QUESTION
Report on finance
Assignment:
Background:
Qantas and Virgin Australia are the two largest Australian airlines. Qantas has made a remarkable turnaround and is now one of the most profitable airlines in the world. On the other hand, Virgin Australia has been loss making in the past 5 years.
Nevertheless, both company share prices took a deep dive when COVID hit. As an investment manager, you believe it is a good time to buy. However, before you make the decision, you would like to do a bit more research on both companies. In particular, you want to analyse both companies for their performances in the past 5 years. You are also interested in knowing why Virgin Australia was not able to make a profit, when compared to Qantas. More importantly, given the current downturn, you want to know which company is more resilient before you make a decision. In this assignment, you are required to use the tools you have learned in FINM7409 including common size and ratio analysis, to analyse the financial statements of these two companies. Also, you are required to write a short report summarising your key findings. Detailed requirements are provided below.
Files Provided:
You will find the following files on Blackboard:
- xlsx
- The income statement and balance sheet information has been
- Complete this file for requirements 1
- Qantas FY19 Annual pdf
- Virgin Australia FY19 Annual pdf
Both Qantas and Virgin Australia annual reports are for your background information. You do not need them to conduct the analysis.
Required:
- Complete the ‘Ratio Analysis’ worksheet and the common size analysis for income statements in the file ‘Assignment_Template.xlsx’. In doing so, you will need to fill out the missing numbers in ‘Other Inputs’ You can use Yahoo Finance to obtain the share price and dividend information. Note: Do not change the order or the name of the worksheets.
- Using the ratio and common size analysis computed above, write a short essay (no more than 700 words) addressing the following Submit your answer as a pdf file.
- For Qantas and Virgin Australia respectively, what are the trends in gross profit margin, operating income margin and net income margin in the last 5 years? What have been the key drivers for these trends? You will need to incorporate graphs showing the trends in your
- Compared to Qantas, why Virgin Australia has been loss making for the last 5 years? Which areas should Virgin Australia focus on to improve the profitability of the business? You will
need to incorporate graphs showing the comparison between these two companies over time.
- When COVID hit in early 2020, which company was in better position to weather the downturn (based on FY19 numbers)? Provide justification for your
|
Mark Allocation: |
|
|
Excel Computations (Part 1) |
30 |
|
Report (part 2) |
60 |
|
Presentation and Grammar |
10 |
|
Total |
100 |
Final Submission
The ‘Assignment Submission’ folder on Blackboard contains three submissions:
- Part 1 Excel Submission: Submit an excel file containing the answers to parts 1 (use the template above and re-name the file to “Assignment_xx.xlsx”). This is the version which will be marked and it is the one you will see in “My Grades”. Note: xx is your student
- Part 2 Pdf Submission: Submit the pdf answer to part 2 here (name the file to “Assignment
_xx.pdf”). You may re-submit as often as you like, and the last version should be submitted here and will be marked, and it is the one you will see in “My Grade”. Note: xx is your student number.
- Part 2 Pdf Turnitin Submission: Submit the pdf answer to part 2 here as well (name the file to “Assignment_xx.pdf”). Each time you submit the file to Turnitin you will get a report for the purpose of plagiarism detection. You may re-submit through Turnitin as often as you like, and the last version should be submitted here and will be marked, and it is the one you will see in “My Grade”. Note: xx is your student
Late submission will incur penalties as outlined in Section 5.3 of the Electronic Course Profile. For submission extension, please refer to the same section.
[/et_pb_text][et_pb_text _builder_version="4.9.3" _module_preset="default" width_tablet="" width_phone="100%" width_last_edited="on|phone" max_width="100%"]
l
| Subject | Business | Pages | 8 | Style | APA |
|---|
Answer
-
Report on Financial Analysis for Qantas and Virgin Australia Group
Comparative Analysis of Qantas and Virginia Group Australia Financial Ratios
Profitability Trends
Comparative Gross Profit Margin
In the past five years, Qantas has had a higher gross profit margin than Virginia Australia as shown in the graph below;
Figure 1. Gross Profit Margin Trends in the Past Five Years
From the trend it is evident that unlike Qantas whose gross profit margin has been ranging between 28% and 33%, Virginia Australia’s gross profit has never gone beyond 27.5%. This is an indication that Qantas management is more efficient in management of production cost than Virginia Australia. The high cost of production in Virginia can be attributed to heavy investment in technology which is necessary for the business that the company is involved it. The trend also shows that both companies realized a decrease in their gross profit between 2018 and 2019.
Comparative Net Profit Margin
In the past five years, the net profit margin for Qantas has been ranging between 3.5% and 6.4%, while that of Virginia Australia has remained negative in the past five years as shown in the graph below;
Figure 2. Comparative Net Profit Margin Trend
The trend above shows that Qantas is more efficient in managing its costs of operations than Virginia. This trend can be attributed to high costs of sales and administration in Virginia Australia, with an objective of occupying the market apex. Unlike Virginia which faced a consistent downward trend on its net profit margin between 2015 and 2018, Qantas had a fairly stable net profit margin during these years. However, in the year 2019 Virginia faced a rise on its net profit margin, though the company did not manage to pass the negative mark.
Operating Profit Margin Trend
Operating profit, otherwise referred to as profit before interest and tax for Qantas and Virginia can be summarized as using the graph below;
Figure 3. Operating Profit Trends in the Past Five Years
The above trend shows that Qantas is more efficient in management of its operational and production costs than Virginia. Just like in the case of net profit margin, the driver for this is the high cost of sales and administration, with an objective of matching the market competitiveness.
Areas Requiring Improvement
Revenue Generation
Comparatively, Qantas has been generating a higher revenue in the past five years than Virginia Australia. Unlike Qantas whose revenue has been over AUD 10,000 in the past ten years, Virginia has never realized revenue beyond AUD 6,000 as shown in the graph below;
Figure 4. Revenue Trend in the Past Five Years
In order to change this trend, Virginia should do promotion which are targeting potential markets, as opposed to general marketing. The company should also work toward widening and diversifying its market, so as to increase its revenue.
Managing Costs
Figures 1, 2 and 3 showed that Virginia Australia is poor in managing its cost of operations, as well as cost of production, relative to its net revenue. This is the reason as to why the company has been realizing losses in the past five years. While cost of operations and productions directly affect the revenue realizable by a company, failure to align them with the realizable revenue is a direct recipe for negative profits. Virginia should therefore work toward cheaper production methods, and automated operations, which will help in reducing both operational and production costs.
Possibility of Surviving Covid-19 Effects
From the ratio analysis in the year 2019, it is possible to conclude that Qantas would easily survive the effects of covid-19. This is because the company has been able to operated profitably during thus fiscal year. Therefore, covid-19 effects would not bring it to its knees. This is unlike Virginia Australia which realized a loss in the year 2019. With this state, the effects of covid-19 would make it to realize huge losses, that would in effect cripple its operations. As such, the company would not be able to finance properly its high production and operational costs, making its survival very difficult. Though Virginia is less exposed to liquidity and solvency risks, its consistent loss making would adversely affect its recovery measures and efforts.
References