Financial Accounting Analysis: Strategic Case Study of Transat A.T.

This case study analyzes the financial statements of Transat A.T., focusing on the fiscal year 2018 compared to 2017. The analysis includes an examination of the audit process, internal controls, and the application of IFRS. The student calculates and interprets profitability ratios (net profit margin, return on equity) and solvency ratios (debt ratio, debt-equity ratio) to assess the company's financial performance and position. The analysis highlights a decline in profitability and an improvement in solvency from 2017 to 2018. The solution also addresses the relationship between cash flow and net income, potential impacts of current asset changes, and the effects of depreciation. Furthermore, the student identifies key risks affecting future profitability, including reputation, supplier, and technological risks, and discusses the importance of adjusted operating income and the inclusion of financial statements in annual reports.

Assignment on Financial accounting analysis
Assignment on Financial accounting analysis
Name of the Student
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Assignment on Strategic financial statement analysis
Part A
Answer 1.
Part1.
a. Who prepared the financial statements?
It is prepared by the management, audit committee appointed by the BOD and is
reviewed by the board of directors before submission to the external auditor. It has been
prepared in accordance with IFRS issued by the International Accounting Standards
Board
b. Why was a system of internal controls maintained?
Internal controls system is a set of rules, policies, and procedures that an organization
applies to increase efficiency and strengthen correct policies to be followed. The internal
audit Committee analysis’s the policies used for the internal control system.
c. Who appoints the Audit Committee?
It is appointed by the Board of Directors.
d. Who audited the financial statements?
The financial statement of Transat AT was audited by Ernst & Young LLP.
Part 2.
a. Which financial statements were audited?

Assignment on Strategic financial statement analysis
The audited statements are consolidated financial statements comprising consolidated
statements of income, Balance sheet (change in equity), Cash flow statement for years
ended October 31, 2018 and comparison of year 2017.
b. Why did the auditor consider the company’s internal control?
To control the risks of material misstatement in the financial statements, which may be
due the fraud or error. The auditors consider internal control for accessing those risks.
Internal control by its accounting policies and reasonableness keep the entity’s
preparation and fair presentation of the consolidated financial statements.
c. Are the statements prepared in accordance with IFRS or ASPE?
The statements are prepared in accordance with accordance with International Financial
Reporting Standards (IFRS).
d. Do the consolidated financial statements present fairly, the financial position, financial
performance and cash flows of the company?
Yes, in the opinion of the external auditor E&Y, the consolidated financial statements
present fairly, with respect to material and the financial position of Transat A.T. Inc. as of
October 31, 2018 and 2017. Its financial statement of performance and its cash flows is in
accordance with International Financial Reporting Standards.
Part 3.
a. For fiscal 2018, what amounts did the company report as for year ended 2018:
i. total assets- $1,559,860.
ii. current liabilities- $ 835,848.

Assignment on Strategic financial statement analysis
iii. equity- $ 599,374.
iv. revenues- $ 3,037,157
v. net income- $ 7,361
vi. cash flows related to operating activities- $ 68,804.
vii. cash used to purchase property, plant and equipment and other intangible assets-
$593,654.
Part 4.
Profitability ratio:
Net profit margin
2018 2017
Net Profit 7,361 138,372
Sales 2,992,582 3,005,345
0.002 0.046
0.25% 4.60%
Return On equity
2018 2017
Profit/loss after tax 7,361 138,372
Equity capital 599,374 577,870
0.012 0.239
1.23% 23.9%
The profitability ratios are indicating that the company is facing financial problem. It has
decreased in profit making from the year 2017 to 2018. The ratio for Net profit margin is very
less when compared to the ratios of 2017. A decrease of 0.043 from 2018 to 2017, The Company
is less profitable from year 2017.
Part 5. By 61,443 dollar the cash flow for operating activities exceeded the net income.

Assignment on Strategic financial statement analysis
Part 6. The current asset would have risen to 6,011,710 dollars. This would indirectly increasing
the net profit and also operating income by proportional amount.
Part 7. The cash flow would increase by 300000 as the depreciation would decrease. The profit
statement should show have shown decreased operating expense by the same amount.
Part 8. Solvency ratio measures companies’ ability to sustain operations by comparing debt with
equity.
Debt ratio
2018 2017
Total Liability 960,486 875,346
Total Asset 1,559,860 1,453,216
0.616 0.602
Debt-Equity ratio
2018 2017
Total Debt 124,638 124,403
Shareholders’ Equity 599,374 577,870
0.21 0.22
The ratios indicates the liquidity and solvency has improved in 2018 from 2017 ratio. As the
ratios have decreased, the company has managed to maintain a high asset and low debt scenario.
Although the change in the ratio is very minute and may not impact positively the operation of
the company.
Part 9. The three risk that can affect the future profitability of the company with adverse affect
on the material.
a. Solution:
1. Reputation risk- the company should maintain favourable relationships with its
customers. Transat’s service determines its reputation in the market.
2. Key supplies and supplier risks- Any interruption in the services from these suppliers,
can have significant adverse impact on business and financial position.

Assignment on Strategic financial statement analysis
3. Technological risks- The technology systems are vulnerable to a variety of sources of
failure, misuse, terrorist attacks, telecommunication systems failures or computer
viruses. Not safe guarding the technology system can have adverse material effect on the
company.
b. Adjusted operating income - All Operating income (loss) before expense of
depreciation and amortization, restructuring charge, lump-sum payments and other
unusual items eg. premiums for fuel-related derivatives. It is a measure to the operational
performance of its activities before the aforementioned items to for better comparability
of financial results.
The difference is -61,088 dollars. Formula (-44,575- 16,513).
I would always use IFRS measure of operating income to compare the company’s financial
performance with other companies. This will enable all comparison based on same limitation of
each company.
c. Yes, I think including the financial statements in the annual report is necessary. Although
detailed financial information is given in Management’s Discussion and Analysis section.
To analysis the financial data at a glance and to compare the data of present and previous
years the tabular form of financial statement is very important. It also make the analysis
of ratio and percentage change in the values easier.