Essays on Ratio Analysis for Qantas and Virgin Companies Case Study

Download full paperFile format: .doc, available for editing

The paper "Ratio Analysis for Qantas and Virgin Companies" is a great example of a finance and accounting case study.   Ratio analysis is a method that is used by many companies, in this case, Qantas and Virgin companies, to compute and show the trends so as to enable the company to know whether it is making any significant growth or it is making losses. Due to the advancement in technology across the industries, many companies have realized that ratio analysis is a strong tool that has enabled them to easily analyse their financial statements and detect easily the trend in growth, the backwardness or even the improved performance of the company across the past years. The report analyses the capital structure ratios and the market performance ratios of two companies, Qantas and Virgin.

The ratios are analysed from the two companies for a period of four years. Each ratio is computed and analysed after the four years and the interpretation is given. 2.0 Introduction Ratio analysis is the method by which financial information is converted and made simple for the purposes of comparison.

The financial information to be calculated is extracted from income statements and balance sheets amongst other major financial statements. Ratio analysis allows the use of financial data which is converted into ratios and used by both large and small companies to evaluate of their companies in terms of growth, performance across their line of industry. Ratios provide the means to benchmark and forecast the future of a company and thus dictating the long term steadiness of the company (Nissim & Penman 2001). 3.0 Capital structure ratio Capital Structure ratios are financial ratios that are used by companies to give a comparison of its debt and equity (McIntosh 1999). 3.1 Debt to equity ratio This ratio is used to measure the ability of a firm in handling its obligations, whether long term or short term. Qantas Company Virgin Company 2009 debt to equity ratio=Total liabilities÷ total equity 14,284.00 ÷ 5,765.00 = 2.48 2009 debt to equity ratio=Total liabilities÷ total equity 2,789.80 ÷ 577.10 = 4.83 2010 13929.00 ÷ 5,981.00 = 2.33 2010 2,938.60 ÷ 933.30 = 3.15 2011 14,707.00 ÷ 6,151.00 = 2.40 2011 2915.00 ÷ 926.30 =3.15 2012 15,289.00 ÷ 5,889.00 = 2.60 2012 3065.50 ÷ 929.70 = 3.30 The Virgin Company has a high debt to Equity ratio and this shows that the company carries a high debt.

Qantas has a ratio that is close to 1 and this means there is a balance between the company’ s debt and its equity (Jensen, 1986). 3.2 Debt ratio Debt ratio is a financial ratio that is used to show the portion of a company’ s debts compared to the assets. It helps to show whether a company uses more debt to finance assets (Vit A, 2011). Qantas Company Virgin Company 2009 Debt Ratio = Total liabilities ÷ Total assets 14,284 ÷ 20,049 = 0.71 2009 debt ratio= Total liabilities ÷ Total assets 2789.80 ÷ 3366.90 = 0.83 2010 Debt Ratio 13,929 ÷ 19,910 = 0.70 2010 debt ratio 2938.60 ÷ 3871.90 = 0.76 2011 debt ratio 14,707 ÷ 20,858 = 0.70 2011 debt ratio 2915.00 ÷ 3841.30 = 0.76 2012 debt Ratio 15,289 ÷ 21,178 = 0.72 2012 debt ratio 3065.50 ÷ 3995.20 =0.77 The debt ratio is low for both companies and this shows that they are in a capacity to borrow more using their assets in future at no particular risk (Vit A 2010). 3.3 Equity ratio It is the financial ratio that measures the portion of the company’ s equity that is used in financing the assets. Qantas Company Virgin Company 2009 Equity ratio= total Equity ÷ total assets 5,765.00 ÷ 20,049 = 0.29 2009 Equity ratio= total Equity ÷ total assets 577.10 ÷ 3366.90 =0.17 2010 Equity ratio 5,981 ÷ 19,910 = 0.3 2010 Equity ratio 933.30 ÷ 3871.90 = 0.24 2011 Equity ratio 6,151 ÷ 20,858 =0.3 2011 Equity ratio 926.30 ÷ 3841.30 = 0.24 2012 Equity ratio 5,889 ÷ 21,178 = 0.28 2012 Equity ratio 929.70 ÷ 3995.20 = 0.23 The Qantas Company has a higher equity ratio in its trend and this shows that it is at risk of because it reveals that most of its earnings are used as interests (Vit A 2010).

References

Accounting for Management, 2012, Financial statement analysis/ Accounting ratios analysis, Retrieved, 2013 May 25th http://www.accountingformanagement.org/current-cash-debt-coverage-ratio/

Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The journal of finance, 23(4), 589-609.

Nissim, D, & Penman, S, H, (2001). Ratio analysis and equity valuation From research to practice. Review of accounting studies, 6(1), 109-154.

Jensen, M, (1986), Agency cost of free cash flow, corporate finance, and takeovers, Corporate Finance and Takeovers. American Economic Review, 76(2).

Peavler R, 2013, What are Dividends Per Share and how are Dividends Per Share Calculated, Retrieved, 2013 May 25th http://bizfinance.about.com/od/financialratios/f/what-are-dividends-per-share-and-calculation.htm

VitA,2010,EquityRatio,Retrieved2013May25th

Download full paperFile format: .doc, available for editing
Contact Us