Qantas Airways Limited: Financial Ratios Introduction This paper aims to assess the performance of Qantas Airways Limited for 2009 and the past few years. This is done by conducting a trend analysis where the key financial figures over the course of four years—2006 to 2009—are assessed, in order to look at the company's financial health and its strength to grow in the future. Aside from looking at the trends, ratio analysis is also used in order to assess its performance. By looking at the relationships of the key financial items in the company's financial statements, and comparing them to the industry where it operates, the picture of the company's performance as well as its position in the industry gets clearer.
The activities of the company, such as growing its assets and key items where it has increased its investments reflect its strategy for growth and future sustainability. Lastly, after much analysis, the performance of Qantas Airways Limited is concluded as good for the given period, although not as great in 2008, the company has been able to deliver well in 2009. I.
Body A. Trend analysis i. Revenue and income trends Qantas' Airways' total revenue has been in an upward trend for the period of four years until 2008 before it declines in 2009. In 2009, the company has grossed $14.6 billion. According to the company's press release, sales and other income have gone down from 2008 to 2009 by 6.9% (Qantas 2009, 1). The company's gross profit, operating income and net income, as apparent in the Revenues and Income trends diagram (see Appendices), have similar trends as the total revenue. Even when trends show how the trends have started to decline in 2009, the company's bottom line financials are good.
Qantas has posed a profit before tax of $181 million, a net profit before tax of $123 million, and earnings per share of 5.6 cents (Qantas 2009, 1). The company attributes the decline in the trend because of the downward and losing trend for the global aviation industry, still being affected by the global financial crisis as well as the influenza H1N1 virus. Also, the preceding year, 2008 has been a very good year for the company, being the year the company has achieved a record high before-tax profit of $1,407.6 million (Qantas 2008, 4). ii.
Expenditure trends The biggest expenditure of Qantas Airways is the company's cost of goods sold, or equivalent to its cost of goods sold, or expenditures that include: manpower and staff related, aircraft operating variable, fuel, property, capacity hire, and noncancelable operating lease rentals (BusinessWeek. com 2009). For the year 2009, this amounts to 11,246, where there is not significant change from its 2008 figure of 11,357.3 (Qantas 2009, 3).
This is also the trend for selling, general and administrative expenses, as well as interest expense. As for its other total operating expenses, the trend for a company is declining. According to the company, while revenues decline because of the reduction in demand for the global aviation industry, due to the global financial crisis, the costs of fuel have gone up (Qantas 2009, 4). The effect of this volatility in fuel prices has not affected Qantas much as it has been able to hedge a huge amount of the fuel the it consumes. iii.
Asset trends Despite the setback that is brought by the global financial crisis to the aviation industry, Qantas has been able to grow its assets from 5,616 to 5,966 in 2009 (Qantas 2009, 4). From 2006, the company has been on a upward, but relatively stable trend for its assets. This increase, as apparent in the Asset trends diagram (see Appendices), is partly attributable to the growth in the company's total current assets, as well as its net property, plant and equipment. According to the company, it has increased its liquidity by 1 billion in 2009, as its cash balance has increased to 3.6 billion (Qantas 2009, 1).
This increase includes provisions for funding for future aircraft purchases, as the company has committed to renewal of its fleet in the years ahead (Qantas 2009, 9). iv. Liabilities and equity trends This increase in assets has been funded partly by a significant increase in total liabilities, as apparent in the Liabilities and Equity trends diagram (see Appendices). Its total liabilities have increased from 6,361 in 2008 to 7,570 in 2009.
The company has utilised long-term debt as one of its major sources of funding. On the other hand, other liability items such current debt has declined from its 2008 figure. The company's retained earnings amount has been reduced as well, as Qantas has declared 439 million in dividend (Qantas 2009, 5). B. Ratio analysis Another way of looking at Qantas' performance in 2009 is by using ratio analysis. In 2009, the company's ROE is 9.99% (BusinessWeek. com 2009). The company's ROA is 2.94%, which according to Business Week, is highest in the airline industry.
The high ROA of the company is derived from its high gross margin of 24.58%, the highest in the industry (BusinessWeek. com 2009). The company's EBITDA margin is also the highest in the industry at 14.40% (BusinessWeek. com 2009). These signify a strong operation for the company. The difference in the company's ROE and ROA signifies the company's heavy reliance on debt in terms of its total financing. The company's debt is 75.1% of the company's total financing (BusinessWeek. com 2009). This increase in financing is also attributable to the 37.98% increase in capital expenditures in 2009 (BusinessWeek. com 2009) As the company has increased its liquidity by increasing its cash balance in 2009, the company's current ratio of 0.8, or 0.8 dollars in current assets per dollar of current liabilities, although not the highest in the industry, it is near the top quartile (BusinessWeek. com 2009).
In terms of efficiency, the company's total assets turnover is 0.8, when in comparison to the industry, it is only around average (BusinessWeek. com 2009). As per its fixed asset turnover, Qantas has 1.3, which is average in the airline industry. II.
Conclusion Qantas Airways Limited has performed well in 2009 despite the setbacks that pulled down its performance in comparison to its glorious year of 2008. While the global aviation industry is set to decline because of events such as the global financial crisis and the influenza H1N1 outbreak, the company has been able to post another year of net income and good growth figures. The company has been able to maintain good profit margins which has allowed it to realise income despite rising fuel costs.
The company's hedging strategy for fuel is also helpful, in that at the times of volatility, the company has been able to maintain the cost, as apparent in the small change over the years. The trends for the company has all been increasing until 2008, when unforeseen events have hampered its operations and caused a decline in 2009. Nevertheless, the company is poised for growth, as apparent in its strategies as well as the trend for its assets. Even in harsh times, Qantas Airways Limited has grown its assets, especially its cash reserves and investments in capital expenditures in order to support its long-term plans. III.
Appendices A. Revenue and income trends B. Expenditure trends C. Asset trends D. Liabilities and Equity trends E. Key ratios and industry comparison Adapted from BusinessWeek. com: F. Common-size Income statement Adapted from the annual reports: G. Common-size Balance sheet Adapted from the annual reports: References Qantas Airways Limited (2009 September 6). “Qantas Airways Limited: Financial Ratios. ” BusinessWeek. com. Retrieved on September 6, 2009 from http: //investing. businessweek. com/businessweek/research/stocks/financials/ratios. asp? ric=QAN. AX Qantas Airways Limited (2006). “Annual Report 2006.” Qantas. com. au.
Retrieved on September 6, 2009 from http: //www. qantas. com. au/infodetail/about/investors/AnnualReport2006.pdf Qantas Airways Limited (2007). “Annual Report 2007.” Qantas. republicast. com. Retrieved on September 6, 2009 from http: //qantas. republicast. com/ar2007/Qantas_Annual_Report_2007.pdf Qantas Airways Limited (2008). “Annual Report 2008.” Qantas. republicast. com. Retrieved on September 6, 2009 from http: //qantas. republicast3.com/Republicasts/Qantas%20Annual%20Report%202008/Qantas%20Annual%20Report%202008.pdf Qantas Airways Limited (2009 June 30). “Preliminary Final Report. ” Qantas. com. au. Retrieved on September 6, 2009 from http: //www. qantas. com. au/infodetail/about/investors/preliminaryFinalReport09.pdf Qantas Airways Limited (2009 June 30). “Media Release Results. ” Qantas. com. au. Retrieved on September 6, 2009 from http: //www. qantas. com. au/infodetail/about/investors/mediaReleaseResults09.pdf