Comprehensive Financial Analysis Project: Flight Centre Travel Group

This project report provides a detailed financial analysis of Flight Centre Travel Group LTD. The report begins with an introduction and company overview, followed by an in-depth examination of debt valuation, comparing Flight Centre's debt structure to industry standards, and calculating the cost of debt. The analysis then proceeds to share valuation, utilizing both the dividend discount model and the P/E multiple model to determine the intrinsic value of the shares. The report also assesses the company's cost of capital, calculating the Weighted Average Cost of Capital (WACC) and discussing the implications of the capital structure. Market analysis is conducted to assess the company's performance and future prospects. The report concludes with a summary of findings and recommendations, supported by references to relevant financial data and industry reports. The analysis highlights the company's financial performance, potential investment opportunities, and areas for improvement, such as optimizing the capital structure.

Running Head: Finance
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Project Report: Finance

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Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
Debt valuation...................................................................................................................3
Share valuation.................................................................................................................4
Cost of capital...................................................................................................................6
Market analysis.................................................................................................................8
Conclusion........................................................................................................................9
References.......................................................................................................................10

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Introduction:
Investors are the key part of an organization. These stakeholders assist an
organization to raise the funds for betterment of the company. Investor must go through the
entire related details before making a decision about investing in a particular company or the
industry/ In this report, FLIGHT CENTRE TRAVEL GROUP LTD has been taken into the
consideration to understand that how a company could be analyzed through analyzing various
technique and methods. For identify the worth of the business, debt valuation, share valuation
technique, intrinsic price of the shares, WACC, share analysis, cost of capital etc studies have
been done. Through these calculations, it has been identified that whether the investors must
invest into the company or not and if the investors would invest into the company then how
much return could be got by the investors.
Company overview:
FLIGHT CENTRE TRAVEL GROUP LTD is an Australian company. This company
is the biggest retail travel outlet in the Australian market. Head quarter of the company is in
Brisbane, Australia. This company has listed itself in the Australian stock exchange in 1982.
The turnover of the company is around $ 20 billion (Home, 2017). This company is currently
employing 20,000 people. Around 2,800 stores have been owned by the company in various
countries and the performance of the company is stunning.
Debt valuation:
FLIGHT CENTRE TRAVEL GROUP LTD’s annual reports have been analyzed to
identify that how the company raises the funds. In this study, the short term and long term
debt of the company has been analyzed initially. The short term and long term debt of the
company is as follows:
FLIGHT CENTRE TRAVEL GROUP LTD
2017 2016 2015 2014 2013
Long term debt 0 0 0 2 3
Short term debt 56 77 33 43 44
(Morning star, 2017)
Further, the industry’s data has been analyzed. The following are the short term and
long term debt of the competitive company of FLIGHT CENTRE TRAVEL GROUP
LIMITEED.

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HELLOWORLD TRAVEL LTD
2017 2016 2015 2014 2013
Long term debt 63 58 28 27 33
Short term debt 0 0 0 1 2
(Morningstar, 2017)
Through this analysis, it has been found that the debt structure of FLIGHT CENTRE
TRAVEL GROUP LIMITED is not at all consistent according to the industry standards.
Through the analysis over company and industry’s debt, it has been found that the
other companies in the industry are focusing more on the long term debt while the company
is focusing on short term debt. At the same time, the increment rate of concerned company of
debt is less than the industry rate.
The cost of debt of FLIGHT CENTRE TRAVEL GROUP LIMITED is 0.0263 which
express that the company have to pay total 0.0350 parts to the debt holders in terms of
interest.
Calculation of cost of debt
Outstanding debt 0
interest rate 5%
Tax rate 0.3
Kd 0.0350
(Bloomberg, 2017)
Thus, through the debt valuation study of the company, it has been analyzed that the
performance of the company’s debt is different from the industry. But the performance of the
company is depicting positive influences. It has also been analyzed that the total cost of debt
of the company is 3.50%.
Share valuation:
Further, share valuation study has been performed over the company to analyze the
performance of the company in terms of total expenses and the capital structure. The current
cost of equity of the company is 4.7041% which depict that the company has to pay total
4.7041% to the shareholders in terms of dividend.
Dividend Discount Model
Dividend
expected 0.017505805

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Growth rate 5%
Price per share 28.919622
cost of equity 4.7041%
(Yahoo finance, 2017)
In addition, it has been analyzed that the total revenue of the company has been
enhanced from last 4 years. The company is performing well in the market so as the turnover
of the company is also enhancing rapidly. The earnings and the revenue of the company are
as follows:
2017-06 2016-06 2015-06 2014-06 2013-06
Revenue 2544 2625 2363 2207 1945
2017-06 2016-06 2015-06 2014-06 2013-06
Earnings 2.29 2.42 2.55 2.05 2.45
(Google finance, 2017)
This depict that the performance of the company is quite stable. Currently, the total
earnings of the company are 2.29 which are lower than last year but according to the industry
performance, company’s performance is stunning.
Further, the value of shares has been analyzed through the P/E model and the constant
dividend growth rate model. The calculations of both the techniques are as follows:
Dividend Constant growth Model
Dividend expected 0.02
Growth rate 5%
Discount rate 3.46%
Intrinsic Value (1.48)
Share Price 28.919622
Overvalued
(Morningstar,
2017)
PE Multiple Model
Industry PE ratio 9.76
EPS 2.29
Intrinsic Value 22.35
Share Price 28.919622
Overvalued

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Through both the evaluation, it has been found that the current share price of the
company is overvalued. According to the dividend constant growth mode, the intrinsic value
of the company is -1.48 and according to the P/E model, the intrinsic value of the shares is $
22.35. There are various factors which have influenced the shares prices of the company such
as discount rate, growth rate, expected dividend, industry P/E ratio etc. The influence of these
factors could be shown above (Google finance, 2017).
According to the analysis over both the methods, P/E approach is more reliable as this
depends over the external sources and factors and according to this approach, the intrinsic
value of the company is $22.35. Still the share price of the company is overvalued which
depict that when the share price of the company get down to $ 22.35 then the investors must
buy the share of the company (AFR, 2017).
Lastly, according to various studies, it has been analyzed that for valuing the share
price of the company, various other data could also be considered by the investors such as the
revenue of the company, dividend approach of the company, policy and strategy of the
company, new projects, diversification, new products etc which directly impact over the
share price and the performance of the company.
Cost of capital:
Cost of capital is an opportunity cost which refers to the specific investment of a
company. This is the cost of the company which has been occurred through investing some
amount into various projects with equal risk. The current cost of capital of the company is as
follows:
Calculation of WACC
Price Cost Weight WACC
Debt 0 0.035 0 0
Equity 1429 0.04704 1 0.04704
1429 Kd 0.04704
This depict that the total cost of the company is 0.04704. The tax rate of the company
is 30% according to the government regulations of Australia. In this calculation the cost of
debt of the company has been analyzed through using 30% tax rate. Through the calculations,

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it has been found that the cost of equity of the company is 4.704% and the cost of debt of the
company is 3.5% which depict that there is some difference between both the cost, the main
reason behind these differences are the tax rate, debt interest rate, growth rate of the share
price and the expected dividend by the company (Morning star, 2017).
Current liabilities of a company must not be included in the cost of capital as the main
reason behind calculating the cost of capital is to analyze the long term cost of the company.
If the current liabilities would be included in that then there would be no meaning to calculate
the cost of capital of the company. Further, it the current liabilities would be included in that
then it would be easy for the company to calculate the entire cost of the company.
According to the analysis, the major value of the WACC is cost of equity and this
could be used in investment decision making by overlooking the capital structure of the
company and enhance the part of debt more than the equity so that a proper equation could be
set and cost of the company could also be reduced (Google finance, 2017).
Currently, company has diversifies its market into various new countries as well as
the new techniques have been adopted by the company to run the business smoothly.
Through this, it has been found that the company has enhanced the equity to invest into these
projects rather than the debt of the company. Due to which, the risk level of the company has
been reduced but at the same time, the cost of the company has been enhanced.
Lastly, the capital structure of the company has been analyzed in context with the
industry capital structure and it has also been analyzed that what would be the optimal capital
structure of the company. The capital structure of the company is as follows:

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Whereas the industry’s capital structure is:
(morning star, 2017)
Through this analysis, it has been found that both the company and the industry are
enahncing the level of equity rather than the debt to enhance and manage the funds of the
company. so, the capital strcuture of the company is quite consistent with the industry
standards.
The optimal capiatl structure of a company must be accoridng to the industry and
economical sitaution of the company, at the same time, the turnover and the perfrmance of
the company also matters. Accroidng to this case, the debt and equity ratio of the company
must be 4:6 so that the risk level of the company could be in the favor and the cost of the
company could also be reduced.
Market analysis:
According to the above evaluation, it has been found that the performance of the
company is enhancing rapidly and there are more chances of the company to offer high return
to its employees in near future. The news articles and various journals depict that the
performance of this company would be enhanced in future and as this company is the largest
company in the Australian market so it would lead the another companies in the market
(Glajnaric, 2016).

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According to FT (2017), the performance of the company is becoming better and the
company is required to manage the capitals structure in such a manner that the optimal capital
structure level could be got by the company (Voelkl and Fritz, 2017). According to (Bui et al,
2016), this company is offering the great return to the investors even in the phase of financial
crisis. AFR, (2017) depict that the performance of the company would be better in near
future. Company is just required to manage over few financial products to enhance the worth
of the company (Oliver and Schoff, 2017). Yahoo finance (2017) depict that share price of
the company is overvalued.
Conclusion:
Thus through this analysis, it has been found that the performance of the company is
better than other companies in the industry. Still the company is suggested to make some
changes into its capital structure and strategies to manage the optimal capitals structure and
the share price of the company could be according to the intrinsic value f the company.

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References:
AFR. 2017. FLIGHT CENTRE TRAVEL GROUP LTD. Retrieved from
http://www.afr.com/research-tools/FLT/company-profile/operational-history available on 3rd
Oct 2017.
AFR. 2017. FLIGHT CENTRE TRAVEL GROUP LTD. Retrieved from
http://www.afr.com/markets/buy-hold-sell-flight-centre-harvey-norman-ccamatil-qantas-
treasury-wine-20170903-gya397 available on 3rd Oct 2017.
Bloomberg. 2017. FLIGHT CENTRE TRAVEL GROUP LTD. Retrieved from
https://www.bloomberg.com/quote/FLT:AU available on 3rd Oct 2017.
Bui, S.B.D., Petersen, T., Poulsen, J.N. and Gazerani, P., 2016. Headaches attributed to
airplane travel: a Danish survey. The journal of headache and pain, 17(1), p.33.
Glajnaric, M., 2016. The importance of dividend paying stocks. Equity, 30(2), p.6.
Google finance. 2017. FLIGHT CENTRE TRAVEL GROUP LTD. Retrieved from
http://finance.google.com/finance?q=ASX:FLT available on 3rd Oct 2017.
Home. 2017. FLIGHT CENTRE TRAVEL GROUP LTD. Retrieved from
http://www.fctgl.com/ available on 3rd Oct 2017.
Morningstar. 2017. FLIGHT CENTRE TRAVEL GROUP LTD. Reterived from
http://financials.morningstar.com/company-profile/c.action?
t=FGETF&region=usa&culture=en-US available on 3rd Oct 2017.
Morningstar. 2017. Hello world travel limited. Retrieved from
http://financials.morningstar.com/balance-sheet/bs.html?t=HLO&region=aus&culture=en-US
available on 3rd Oct 2017.

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Oliver, J. and Schoff, P., 2017. Agency and Competition Law in Australia Following ACCC
v Flight Centre Travel Group. Journal of European Competition Law & Practice, 8(5),
pp.321-328.
Voelkl, B. and Fritz, J., 2017. Relation between travel strategy and social organization of
migrating birds with special consideration of formation flight in the northern bald ibis. Phil.
Trans. R. Soc. B, 372(1727), p.20160235.
Yahoo finance. 2017. FLIGHT CENTRE TRAVEL GROUP LTD. Retrieved from
https://finance.yahoo.com/quote/flt.ax?ltr=1 available on 3rd Oct 2017.