Investment Analysis and Portfolio Management: FLIGHT CENTRE LTD

This report provides an in-depth investment analysis and portfolio management evaluation of FLIGHT CENTRE TRAVEL GROUP LTD, comparing its financial performance against competitors like HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD. It assesses the company's financial health through ratio analysis, DuPont analysis, and intrinsic value calculations, determining its suitability for investment. While the company demonstrates strong financial performance and competitive positioning, the report notes that its stock price may be overvalued, presenting a risk. The analysis uses the Capital Asset Pricing Model (CAPM) to estimate the cost of equity and calculates the intrinsic value to evaluate the company's worth, highlighting discrepancies between different valuation models. Ultimately, the report recommends a long-term investment strategy, anticipating high returns despite the current overvaluation, while also advising on necessary adjustments to improve financial performance.

Running Head: Investment analysis and portfolio management
1
Project report: Investment analysis and portfolio management

Investment analysis and portfolio management
2
Executive summary
The report evaluates the present worth of the company. It considers the financial
performance of FLIGHT CENTRE TRAVEL GROUP LTD and compares the financial
performance of HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL
MANAGEMENT LTD. The investment position of the company’s stock has been evaluated.
It has been studied that the FLIGHT CENTRE TRAVEL GROUP LTD is one the largest
retail travel outlets in the Australian market. In 1982, company has been founded and it is
currently situated at Brisbane, Australia. The total turnover of the company is around $ 20
billion.
In this report, financial performance, DuPont analysis, intrinsic value etc of the company has
been evaluated to identify the performance of the company. The financial performance of the
company is better and the competitive level of the company is also higher. It explains that the
company is a good choice for the purpose of investment. But the stock price of the company
is overvalued. Thus, the position of the company is riskier. To conclude, the investor should
invest into the stock for long term. It would offer the high return to the company.

Investment analysis and portfolio management
3
Contents
Introduction.......................................................................................................................4
Company overview...........................................................................................................4
Financial performance and current issue analysis............................................................5
Financial performance..................................................................................................5
Peer comparison............................................................................................................7
Current issues of the industry.....................................................................................10
DuPont analysis..........................................................................................................12
Comparison with peer group......................................................................................12
Estimate valuation model...............................................................................................13
CAPM.........................................................................................................................13
Intrinsic value.............................................................................................................14
Evaluate the value of the company.................................................................................15
Why the difference?....................................................................................................15
Why the difference among intrinsic values................................................................16
Which model is appropriate........................................................................................16
Recommendation........................................................................................................17
Conclusion......................................................................................................................17
References.......................................................................................................................18
Appendix.........................................................................................................................18

Investment analysis and portfolio management
4
Introduction:
Portfolio management and the investment analysis is an art as well as science which s
used to make decision about the investment policy, investment mix and matching the
investment of its goals and objectives. Evaluation on investment is a crucial for every
investor. Investors are required to evaluate all the related factors of the investment security or
assets so that a better decision could be made and great returns could be achieved by the
investor. Investment analysis is basically a process of analyzing the investment for risk and
the profitability (Baker and Nofsinger, 2010). Ultimately, the main purpose of the investment
analysis is to measure the investment and a good fit in portfolio.
In investment analysis, investment is judged on the basis of their income, risk and the
value of reselling. It is quite crucial for the investors to consider the investment, instead of the
type of investment. Investment analysis methods evaluate various factors of resale value, cash
flows and risk. There are various methods to evaluate the investment such as identifying the
intrinsic value of the stock, evaluating the cost of equity, identifying the financial
performance of the company etc. (Bierman, 2010). On the basis of these methods, it becomes
easy for the investor to identify that whether the investment would meet to its goals or not.
Company overview:
In the report, FLIGHT CENTRE TRAVEL GROUP LTD has been taken into the
concern. The investment position of the company’s stock has been evaluated. FLIGHT
CENTRE TRAVEL GROUP LTD is one the largest retail travel outlets in the Australian
market. In 1982, company has been founded and it is currently situated at Brisbane, Australia.
The total turnover of the company is around $ 20 billion. Currently, company ha employed
more than 20,000 people to maintain and operate the business of the company. FLIGHT

Investment analysis and portfolio management
5
CENTRE TRAVEL GROUP LTD is a multinational company, it serves its service in
Australia, UK, New Zealand, United Arc Emirates, US, Canada, Singapore, India and China.
The company has licenses agreement in 80c countries to run the business (Home, 2018). The
main competitors of the company are HELLOWORLD TRAVEL LTD and CORPORATE
TRAVEL MANAGEMENT LTD.
Financial performance and current issue analysis:
Financial performance is measurement of a company. It evaluates that how well the
company is performing and it is using its assets to manage the business and the performance
of the company. Financial performance combines various techniques and it is used to identify
that whether the financial performance of the company has been better or some negative
changes have occurred into the performance of the company (Besley and Brigham, 2008).
The financial performance of FLIGHT CENTRE TRAVEL GROUP LTD is as follows:
Financial performance:
Evaluating the financial performance is a crucial part of every investor, analyst and
the manager. Financial performance process makes it easier for the investors to identify the
performance of the company and it also evaluates that how well the company is performing
its process. For evaluating the financial performance of FLIGHT CENTRE TRAVEL
GROUP LTD of last 5 years, ratio analysis study has been conducted. The analysis of
financial performance of the company is as follows:
Profitability position:
Profitability position evaluates the profitability level and the capabilities of the
company to generate the profit. Profitability ratios explain the total profit of the company in
context with the sales, assets, equity and capital employed of the company (Brigham and

Investment analysis and portfolio management
6
Daves, 2012). Return on capital employed and operating profit margin has been calculated to
identify the profitability position of the company.
Return on capital employed explains the net profit level in context with the capital
employed. ROCE explains that the profitability position of the company has been lower from
2013 in 2017 due to less profits and higher capital employed. Further, operating profit margin
explains the total operating profit in context with the sales (Morningstar, 2018). Operating
profit margin calculations explains that the operating profit level of the company has been
lowered due to high operating expenses. It explains that the profitability level of the company
has been lower from last years. Though, the current performance of the company is still good.
Asset efficiency ratios:
Asset efficiency position evaluates the efficiency level and the capabilities of the
company to manage the working capital. Asset efficiency ratios explain the total time period
in which the cash conversion cycle get completes. Trade payable payment period and
inventory turnover ratios have been calculated to identify the efficiency position of the
company (Brigham and Ehrhardt, 2013).
Trade payable payment period explains the total time period in which the creditors
would pay back the credit amount. Payment period time of the company has been higher from
2013 in 2017. It explains that the credit policies of the company are required to be change as
the cash conversion cycle of the company has been higher. Further, inventory turnover days
explains the total time in which inventory would be converted. Inventory turnover
calculations explain that the inventory position level of the company has been higher due to
changes into the policy (Morningstar, 2018). It explains that the efficiency level of the
company has been lower from last years.
Liquidity ratios:

Investment analysis and portfolio management
7
Liquidity ratio evaluates the short term debt payment capability of the company to
manage the liquidity position of the company. Liquidity ratios explain the total liquidity
position of the company to analyze the performance of the company. Current ratio and acid
test ratio have been calculated to identify the liquidity position of the company.
Current ratio explains about the higher position in last 5 years. It explains that the
current short term debt position of the company has been better and quick ratios position of
the company explains about the better level as well. It explains that the performance of the
company has been better.
Capital structure ratios:
Capital structure ratio evaluates the capital of the company. It measures the long term
liabilities and capital employed of the company. Capital structure ratio explains that the
optimal capital structure has been maintained by the company and the level of capital
structure has been better in recent years. It explains about the better position of the company.
Investor ratios:
Lastly, the investor ratio explains about the investment position of a company. It
briefs that how well the company is performing in the market and how the position of is the
company in terms of investment Investor ratio evaluates the earnings per share of the
company (Morningstar, 2018). The earnings per share of the company have been almost
similar in last 5 years and it explains that the performance and the position of the company
has been better and explains that the investment into the company would offer higher return.
On the basis of ratio analysis study, it has been found that the performance of the
company is quite competitive in last 5 years. The company is just required to make few
changes into its current financial performance and the position to make it better. The

Investment analysis and portfolio management
8
operating expenses of the company are also required to be maintaining for a greater
performance in the market.
Peer comparison:
The financial performance of the company has been compared with the financial
performance of the competitors of the company to evaluate the market position of FLIGHT
CENTRE TRAVEL GROUP LTD (Morningstar, 2018). The peer comparison of the
company is as follows:
Profitability position:
Profitability position has been studied firstly and the ratio of FLIGHT CENTRE
TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and
CORPORATE TRAVEL MANAGEMENT LTD. the return on capital employed of all the
three company explains that the ROCE of the FLIGHT CENTRE TRAVEL GROUP LTD,
HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD is
20.83%, 9.06% and 16.74% (Morningstar, 2018). It explains that the performance of
FLIGHT CENTRE TRAVEL GROUP LTD is quite better than its peer.
Further, the operating profit margin of the company has been evaluated and it has
been found that the operating profit margin of CORPORATE TRAVEL MANAGEMENT
LTD is highest and the evaluation explains that the operating cost of FLIGHT CENTRE
TRAVEL GROUP LTD is higher and it has impacted on the operating profit margin of the
company.
Asset efficiency ratios:
Asset efficiency position has been studied firstly and the ratio of FLIGHT CENTRE
TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and

Investment analysis and portfolio management
9
CORPORATE TRAVEL MANAGEMENT LTD. the payment payable days of all the three
company explains that the trade payable of the FLIGHT CENTRE TRAVEL GROUP LTD,
HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD is
20.83%, 9.06% and 16.74% (Annual report, 2017). It explains that the performance of
FLIGHT CENTRE TRAVEL GROUP LTD is quite better than its peer as the payment would
be received by the company at earliest.
Further, the inventory turnover days of the company have been evaluated and it has
been found that the inventory turnover days of CORPORATE TRAVEL MANAGEMENT
LTD is highest and the evaluation explains that the performance of FLIGHT CENTRE
TRAVEL GROUP LTD is better as the less time is required to turn over the entire inventory.
Liquidity ratios:
Liquidity position has been studied firstly and the ratio of FLIGHT CENTRE
TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and
CORPORATE TRAVEL MANAGEMENT LTD. the current ratios of all the three company
explains that the liquidity position of the FLIGHT CENTRE TRAVEL GROUP LTD,
HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD is
1.43, 1.18 and 1.04 (Appendix). It explains that the performance of FLIGHT CENTRE
TRAVEL GROUP LTD is quite better than its peer as the payment would be received by the
company at earliest. The quick ratio also explains about the better position of FLIGHT
CENTRE TRAVEL GROUP LTD.
Capital structure ratios:
Capital structure ratios has been studied further and the ratio of FLIGHT CENTRE
TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and
CORPORATE TRAVEL MANAGEMENT LTD. the capital structure ratio of all the three

Investment analysis and portfolio management
10
companies are quite completive and explains that the performance of FLIGHT CENTRE
TRAVEL GROUP LTD is better.
Investor ratios:
Lastly, investor ratios has been studied and the ratio of FLIGHT CENTRE TRAVEL
GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and
CORPORATE TRAVEL MANAGEMENT LTD. the investor ratio of all the three
companies explains that the position of FLIGHT CENTRE TRAVEL GROUP LTD is better
among all the three companies.
Current issues of the industry:
Further, the current issues of the industry have been evaluated and it has been found
that the various micro and macro factors have affected the financial performance of the
company and the operations of the company. The micro and macro factors which have
affected the financial performance of the company are as follows:
Macro factors:
Macro factors of an industry explain about the factors which impacts on the entire
industry as whole. The macro factors of aviation industry have been evaluated and it has been
found that various macro economical factors have impacted on the performance of the
aviation industry. Titman and Martin, (2014) has described that airline businesses are volatile
business which associates with various macro economical risk. The major risk factors of the
industry are terrorist attack, rising cost, decline in international tourism, currency effects,
technological issues etc. Brown (2012) has explained that the terrorist attacks have impacted
on the entire world and due to it; people do not prefer to go to other countries. The terrorist
activities have been enhanced by 5% in current year. Further, it has been found that the

Investment analysis and portfolio management
11
international tourism has been enhanced by the industry due to various terrorist attacks and
the sudden changes into the economical position of the company.
Madhura (2011) has also described that the technology s required to be advanced with
time. The aviation industry has also been affected due to technological issues as the old crafts
and planes are used by the firms and the technology is not advanced as well. Further, the
competition of the industry has also been enhanced. Various companies are there at
international level which is offering the same services to the customers in lesser price. The
continuous changes into the economy position and the current value have also created major
issues in front of aviation industry.
It explains that the macro factors have impacted at huge level on the performance of the
industry. The current scenario of the industry and the company has been affected. Though,
the profitability position and other financial and non financial position of the company is still
better
Micro factors:
Micro factors of the company have been evaluated and it has been found that various
micro economical factors have impacted on the performance of the aviation industry and
FLIGHT CENTRE TRAVEL GROUP LTD. Hillier, Grinblatt and Titman, (2011) has
described that airline businesses are volatile business which associates with various risk. The
major risk factors of the industry are demand and supply, price variation, labour turnover,
service cost, substitute effect. Lee and Yue, (2017) has explained that the competitors of the
company have changed into their prices and due to which the other companies in the industry
has been affected in recent time. Further, it has been found that the service cost has been

Investment analysis and portfolio management
12
enhanced by the industry due to various terrorist attacks and the sudden changes into the
economical position of the company.
Gibson (2011) has also described that the demand of the aviation industry has been
enhanced but with the incensing demand, the number of supplier have also been enhanced
which have maintained the balance and due to it, not profits have been got be the existing
companies (Gourevitch et al, 2016). The substitutes factors have also impacted on the
profitability and non financial performance of the company as people are prefer their own
vehicle r trains for shorter route rather than using the flights (Higgins, 2012).
It explains that the micro factors have impacted at huge level on the performance of the
company. The current scenario of the industry and the company has been affected. Though,
the profitability position and other financial and non financial position of the company are
still better.
DuPont analysis:
DuPont analysis is a method to measure the performance of an organization. In this
methods, performance of an organization is evaluates according to its book value. DuPont
analysis study has been conducted on FLIGHT CENTRE TRAVEL GROUP LTD to measure
the ROE position of the company. On the basis of the DuPont analysis, it has been found that
the ROE position of the company was 23.98%, 18.85%, 20.24%, 18.20% and 16.17% in
2013, 2014, 2015, 016 and 2017. It explains that the performance and the position of the
company have been lower in current year in context with the last 4 years. The current net
profit margin, assets turnover and total assets / common equity of the company are 9.08%,
0.80 and 2.24. Though, the position of return on equity is still competitive in context with the
industry performance (Gapenski, 2008). The calculation of DuPont has been given in
appendix.