Financial Management Case Study: BIA Competitiveness Analysis

This case study analyzes the financial management of Bali Island Airlines (BIA), a multinational corporation listed on the Indonesian stock exchange. The report examines BIA's competitiveness through SWOT and PESTLE analyses, identifying strengths, weaknesses, opportunities, and threats in the airline industry. The analysis includes an assessment of BIA's strategic options, including competing strategies like low-cost models and potential acquisitions, along with the application of capital budgeting techniques such as the payback period to evaluate investment decisions. The study explores financial ratios, market positioning, and the implications of external factors like political and economic conditions on BIA's performance, and also considers the impact of events like the COVID-19 pandemic on the airline's profitability. The report concludes with recommendations for BIA's management to improve its financial standing and market position, including the potential acquisition of Malaysian Airlines and the utilization of financial management principles to overcome operational challenges and make informed business decisions.

FINANCIAL MANAGEMENT

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Analyze the current competitiveness of BIA...............................................................................1
Competing strategies USING BIA..............................................................................................1
Business decision.........................................................................................................................1
Calculation of selling price of BIA..............................................................................................1
CONCLUSION................................................................................................................................1
REFRENCES...................................................................................................................................1

INTRODUCTION
Financial management is special branch of management which is used to solve issue of
finance and help in managing financial resource in effective way. In order to understand
importance of financial management in business organization, Bali Island Airlines has been
taken. It is one of the most famous multinational corporations of Bali which is listed on the
Indonesian stock exchange in 2002. BIA was established TO PROVIDES leisure travel
facilities to their customer, the organization serve their services in two sector, in local cities
and second in nebulous countries, which they called regional sector the organization
performance were high since its establishment but from past few years due to high
continuous and lack of management policies BIA lost their charm this report content main
causes of failure of BIA and strategies formulate through which organization able to come in
competition again.
TASK 1
Analyze the current competitiveness of BIA
SWOT analysis of BIA: SWOT is a environment scanning technique through which manager
will able to identify their organizations strength, weakness, opportunity and threat, following is
the SWOT of BIA
STRENGTH
BIA provides high quality of luxury facilities
to their customers.
Availability of financial resource.
Strong capitalization structure
Strong brand value in Bali (Wojtowicz, M.,
2014).
WEAKNESS
Dependency on local customers.
Not integrated with GDS
Dependency on internet penetration.
Political issue
OPPORTUNITY
Changing population demographic area.
Able to explore business in Asia
Attract tourist.
Improve infrastructure by using technologies.
THREAT
Raising of fuel cost
Higher competitors
Decrease of brand awareness.
Increase of regional air traffic
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PESTLE analysis of BIA
PESTLE analysis is also term as environment scanning tool organization use this method for
identification of effect of their external factor .
POLITICAL
Strong political support not
only from local government of
Bali, although Malaysian, Indi
an, Shri Lanka government
also provides help to this
organization as they were
maintain strong relationship
with them.
ECONOMICAL
From its establishment most of
customer chooses to use BIA
due to its low cost budget
policy its revenue rte was high
but now due to high
competitions economical
condition goes down.
SOCIAL
Due to their high fair chargers
and unethical behave with
customers during proving of
services perception not public
were change regarding this
organization.
TECHNOLOGICAL
They use digital resource very
well for promotion marketing
and advertisement, BIA also
provides faculty to their
customer to book ticket
through new mode. However
they probably not use or
proved feature which other
competitor offers to their
customers.
LEGAL
BIA is famous for their skilled
operation IN MARKET. They
fulfil all their responsibility in
following all the rules of
ethics (Herring, R., 2014).
ENVIRONMENT
THE ENVIRONMENT
condition in Bali was very
good although due to some
climate problems, volcano
eruption profit rate of the
company affected as company
unable to provides services in
eruption period.
Porter‘s 5 force tools
Porter develop their 5 force model in order to identify level of competitiveness in market. It is
the framework which is used for identification of competitive intensity in market place.
Threat of
Substitution
Threat of new
entrants
Competitive
rivalry
Bargaining
power of
supplier
Bargaining
power of buyer
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Various medium
of transportation,
by road, at
present time
transportation
through water
way also in
trends.
Capital
requirement
0000
High fixed cost Supply of
aviation fuel
Direct customers
Travelling
distance
Government
rules and
regulation
Brand identity High cost for
building aircraft
Higher fair
charge as
compare to rival
organization
From applying environment scanning technique it has been observed that BIA has efficient
resource of financial which will provide them competitive advantage, but due to changes of their
pollicise regarding high fair charges, high cost on services, and threat of competitors their
revenue performance goes down.
Competing strategies USING BIA
BIA is suffering from financial issue their top management have 2 option to either choose the
way their rivalry organization to enhance their profits and maintain their position in market
through using no frills low budget policy or on the other hand top management have idea to use
their capital resource and expand their business by acquisition of small organization, Cargo or
SIA. Manager of Bali Island Airlines use second strategy.They are able to generate income and
earn profit which are sufficient as per their operational activities. By using frill cost and low
budget strategy the BIA unbeaten provides attractive and luxury service to their customers, the
airline services is famous for providing high world classes service to their passenger and it s
famous for this by adopting frill cost strategy they loss ether brand image it may the reason of
reducing cost of operation but due to using this strategy BIA cannot attain their vision of become
leading air travel company of Bali. On the other side by adopting auction policy manager of Bali
will be cut throat competition and cover large area of market. Accusation of Cargo will helpful
for the organization to increase their revenue ad build up positive image in public as well as they
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are able to provides entertainment and additional service to their passenger so they will enjoy
their journey.
Business decision
Particular Amount Cash inflow Maintenance
COST
Profit
before
depreciation
Depreciation Profit
before
tax
Taxes Earning
after
tax
Cash
flow
after tax
Cost of
purchasing
new air
plane
22.8 - - - - - - - -
Less:
Current
scrape
value of
old plane
-3.2 - - - - - - -
Net cash
outflow
19.6 - - - - - - -
2020 CI 3.6 1.2 2.4 6.84 -4.44 -4.44 2.4
2021 4.5 1.2 3.3 4.78 -1.48 .978 .502 4.278
2022 5.625 1.2 4.42 3.35 1.07 .325 .745 4.095
2023 7.0312 1.2 5.831 1.95 3.881 .853 3.025 4.975
2024 8.1789 1.2 6.9789 1.73 5.27 1.594 3.676 5.406
Total
For determination of whatever the organization will accept the proposals or reject it capita
budgeting technique has been applied by manager. Capital budgeting is tool of financial
managing WHICH WILL USE FOR DECSION MAKING PROCESS OD NUSINESS
ORGANIZATION. Various traditional and modern methods of capital budgeting technique has
been developed but due to lack of proper knowledge regarding present value factor AD RATE,
MANAGER WILL DECIDE TO USE PAY BACK PERIOD MENACHANISAM FOR
CALCUATON OFFUTRE PROFITABITY RATE OF THE PROPOSAL.
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Payback period is a technique which is used to determine the total time period an proposal will
be take to recover invested amount. Pay back period includes in traditional capital budgeting
method and it is one of the easiest technique and easy to understand and time consuming
technique of capital budgeting. Method of pay back period:
Base year +Initial investment- Base year CCI/Next year cash inflow
In this case
Calculation of selling price of BIA
YEAR ANNUAL CASH FLOW CUMULATIVE CASH
FLOW
1 2.4 2.4
2 4.278 6.678
3 4.095 10.773
4 4.975 15.748
5 5.406 21.154
5+22.8-15.748/5.406= 5.30
From this calculation it has been identified that if BIA accept the proposal of purchasing of new
air craft then it will be not in favour for the organization a s they take more than 5 year to recover
the amount invested n the aircraft . The organization not able to generate profit in starting of 2
successive year even though their growth rate is high but due to heavy corporate taxation rate or
higher depreciation and maintenance cost , organization will not be able to maintain profitability
by accepting the proposal of using new air plan for exploration of their business . The other
reason is also effect that at present due to climatic and environment problem , rate of profit from
travelling or using airplane for going one place to other has been goes down as whole world is
suffering from COVID pandemic thus from financial as well as environment or business point of
view it is not a correct decision for top managed of BIA if they choose accepting of purchasing
of new air plan(Mladenova, T., 2019)
Malaysian Airline offer to BIA to acquire their share at price of 60 per share the current market
price of share will be 11 to 20. For identification of whether BIA accept to acquire the Malaysian
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airline offers efficiency ratio has been used for decision making purpose. Theses ratio help in
identification of efficiency or performance and current position of organization in market place.
Price – Earning share of BIA: Market Price/ Earning per share
Earning per share of BIA: Net income/ outstanding share
Earnings per share of BIA in 2017: 48.4/1.2: 40.33
Earning per share of BIA in 2018: 57.7/1.2: 45.83.
Price Earning ratio2017: 42/40.33 = 1.0414
Price Earning ratio2017 42/45.83= .961
BIA IS ONE OF THE MOST FAMOUS ORGANIZATION OF Bali it will help in economic
growth as well as provides employment, helps in improving economic growth of the
organization. The size of the organization is wider before taken decision regarding the expansion
of business through accusation model. Manager should analysis all the benefits and drawbacks of
the firm they acquire, their size, worth, position inmarket, value of share. In this case the value of
Malaysian airline in market is very high thus acquisition of this organization for expansion of
business is right decision, management of BIA select 45.83 pricing of share to acquire the shares
for the company it will help in proving future benefitted the business organization Jared, (Migiro,
and Mutambara, 2017)
CONCLUSION
From the above analysis it has been concluded that in order to solve all the issue related
to management and operations of BIA organization, their top management need to use rules,
principle of financial management to overcome all theses problem in effete way. By using
business decision making principle of financial management department of BIIA able to take
decision that applying accusation strategy for rebuild strong position in market is much better
then choosing frill cost and lo w budget strategy, the use capital budgeting technique and ratio
method to determine the decision regarding accepted of proposal of new plan or acquisition of
Malaysian airline shares for expansion of business.
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REFRENCE
Books and journal
PENG, J., WANG, S. and GUAN, T., 2016. Does Interest Rate Liberalization Narrow Interest
Margins of Commercial Bank? Empirical Evidence Based on Chinese Banking
Industry. Journal of Financial Research, (7), p.4.
Herring, R., 2014. The challenge of resolving cross-border financial institutions. Yale J. on
Reg., 31, p.853.
Wojtowicz, M., 2014. CDOs and the financial crisis: Credit ratings and fair premia. Journal of
Banking & Finance, 39, pp.1-13.
Mladenova, T., 2019, May. A project managment system for time planning and resources
allocation. In 2019 42nd International Convention on Information and Communication
Technology, Electronics and Microelectronics (MIPRO) (pp. 1299-1303). IEEE.
Jared, O. O., Migiro, S. and Mutambara, E., 2017. Integrated Financial Management Information
System: a conceptual framework for Migori County, Kenya. Public and Municipal
Finance (hybrid), 6(1), pp.37-45.
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