HI-5002 Finance for Business: Flight Centre Travel Group Analysis

This report provides a financial analysis of Flight Centre Travel Group, examining its core activities, market presence, and historical context. It details the company's ownership and governance structure, highlighting the absence of substantial shareholders and the independence of its board. Key financial ratios, including short-term and long-term solvency, asset utilization, profitability, and market value ratios, are calculated and analyzed for the past two years to assess the company's financial health. The report also includes a graph illustrating the movement of the company's monthly share price against the All Ordinaries Index, revealing a positive correlation. Significant announcements affecting the share price are identified, and the company's beta, required rate of return, weighted average cost of capital (WACC), and debt ratio are evaluated to determine its investment suitability. The analysis concludes with an overall assessment of Flight Centre Travel Group's financial position and recommendations for potential investors.

HI – 5002 Finance for business
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Contents
Introduction:...............................................................................................................................3
Conclusion:..............................................................................................................................19
References:...............................................................................................................................20
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Introduction:
The finance for business report has been prepared in order to develop the understanding of
different users about various concepts related to financial analysis of a business using its
annual report. The company chosen here is Flight Centre Travel Group and the annual report
will be utilized to gain an understanding about the cost of capital and other financial aspects
of company. The report will include an explanation about the corporate governance of
company and the ownership structure will be mentioned in this report. The various
fundamental ratios will be calculated for the company and these will be analysed for the
purpose of analysing the company’s financial position. The recent announcements related to
the company will be pointed and the debt ratio will be discussed in order to understand the
capital structure of company. The report will include a letter of recommendation which will
be referenced to the investors for the purpose of making investment decision.
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1. Prepare a brief description of the company, outlining the core activities, the market(s)
in which it operates within and any factors in the companies’ history which you
consider help present a “picture” of your company.
The flight centre travel group can be recognized as one of the largest travel agency group in
Australia with having more than 2000 leisure and corporate and wholesale businesses in
around 11 countries all across the world. The first flight centre store has been opened in
Sydney in 1982 and then various other stores were opened in Melbourne and Brisbane in
1988. The company expanded its stores with around 50 stores in number and since then the
compony ah been expanding at a very fast rates. At present there are 689 flight centre stores
in Australia. The brand related with the company includes the specialist consultants who are
focused on business travel for small and medium enterprises. The company has self-owned
operations in across 23 countries and also having a corporate travel management network
which spans in more than 90 countries in the world. The same has resulted in expansion
activities of the company which are associated with diversifying the operation and services of
company (Flight Centre Travel Group, 2017).
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2. Specify ownership-governance structure of the company.
Substantial shareholders of company: The substantial shareholders of company refers to
the type of shareholders who are holding majority of shares in the company which can be
recognized as significant position of share capital of company.
With higher than 20% of shareholdings – By referring the annual report of the company as
presented for the year ending 2017 it can be established that there are no substantial
shareholders holding more than 20% of the share capital in company individually or in group
(Flight Centre Travel Group, 2017).
This leads to the conclusion that the company is a non-family company in which no
significant portion of share capital is holder by an individual or a company in group. Thus the
ownership of company is not concentrated in single hand of some users and therefore there is
independency regarding the decision making in company.
With higher than 5% of shareholdings – Yes there are 4 shareholders who are holding,
more than 5% of the share capital of company recognized in percentage and these are
presented below:
Shareholder % of holding
Gainsdale Pty Ltd1 15
Gehar Pty Ltd1 14.5
James Management Services Pty Ltd 12.9
Bennelong Australian Equity Partners 5.4
Main people of corporate governance:
 The Chairman = Gary Smith
 CEO = Graham Turner
 Board members =
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Director name Special responsibility
G.W. Smith Independent non-executive chairman
J.A. Eales Independent nonexecutive director
R.A. Baker Independent nonexecutive director
C.L. Kelly Independent nonexecutive director
G.F. Turner Managing Director
No, as per the list of substantial shareholders as presented by the company in its annual report
there is no substantial shareholder included in the corporate governance of company and this
creates an independency in decision making of company (Flight Centre Travel Group, 2017).
No, there is no shareholder holding more than 5% of the shareholding of company and
appointed as director in company and this will lead to the conclusion that no ambiguity
regarding the sound corporate governance structure is present in the company.
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3. Calculate the following Fundamental Ratios for your selected company for the past 2
years.
Short term solvency ratios:
 Current ratio – The current ratio indicates that enough assets have been maintained by
the company to pay off its short term liabilities.
 Quick ratio – The quick assets maintained by the company are adequate in order to
fulfil the requirement of working capital of company.
Particulars 2017 ($) 000 2016 ($) 000
Current assets 2,337,801 2,263,233
Quick assets 2,336,558 2,261,515
Current liabilities 1,634,896 1,566,724
Current ratio 1.43 1.44
Quick ratio 1.43 1.44
Long term solvency ratios:
 Debt equity ratio – The debt equity ratio of the company should be 2:1 in order to
achieve an optimum level of capital structure, however this is not in the case of this
company which is 1.24 and 1.23 and this has to be optimised immediately (Flight
Centre Travel Group, 2017).
Particulars 2017 ($) 000 2016 ($) 000
Total debt 1,766,733 1,657,266
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Total equity 1,428,755 1,345,945
Debt equity ratio 1.24 1.23
Asset utilization:
 Return on assets – The return on assets is 7% in the year 2017 and the same is 8% in
the year 2016 which shows that there is a decrease in the return achieved by
utilization of assets. Therefore it has to be improved by the company.
Particulars 2017 ($) 000 2016 ($) 000
Net Income 230,773 244,556
Total assets 3,195,488 3,003,211
Return on assets 7% 8%
Profitability ratios:
 Net profit ratio – The net profit ratio indicates that the company has achieved net
profit margin of 9% in the year 2017 which has increased in comparison to last year
and therefore this is sufficient for the company.
Particulars 2017 ($) 000 2016 ($) 000
Net Income 230,773 244,556
Revenues 2,677,336 2,641,775
Net profit ratio 9% 9%
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Market value ratios:
 Price earnings ratio – The price earnings ratio of the company indicates that
the share is earning adequate returns for the shareholders of company.
Particulars 2017 ($) 2016 ($)
EPS 2 2
Price 44 41
Price Earnings ratio 19 17
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4. Prepare a graph / chart for movements in the monthly share price over the last two
years for the company that you are investigating. Plot them against movements in the
All Ordinaries Index.
The graph related to share price of company is presented below:
(Source: Flight Centre Travel Group, 2017)
Introduction:
The report prepared helps the users in understanding the share movement of the company
Flight Centre Travel Group Limited in context of all ordinary indexes and the correlation
associated with it.
Content:
By recognizing the price movement of the company during the two years it can be observed
that the share price in the market have decreased since 2017 but after March 2017 there has
been continuous increase in the share price of company. Also this is in relation to the all
ordinary index which is increasing in the same pattern (Soondur, 2016). Therefore it can be
established that there is a positive correlation between the share price of company and the all
ordinary index.
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Also the share is highly volatile as it is highly fluctuating during these years’ ad there are
many factors including micro and macro factor which is affecting the share price of company.
Conclusion:
It can be concluded that there is a positive correlation between all ordinary index and the
share price of company Flight Centre Travel Group Limited.
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5. Significant announcements which may have influenced the share price of your
company
Throughout the year there are a number of announcements made by the company which
affect the value of a share of the company. These announcements can have both positive and
negative impact on the value of shares. Careful analysis of these announcements helps the
investors to take the decisions regarding undertaking an investment in a company or exiting
the company. These announcements serve as the basis for investment in the company as
important financial acquisitions and financial catastrophe can either make or break a
company. This means share value of the company can rise or fall. Along with this, it also
helps to know the effect of announcements on the share price. Investment bankers regularly
monitor these announcements for financial decision making.
Some major announcements made by the company which as affected the value of the
shares are –
On 4th of April 2018, Flight Centre Travel Group announced a judgement regarding court
case where the court charged the company penalty to the tune of 12.5 million. The company
declared that its profit before tax of $360m and $385m will not much affect by this penalty.
This penalty is likely to reduce the share price as some investors will sell their shares and the
price of the share will contract (Soondur, 2016).
On 8th of February 2018, Flight Centre Travel Group appointed Colette Garnsey as a non-
executive director, this addition will likely to increase the value of shares as Ms Garnsey will
bring 30 years of experience in the firm. Investors will be willing to invest in the firm and
buy the shares of the firm which will increase the price of the share.
On 1st of September 2017, Flight Centre Travel Group announced the acquisitions completed
in Travel Managers Group (TMG) and Executive Travel Group (ETG). This new addition
will help the firm’s expansion in new markets and will increase the profitability of the
company. More investors will be investing in the firm and the share price will go up.
On 28th of September 2017, Flight Centre Travel Group announced that it had completed the
acquisition of Travel Partners, Sydney. This acquisition will add to the firm’s business and
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