Comprehensive Financial Analysis and Performance of Qantas Airlines

This report provides a comprehensive financial analysis of Qantas Airlines, based on its 2016 annual report. It examines the airline's financial health through the lens of various financial ratios, including profitability ratios (profit margin, ROA, ROE), efficiency ratios (receivable turnover, asset turnover, inventory turnover), working capital management, liquidity ratios (quick ratio, current ratio), and solvency ratios (debt to equity, interest coverage). The analysis reveals that Qantas demonstrated improved financial performance over the three-year period, with increasing profitability, efficiency, and solvency ratios. The report concludes that Qantas is financially healthy and well-managed, making it a potentially attractive investment. The report also highlights Qantas's competitive landscape, key operations, and commitment to a diverse workforce.

Running head: ANALYSIS OF QANTAS 1
Analysis of Qantas
Author’s Name
Institution’s Name
Date

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Executive Summary
This report presents analysis of Qantas financial statements. Qantas Airlines was
established in 1920 in the rural Queensland. It is one of the largest international and domestic
airlines in Australia. The company operates in the world most dynamic and exciting sectors
and have continued to be successful and grow all the years. The analysis was based on Qantas
financial performance based on its 2016 annual report. It financial health was analysed on the
basis of liquidity, market performance, efficiency and profitability ratios. Based on the
analysis, Qantas is financially health. This is based on the fact that the company profitability,
efficiency and solvency ratios for the last three years have increased significantly. To be
more specific, with the increased profit margin, ROA and ROE, it can be concluded that the
company management is effective enough in managing its shareholder’s equity and assets to
generate income. Furthermore, with high or increasing interest coverage, it is evident that the
company is having easier time in settling its interest expenses. Hence, it would be
recommendable for any potential investor to invest in Qantas in order to enjoy high returns
given that it has been experiencing significant increase in its sales, gross profit and net profit.

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Analysis of Qantas
Introduction
Qantas Airlines was established in 1920 in the rural Queensland. It is one of the
largest international and domestic airlines in Australia (MELBOURNE, 2011). Furthermore,
it is the leading long-distance airways across the world and the strongest brands operating in
Australia. It is the flag carrier airway in Australia and the largest airline by size, international
destination and international flights. Furthermore, it is the third oldest airline carriers in the
globe (Qantas, 2011). The company operates in the world most dynamic and exciting sectors
and have continued to be successful and grow all the years. It flies to over 200 destinations
across the globe in over 45 nations. It owns low-fare carrier Jetstar and regional carrier
QantasLink, both of which are said to operate in Asia/Pacific and Australi region. On overall,
its fleet comprises of 300 aircrafts. Qantas also generate its revenues from catering, touring
and cargo operations (Qantas, 2016).
The company believes in development of its diverse workforce. Thus, it is its priority
to reflect a wide range of clients it serve across the globe and acknowledging diverse cultures
across its workforce. To achieve this, the company has set up different programs aimed at
attracting and retaining personnel from diverse cultural and personal backgrounds. Qantas
have built reputation for it excellence in operational reliability, maintenance, customer
service, engineering and safety (MELBOURNE, 2011). It key operation is usually
transportation of client using its two complementary airline brands; that is, Jetstar and
Qantas. In addition, Qantas operate other subsidiary business such as other business and
airlines in the specialist markets like Q Catering (Qantas, 2016). Its brands operate domestic,
international and regional services. With these considerations, this paper aims to present
analysis of Qantas financial performance based on its 2016 annual report. This will be based

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on analysis of its competitors, and financial statements. It financial health would be analysed
on the basis of liquidity, market performance, efficiency and profitability ratios
Competitors
Qantas chief competitors are United Continental Holding, LAN Airlines, Cathay
Pacific Airways, Virgin Australia Holding and Singapore Airlines. Nonetheless, despite of
these rivals, Qantas one of the largest airline operating in Australia, has shown no signal of
violent completion in the international flights as it add extra volume (Qantas, 2016). The
speedy growth experienced in the past one year had obligated this company to bid some
exceptional airfare reductions hurting the travel airlines and agents (MELBOURNE, 2011).
This was as a result of growth in international competitor by 11% forcing the company to
reduce its airfares, sending ticket revenues per the international seat downward by around 9%
and making its earnings from international operations to decrease by 22%.
Critical Analysis of Qantas’ Financial Statements
Ratio analysis
This entails quantitative analysis of financial information of an organization. This is
mainly based on the line items in income statement, cash flow and income statement. In
addition, ratio analysis is utilized in assessing numerous aspect of the organization’s financial
and operating performance like liquidity, solvency, efficiency and profitability (Altman,
1968). This helps in checking whether an organization is deteriorating or improving.
Basically, financial ratios help in measuring financial performance of a given organization.
To be more specific, financial ratio analysis is the method of analysis which is utilized in
obtaining quick signal of the organization’s financial performance in numerous key sections
(Chen & Shimerda, (1981). The most common ratios used in analysing financial performance
of Qantas is the profitability ratios, efficiency, liquidity, capital structure and solvency ratios.
Profitability ratios

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These financial ratios try to measure an organization’s success in terms of income
generation. They usually reflect combined impact of an organization’s debt and asset
management (Altman, 1968). In this case, profitability ratios such as profit margin, ROA and
ROE are used in measuring or evaluating Qantas’ financial performance.
Profit margin
The ratio shows dollar amount in terms of income that an organisation earns on every
dollar of revenue (Chen & Shimerda, (1981). Given these considerations, Qantas profit
margin for the years was as shown below;
2014 2015 2016
Profit margin -18.76% 3.59% 6.52%
ROA
ROA shows dollar amount in income earned by an organization on its total assets. It
shows how effective the management is in managing its assets or in turning its assets to
income (Altman, 1968). With these facts, Qantas ROA for the years was;
2014 2015 2016
ROA -16.42% 3.18% 6.16%
ROE
This shows the dollar amount of the income that is earned by an organization on its
equity. It displays or indicates how effective the management is in utilizing its equity to
generate income. With these facts, Qantas ROE for the years was;
2014 2015 2016
ROE -99.34% 16.27% 31.61%

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Based on the profitability ratio computed above, it is evident that Qantas is financially
stable and healthy. This is based on the fact that the company ROA, profit margin and ROE
increased over the past three years. The increase is a clear signal that the company
management is able to effectively use its shareholder’s equity as well as assets in generating
income.
Efficiency ratios
These financial ratios are important in highlighting effectiveness of an organization in
using its assets. The ratios are usually measured in relation to an organization’s total sales.
Basically, some of the efficiency ratios that would be used in this case include inventory
turnover as well as asset turnover (Lev & Sunder, 1979). The ratios are also crucial since they
display extent to which total assets of an organization is used and managed in order to meet
the firm’s cash flow expenses and requirements.
Receivable turnover
This ratio is used in assessing an organization’s management effectiveness in
managing its account receivable (Lev & Sunder, 1979). This means that higher ratio is more
preferred since it shows or displays that an organization is collecting its receivable sooner.
Given these considerations, receivable turnover for the years was as shown below;
2014 2015 2016
receivable turnover 12.67 16.20 19.85
Asset turnover
This ratio is useful since it help in measuring how productively an organization is
managing its total assets in generating revenue (Chen & Shimerda, (1981). Given these
considerations, Qantas profit asset turnover was as shown below;
2014 2015 2016

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asset turnover 0.88 0.89 0.94
Inventory turnover
The ratio is used in measuring organization’s management of the inventory, meaning
that higher ratio is an indicative of better management performance (Chen & Shimerda,
(1981). Given these considerations, Qantas inventory turnover for the years was as shown
below;
2014 2015 2016
Inventory turnover 23.98 22.18 19.68
Based on the efficiency ratio analysis above, it is evident that Qantas is more effective
in terms of its asset management. This is evidence by increased receivable and asset turnover
over the past three years.
Working capital management ratios
These are the financial ratios used by an organization in managing its working capital.
The chief working capital management ratio used in analysing Qantas is working capital ratio
(Lev & Sunder, 1979).
Working capital
This is a financial ratio used in assessing how effective the firm is managing its
working capital. It helps in determining solvency and liquidity level of an organization (Lev
& Sunder, 1979). In this case, working capital for Qantas for the past three years was;
2014 2015 2016
working capital (2,593.00) (2,421.00) (3,570.00)
Based on the working capital analysis above, it is evident that the company was
unable or was experiencing hard times in managing its working capital. This is evidence by

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decreased or negative working capital in the last three years with the year 2016 recording the
lowest working capital.
Liquidity ratios
These ratios are very useful since they highlight the capacity of an organization to
meet its short-term financial needs (Lev & Sunder, 1979). Some of the liquidity ratios
considered in this case are the quick as well as the current ratios.
Quick ratio
This ratio is very dynamic while comparing an organization capacity is more dynamic
and take into account more readily or liquid assets in settling an organization short-term debts
(Lev & Sunder, 1979). It tries to measure capacity of an organization in settling its key
obligations based on its most liquid assets like account receivables and cash. Given these
considerations, Qantas quick ratio for the years was as shown below;
2014 2015 2016
quick ratio 0.61 0.63 0.44
Current ratio
The ratio is crucial since it assists in measuring the capacity of a given firm to meet
all its short-term arrears using its current assets. Here, a decrease in the ratio would means
that needs or requirements of current liabilities would be fulfilled by its long-term assets
(Chen & Shimerda, (1981). Given these considerations, Qantas current ratio for the years was
as shown below;
2014 2015 2016
current ratio 0.66 0.68 0.49
On overall, based on the above analysis, it is evidence that Qantas was experiencing some
difficulties in settling its short-term debt obligations using its short-term assets. In essence, it

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can be stated that for the last three years Qantas was not able to settle its short-term financial
needs.
Solvency ratios
These ratios are utilized in measuring the capacity of an organization to meet its long-
term debt commitments. In other words, these ratios are used in showing whether an
organization’s cash flow is adequate in meeting its long and short-term liabilities (Lev &
Sunder, 1979). With these considerations, debt to equity and interest coverage is used in
measuring Qantas leverage level.
Debt to equity
The ratio shows level at which financial leverage is being used by an organization. An
increasing debt to equity shows higher interest expenses (Chen & Shimerda, (1981). Given
these considerations, Qantas debt to equity for the years was as shown below;
2014 2015 2016
debt to equity 5.05 4.09 4.13
Interest coverage
The ratio is used in measuring an entity’s capacity to meet its interest expenses on all
its debts using its operating income. This means that a higher ratio shows that an organization
is in better position in covering all its interest (Altman, 1968). Given these considerations,
Qantas interest coverage for the years was as shown below;
2014 2015 2016
interest coverage -13.88 2.19 4.32
On overall, given the above solvency ratios analysis, it is evident that for the last three years,
Qantas has had easier time in settling its interest expenses. This is evidenced by increasing

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interest coverage ratios. Further, based on debt to equity, it is evident that for the last few
years, Qantas has been able to reduce its expenses on debt.
Trend-analysis
In assessing the financial trend of Qantas financial statements, horizontal analysis is used.
Horizontal analysis is crucial since it would assist in highlighting changes or variations in
numerous aspects of its financial statements considering the financial year 2014 as base year
(Chen & Shimerda, (1981). In this case, horizontal analysis of the company’s statement of the
financial position, cash flow as well as income statements is conducted.
Horizontal analysis of the Balance sheet
Based on horizontal analysis of Qantas balance sheet as shown in Appendix 1 below,
it is evident that most of the items experienced significant decrease as from 2015 going all the
way to 2016. For instance, the company cash and cash equivalents decreased with -3.2% in
the year 2015 and in 2016 it decreased further in -46.9%. Inventories on the other hand are
found to have increased in 2015 with 1.6% and in 2016 it increased by 4.2%. Further, on
overall total current assets are said to have increased in 2015 with 2.3% while it decreased
with -46% in 2016. In addition, the company property, plant and equipment increased with
2.4% in 2015 and increased further in 2016 to 8.1%. Despite the tremendous increase in the
company total non-current assets with 0.2% in 2015 and 5.8% in 2916, it is evident that total
assets for the company increased with 1.2% in 2015 but decreased with 4.9% in 2016.
Further, liabilities both current and non-current liabilities are found to have experienced
significant decrease with an overall decrease in total liabilities. Nonetheless, its total equity in
found to have increased with 16.9% in 2015 but decreased in 2016 with around 5.7%.
Horizontal analysis of Qantas Income statement
From Appendix 2 below, it is evident that Qantas total revenue increased in 2015 with
around 2.43% while in 2016 it increased with 1.60%. On the other hand, the gross profit for

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the company increased with around 9.98% in 2015 and with 8.54% in 2016. Furthermore, the
company recorded vast increase in its operating income in 2015 with around 617.5% and in
2016 the increase was not as much as in 2015 by it was also high at around 37.73%. In
addition, income before taxes increased with about 603.93% in 2015 and in 2016 it increased
with around 44.59%. On overall, net income for the years increased with 610.41% in 2015
and in 2016 net income increased with 45.87%.
Horizontal analysis of Qantas Cash flow
As from Table 3 below, it is evident that Qantas cash flow from the operating
activities increased with 47.8% in 2015 and with around 27.35% in 2016. On the other hand,
its cash flow for the investing activities decreased with around 13.2% in 2015 but in 2016 it
increased with 50.91%. Its net cash flow from the financing activities increased with around
114.2% in 2015 and in 2016 it increased with around 33.26%. On overall, the net change in
cash increased with around 284.9% in 2015 and with around 89.98% in the year 2016. The
tremendous increase in the company cash flows for the last three years is a clear indication
that the company is effective in generating cash flow and that it is financially healthy and
stable.
Conclusion
In conclusion, it is evident that Qantas is financially health. This is based on the fact
that the company profitability, efficiency and solvency ratios for the last three years have
increased significantly. To be more specific, with the increased profit margin, ROA and
ROE, it can be concluded that the company management is effective enough in managing its
shareholder’s equity and assets to generate income. Furthermore, with high or increasing
interest coverage, it is evident that the company is having easier time in settling its interest
expenses. Hence, it would be recommendable for any potential investor to invest in Qantas in

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order to enjoy high returns given that it has been experiencing significant increase in its sales,
gross profit and net profit.