Financial Analysis Report: Virgin Australia's Performance (2017-2018)

This report provides a detailed financial analysis of Virgin Australia, examining its financial performance between 2017 and 2018. The analysis focuses on profitability ratios, including gross profit margin, profit margin, return on equity, and return on assets, revealing a decline in financial health. The report identifies opportunities for business expansion through mergers and highlights significant risks such as insolvency, decreasing capital, and the potential loss of passengers due to declining service quality. The conclusion emphasizes the airline's need to maintain financial discipline and the importance of maintaining accurate financial records, and recommends strategies such as inviting investors and increasing capital to improve performance. The report is based on the company's annual reports from 2017 and 2018 and aims to assess the company's financial position and provide recommendations for improvement.

Aviation Management

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Contents
Introduction.................................................................................................................................................2
Financial Analysis.......................................................................................................................................2
Opportunities...............................................................................................................................................5
Risks............................................................................................................................................................5
Conclusion...................................................................................................................................................6
Recommendations.......................................................................................................................................6
References...................................................................................................................................................8

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Introduction
Financial Analysis is a procedure of evaluating and summarizing the financial statements of the
company. It is important for the organization to examine or evaluate the financial statement in
order to assess the financial position. There are different techniques or methods to evaluate
financial position of the organization such as common size, trend analysis and ratio analysis,.
Ratio Analysis is the main technique to assess the financial position as it contains different ratios
such as profitability, efficiency, liquidity and the others ratio. In this report, the Virgin Airline of
Australia has been taken into consideration in order to assess the opportunity and risk for the
company. Virgin Australian Airline is commonly known as the Virgin Australia. It is one of the
largest airlines of Australia. It is the largest airline in terms of fleet size. The financial analysis
has been done by analyzing its annual report of the year 2017 and 2018.
Financial Analysis
2017 2018
Profitability
Ratio
Gross Profit
Margin Gross Profit 3597.3 3971
Net Sales 5047.3 5420.7
71% 73%
Profit Margin Net Profit -185.8 -653.3

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Net Sales 5047.3 5420.7
-4% -12%
Return on Equity
Net income after preference
dividends -185.8 -653.3
Average common stock holder's
equity 1236 1334.4
-15% -49%
Return on Assets Net income -185.8 -653.3
Total assets 6355.8 6188.4
-3% -11%
(Source: Virgin Australian Group, 2018)
According to the above calculation of financial ratio of the company, it is observed that the
financial position of the organization is not strong as the company goes in loss. It has been
calculated that the company has ability to generate the profit by providing the services to
consumers. The profitability ratio contains the four ratios that is return on equity, gross profit
margin, return on assets and the profit margin. According to the gross profit margin, it has been
assessed that the percentage of gross profit margin has been increases in 2018 from the previous
year 2017. The ratio of the firm is 71% in 2017 and in 2018 it is 73% (Virgin Australian Group,
2018). The increased gross profit depicts that the net sales of the company but its operating
expenses are also increases which is not a good symbol for the organization. The other

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profitability ratio of the company states that the organization has been suffered with the heavy
losses that affect the performance (Robinson, Henry, Pirie, and Broihahn, 2015).
The profit margin of the organization is also decreasing from the last years. Although, it is
observed that the company suffered with the heavy losses in the year 2017 but instead of
improvement it has been declined with the negative amount that affects the performance of the
company. The negative ratio of profit margin is directly affects the other activities of the
company in the financial terms. In 2017, the profit margin ratio of the organization is -4% and in
the year 2018, it is -12% which is negative sign for the company. The negative amount of profit
also raises the challenges for the company to operate the business. The reason behind the
negative amount of profit states that the company is not able to generate the revenue as it sell the
products or services in low amount or on credit because its net profit amount is less than the net
sales (Williams, and Dobelman, 2017).
Return on Assets ratio defines the capability of the organization to generate the revenue by using
its assets. As per the evaluation, it has been seen that the company has low ability to generate the
revenue. The amount of assets is high in the comparison of amount of net income of the
company that affects the business. Return on Assets ratio of the firm is reduces from the year
2017 to the year 2018. In 2017, the ratio of the company is -3% and which is decreases with the -
11% which describes that the firm is not able to generate the revenue by using the assets (Virgin
Australian Group, 2017). The reason behind that the company purchases the assets on credit or
the ability of increases the value of assets is reduces that affects the financial performance of the
organization.

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Return on equity of the company is increasing in the negative amount. The negative amount of
ratio shows that the organization has the less ability to raise the issues as it is declining with the
profits. The loss amount of the organization has been increases in 2018 from the last financial
year 2017 due to which the financial performance is affected. The decreasing ratio of the
company defines that the company have less net income as compare to the shareholders
(DeFusco, et. al, 2015).
Opportunities
As per the above examination, it is observed that the firm has the opportunity to expand the
business by merging with another company. Although, the company financial position is not
strong even in the coming future it will get insolvent. The company has to raise the funds from
the different techniques because it requires the large amount to recover all the losses or expenses.
The brand image of the company is high that is why; it has the opportunity to merge with the
company (Schroeder, Clark, and Cathey, 2019).
Risks
According to the evaluation, it has been found that the company suffers with the heavy loss as its
amount of expenses is increasing as compare to revenue. The company suffers with the loss as it
is not able to maintain the balance between the expenses and revenue. As the company suffers
loss due to which it has the high level of risk of insolvency.
The other risk that the organization has is decreasing capital. As the financial position of the firm
is not strong and according to profitability ratio, it is not able to generate the revenue. Investors
analyze the financial statement before investing in the company but if the company suffers with

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the loss then the investors does not takes the decision in the favor of organization. It means the
investors do not invest in Virgin Airlines of Australia as the company suffers with the heavy
loss.
The company has high risk of losing the passengers. As the financial performance or position of
the organization is declines due to which it is not able to provide the quality of devices to
consumers. If the company fails to provide the quality of services to consumers than the chances
of losing the passengers are high for the company that directly affects the performance. The
company has low capital due to which the chances of providing the large number of facilities to
consumers are less. Providing the less facility to consumers raises the risk of losing the
passengers in the market.
If the capital amount of the company does not raise then the company get insolvent but it also
has to pay all its debts in exchange of its assets and inventories. The company has to sells its
assets and properties to pay all debts otherwise it have to face the challenges according to the
decision of court (Uechi, Akutsu, Stanley, Marcus, and Kenett, 2015).
Conclusion
From the above evaluation and analysis, it is concluded that the Virgin Airlines of Australia does
not have strong financial position. In this paper, the profitability ratio of the company has been
evaluated. As per the evaluation, it has been seen that the company has less ability to generate
the revenue by using its assets and inventories. The four ratios have been evaluated such as
return on assets, profit margin, return on equity and gross profit. According to the analysis, it has
been found that the company has the high risk of insolvency, losing customers and investors. It
has the opportunity to merge with another company as it brand image in the market is high.

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Although, the company face the challenges in future but still it is recommending that the firm has
to maintain the books and accounts to earns the profit and operate effectively.
Recommendations
As the Virgin Airline Group suffers with the loss due to high expenses instead of incomes then it
is recommending that the business has to maintain the expenses with the incomes so that it can
easily operates the business effectively and smoothly in the market. The company has to
maintain all the books and an account so that the chances of frauds and mistakes are reduces. It
also helps the organization to control the expenses, and earns the high revenue.
It is also recommending that the company has to invite the people as the partner so that they
invest in the company and its capital will be arises. Increasing capital supports to improve the
performance of the organization. The company can recover it’s all debts by raising capital
(Business.gov, 2018).

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References
Business.gov. (2018) Improve your business' financial position. [online] Available From:
https://www.business.gov.au/finance/accounting/cash-flow-and-budgeting/improve-your-
business-financial-position [Accessed 30/09/19].
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Runkle, D.E. and Anson, M.J. ( 2015) Quantitative
investment analysis. John Wiley & Sons.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A. (2015) International financial
statement analysis. John Wiley & Sons.
Schroeder, R.G., Clark, M.W. and Cathey, J.M. (2019) Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y. (2015) Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421,
pp.488-509.
Virgin Australian Group. (2017) Annual Report 2017. [online] Available From:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/
2017-annual-report.pdf [Accessed 30/09/19].
Virgin Australian Group. (2018) Annual Report 2018. [online] Available From:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/
fy18-annual-report.pdf [Accessed 30/09/19].
Virgin Australian Group. (2018) Virgin Australia: The fastest growing Virgin Company in
history. [online] Available From: https://www.virgin.com/virgingroup/virgin-australia-fastest-
growing-virgin-company-history [Accessed 30/09/19].

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Williams, E.E. and Dobelman, J.A. (2017) Financial statement analysis. World Scientific Book Chapters,
pp.109-169.
1.

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