Business Valuation and Analysis Report: Qantas Airways, Australia

This report provides a comprehensive business valuation and analysis of Qantas Airways Limited. It begins with an introduction and company overview, followed by an external environment analysis using Porter’s Five Forces model and an internal environment analysis utilizing SWOT analysis. The report then explores Qantas's corporate strategy, accounting policies, and financial position, including ratio analysis for 2013, 2015, and 2016. Key financial ratios such as liquidity, profitability, and solvency are calculated and analyzed to assess the company’s performance. The report also includes recommendations and a conclusion based on the findings, along with a reference list and an appendix containing financial data. The analysis considers factors such as industry rivalry, threats from new entrants and substitutes, and the bargaining power of buyers and suppliers. The study highlights Qantas's strengths, weaknesses, opportunities, and threats, providing insights into its strategic position within the aviation industry. The report emphasizes the importance of accounting policies in financial reporting and the role of auditors in verifying financial statements. Overall, the report offers a detailed examination of Qantas Airways' business operations and financial health.

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Business Valuation and Analysis
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Table of Contents
Introduction......................................................................................................................................2
Company overview..........................................................................................................................2
Porter’s five forces model................................................................................................................2
SWOT analysis................................................................................................................................5
Corporate strategy............................................................................................................................6
Accounting policy............................................................................................................................7
Financial position of the company for the year 2013......................................................................9
Financial position of the company for the year 2015 and 2016....................................................10
Analysis the data of 2013, 2015 and 2016.....................................................................................12
Recommendations and conclusion................................................................................................12
Reference List................................................................................................................................13
Appendix........................................................................................................................................15

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Introduction
This study deals with business analysis and valuation of Qantas Airways Limited. The
current segment discusses external environment analysis through use of Porter’s five forces
model (Wheelen and Hunger 2017). The next segment discusses internal environment analysis
for Qantas Airways Limited by using SWOT analysis. The corporate strategy of Qantas Airways
Limited had been discussed in the study with proper justification. The accounting policies used
by Qantas Airways Limited are mentioned in the research study. Financial ratio had been
calculated for the year 2013, 2015 and 2016 for the company named as Qantas Airways Limited.
Company overview
Qantas Airways Limited is one of the oldest airline industries in Australia. The market
share of Qantas Airways Limited is higher as compared to any other firm in the aviation industry
(Qantas.com. 2017). Qantas Airways Limited mainly engages in offering longest distance
airways. Qantas Airways Limited came into existence in the year 1901 in Queensland. The
company manages the performance of Qantas holidays and budget airlines.
Porter’s five forces model
Industry Rivalry- There is severe competition from rivalry firms where the operators are
competing with each other based on price. The service levels have gone up that will decrease the
operational expenses at minimal levels for maintaining the margin of operations (Rothaermel
2015). In addition, there are differentiators in the airline industry and this is the number of flights
that are being offered where the main players have an edge but the price factors in the

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calculation. Based on relationships, there are various airlines that offers loyalty programs for the
customers so that there are low switching costs for the customers.
Threat from new entrants- In case of domestic players, the entry is easier in terms of licenses.
The major changes are required in the initial stages where many peripheral operations are
outsourced. The new entrants face difficulty to enter in the airline industry because of capital
outlay as well as time to manage analysis. In case of global players, the entry barrier is high and
it is needed to plan out the entry for the industry as the rivalry is high and very easy to be
sidelined in the marketplace (Peteraf, Gamble and Thompson 2014).
Threats from substitute products- On analysis, it is noted that there are many substitutes to
airline industry especially in case of short routes such as bus and train. In case of long distances,
there are many other options such as video conferences, net meetings as well as video messages
that has been a substitute but not as effective (Peppard and Ward 2016).
Bargaining power of buyers- Bargaining power of buyers are high in the aviation industry for
most of the routes. The buyers actually have lot of options to select from different airline
companies as most of the routes are being covered by more than one operator and there is huge
competition based in prices that provide sufficient power to the customers (Morschett, Schramm-
Klein and Zentes 2015).
Bargaining power of suppliers- Bargaining power of suppliers are high in the aviation industry.
One of the main factor that affect aviation industry is the fuel prices where the suppliers does not
have much of a control as well as decided by the political factors in and across the globe

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(Morden 2016). The investments that the manufactures make for the suppliers as well as consider
high value orders that had little chance that would move or increase the prices at certain level

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SWOT analysis
Strengths Weakness
Qantas Airways Limited has strong backing from
Australian Government
Qantas Airways Limited enjoys monopoly in
Australian market
Qantas Airways Limited is one of the top and
largest airlines that operates in Australia
Qantas Airways Limited is one of the oldest
airlines operators in and across the world
Qantas Airways Limited operates in 20
international and domestic destinations
Qantas Airways Limited has good brand
recognition and identity through advertising as well
as sponsorship (Hill, Jones and Schilling 2014)
Too much concentration around Australasia
At Qantas Airways Limited, issues among the
employees is one of the main concern
Opportunities Threats
There is opportunity in the Australian market as it
is less tapped and guarantee that no other airline
can get a chance by gaining a huge market share
global destinations in Asia
Tie-ups with worldwide airlines for combined
service offerings to the potential targeted clientele
Intense competition from new starts-ups as well as
other airlines companies
Increased labor costs
Increased fuel prices

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Corporate strategy
The value of corporate strategy at Qantas Airways Limited mainly based on the degree to
which the business under the management of the company relies upon, that is whether it is of
greater worth than it were managed by a participant or separately (Hill and Jones 2013). The
Corporate strategy of Qantas Airways Limited help in generating aggregate returns in and across
portfolio that contributes to the company competitive advantage as well as ability for generating
above average returns.
Segment Revenue % of Total EBIT % of Total
Domestic 5828 37% 480 39%
International 5467 35% 267 22%
Jetstar Group 3464 22% 230 19%
Qantas Freight 1067 7% 114 9%
Qantas Loyalty 1369 9% 315 26%
In the year 2015, Qantas Airways Limited generates $15816 billion in total revenue and it
had been generated across 5 main segments or trade units that are highlighted in the above table.
Qantas Airways Limited operates with low levels of diversification in a dominant business
strategy with 84% revenue generation through their passenger airline business that focus on a
core set of capabilities as well as competencies for generating above average returns in a single
business marketplace (Goetsch and Davis 2014).

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There is less dominance of passenger airline business that can be understood from the
segment profit contribution perspective where Qantas Freight and Qantas Loyalty generates 35%
of the company’s EBIT for tipping their plan into more reasonable diversification with linked
trade units that shares product, sharing linkages as well as technology.
After analyzing the segments, it is understood that revenue contributions have remained
comparatively steady over time where the profit levels of the passenger airlines are far more
unstable. In addition, the profit from freight and faithfulness are presented in the above table
where increased return provides supports for other segments when they challenges by internal as
well as external influences that creates sustained value and returns for Qantas Airways Limited
(Eden and Ackermann 2013). From resources perspectives, Qantas Airways Limited derives
value-neutral benefits that include tangible as well as intangible resources. For instance, low
Australian dollar increases international passenger travel.
Accounting policy
The case study company named as Qantas Airways Limited had been used for the
research for analyzing the financial data of 2013, 2015 and 2016. It had been noted that
companies need to manage the reports depending upon the accounting policies already
mentioned in the reports. From the case study, the final data information needs to be analyzed by
an auditor for making reliable financial statements (Durand, Grant and Madsen 2017). It is the
responsibility of the auditor to analyze the final information of Qantas Airways Limited based on
the accounting policies. In addition, accounting policies are the rules, principles and process that
should be executed in the financial reports of company at top level management. There are
various accounting policies used in the aviation industry that is for accounting assets and

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liabilities. The accounting policies need to be observed by the auditors at the time of
investigating the financial statements of Qantas Airways Limited and the major concepts are
mentioned below with proper justification:
Revenue and expenses recognition- From the rules of IFRS and US GAAP, it is clear
that an association need to identify overall expenses as well as income that depend widely
on the market valuation as presented in the income statement. Revenue is present in the
income statement that should be used by the corporation by trading of products or
services such as short-term profits, sales, interest income and long-term gains (Bettis et
al. 2015). On the contrary, expenses is present in the income statement that need to be
paid by the corporation by trading of products or services such as labor, salaries and cost
of goods sold. According to accounting rules, expenses are recorded in the debit column
and income are recorded in the credit column of income statement.
Asset and liability recording- From the rules of IFRS and US GAAP, it is clear that an
association need to identify overall assets as well as liabilities that depend widely on the
economical profit as presented in the balance sheet. Asset is present in the balance sheet
that should be converted by the corporation depending upon the nature of assts where
short-term assets will be converted less than one year and long-term assets will be
converted more than 1 year (Bettis et al. 2016). On the contrary, liabilities is present in
the balance sheet as debt of corporation that should be converted based on long-term
liabilities that need some time such as plants and machinery.

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Financial position of the company for the year 2013 (Please refer to Appendix)
The table shows ratio analysis figures for the year 2013 for the company Qantas Airways
Limited. Liquidity ratio is calculated for Qantas Airways Limited that help in analyzing the
ability of the company for paying off both current liabilities as they become due and long-term
liabilities as they become current. Current ratio, quick ratio and working capital ratio are
calculated for Qantas Airways Limited for the financial year 2013. Current ratio of Qantas
Airways Limited arrives at 0.83 for the year 2013 that help in measuring the ability of the firm to
pay off short-term liabilities with its current assets. Qantas Airways Limited has enough current
assets to pay off 83% of his current liabilities. This reveals the fact that Qantas Airways Limited
is highly leveraged as well as highly risky. In that case, banks would favor a current ratio of 1
and 2 so that all the current liabilities would be covered by the current assets. Therefore, current
ratio of Qantas Airways Limited is so low that is unlikely that the company will get approved for
their loan (Bettis et al. 2014).
Profitability ratio for Qantas Airways Limited is calculated for the company named as
Qantas Airways Limited for the year 2013 where comparison is made between income statement
figures and balance sheet figures. Operating profit margin, net profit margin, return on assets,
return on equity and return to total assets are calculated in the above table that help in predicting
the profitability position of Qantas Airways Limited (Barney 2014).
Solvency ratio for Qantas Airways Limited is calculated for the company named as
Qantas Airways Limited for the year 2013. This ratio will help in measuring the ability of the
company to sustain its operations by comparing debt levels with equity, assets as well as

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earnings. In addition, the solvency ratio identifies going concern issues as well as ability of the
firm to pay bills in the long run. Debt equity and interest coverage ratio are calculated for the
year 2013 that help in predicting the solvency position of Qantas Airways Limited.
Financial position of the company for the year 2015 and 2016 (Please refer to Appendix)
The table shows ratio analysis figures for the year 2015 and 2016 for the company Qantas
Airways Limited. Liquidity ratio is calculated for Qantas Airways Limited that help in analyzing
the ability of the business for paying off both current liabilities as they become due and long-
term liabilities as they become current. Current ratio, quick ratio and working capital ratio are
calculated for Qantas Airways Limited for the financial year 2013 and 2015. Current ratio of
Qantas Airways Limited arrives at 0.49 for the year 2016 and 0.65 for the year 2015 that help in
measuring the capacity of the firm to pay off short-term liabilities with its current assets.
Profitability ratio for Qantas Airways Limited is calculated for the business named as
Qantas Airways Limited for the year 2015 and 2016 where comparison is made between income
statement figures and balance sheet figures. Operating profit margin, net profit margin, return on
assets, return on equity and return to total assets are calculated in the above table that help in
predicting the profitability position of Qantas Airways Limited.
Solvency ratio for Qantas Airways Limited is calculated for the business named as
Qantas Airways Limited for the year 2015 and 2016. This ratio will help in measuring the ability
of the company to maintain its operations by comparing debt levels with equity, assets as well as
earnings. In addition, the solvency ratio recognizes going concern problem as well as ability of