Introduction
In the given report, financial analysis needs ot be done for one of the Singapore company for financial as well as non financial factors. The company chosen here is Singapore Airlines and the annual report considered here is of 2016-17. It is one of the biggest company in Singapore and is listed on the Singapore Stock Exchange. It sis ranked in top 15 carriers worldwide in trms of revenue from passenger kilometres and 10th in terms of carriage of international passengers. It has a fleet size of 113 planes and has tehmarket capitalization of $ 14 Bn, being 2nd in the world (Belton, 2017). It is headquartered at Singapore Changi Airport. It has operations across 9 countries and has 64 destinations to work with. The turnover of the company in the year 2016-17 was $ 14,868 Mn with a profit of $ 518 Mn. The number of employees working with the company are 24,574 as reported last time. Furthermore, the company’s competitors include mainly Japan Airlines Co. Ltd., Malaysian Airline System Berhad and Cathay Pacific Airways Limited. The company’s main competitor is coming in terms of services provided in the major cities and the fleet at offer for all these companies. The main business of the company includes providing domestic and international carrier services to the passenger (Bizfluent, 2017).
The horizontal analysis of the company’s profit and loss account and the balance sheet has been shown below:
From the above analysis on the profit and loss account and balance sheet for the past 5 years, it is evident that the sales of the company has been constantly increasing. The cost of goods sold has also been constantly increasing and therefore the net profit of the company has been constant over the years (Alexander, 2016). On the assets front, the current asset has been on the increasing side particularly the cash and cash equivalents and accounts receivables. The PPE has been on the decreasing trend and in totality the overall assets have declined. The accounts payable has been on the decreasing trend but the equity has been constant. Over the liabilities have also declined.
In terms of the economic condition of the company, the Singapore Airline has been on constanat terms in terms of sales and profits. Even though it is not growing, but it can be said that the company is performing well in terms of crises and depression in the market (Chongsoo, et al., 2017). Howevr, as per the experts analysis, the future of the airline industry in Singapore is on a high in the coming 20 years and it is expected to oupace many other neighbouring countries and areas. It is also expected to generate double digit growth rate and to increase employment in the coming future. It is expected to contribute nearly $ 88 Bn to the Singapore economy by 2035.
The below table shows the profitability analysis of the company using ratios over the past couple of years. The table also incorporates the comparison with the industry trend.
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Singapore Airlines Limited (SGX:C6L) > Ratios |
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Ratios |
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For the Fiscal Period Ending |
2012-13 |
2013-14 |
2014-15 |
2015-16 |
2016-17 |
Industry Ratios |
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Profitability |
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Gross Margin % |
18.9% |
19.2% |
20.9% |
23.2% |
24.5% |
70-72% |
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Net Income Margin % |
2.5% |
2.4% |
2.4% |
5.3% |
2.4% |
8-9% |
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Return on Assets % |
0.7% |
0.9% |
1.1% |
2.0% |
1.5% |
5-8% |
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Return on Equity % |
3.3% |
3.1% |
3.1% |
6.5% |
3.3% |
20-25% |
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EBITDA Margin % (Operating Ratio) |
12.2% |
12.4% |
12.6% |
15.2% |
14.5% |
20-22% |
The above table depicts that the gross margin has been growing year on year from 18.9% in 2012 to 24.5% in 2017 however the same is still below the industry trend of 70-72% and hence the company needs to work on the same. The net profit margin of the company has been fairly constant at 2.5% and is well below the industry average of 8-9% (Das, 2017). This is mainly on account of the increased depreciation and indirect expenses which is taking away major chunk of the profits. The return on assets as well as the return on equity has been well below the industry average indicating the slowness of the company. The company therefore needs to work out on increasing the return to the shareholders and investors such that the funding is not affected. Finally, the operating margin of the company is the range of 12-14%, which is again well below the industry average of 20-22%. This again is due to the increased amortization, depreciation and interest expenses on the loan that the company has taken (DeZoort & Harrison, 2016).
The interim dividend declared by the company is 9 cents for the year whereas the final dividend declared by the company was 11 cents of the year making it altogether 20 censt for the year. The absolute amount for the year is $ 236.3 Mn and it is the healthy dividend declaration being done by the company.
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Singapore Airlines Limited (SGX:C6L) > Ratios |
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Ratios |
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For the Fiscal Period Ending |
2012-13 |
2013-14 |
2014-15 |
2015-16 |
2016-17 |
Industry Ratios |
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Dividend Ratios |
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Dividend Yeild Ratio |
1.45% |
2.45% |
3.72% |
2.45% |
3.99% |
6-7% |
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Dividend Payout Ratio |
49.62% |
6.62% |
50.99% |
39.21% |
144.64% |
50-60% |
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Price Earning Ratio |
0.72% |
0.85% |
1.13% |
2.01% |
1.53% |
5-8% |
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Earning Per share ratio |
3.22% |
3.06% |
3.14% |
6.90% |
3.05% |
8-10% |
The given table above shows that even though the company is declaring dividend on a constant scale still it is much lower than the industry trend. The dividend yield ratio has however been on an increasing trend and has lamost doubled in the last 5 years. The dividend payout ratio is beating the industry trend in the recent times and has declared 144% in the last year (Farmer, 2018). The Price earning ratio shows how much the investors are willing to pay for the shares of the company as a percentage of the earnings per share. The earnings per share on the other hand is profit available for the equity shareholders divided by the number of the shares. The same has been fairly constant in the last few years and is near to 3%.
The below table summarizes the stability and liquidity of the company.
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Singapore Airlines Limited (SGX:C6L) > Ratios |
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Ratios |
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For the Fiscal Period Ending |
2012-13 |
2013-14 |
2014-15 |
2015-16 |
2016-17 |
Industry Ratios |
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Stability and Liquidity Ratios |
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Total Debt/Equity |
7.6% |
7.1% |
13.5% |
10.3% |
11.6% |
50.0% |
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Current Ratio |
1.4x |
1.4x |
1.1x |
1.0x |
0.9x |
2x |
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Quick Ratio |
1.3x |
1.3x |
1.0x |
0.9x |
0.8x |
1x |
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Interest coverage ratio |
8.0x |
10.8x |
8.8x |
15.5x |
13.2x |
15-18x |
The short term financial position of the company has been above average as the company has adequate current assets to meet its financial obligations but it still lacks the quick assest which can be readily convertible to cash (Félix, 2017). On the other hand the company has been doing well in terms of the long term liquidity as it has very less proportion of debt capital in its capital structure which shows that the company has minimal interest and debt obligations to fulfil.
The above table depicts that the debt equity ratio of the company is well below the industry average of 2:1 and hence the company does not faces any risk of shortfalling the debt trap. It can instead make use of the trading on equity in future. The current ratio and the liquid ratio of the company has been fairly constant over the last 5 years at 1 but it has fallen in the last year implying that the company is not having adequate current assets to cover up the current liabilities. The interest coverage ratio shows how much profits does a company has to cover up for the interest obligations of the company (Goldmann, 2016). Since the company is doing well and also the interst obligation is very low, the company has been able to meet up the industry trends.
The below table has been shown as capturing the major efficiency ratios of the company. Efficiency ratios show how the company is performing in terms of return to the shareholders and the internal functions of the company like in how many days inventory is turned to sales, how long it takes to convert the debtors to cash, what is the cash conversion cycle, etc.
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Singapore Airlines Limited (SGX:C6L) > Ratios |
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Ratios |
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For the Fiscal Period Ending |
2012-13 |
2013-14 |
2014-15 |
2015-16 |
2016-17 |
Industry Ratios |
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Efficiency Ratios |
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Total Asset Turnover |
0.7x |
0.7x |
0.7x |
0.6x |
0.6x |
1-2x |
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Accounts Receivable Turnover |
10.3x |
9.6x |
10.1x |
11.2x |
12.6x |
15-20x |
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Inventory Turnover |
42.2x |
47.6x |
55.3x |
61.0x |
62.3x |
60-70x |
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Avg. Cash Conversion Cycle |
(44.6) |
(43.9) |
(44.7) |
(51.6) |
(64.5) |
30-40 |
The total assets turnover ratio has been nearly 0.6 to 0.7 times which is very less compared to yje industry trend of minimum 1-2 times, this shows that the company has notbeen able to utilise the assets to the maximum extent and has failed to generate the adequate sales. The receivables turnover ratio has been near to 10-12 times which shows that the debtors is being churned 10 times in a year. This can be improved further (Jefferson, 2017). The inventory turnover ratio has increased considerably over the past 2 years from 42 times to 62 times which is a positive indication for the company. This is within the ambit of 60-70 times as per the industry trend. The cash conversion cycle has also increased from 44 days to 64 days over these years which is a negative trend and the same should have decreased instead of increasing. The ideal trend for the company is 30-40 days and hence, the company can improve further.
It has already been seen above that the return on capital and return on equity of the Singapore Airlines has been on the lower side as compared to the industry trend. The return on equity during the year has been around 3.5 % as compared to the industry 8-10%. Also, the return on the assets has been b=very negligible at 1-2%, which is below 5-8% minimum for the industry (Trieu, 2017). This shows that the assets of the company are not being optimally utilised. Also, the risk of the company is less as compared to the industry as it is financed more by equity and not by debt, thereby, reducing the risk of defaulting.
The asset or the book value per share of the company again has been constant and has been increasing very marginally. Currently, it is $ 11.39 per share and the market value of the share is currently SGD 11.03. This shows that the book value per share of the company and the market value of the share are nearly same. The highest in the last one year has been SGD 11.04 and the lowest has been SGD 10.89. Thus, there has not been much fluctuation in the prices of the shares of company and this is a positive indicator for the company and shows that the fundamentals of the company are much stronger as compared to the market (Sithole, et al., 2017). On the other hand, Strait times index has also been fairly constant in the last 52 weeks, the highest being 3561.45 and lowest being 3403.87. Thus the fluctuation in the share prices of Singapore Airlines is in line with the Strait Times Index.
In case the non financial parametrs are also being considered , we can see that the company has a huge brand not only in Singapore but world wide for its opeartions and excellent services being provided to its customers. As per the customers review, they are more often satisfied with the services of the airline services and that is the main strength of the company (Jefferson, 2017). The major weakness over the last few years has been that the company has not been able to expand in new markets and hence unable to increase the profits and revenue. The major market is being captured by the airlines in the Singapore region. The company is also involved in a number of sustainable and CSR activities like contributing to the Singapore children’s society in addition to global partnerships in wildlife conservation.
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.
Bizfluent, 2017. Advantages & Disadvantages of Internal Control. [Online]
Available at:[Accessed 07 december 2017].
Chongsoo, A., Cheh, J. & Kim, I., 2017. Do Value Stocks Outperform Growth Stocks in the U.S. Stock Market?. Journal of Applied Finance and Banking, pp. 99-112.
Das, P., 2017. Financing Pattern and Utilization of Fixed Assets – A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17.
DeZoort, F. & Harrison, P., 2016. Understanding Auditors sense of Responsibility for detecting fraud within organization. Journal of Business Ethics, pp. 1-18.
Farmer, Y., 2018. Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, pp. 1-12.
Félix, M., 2017. A study on the expected impact of IFRS 17 on the transparency of financial statements of insurance companies. MASTER THESIS, pp. 1-69.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland. Technological Forecasting and Social Change, pp. 353-354.
Kangarluie, S. & Aalizadeh, A., 2017. ‘The expectation gap in auditing. Accounting, 3(1), pp. 19-22.
Knechel, W. & Salterio, S., 2016. Auditing:Assurance and Risk. fourth ed. New York: Routledge.
Md Khokan Bepari, S. F. R. A. T. M., 2014. Firms’ compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics. Journal of Accounting & Organizational Change, 10(1), pp. 116-149.
Meroño-Cerdán, A., Lopez-Nicolas, C. & Molina-Castillo, F., 2017. Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, pp. 1-15.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, Volume 93, pp. 111-124.
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