Accounting And Finance of Qantas Airlines And Virgin Airways

Question: Describe about the Financial Performance Analysis of Qantas Airlines and Virgin Airways? Answer: Introduction Qantas Airways Limited is Australias largest airline. It is the second oldest airline in the world. The airline is based in Sydney. The company has 65% market share in the Australian domestic market and the market share of the company in Australia is 18.7%. The financial performance of the organization has declined over the period of time from 2010 to 2014 due to the rise in the price of fuel. The rise in the price of fuel has resulted in huge loss for the company. The share price of the company has gone down (Qantas.com.au, 2015). Virgin Australia is the second largest airlines of Australia. It is the largest fleet size used by the Virgin brand. It is one of the low cost airlines of Australia. Presently it is known as the New World Carrier. Qantas Airways is amongst the biggest competitors of Virgin Australia. The financial performance of the company has declined over the past years due to rise in the price of the fuel charges. This has increased the fuel price of the organization. The company has made huge loss in the year 2014. This has dropped the share prices of the company to a considerable extent (Virgin Australia, 2015). Financial Performance Analysis of Qantas Airlines and Virgin Airways The financial performance of Qantas Airways and Virgin Australia Airways can be analyssed by the major ratios like the profitability ratios, efficiency ratios, liquidity ratios, capital structure ratios and market performance ratios. Financial Ratio Analysis of Qantas Airways and Virgin Australia Airways Qantas Airlines Virgin Airlines 2014 2013 2014 2013 1 Profitability Ratios i. Gross profit margin Gross Profit /Net Sales -0.255592697 0.000683697 -0.109698618 -0.036772292 ii. Net profit margin Net Profit / Net Sales -0.182759064 0.000124309 -0.080580104 -0.024097273 iii. Return on assets Net Income / Assets -0.164164453 9.98403E-05 -0.075994273 -0.02157419 iv. Return on Equity Net income /Shareholder Equity -0.993361286 0.000342759 -0.339280603 -0.089076546 2 Asset Efficiency i. Asset Turnover Ratio Net Sales / Total Assets 90% 80% 94% 90% 3 Liquidity Ratio i. Current Ratio Current Assets/ Current Liabilities 0.655415282 0.746351738 0.642976153 0.541060406 ii. Quick Ratio Quick Assets / Current Liabilities 0.613289037 0.691590191 0.624179944 0.524636243 4 Capital Structure Ratios i. Debt to Equity Ratio Debt / Equity 505% 255% 346% 313% 5 Market Performance Ratios i. Price Earnings Ratio Market price of share / Earning Per share -0.019377432 60 -0.040350877 -0.085365854 Profitability Ratios - The profitability of a company can be determined by the following ratios which includes the gross profit margin , net profit margin , return on assets and return on equity. The profitability ratios determine the positive and negative trends in the earnings of the organization. If the profit margin of the company is positive, it will be reflected by the gross profit margin and the net profit margin. The rise in the profitability of the organization will determine the growth of the organization which is essential to drive the share price. Gross Profit margin The gross profit margin of Qantas Airways has declined from 2013 to 2014. There has been drop in the revenue of the organization due to rise in the fuel charges. On the other hand it is seen that the gross profit margin of Virgin Australia airways is negative. The company is suffering from huge loss. The rise in the fuel charges has affected the profit margin. Net Profit margin - The Net profit of Qantas airways has declined from 2013 to 2014. This is due to the rise in the fuel costs. 2014 was the culmination period for Qantas airways. The net profit margin of Virgin Australia Airways has declined from 2013. This is due to loss of the company. Return on assets Qantas Airways and Virgin Australia Airways has declined from the period 2013 to 2014. This is due to the fall in the income of the both the companies from 2013 to 2014.t The rise in the fuel charges has resulted in the fall of the income of both the companies. Return on equity In 2014, the equity share holder of both the airline has experienced negative returns. For Qantas Airways the return of the equity share holders in the year 2013 was nil but in 2014, the trend of the return was negative (Vandyck, 2006). Efficiency Ratios - The asset turnover ratio for Qantas Airways has been 90% in the year 2014 and it was 80% in the year 2013. It shows that the company has been using its assets efficiently. The asset turnover ratio for Virgin Australia Airways is has been 94% for the year 2014 and 90% for the year 2013. This shows that the company has been utilizing its assets efficiently to generate sales (Tracy, 2012). Liquidity Ratios The liquidity ratio shows the ability of the company to utilize its current assets and liabilities in an efficient manner. The ideal current ratio is considered to be 2:1. But it is seen that the current ratio of the company is less than 2:1. The company is not using its current liabilities in an efficient manner. The ideal quick ratio is 1:1. But the quick ratio of 2014 and 2013 shows that the company is not managing its current assets efficiently. The current ratio for Virgin Australia Airways shows that the company is not using its current assets and quick assets in an efficient manner. They must manage the current liabilities efficiently and manage the current assets in an efficient manner (Peterson Drake Fabozzi, 2006). Capital Structure Ratios: The debt to equity ratio of Qantas Airways and Virgin Australia Airways shows that the companies are highly debted companies. The liabilities of the company has been increasing every year. The debt component of both the companies has increased from 2013 to 2014. Market Performance Ratios The price earnings ratio of Qantas Airways has been positive for 2013 but the return of the shareholders has been negative in the year 2014. As the company is making loss, the share price has declined. The price earnings ratio of Virgin Australia Airways has been negative. This means that the investors have been receiving negative return from investments. As the companies are making loss, the investors confidence has declined (Desai et al., n.d.). Overall Assessment of the Financial Performance The financial performance of Qantas Airways and Virgin Australia Airways has been done using the profitability ratios, Efficiency ratios, capital structure ratios and market performance ratios. The ratio analysis shows that the performance of the companies has been declining from 2013 to 2014. The company has suffered from huge loss. The loss is mostly due to the rise of the fuel charges. Conclusion The financial performance analysis of Qantas Airways and Virgin Australia Airways has been done. It shows that the company has been suffering from huge loss. The fuel charges have increases exceedingly. The low cost airlines are in high debt. References Desai, R., Palepu, K., Gibson, C., Healy, P., Bernard, V., Wright, S. et al. Analysis of financial statement information. Peterson Drake, P., Fabozzi, F. (2006). Analysis of financial statements. Hoboken, N.J.: Wiley. Qantas.com.au,. (2015). Flights to Australia | Australia travel | Qantas. Retrieved 6 February 2015, from https://www.qantas.com.au/travel/airlines/home/in/en Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to ... (pp. 6-50). Vandyck, C. (2006). Financial Ratio Analysis: A Handy Guidebook (pp. 1-100). Virgin Australia,. (2015). Virgin Australia | Book flights holidays with Virgin Australia. Retrieved 6 February 2015, from https://www.virginaustralia.com/au/en/