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The assignment is about the financial statement analysis & sustainability analysis of Qantas Airways Limited

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FINANCIAL STATEMENT ANALYSIS

Qantas Airways Limited 

Qantas Airways Limited is an Australian company. The company is seen to operating both domestic as well as international airline. Qantas Airways Limited provides diverse services which includes providing domestic as well as international air transportation services, freight services and also the company operates a frequent flyer loyalty program. The company is considered as the highest performer among the top 2000 companies operating in Australia. The company operates in various segments which includes Qantas Domestic, Qantas International, Jetstar Group, Qantas Freight, Qantas Loyalty and Corporate segments. It is seen that the major part of the income of the company is generated from the air and space transport services provided by the company.

RATIO ANALYSIS

The financial ratios are a financial tool which help in evaluating the financial performance of the companies. It helps in comparing the financial performance of the company over the previous years. They are an important tool I evaluating the firm’s financial performance. There are different types of ratios that can be used.

Liquidity Ratios

The liquidity ratios tell us about the capability of the company to meet its current liabilities. It tells us whether the company will be able to pay its current liabilities on time with the help of its current assets. The different liquidity ratios include current ratio and quick ratio.

Current ratio for 2017- $3,119/$7,095 = 0.44

Current ratio for 2018- $3,712/$7,596= 0.49

Comment- We can see that the current ratio of the company has increased to 0.49 in 2018 from 0.44 in 2017. This means that the capability of the company to meet its current obligations on time has increased on the basis of the current ratio. The liquidity position of the company has increased. The capability of the company to pay its current liabilities has increased in the year 2018. The company will be able to pay off its current liabilities in a timely manner.

Quick Ratio for 2017- $2,768/ /$7,095 =0.39

Quick Ratio for 2018- $3,361/$7,596= 0.44

Comment- The quick ratio of the company has also increased in the year 2018 to 0.44 from 0.39 in the year 2017. This indicates that the liquidity position of the company is strong. The company has enough current assets in order to cover its current obligations on time.The company is inefficient in paying off its current liabilities.

Solvency Ratios

The solvency ratios are also known as the leverage ratios. The solvency ratios tell us about the capability of the company to pay off its long-term liabilities on time. It helps in measuring the long-term sustainability of the company. 

Debt to equity Ratio for 2017- $13,681/$3,540 = 3.86

Debt to equity Ratio for 2018- $14,688/ $3,959 =3.71

Comment- The debt to equity ratio of the company has decreased to 3.71 in 2018 from 3.86 in 2017. This is actually a positive indicator for the company. The decrease in the debt to equity ratio means that the debt portion of the company has decreased in 2018 in comparison to its equity portion. The financial position of Qantas Airways Limited can be said to be stable as its debt to equityratio has decreased. The company is now less risky to the creditorsand also the investors of the company. We can say that the company is solvent enough to pay off its long-term obligations on time.

Debt Ratio for 2017- $13,681/$17,221 = 0.79

Debt Ratio for 2018- $14,688/ $18,647= 0.79

Comment- The debt ratio should as lower as possible. We can see that the debt ratio for Qantas Airways Limited remains the same for both the years. This means that the financial performance of the company on the basis of the debt ratio has neither improved nor deteriorated in the current year. The portion of debts of the company has not decreased in the current year, which is not good for the solvency position of the company. 

Activity Ratios

The activity ratios are also known as the asset management ratios. It will tell us about the capability as well as efficiency of Qantas Airways Limited in managing or using its assets to generate sales or revenue for the company. It measures the efficiency of the company in generating returns form the assets used by the company.

Accounts Receivable Turnover Ratio for 2017- $14,665 /(795+784)/2 = 18.58

Accounts Receivable Turnover Ratio for 2018- $15,577/ (784+908)/2= 18.41

Comment- The accounts receivable turnover tells us about how efficient the company is in collecting the amount due from its customers. The ratio should be as low as possible. We can see that the accounts receivable turnover of Qantas Airways Limited has decreased to 18.41 in 2018 from 18.58 in 2017. This means that the company now has less amount of cash tied up in its receivables. The company now collects its receivables faster than before. The company is efficient in using its accounts receivables in order to generate sales.

Total asset Turnover Ratio for 2017- $14,665 / (16,705+17,221)/2 = 0.86

Total asset Turnover Ratio for 2018- $15,577/ (18,647+17,221)/2=0.87

Comment- We can see that the total asset turnover ratio of the company Qantas Airways Limited has increased by little to 0.87 in 2018 from 0.86 in 2017. There is not much increase, but the efficiency of the company has increased in using its assets to generate sales. The total assets employed by the company are used effectively by the company in order to generate returns for the company. The company is capable of generating returns from the assets employed by the company.

Profitability Ratios 

The profitability ratios of the company tell us about the profitability position of the company. It measures whether the company is successful in generating sufficient profits from the operations of the company. 

Net Profit Ratio for 2017- $853/$14,665 = 5.82%

Net Profit Ratio for 2018- $980/$15,577 = 6.29%

Comment- We can see that the net margin ratio of Qantas Airways Limited has increased to 6.29% in 2018 from 5.82% in 2017. This means that the profitable position of the company has become strong. The company is successful in generating more income from its sales. The amountof income earned by the company in the current year has increased. This also tells us that Qantas Airways Limited is efficient in managing its expenses, which leads to ahigher income in the current year in comparison to 2017. 

Return on Assets Ratio for 2017- $853/$(16,705+17,221)/2 = 5.03%

Return on Assets Ratio for 2018- $980/ (18,647+17,221)/2= 5.46%

Comment- We can see that the return on assets ratio of Qantas Airways Limited has increased to 5.46% in 2018 from 5.03% in 2017. This means that the company is absolutely efficient in generating return from the assets invested in the company. The company is successful in converting the money which was used to purchase the assets for the company to the net profits. The company is efficient in producing a higher net income in the current year with the help of the assets purchased and used by the company.

Market Value Ratio

The market value ratios tell us about the stock performance of the company. It helps in evaluating the current share price of the company. 

Earnings per share of 2017- 46

Earnings per share of 2018- 56

Comment- The earnings per share of Qantas Airways Limited has increased to 56 in 2018 from 46 in 2017. This is because the net income earned by the company has increased in the current year. The company is successful in providing returns to the shareholders of the company in the form of net profits earned by the company. 

On the basis of the ratio analysis performed for the company Qantas Airways Limited, we can say that the financial position or performance of the company has improved in the current year. The financial position of the company is absolutely solvent as well as liquid. The company is efficient in using its assets in order to provide returns to its creditors as well as investors. The net revenue of the company has improved in the current year. The debt portion of the company has also decreased in the current year which tells us about the leverage position of the company. The company is absolutely solvent. Qantas Airways Limitedis efficient in managing its expenses by loweringthem. The company also provides sufficient returns to its shareholders. From an investment point of view, we can say that the company Qantas Airways Limited is absolutely desirable to invest in, as the company is very efficient in managing its business activities and provides adequate amount of returns to its investors and shareholders. 

CASH FLOW ANALYSIS

The cash flow statement is a very important financial statement which tells us about the inflows as well as outflows of cash during a particular period. It measures whether the company is successful in generating cash flow form its business activities, which includes operating, investing as well as financial.

From the consolidated cash flow statement of Qantas Airways Limitedin its annual report, we can say that the company is efficient in generating enough cash from its operating activities. There is an inflow of $2,704 million from the operatingactivities of the company in 2017. This inflow has increased to $3,413 million in 2018. This means that Qantas Airways Limited manages its operating activities effectively and efficiently. The company generates enough amount if cash. However, the company is not efficient with its investing and financing activities, which leads to a decrease in the cash equivalent to $1,694 at the end of the year. The company uses the cash for the payments of property, plants and equipment as well as buy back of shares.

The return on invested capital of Qantas Airways Limitedhas increased to 22% in 2018 from 20.1% in 2017. This means that the company provides more return from the capital invested in the company. The company is successful in generating returns from the capital invested by the company. The financial position of the company has grown strong over the years. Qantas Airways Limited has grown more profitable in the current year. It is important for companies to earn adequate returns on the capital invested in the company by different investors. We can say that the company is successful in providing confidence to its investors as Qantas Airways Limited earns sufficient returns on the capital invested. This would help the company to get more capital in future in an easy manner.

However, it is also true that the company is exposed to various types of risks like liquidity rusk, interest rate risk, foreign exchange risk, fuel price risk, credit risk and more, which the company manages with the help of the various types of financial instruments.

OTHER COMMENTS

Also, the financial statements of the Qantas Airways Limited give a true and fair view of the financial performance of the company. From the independent auditor’s report, we can say that the company is successful in complying with all the rules and provisions which are applicable to the company. The company also has good internal controls employed which helps the company in achieving the desired financial position. The revenues of the company have increased over the years, which is a strong indicator about the financial performance of the company.

Overall, after reviewing the annual report of Qantas Airways Limited, we can say that the financial position of the company has improved in the current year. The company has been successful in generating more revenue in the current year from the services provided by it. This results in the increase the net income generated by the company from the revenues earned. Also, the company is efficient in managing its assets which help the company to earn sufficient amount of returns for its shareholders as well as creditors. Currently, the company is ranked as number 17 among the top 2000 companies from Australia. The company is successful in carrying its operations as per the provisions which are applicable to Qantas Airways Limited. Overall, we can say that the company has performed exceptionally well in the current year.

2) SUSTAINABILITY REPORT ANALYSIS

Qantas Airways Limitedis said to be one of the oldest and top airlines companies of Australia. From the sustainability report of the company, we can say that the company aims to provide the premium quality of airline services to its customers. We will analyse the impact of its activities on the social, economic as well as environmental aspects.

From the sustainability report of the company, we can say that Qantas Airways Limitedactively engages itself in the corporate governance activities. The company also follows independent reporting programs like National Greenhouse and Energy Reporting (NGER), Sustainability Reporting and Carbon Disclosure Project Reporting and also Fly Carbon Neutral program in order to report the life cycle emissions done by its flights. The company has further implemented activities which are aimed towards reducing the use of the fuel as well as greenhouse gas emissions. These activities include Aircraft weight reduction initiatives, using navigation technology which is based on GPS in order to improve its operational efficiency. The plan of the company is also to offset all of its employee’sbusiness travel as well as its ground fuel emissions. This would tend to mitigate the climate change, protect the wildlife as well as nourish the society. The company Qantas Airways Limited aims to make no profit from these activities. The company aims to pay for all the administration costs.

The company strongly aims to contribute to the environment through its activitieslike investing in fleet that is fuel efficient, inflight recycling, using utensils which can be washed and also using paper cups which can be recycled. Qantas Airways Limited also focusses in the noise generated bythe servicesprovided by it. For this the company ensures that each new aircraft which it purchases in future has a noise footprint which is lower. The company Qantas Airways Limited is the only company who uses Smart tracking which is GSP based. This has been done in order to remove noise away from the residents near the airport. 

It is very important for the companies to undertake corporate social activities. The company is very successful at doing so. The company understands its responsibilities towards the society and tries to contribute the most to the society through its activities and programs. The company takes care of the environment by rewarding employees who handle the projects in order to improve its business’s environmental impact. Some examples of the projects implemented by the company in order to save water and electricity includes installing fixtures which are water efficient, identifyingand then rectifying the water leaks, if any, replacing the cooling towers which are inefficient as well as installation of dishwashers in the catering centres which are water efficient. 

It is also seen that the company tends to donatesthe uniforms used by the company to the charitable institutions so that those uniforms can be used for manufacturing different products with the help of it. As a result of the initiatives taken by the company towards sustainability, the company has been successful in decreasing the waste as well as usage of electricity and water, in spite of the growth witnessed by the company in its operations. The company has also been successful in maintaining on reducing the intensity of jet fuel emissions. 

According to my opinion, after looking at the sustainability activities of Qantas Airways Limited, we can say that the company is very efficient with its day to activities. The company has been absolutely successful in making positive changes in its operations and the society as a whole. The company has been very innovative with the different projects undertaken by it which has helped the company to set new standards for sustainability for other companies in the industry. It can be said that the company has made a long-term commitment to work for the society as a whole. I believe that Qantas Airways Limited is very efficient in taking care of the environment at the same time in addition to its business activities and different programs.The company also respects the rights and needs of its shareholders and maintains a transparent relation with everyone by communicating everything that they should know about. The company engages in sustainability activities with its different partners spread all across the world. The company keeps its customers as well as the employees at top priority. This is a positive signal about the company as this shows that Qantas Airways Limited does not think only about the well-beingof the company. It considers theemployees as well as the customers a part of the company.

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