Business Valuation and Analysis Report: Flight Centre Travel Group

This report provides a detailed business valuation and analysis of Flight Centre Travel Group. It begins with an introduction to the company and the scope of the analysis, followed by a macroeconomic analysis that examines the external factors influencing the business, including GDP, inflation, exchange rates, and oil prices. The report then delves into industry analysis using Porter's Five Forces model to assess the competitive landscape, including rivalry among existing competitors, the threat of new entrants, and the threat of substitute products. A business strategy analysis is also conducted, focusing on aspects such as growth in the network. Furthermore, the report includes an accounting analysis, covering the recognition of accounting policies, accounting flexibility, and the quality of disclosures. The report concludes with a summary of the key findings and recommendations, offering insights into Flight Centre's financial performance and future prospects. References are provided to support the analysis.

Running head: BUSINESS VALUATION AND ANALYSIS
Business Valuation and Analysis
Name of the Student
Name of the University
Authors Note
Course ID

1BUSINESS VALUATION AND ANALYSIS
Table of Contents
Introduction:...............................................................................................................................2
Macroeconomic Analysis:..........................................................................................................2
Industry analysis.........................................................................................................................6
Rivalry from existing competitors.............................................................................................7
Bargaining power of customers...............................................................................................10
Bargaining power of suppliers.................................................................................................10
Business Strategy Analysis:.....................................................................................................11
Growth in Network:.................................................................................................................12
Accounting Analysis................................................................................................................14
Recognition of the principal accounting policies.....................................................................14
Evaluating the accounting flexibility.......................................................................................15
Assessing the accounting strategy............................................................................................15
Assessing the quality of the disclosure....................................................................................16
Information distortion..............................................................................................................16
Undoing any accounting distortions.........................................................................................17
Conclusion:..............................................................................................................................18
Reference List:.........................................................................................................................19

2BUSINESS VALUATION AND ANALYSIS
Introduction:
In the age of globalization with the introduction of Science and Technology, every
organization operating within their economy assess their performance concerning the
industrial benchmark of the economy where the organizations operates (Kubasek, Brennan
and Browne 2016). The study is concerned with the evaluation of the financial statement for
Flight Centre Travel Group by taking in to the considerations the variable sources such as the yearly
report of the organization to gather information for assessment. The fiscal report of the Flight Centre
Travel Group will help in assessing the operations of the business. Flight Centre Travel Group has
been found to be one of the most renowned airline service within the geographical regions of
Australia. Flight Centre Travel Group is listed in the Australian stock exchange as one of the listed
companies and operating in the airline industry.
As evident from the report, the company has been generating profit for the last few years after
rising beyond the competition as the company was in the requirement of taking the business
performance to the new level (Kew and Stredwick 2017). The yearly report of the company
provides the information regarding the operations of the company. In addition to this, the use of
numerous analytical techniques has been implemented in the present study that comprises of
macroeconomic analysis, business strategy analysis, industry analysis and the accounting evaluation
for Flight Centre Travel Group. The study even analyses the extent of competition faced by the
company in the present travelling industry where theFlight Centre Travel Group operates.
Macroeconomic Analysis:
Flight centre travel group‘s economic environment
Economic environment relates to the external factors that influences the workplace
environment in the business. The economic objective of Flight centre travel group (FCTG) is
to contribute the destination nation they work and stay. Economic environment is categorized
into two parts such as – macro- environment and microenvironment. The success of this

3BUSINESS VALUATION AND ANALYSIS
organization is determined with the help of these two types of economic environment
(Woodford 2013). The management of the enterprise also ascertain that the benefits and
disadvantage of tourism are evenly shared in their travel agency business. In addition, the
economic environment of FCTG is also affected by the society’s economic health to which
their business is connected.
This enterprise is one of the major stakeholders in overall society where their business
operates and to the society where their customers like to travel. The management of the
organizations mainly operates on those key sectors that facilitates them in giving information
on the advisor’s economic liability and collecting resources in order to assists on the
knowledge of their customers. They focus on conducting package-reviewing process that
aspires in selecting their tour package that are beneficial for the Australian economy.
Analyzing how global economies affect the organizational performance over the years
Fluctuations in the global economies adversely affect the company’s growth over the
last few years. As the recession in US hits the global economy, it negatively influenced the
financial performance of many entities in the globe (Healy. and Palepu 2012) However,
FCTG also suffered from enormous loss during the year 2008-2009 owing to decrease in
number of both international and domestic tourist. The management of this firm strategized
to fire few employees in order to cover up huge loss during this phase. As a result, Australia’s
rate of unemployment increased above the target level , which is 5%. In additional,
uncertainties and changing economic condition of the less developed nation’s also influences
the travel agency business in Australia including FCTG. Moreover, changing visa policies of
the individual nations affects the performance of this organization as well as growth of
FCTG.

4BUSINESS VALUATION AND ANALYSIS
Macroeconomic variables affecting the performance of FCTG
The macroeconomic variables assess the cyclical movements and inclination of the
respective economy (Trugman, 2016). These variables includes- GDP growth rate, inflation,
prices of crude oil, unemployment rate, exchange rates, interest rates, money supply etc.
Macroeconomic events and the economic health affects all the organizations of the economy.
In this study, four factors are considered for analyzing the impact of economic environment
of FCTG business that includes- GDP, Inflation, exchange rate, prices of crude oil.
The GDP of the economy is defined as the summation of its total consumption,
investment, government spending and net exports (Sekaran and Bougie, 2016). It is one of
the major factors that affect the business performance and determines the economic health of
the country. GDP growth rate refers to the economic trend of the nation over the years.
Owing to expansion of Australia’s GDP growth rate to 0.3% in 2017, the financial
performance of FCTG improved. This is because cyclical fluctuations in the respective
nation influence the credit demand. As recession hits Australian economy, the GDP growth
rate declined and hence this reduced the economy’s credit demand. However, this adversely
affected performance of FCTG in terms of revenue and profitability. after that phase the
credit demand again increased leading to rise in profit of the company.
Inflation rate is another macroeconomic factor that largely influences the purchasing
power and cost of business. High rate of inflation in the Australian economy during the
recession period (2008-2009) reduced the purchasing power of the customers and this led to
decline in aggregate demand in services (Goodwinet al. 2013). As a result, the business cost
of this travel agency increased and this decreased their profitability level. However, during
expansionary period, as the Australian recovered from huge financial crisis the inflation rate

5BUSINESS VALUATION AND ANALYSIS
fell and this raised the purchasing power in the economy. Hence, this increased the travel
demand of the customers leading to enhancement of financial performance of FCTG.
Volatility in Australia’s crude oil industry created huge risk to FCTG Company. As
rise in inflation rate of Australia increased prices of crude oil, FCTG ‘s input cost also
increased. This led to rise in airfares and hence the customers demand for travel
automatically reduced during 2008-2009. Though Australian economy has recovered from
recession phase, volatility in oil prices still exist in the economy. Hence, this factor often
influences their organizational performance.
Foreign exchange rate fluctuation affects the customers spending in travel destination.
In the current state, exchange rate depreciation raises the total demand for travel in the
economy (Frechtling 2013). However, as the Australians spend their money in travel; this
raised the profitability level of FCTG. Therefore, implementation of expansionary monetary
policy stabilizes this currency fluctuation and thus lowering the risk in foreign exchange.
Future forecast of FCTG ‘s financial performance
Recent statistic reflects that the Australian economy has been progressing over the
years. Therefore, if the GDP growth rates of this nation continuously increase, the credit
demand in the economy will increase at higher rate. In addition, implementation of
expansionary monetary policy will help keep the inflation rate low in the economy. As a
result, the prices of commodities and services automatically lower and this will increase their
purchasing power. Moreover, increase in consumers spending in travel will raise the revenue
of travel companies in Australia including FCTG. On the contrary, oil prices volatility in
Australia will always exist and this may create huge problems to this travel company (Borio
2014). In addition, changes in foreign exchange rate might influence their financial
performance of FCTG in future. Therefore, it is recommended that the management of FCTG

6BUSINESS VALUATION AND ANALYSIS
must focus on these economic environmental factors before making their business strategies.
This will help the company to attain higher profitability and expand their business in the
future.
Industry analysis
Competition level of Flight Centre travel group in the operating areas and application
of Porter’s five forces model
The competition level discussion has been done based on the external environment
analysis for Flight Centre travel group in areas where it operates in travel industry across
Australia (Flight Centre Travel Group Limited. 2017). The Porter’s five forces model has
been depicted upon various factors related to external environment of the travel industry of
Australia. The diagram below has been conducted based on Porter’s five force model which
has been segregated into five broad headings namely threat from suppliers, threat from
customers, bargaining power of suppliers, bargaining power of customers and competitive
rivalry (Kim 2014).
Figure: Application of Porter’s Five Forces Model for Flight Centre Travel Group’s

7BUSINESS VALUATION AND ANALYSIS
(Source: Flight Centre Travel Group Limited. 2017)
Rivalry from existing competitors
The criteria for rivalry from the existing firm have been identified with the lower
competition from the existing industry.
 Lower risk from the rival firm- The travel industry of Australia has been depicted
with low amount of risk from the competitors due to lower cost incurred. The
competitors are able to maintain their inventory with the appropriate stock levels. The
main rationale for this is due to low storage cost which is having a positive impact on
the company’s dealing in travel business (Lloyd 2014).
 Large Industry size- The travel industry of Australia seen to allow multiple firms for making
an effort and having higher market share of other firms. Henceforth, a large group of market
size is seen to create a positive impact on Flight Centre travel group. Due to the large nature
of industry, multiple opportunities have been presented to the company which belongs to
present and near future as well (Robinson et al. 2016).
Figure: Segmental industry performance

8BUSINESS VALUATION AND ANALYSIS
(Source: ibisworld.com.au. 2017)
The figure depicted above shows the industry segment performance for Flight
Centre travel group for a time period of 2012 to 2015. The declining revenue in 2014
has depicted that Flight Centre travel group having low revenue which is not
preferable and shows poor financial positioning.
Figure: Travel industry revenue generation in Australia
(Source: ibisworld.com.au. 2017)
 Differentiation- It is vital to consider that travel industry in Australia has been
able to actually differentiate them by having diverse product range. The
segments have been further differentiated as per international visitor arrival,
international visitor spending and international visitor snapshot (Rheem 2016).
Threat of new entrants
It is observed that travel industry’s threat of new entrants is considerably lower in
Australia.

9BUSINESS VALUATION AND ANALYSIS
 Implementation of advanced technologies- To prevent the entry of Flight
Centre travel Group Company needs to implement advanced and innovative
technologies so that it can face your competition. The existing competition in
Australia needs to be first assessed and then addressed with use of those
advanced technologies.
 Economies of scale- this conducive for the travel industry to have economies
of scale for lowering the cost. This is also required to produce the next best
unit of output at a reduced rate.
 Higher cost of production- It is vital to know the underlying facts related to
new competitors trying to enter in the Australian travel industry. They will be
definitely having an access to increased cost of production which runs parallel
to the smaller economies of scale.
 Skilled employees and human resources- Based on the analysis it has
considered that the travel industry has mostly searched for the employees who
are having low scale and do not have to pay higher remuneration towards their
work. In this way the profit margin is kept substantially low from the other
brand of companies. Henceforth, the changes are relevant to the macro
economy which largely influences the major challenges in a similar industry.
Threat of substitute products
The travel industry of Australia is on to face lower threats from substitute products.
 Switching cost- the customers find the service quality to be low when they are having
a tendency to switch other brands. Flight Centre travel group needs to maintain its
quality and make the same as a barrier to the new entrants and various types of
substitute services.

10BUSINESS VALUATION AND ANALYSIS
 Reduced quality of services- The Flight Centre travel group is seen to be having
multiple number of substitutes and responsible for delivering lower service quality.
However, the strategy is not applicable on the customers as they are more concerned
about the service quality factor than any other concern.
Bargaining power of customers
Based on the industry analysis in Australia the bargaining power is of customers is seen
to be medium. Some of the appropriate reason for justification has been enumerated
below as follows:
 Large customer base- The travel company in Australia seen to be having a large
customer base where the customers medium bargaining power.
 Price sensitive- the price sensitive nature of the customers for Flight Centre Travel
Group has been seen to be mainly less sensitive as it believes in delivering the best quality at
reasonable rates (Flight Centre Travel Group Limited. 2017). In addition to this, the
customers mostly look forward to alignment of the social status. In case a company is aware
that customers are only looking for quality, then the price increases automatically and this
needs to be taken into consideration (Lok, Asano and Rhodes 2014).
Bargaining power of suppliers
The bargaining power faced by Australian travel industry is designed to be high.
Some of the main reasons have been justified below as follows:
 Intense competition- the travel company of Australia seen face a huge competition as
a suppliers provide the best price various types of other players in the market.
 Diversified distribution channel-Based on the analysis that diversify distribution
channel has given rise to the high bargaining power from a single distributor and the
travel industry based in Australia. This has been particularly seen to be the area where

11BUSINESS VALUATION AND ANALYSIS
volume is critical to the suppliers who are regularly providing services to Flight
Centre travel group.
 Relies on high volume-It has been particularly noticed that the suppliers rely on high
volume which lead to higher bargaining power. Moreover, the producers are not seen
to be having the scope to cut down the negative profit (Robertson 2017).
Business Strategy Analysis:
Against the backyard of the noteworthy low airline, fares and lower confidence among the
customers there are some of the nations that have gone past the TTV for the financial year of 2016
(Wetherly and Otter 2014). Along with this, the business strategy of Flight Centre Travel Group has
been successful in attaining the revenue by around $350 million in the backdrop of profit for the third
successive year in the history of operations of the company. It is noteworthy to denote that the
business strategy of the business strategy of Flight Centre Travel Group has been successful in
producing GPB of $1 billion sales. The strategy of business has of Flight Centre Travel Group has
been designed in such a way that it provides the foundations of future growth by investing in the
innovating system that helps in introducing the advantage of higher cost with improved productivity
(Palepu, Healy and Peek 2013).
The business strategy of the Flight Centre Travel Group has been successful in improving the
streams of revenue together with the new and unique sort of goods and services for appealing its
customers (Wahlen, Baginski and Bradshaw 2014). It is worth mentioning that the business
strategy of Flight Centre Travel Group has been successful in improving the overseas network with
the help of rolling out the next generation stores and designs. The company has been successful in
developing the new innovative consumer cantered initiatives that consists of the flexibility of
workplace arrangement and programs that will help in increasing the ownership with the help of
digital capabilities.
The business strategy of Flight Centre Travel Group has been successful in expanding the
business level footprint particularly with the help of organic growth however, the company has also