1) (a) Vertical Analysis of Income Statement of SIA Ltd.:
Vertical analysis of Income Statement of SIA Ltd. for period ending 31 March 2015 and 2014
|
|
2015 |
|
2014 |
|
|
|
Amount ($) |
Percent (%) |
Amount ($) |
Percent (%) |
|
Revenue |
15,565.50 |
100% |
15,243.90 |
100% |
|
|
|
|
|
|
|
Expenditure |
|
|||
|
Staff costs |
2,335.20 |
15.00% |
2,336.70 |
15.33% |
|
Fuel costs |
5,579.70 |
35.85% |
5,702.10 |
37.41% |
|
Depreciation |
1,538.80 |
9.89% |
1,575.50 |
10.34% |
|
Impairment of property, plant and equipment |
1.5 |
0.01% |
20.2 |
0.13% |
|
Amortization of intangible assets |
25.9 |
0.17% |
25.7 |
0.17% |
|
Aircraft maintenance and overhaul costs |
668.6 |
4.30% |
641.8 |
4.21% |
|
commission and incentives |
375.6 |
2.41% |
346.6 |
2.27% |
|
Landing, parking and overflying charges |
747.9 |
4.80% |
716.6 |
4.70% |
|
Handling charges |
1,066.20 |
6.85% |
1,038.70 |
6.81% |
|
Rentals on leased aircraft |
839.5 |
5.39% |
649.5 |
4.26% |
|
Material cost |
176.7 |
1.14% |
223.1 |
1.46% |
|
In flight meals |
553.5 |
3.56% |
549.1 |
3.60% |
|
Advertising and sales costs |
258.5 |
1.66% |
257.6 |
1.69% |
|
Insurance expenses |
44.9 |
0.29% |
41.5 |
0.27% |
|
Company accommodation and utilities |
119.5 |
0.77% |
119.1 |
0.78% |
|
Other passenger costs |
175 |
1.12% |
173.3 |
1.14% |
|
Crew expenses |
146.4 |
0.94% |
144.7 |
0.95% |
|
Other operating expenses |
502.7 |
3.23% |
422.8 |
2.77% |
|
|
15,156.10 |
97.37% |
14,984.60 |
98.30% |
|
Operating profit (Revenue – Expenditures) |
409.4 |
2.63% |
259.3 |
1.70% |
|
Finance charges |
-49.6 |
-0.32% |
-37.3 |
-0.24% |
|
Interest income |
74.9 |
0.48% |
62.7 |
0.41% |
|
Surplus on disposal of aircraft, spares and spare engines |
51.9 |
0.33% |
51.2 |
0.34% |
|
Dividends from long-term investments |
13.2 |
0.08% |
19.6 |
0.13% |
|
Other non-operating items |
-14.3 |
-0.09% |
1.9 |
0.01% |
|
Share of profits of joint venture companies |
52 |
0.33% |
94 |
0.62% |
|
Share of losses of associated companies |
-129.1 |
-0.83% |
-45.2 |
-0.30% |
|
Profit before exceptional items |
408.4 |
2.62% |
406.2 |
2.66% |
|
Exceptional items |
34.5 |
0.22% |
-38.3 |
-0.25% |
|
Profit before taxation |
442.9 |
2.85% |
367.9 |
2.41% |
|
Taxation |
-36.2 |
-0.23% |
56.5 |
0.37% |
|
Profit for the financial year |
406.7 |
2.61% |
424.4 |
2.78% |
Note: All amounts are in million $ (Annual report of Singapore airlines, 2015).
Vertical analysis of income statement shows relation between all available items of profit and loss account. All items in income statement represents as a percent of total revenue or sale (Albrecht, Albrecht, Albrecht & Zimbelman, 2011)
As per the vertical analysis of income statement of SIA limited, revenue increases in 2015 while percentage of expenses decreases and profit for the year decreases due to taxation in 2015 with compare to 2014. It shows that company’s performance is not good.
Company’s expenses are high so it is getting low profits. Although SIA Ltd reduces expenses in 2015 but percentage of reduction of expenses is low so company should reduce its expenses more to getting high profits. It will also improve the performance of company.
(b) Horizontal Analysis of Income Statement and Balance Sheet of SIA Ltd.:
Horizontal analysis of Income Statement of SIA Ltd. for period ending 31 March 2015 and 2014
|
|
2015 |
2014 |
Decrease / Increase |
|
|
|
Amount ($) |
Amount ($) |
Amount ($) |
Percent (%) |
|
Revenue |
15,565.50 |
15,243.90 |
321.60 |
2.11% |
|
|
|
|
|
|
|
Expenditure |
|
|||
|
Staff costs |
2,335.20 |
2,336.70 |
-1.50 |
-0.06% |
|
Fuel costs |
5,579.70 |
5,702.10 |
-122.40 |
-2.15% |
|
Depreciation |
1,538.80 |
1,575.50 |
-36.70 |
-2.33% |
|
Impairment of property, plant and equipment |
1.5 |
20.2 |
-18.70 |
-92.57% |
|
Amortization of intangible assets |
25.9 |
25.7 |
0.20 |
0.78% |
|
Aircraft maintenance and overhaul costs |
668.6 |
641.8 |
26.80 |
4.18% |
|
commission and incentives |
375.6 |
346.6 |
29.00 |
8.37% |
|
Landing, parking and overflying charges |
747.9 |
716.6 |
31.30 |
4.37% |
|
Handling charges |
1,066.20 |
1,038.70 |
27.50 |
2.65% |
|
Rentals on leased aircraft |
839.5 |
649.5 |
190.00 |
29.25% |
|
Material cost |
176.7 |
223.1 |
-46.40 |
-20.80% |
|
In flight meals |
553.5 |
549.1 |
4.40 |
0.80% |
|
Advertising and sales costs |
258.5 |
257.6 |
0.90 |
0.35% |
|
Insurance expenses |
44.9 |
41.5 |
3.40 |
8.19% |
|
Company accommodation and utilities |
119.5 |
119.1 |
0.40 |
0.34% |
|
Other passenger costs |
175 |
173.3 |
1.70 |
0.98% |
|
Crew expenses |
146.4 |
144.7 |
1.70 |
1.17% |
|
Other operating expenses |
502.7 |
422.8 |
79.90 |
18.90% |
|
|
15,156.10 |
14,984.60 |
171.50 |
1.14% |
|
Operating profit (Revenue – Expenditures) |
409.4 |
259.3 |
150.10 |
57.89% |
|
Finance charges |
-49.6 |
-37.3 |
-12.30 |
32.98% |
|
Interest income |
74.9 |
62.7 |
12.20 |
19.46% |
|
Surplus on disposal of aircraft, spares and spare engines |
51.9 |
51.2 |
0.70 |
1.37% |
|
Dividends from long-term investments |
13.2 |
19.6 |
-6.40 |
-32.65% |
|
Other non-operating items |
-14.3 |
1.9 |
-16.20 |
-852.63% |
|
Share of profits of joint venture companies |
52 |
94 |
-42.00 |
-44.68% |
|
Share of losses of associated companies |
-129.1 |
-45.2 |
-83.90 |
185.62% |
|
Profit before exceptional items |
408.4 |
406.2 |
2.20 |
0.54% |
|
Exceptional items |
34.5 |
-38.3 |
72.80 |
-190.08% |
|
Profit before taxation |
442.9 |
367.9 |
75.00 |
20.39% |
|
Taxation |
-36.2 |
56.5 |
-92.70 |
-164.07% |
|
Profit for the financial year |
406.7 |
424.4 |
-17.70 |
-4.17% |
Note: All amounts are in million $.
Horizontal analysis of income statement shows increase or decrease in amount or percent of current year, on the basis of previous year (Gibson, 2012).
Horizontal analysis shows that revenue increases by 2.11% while expenditures increases only 1.14% and profit for the year decreases by 4.17% in 2015 with compare to 2014 of SIA Ltd. Company should reduce its expenditures to increasing revenue. Profits of the company reducing due to charges of taxation.
Horizontal analysis of Balance Sheet of SIA Ltd. as at 31 March 2015 and 2014
|
|
2015 |
2014 |
Increase / Decrease |
|
|
|
Amount ($ millions) |
Amount ($ millions) |
Amount ($ millions) |
Percent (%) |
|
Equity attributable to owners of the Parent |
|
|||
|
Share capital |
1,856.10 |
1,856.10 |
0.00 |
0.00% |
|
Treasury shares |
-326.3 |
-262.2 |
-64.10 |
24.45% |
|
Other reserves |
10,049.50 |
10,518.20 |
-468.70 |
-4.46% |
|
|
11,579.30 |
12,112.10 |
-532.80 |
-4.40% |
|
Non-controlling interests |
– |
– |
– |
– |
|
Total equity |
11,579.30 |
12,112.10 |
-532.80 |
-4.40% |
|
Deferred account |
115.1 |
213.1 |
-98.00 |
-45.99% |
|
Deferred taxation |
1,325.50 |
1,516.20 |
-190.70 |
-12.58% |
|
Long-term liabilities |
1,001.00 |
800 |
201.00 |
25.13% |
|
Provisions |
682.9 |
555.8 |
127.10 |
22.87% |
|
Defined benefit plans |
152.4 |
162 |
-9.60 |
-5.93% |
|
|
14,856.20 |
15,359.20 |
-503.00 |
-3.27% |
|
Represented by: |
|
|||
|
Property, plant and equipment |
|
|||
|
Aircraft, spares and spare engines |
7,700.30 |
8,378.10 |
-677.80 |
-8.09% |
|
Land and buildings |
59.9 |
64.9 |
-5.00 |
-7.70% |
|
Others |
2,146.20 |
1,815.90 |
330.30 |
18.19% |
|
|
9,906.40 |
10,258.90 |
-352.50 |
-3.44% |
|
Intangible assets |
159.4 |
157.9 |
1.50 |
0.95% |
|
Subsidiary companies |
3,364.70 |
2,021.60 |
1,343.10 |
66.44% |
|
Associated companies |
472.4 |
313.5 |
158.90 |
50.69% |
|
Joint venture companies |
|
|||
|
Long-term investments |
1,100.20 |
1,045.10 |
55.10 |
5.27% |
|
Other receivables |
17.9 |
92.2 |
-74.30 |
-80.59% |
|
Deferred account |
36.3 |
– |
36.30 |
– |
|
Current assets |
|
|||
|
Inventories |
131.7 |
169.2 |
-37.50 |
-22.16% |
|
Trade debtors |
993.7 |
1,113.20 |
-119.50 |
-10.73% |
|
Deposits and other debtors |
22.5 |
20.3 |
2.20 |
10.84% |
|
Prepayments |
92.9 |
83.5 |
9.40 |
11.26% |
|
Amounts owing by subsidiary companies |
311.5 |
599.9 |
-288.40 |
-48.07% |
|
Investments |
102.7 |
233.3 |
-130.60 |
-55.98% |
|
Derivative assets |
107 |
133.3 |
-26.30 |
-19.73% |
|
Cash and bank balances |
4,646.50 |
4,623.80 |
22.70 |
0.49% |
|
Assets held for sale |
– |
– |
– |
– |
|
|
6,408.50 |
6,976.50 |
-568.00 |
-8.14% |
|
Less: Current liabilities |
|
|||
|
Sales in advance of carriage |
1,328.60 |
1,376.40 |
-47.80 |
-3.47% |
|
Deferred revenue |
612.5 |
572.9 |
39.60 |
6.91% |
|
Current tax payable |
111.4 |
161.8 |
-50.40 |
-31.15% |
|
Trade and other creditors |
2,088.60 |
2,287.40 |
-198.80 |
-8.69% |
|
Amounts owing to subsidiary companies |
1,048.70 |
1,034.80 |
13.90 |
1.34% |
|
Finance lease commitments |
– |
– |
– |
– |
|
Loans |
– |
– |
– |
– |
|
Notes payable |
300 |
– |
– |
– |
|
Provisions |
138 |
44 |
94.00 |
213.64% |
|
Derivative liabilities |
981.8 |
29.2 |
952.60 |
3262.33% |
|
|
6,609.60 |
5,506.50 |
1,103.10 |
20.03% |
|
Net current assets/(liabilities) |
-201.1 |
1,470.00 |
-1,671.10 |
-113.68% |
|
|
14,856.20 |
15,359.20 |
-503.00 |
-3.27% |
Horizontal analysis of balance sheet represents increase or decrease in assets or liabilities in current year, on the basis of previous year (Hermanson, Edwards & Ivancevich, 2006).
Horizontal analysis of balance sheet of SIA limited shows that company’s financial position is not good. As company’s total equity reducing by 4.40% and current assets are decreasing by 8.14% while current liabilities increasing by 20.03% so net current assets decreasing with 113.68% which is too high decrement. So it is advised to company that liabilities should be decreases to improve the financial position of organisation.
3) Ratio Analysis: Ratio analysis is a process of determining relation between two figures of financial statements. It is beneficial to know financial position of company. Ratios are useful in identify company’s performance by comparing data of two or more years.
Calculation of Ratio analysis:
|
Particulars |
Ratio Calculation |
2015 |
2014 |
|
Liquidity Ratios |
|
||
|
Current Liabilities |
6,609.60 |
5,506.50 |
|
|
Current Assets |
6,408.50 |
6,976.50 |
|
|
Current Ratio |
Current Assets / Current Liabilities |
0.969574558 |
1.266957232 |
|
Stock |
131.7 |
169.2 |
|
|
Prepaid Expenses |
92.9 |
83.5 |
|
|
Liquid Assets |
Current Assets – Stock & Prepaid Expenses |
6,183.90 |
6,723.80 |
|
Liquid Ratio |
Liquid Assets / Current Liabilities |
0.935593682 |
1.221066013 |
|
Cash and bank balances |
4,646.50 |
4,623.80 |
|
|
Marketable securities / Short term investment |
102.7 |
233.3 |
|
|
Absolute Liquid Assets |
Cash in hand + Cash at bank + Marketable securities |
4,749.20 |
4,857.10 |
|
Absolute Liquid Ratio |
Absolute liquid assets / Current liabilities |
0.718530622 |
0.882066649 |
|
|
|
||
|
Expenses |
15,156.10 |
14,984.60 |
|
|
Revenue |
15,565.50 |
15,243.90 |
|
|
Efficiency Ratio |
Expenses / Revenue |
0.973698243 |
0.982989917 |
|
|
|
|
|
|
Stock Turnover Ratio |
Net Sales / Inventory |
118.1890661 |
90.09397163 |
|
Receivable turnover ratio |
Net credit sales / Average account receivable |
15.66418436 |
13.69376572 |
|
Working Capital |
Current Asses – Current Liabilities |
-201.10 |
1,470.00 |
|
Working Capital Turnover Ratio |
Net Sales / Working Capital |
-77.40179015 |
10.37 |
|
Tangible Assets |
9,906.40 |
10,258.90 |
|
|
Intangible Assets |
159.4 |
157.9 |
|
|
Fixed Assets |
Tangible + Intangible Assets |
10,065.80 |
10,416.80 |
|
Fixed Assets Turnover Ratio |
Net Sales / Fixed Assets |
1.546374853 |
1.463395669 |
|
Capital Turnover Ratio |
Sales / Capital Employed |
1.344252243 |
1.258567878 |
|
|
|
||
|
Profitability Ratio |
|
||
|
Operating Profit |
409.4 |
259.3 |
|
|
Operating Profit Ratio |
(Operating Profit / Net Sales) * 100 |
2.630175709 |
1.701008272 |
|
Net profit after tax |
406.7 |
424.4 |
|
|
Net Profit Ratio |
(Net profit after tax / Net Sales) * 100 |
2.612829655 |
2.784064445 |
|
Shareholder’s fund / Equity / Capital Employed |
11,579.30 |
12,112.10 |
|
|
Return on Investment Ratio |
[Net profit (after interest and tax) / Shareholder’s fund] * 100 |
3.512302125 |
3.503934082 |
|
Fixed Assets |
9,906.40 |
10,258.90 |
|
|
Gross capital employed |
Fixed Assets + Current Assets |
16,314.90 |
17,235.40 |
|
Return on capital employed Ratio |
(Net profit after taxes / Gross capital employed) * 100 |
2.492813318 |
2.462373951 |
|
No. of equity shares |
1,199,851,018 |
1,199,851,018 |
|
|
Earnings per share ratio |
Net profit after tax and preference dividend / no. of equity shares |
338.958749 |
353.7105804 |
|
|
|
||
|
Solvency Ratio |
|
||
|
Long Term Liabilities |
1001 |
800 |
|
|
Debt – Equity Ratio |
External Equity / Internal Equity or Long term debt / Shareholder’s Fund |
0.086447367 |
0.066049653 |
|
Total Assets |
(14856.20+6609.60) and (15359.2+5506.5) |
21,465.80 |
20,865.70 |
|
Proprietary Ratio |
Shareholder’s Fund / Total Assets |
0.539430163 |
0.580478968 |
|
Equity share capital |
1,856.10 |
1,856.10 |
|
|
Fixed Interest Bearing Funds |
Debentures + Preference Share Capital + Other Long Term Loan |
1001 |
800 |
|
Capital Gearing Ratio |
Equity share capital / Fixed Interest Bearing Funds |
1.854245754 |
2.320125 |
As per ratio analysis, company’s liquidity ratios are decreasing in 2015 with compare to 2014 while turnover ratios are increasing in 2015. Earnings per share are decreasing in 2015. It shows company’s financial position is not strong.
4) Comment on business’s performance and financial position from the viewpoint of a director:
By analysis of income statement, it is found that company’s revenue, expenditures, operating profit and profit before tax are increased in 2015 from 2014. But final profit for the year decreases due to adjustment of taxation.
Singapore airlines’ financial position is not good. In 2014 currents assets are more than current liabilities but in 2015, current assets are less than current liabilities.
The standard current ratio for strong company must be 2:1. Means current assets should be double of current liabilities. In 2014, current ratio is 1.27:1 whether in 2015 it falls down to 0.97:1. This shows that company’s current assets are less than its current liabilities. It shows, Singapore airlines find difficulty to pay its liabilities.
The satisfactory quick or liquid ratio must be 1:1. Singapore airlines’ liquid ratio in 2014 was 1.22:1 which falls to 0.94:1 in 2015. It reflects that company’s liquidity position falls down which is not good.
If absolute liquid ratio is 1:2, then it is optimal. Singapore airlines’ absolute liquid ratio in 2014 was 0.88 and in 2015 was 0.72. It is quite satisfactory because optimum value is 50%, while absolute liquid ratio is higher than optimum value.
Relation between net sales or revenue and other items (like inventory, working capital, fixed assets and capital employed) is known as turnover / efficiency / performance / activity ratio. These ratios can help in improving efficiency or performance of business.
Stock turnover tells, whether investment in stock is efficiently utilized or not. It also indicates, how many times the inventory turnover in business during a financial year. In 2014, it is 90.09 times which increases in 2015 to 118.19 times. It reflects that investment in stock is utilized effectively.
Working capital turnover ratio tells about the effective utilization of working capital. If working capital ratio is higher, it is good and shows proper utility of working capital. In 2014, it is 10.37 times which is good but in 2015, it is negative due to negative working capital. Working capital is negative in 2015 because current liabilities are higher than current assets.
By the use of fixed assets turnover ratio, performance of asset management can be identified. Higher fixed asset turnover ratio shows effective utilization of fixed assets. Singapore airlines’ fixed asset turnover ratio increases in 2015 compare to 2014. It highlights utilization of fixed assets increases.
Efficiency in capital utilization can be identified by capital turnover ratio. In 2015, it is higher than 2014. So it tells, performance of business is good.
Profitability ratio shows profit earning capacity of business. Singapore airlines’ operating profit ratio increases in 2015 with compare to 2014 but net profit ratio decreases in 2015 with compare to 2014. This net profit ratio decreases due to adjustment of taxation.
Return on investment ratio and return on capital employed ratio increases in 2015 which shows good financial position of company and it is also beneficial for shareholders of company.
Solvency ratio is used to know the capacity of business to fulfill its short-term and long-term obligations. Ideal debt-equity ratio is 1:1. The company’s debt- equity ratio is less than 1 which is not good. Capital gearing ratio was better in 2014 with compare to 2015.
Finally as per financial statements and ratio analysis, overall business performance and financial position is good (Morris, McKay & Oates, 2009).
Albrecht, W. S., Albrecht, C. O., Albrecht, C. C. & Zimbelman, M. F. 2011. Fraud Examination. (e.d. 4). Cengage Learning
Axel, T. 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet: RatioAnalysis.net
Gibson, C. H. 2012. Financial Reporting and Analysis. (e.d. 13). Cengage Learning
Hermanson, R. H., Edwards, J. D. & Ivancevich, S. H. 2006. Managerial Accounting. (e.d. 8). Freeload Press, Inc.
Morris, G. D., McKay, S. & Oates, A. 2009. Finance Director’s Handbook. Elsevier
Peterson, P. P. & Fabozzi, F. J. 2012. Analysis of Financial Statements. (e.d. 2). John Wiley & Sons
Singapore airlines. 2015. The Path of Progress Annual Report. Retrieved on 22 Aug 2016 from https://www.singaporeair.com/en_UK/sg/about-US/information-for-investors/annual-report/
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