealand
Limited | AIR | 4-Traders. (2017). 4-traders.com. Retrieved 5 April 2017, from http://www.4-
traders.com/AIR-NEW-ZEALAND-LIMITED-6491407/financials/
What Influences the Price-to-Earnings Ratio?. (2017). Finance.zacks.com. Retrieved 5 April
2017, from http://finance.zacks.com/influences-pricetoearnings-ratio-3474.html

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FINANCIAL RATIO ANALYSIS
Appendix
1. Income Statement
AIR NEW ZEALAND LTD (ANZFF) INCOME STATEMENT
Fiscal year ends in June. NZD in millions except per
share data.
2012
-06
2013
-06
2014
-06
2015
-06
2016
-06 TTM
Revenue 4483 4618 4415 4925 5231
523
5
Cost of revenue 1219 1204 1121 1089 846 752
Gross profit 3264 3414 3294 3836 4385
448
3
Operating expenses
Sales, General and administrative 1320 1343 1431 1542 1677
167
5
Other operating expenses 1786 1761 1708 1768 1998
211
6
Total operating expenses 3106 3104 3139 3310 3675
379
1
Operating income 158 310 155 526 710 692
Interest Expense 95 91 90 108 100 92
Other income (expense) 31 37 292 56 53 -45
Income before income taxes 94 256 357 474 663 555
Provision for income taxes 23 74 95 147 200 174
Net income from continuing ops 71 182 262 327 463 381
Net income 71 182 262 327 463 381
Net income available to common shareholders 71 182 262 327 463 381
Earnings per share
Basic 0.07 0.17 0.23 0.29 0.41 0.34
Diluted 0.07 0.17 0.23 0.29 0.4 0.34
Weighted average shares outstanding
Basic 1096 1096 1101 1118 1122
112
2
Diluted 1096 1103 1110 1124 1135
113
0
EBITDA 537 758 883 984 1228
112
5

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FINANCIAL RATIO ANALYSIS
2. Balance Sheet
AIR NEW ZEALAND LTD BALANCE SHEET
Fiscal year ends in June. NZD in millions except per share
data.
2012-
06
2013-
06
2014-
06
2015-
06
2016-
06
Assets
Current assets
Cash
Cash and cash equivalents 1029 1150 1234 1321 1594
Short-term investments 40 98 30 103 92
Total cash 1069 1248 1264 1424 1686
Receivables 310 306 298 298 300
Inventories 170 155 169 120 103
Prepaid expenses 64 44 51 71 73
Other current assets 87 105 45 69 177
Total current assets 1700 1858 1827 1982 2339
Non-current assets
Property, plant and equipment
Gross property, plant and equipment 4802 4907 5339 6314 6845
Accumulated Depreciation -1708 -1970 -2262 -2253 -2360
Net property, plant and equipment 3094 2937 3077 4061 4485
Equity and other investments 264 307 470 428 230
Goodwill 1 1 1
Intangible assets 60 66 78 102 127
Other long-term assets 340 443 397 202 70
Total non-current assets 3759 3754 4023 4793 4912
Total assets 5459 5612 5850 6775 7251
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 16 15 22 46 239
Capital leases 141 144 168 207 225
Accounts payable 373 382 398 448 453
Deferred income taxes 27 52 20 54
Deferred revenues 902 918 930 1055 1111

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FINANCIAL RATIO ANALYSIS
Other current liabilities 251 224 302 352 389
Total current liabilities 1683 1710 1872 2128 2471
Non-current liabilities
Long-term debt 233 219 341 616 841
Capital leases 1304 1251 1202 1453 1262
Deferred taxes liabilities 297 310 229 228 164
Other long-term liabilities 256 307 334 385 405
Total non-current liabilities 2090 2087 2106 2682 2672
Total liabilities 3773 3797 3978 4810 5143
Stockholders' equity
Common stock 2282 2277 2282 2286 2252
Retained earnings -632 -521 -373 -351
Accumulated other comprehensive income 36 59 -37 30 -144
Total stockholders' equity 1686 1815 1872 1965 2108
Total liabilities and stockholders' equity 5459 5612 5850 6775 7251

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FINANCIAL RATIO ANALYSIS
3. Cash Flow
AIR NEW ZEALAND LTD (ANZFF) Statement of CASH FLOW
Fiscal year ends in June. NZD in millions except per
share data.
2012
-06
2013
-06
2014
-06
2015
-06
2016
-06 TTM
Cash Flows From Operating Activities
Other non-cash items 472 750 730 1100 1074 909
Net cash provided by operating activities 472 750 730 1100 1074 909
Cash Flows From Investing Activities
Investments in property, plant, and equipment -610 -382 -644
-
1118 -998 -942
Property, plant, and equipment reductions 8 9 27 46 57 62
Acquisitions, net 1 44
Purchases of investments -40 -46 -136 -23
Sales/Maturities of investments 281 349
Purchases of intangibles -13 -44
Other investing activities -17 26 -38 -137 -10
Net cash used for investing activities -654 -480 -727
-
1066 -797 -564
Cash Flows From Financing Activities
Debt issued 574 114 376 576 564 634
Debt repayment -165 -149 -157 -327 -344 -476
Common stock issued 2 1 1
Repurchases of treasury stock -11
Cash dividends paid -43 -72 -108 -258 -230 -530
Other financing activities -19 -30 -31 62 6 -85
Net cash provided by (used for) financing activities 349 -147 81 53 -4 -457
Net change in cash 167 123 84 87 273 -112
Cash at beginning of period 860 1027 1150 1234 1321 1400
Cash at end of period 1027 1150 1234 1321 1594 1288
Free Cash Flow
Operating cash flow 472 750 730 1100 1074 909
Capital expenditure -623 -426 -644
-
1118 -998 -942
Free cash flow -151 324 86 -18 76 -33
Supplemental schedule of cash flow data
Cash paid for income taxes -5 -28 -119 -170 -185 -166
Cash paid for interest -87 -84 -79 -98 -96 -85

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FINANCIAL RATIO ANALYSIS