Question:
Describe about the Analysis of Qantas and Virgin Airlines?
Qantas as it is popularly called is the founding member of one world alliance. It is one of the largest airlines I the entire world. Its airlines files in the 80 destinations in around 20 varied countries. It is the only airline in the country of Australia in the global airline alliance.
The company offers a wide variety of domestic network that serves various points Asia, the South Pacific, Europe, North and South America and Africa.
(Oneworld.com, 2015)
Virgin airlines is based in California. It has brand new planes and offers very attractive fares and have a top notch of the services and host a fun and an innovative amenities that reinvent the domestic travel through air. It has a number of facilities like the mood-lit cabins with fleet wide Wi-Fi, custom-designed leather seats, power outlets, and a video touch-screen at every seatback offering guests on-demand menus and countless entertainment options.
The company has a number of awards attached with its name such as the Best Domestic Airline” in both Condé Nast Traveller’s Reader’s Choice Awards Travel + Leisure’s.
Virgin America flies from San Francisco (SFO), Los Angeles (LAX), Boston (BOS), Cancun (CUN), Chicago (ORD), Dallas Love Field(DAL), Fort Lauderdale (FLL), Las Vegas (LAS), Los Cabos (SJD), New York (JFK and LGA), Newark (EWR), Orlando (MCO), Palm Springs (PSP), Portland (PDX), Puerto Vallarta (PVR), San Diego (SAN), Seattle (SEA), Washington D.C. (IAD and DCA), and Austin (AUS).
(Virgin America, 2015)
When an investor has to make a decision with regard to the company that he would choose to invest, he will definitely go for the calculation of many ratios that will equip him with making the right decision.
This report aims at comparing the above stated 2 companies and then deciding which company would it be worthwhile to invest.
The following table shows the calculated ratios for Qantas:
|
Amounts in $ in millions) |
||
|
Particulars |
2014 |
2013 |
|
|
|
|
|
Short term solvency or liquidity ratios: |
|
|
|
Current assets |
4,932.00 |
4,961.00 |
|
Current liabilities |
7,525.00 |
6,647.00 |
|
Current ratio |
0.6554 |
0.7464 |
|
Current assets – inventory |
4,615.00 |
4,597.00 |
|
Current liabilities |
7,525.00 |
6,647.00 |
|
Quick ratio |
0.6133 |
0.6916 |
|
Efficiency ratios: |
|
|
|
Sales |
14,197.00 |
14,608.00 |
|
Average debtors |
1,316.00 |
1,273.50 |
|
Debtors turnover ratio |
10.7880 |
11.4707 |
|
Cost of goods sold |
11,320.00 |
11,061.00 |
|
Average inventory |
340.50 |
370.00 |
|
Inventory turnover ratio |
33.2452 |
29.8946 |
|
Profitability ratios: |
||
|
Net profit |
(2,843.00) |
2.00 |
|
Sales |
14,197.00 |
14,608.00 |
|
Net profit margin |
-20.03% |
0.01% |
|
Net income |
(2,843.00) |
2.00 |
|
Total assets |
17,318.00 |
20,032.00 |
|
Return on assets |
-16.42% |
0.01% |
|
Net income |
(2,843.00) |
2.00 |
|
Shareholder’s equity |
2,866.00 |
5,840.00 |
|
Return on shareholder’s equity |
-99.20% |
0.03% |
|
|
|
|
|
Long term solvency or financing ratios: |
||
|
|
||
|
Total liabilities |
14,452.00 |
14,192.00 |
|
Total equity |
2,866.00 |
5,840.00 |
|
Debt to equity ratio |
5.042568039 |
2.430136986 |
|
Total liabilities |
14,452.00 |
14,192.00 |
|
Total assets |
17,318.00 |
20,032.00 |
|
Debt to total assets |
0.834507449 |
0.708466454 |
|
Market performance ratios: |
||
|
Basic earnings per share |
-128.5 |
0.04 |
|
Price of the share |
1.26 |
1.34 |
|
Earnings per share |
-128.5 |
0.04 |
|
Price earnings ratio |
-0.009805447 |
33.5 |
|
2014 |
2013 |
|
|
Sales |
14,197.00 |
14,608.00 |
|
Cost of goods sold |
11,320.00 |
11,061.00 |
|
Expenses |
8,477.00 |
11,059.00 |
|
Net profit |
(2,843.00) |
2.00 |
|
The following are the calculated ratios in respect of Virgin: |
||
|
(Amounts in $ in millions) |
||
|
Particulars |
2014 |
2013 |
|
|
|
|
|
Short term solvency or liquidity ratios: |
|
|
|
Current assets |
1,234.90 |
981.70 |
|
Current liabilities |
1,920.60 |
1,814.40 |
|
Current ratio |
0.6430 |
0.5411 |
|
Current assets – inventory |
1,198.80 |
951.90 |
|
Current liabilities |
1,920.60 |
1,814.40 |
|
Quick ratio |
0.6242 |
0.5246 |
|
Efficiency ratios: |
|
|
|
Sales |
4,303.20 |
4,004.60 |
|
Average debtors |
280.15 |
230.10 |
|
Debtors turnover ratio |
15.3603 |
17.4037 |
|
Cost of goods sold |
3,836.20 |
3,504.70 |
|
Average inventory |
32.95 |
22.35 |
|
Inventory turnover ratio |
116.4249 |
156.8098 |
|
Profitability ratios: |
||
|
Net profit |
(355.60) |
(98.10) |
|
Sales |
4,303.20 |
4,004.60 |
|
Net profit margin |
-8.26% |
-2.45% |
|
Net income |
(355.60) |
(98.10) |
|
Total assets |
4,679.30 |
4,547.10 |
|
Return on assets |
-7.60% |
-2.16% |
|
Net income |
(355.60) |
(98.10) |
|
Shareholder’s equity |
1,048.10 |
1,101.30 |
|
Return on shareholder’s equity |
-33.93% |
-8.91% |
|
|
|
|
|
Long term solvency or financing ratios: |
||
|
|
||
|
Total liabilities |
3,631.20 |
3,445.80 |
|
Total equity |
1,048.10 |
1,101.30 |
|
Debt to equity ratio |
3.464554909 |
3.128847725 |
|
Total liabilities |
3,631.20 |
3,445.80 |
|
Total assets |
4,679.30 |
4,547.10 |
|
Debt to total assets |
0.776013506 |
0.757801676 |
|
Market perfromnace ratios: |
||
|
Basic earnings per share |
-11.4 |
-4.1 |
|
Price of the share |
0.43 |
0.42 |
|
Earnings per share |
-11.4 |
-4.1 |
|
Price earnings ratio |
-0.037719298 |
-0.102439024 |
|
2014 |
2013 |
|
|
Sales |
4,303.20 |
4,004.60 |
|
Cost of goods sold |
3,836.20 |
3,504.70 |
|
Expenses |
3,480.60 |
3,406.60 |
|
Net profit |
(355.60) |
(98.10) |
Qantas Airlines:
The following are the definitions of the various ratios:
Current ratio:
Current ratio is the measure that tells us as to what extent the current assets are able to pay off the current liabilities of the company.
It is arrived at by dividing the current assets by the current liabilities.
The ratio has reduced and the main reason for this is the decrease in the current assets and increase in the current liabilities.
Acid test ratio:
Quick or the acid test ratio is the measure to determine the extent to which the current assets, except inventory, are able to pay off the current liabilities of the company.
It is arrive at by dividing the sum of cash, accounts receivables and short term investments by the current liabilities.
The ratio has reduced and the main reason for this is the increase in the current assets and increase in the current liabilities.
Accounts receivable turnover ratio:
It is a measure through which the company estimates the number of times the company collects the balance in the accounts receivables account.
It is arrived at by dividing the sales by the average of opening and closing accounts receivable.
The ratio has reduced and the main reason for this is the decrease in sales and increase in the average debtors.
Inventory turnover ratio:
It is a measure that estimates the number of times a company replaces its inventory during a year.
It is arrived at by dividing the cost of goods sold by the average of opening and closing inventory.
The ratio has increased which is the result of the increase in the cost of goods sold and decrease in average inventory.
Profit margin ratio:
It is the ratio that is expressed between the net income that is earned by a company and the sales that are affected during that period.
It is arrived at by dividing the net income by sales.
The net loss has only increased due to the increase in the amount of net loss.
Return on assets (ROA):
ROA are the earnings that the company earns by investing its money in the assets of the business. This ratio tells us how effective and efficient the management is in using the assets of the company in order to generate revenues.
It is arrived at by dividing the net income by the average of opening as well as the closing balance of the total assets.
The return on assets is negative since the net loss has been incurred.
Return on equity (ROE):
ROE are the earnings that the company earns by investing the funds of the shareholder’s in the business. The more the return on equity, the better is the profitability of the business.
It is arrived at by dividing the net income by the average of opening as well as the closing balance of the shareholder’s equity.
The return on assets is negative since the net loss has been incurred.
Debt equity ratio:
It is a measure to ascertain the extent to which the equity as well as the liabilities of the company is used to finance its assets.
It is derived by dividing the total liabilities by shareholder’s equity of the company.
The ratio has increased as the result of increase in the total liabilities and decrease in total equity.
Debt to total assets is the ratio that is expressed between the debt and the total assets of the company.
The ratio has increased due to an increase in the total liabilities and decrease in the total assets.
Earnings per share is the net profit that has been earned per share.
There is net loss and hence, net loss per share.
Price earnings ratio is the ratio that is expressed between the earning per share and the market price of the share.
The PE ratio is negative since there is net loss.
The following are the graphs for sales, cost of goods sold and expenses and net loss.
The following are the definitions of the various ratios:
Current ratio:
Current ratio is the measure that tells us as to what extent the current assets are able to pay off the current liabilities of the company.
It is arrived at by dividing the current assets by the current liabilities.
The ratio has increased and the main reason for this is the increase in the current assets and increase in the current liabilities.
Acid test ratio:
Quick or the acid test ratio is the measure to determine the extent to which the current assets, except inventory, are able to pay off the current liabilities of the company.
It is arrive at by dividing the sum of cash, accounts receivables and short term investments by the current liabilities.
The ratio has increased and the main reason for this is the increase in the current assets and increase in the current liabilities.
Accounts receivable turnover ratio:
It is a measure through which the company estimates the number of times the company collects the balance in the accounts receivables account.
It is arrived at by dividing the sales by the average of opening and closing accounts receivable.
The ratio has reduced and the main reason for this is the decrease in sales and increase in the average debtors.
Inventory turnover ratio:
It is a measure that estimates the number of times a company replaces its inventory during a year.
It is arrived at by dividing the cost of goods sold by the average of opening and closing inventory.
The ratio has decreased which is the result of the increase in the cost of goods sold and increase in average inventory.
Profit margin ratio:
It is the ratio that is expressed between the net income that is earned by a company and the sales that are affected during that period.
It is arrived at by dividing the net income by sales.
The net loss has only increased due to the increase in the amount of net loss.
Return on assets (ROA):
ROA are the earnings that the company earns by investing its money in the assets of the business. This ratio tells us how effective and efficient the management is in using the assets of the company in order to generate revenues.
It is arrived at by dividing the net income by the average of opening as well as the closing balance of the total assets.
The return on assets is negative since the net loss has been incurred.
Return on equity (ROE):
ROE are the earnings that the company earns by investing the funds of the shareholder’s in the business. The more the return on equity, the better is the profitability of the business.
It is arrived at by dividing the net income by the average of opening as well as the closing balance of the shareholder’s equity.
The return on assets is negative since the net loss has been incurred.
Debt equity ratio:
It is a measure to ascertain the extent to which the equity as well as the liabilities of the company is used to finance its assets.
It is derived by dividing the total liabilities by shareholder’s equity of the company.
The ratio has increased as the result of increase in the total liabilities and decrease in total equity.
Debt to total assets is the ratio that is expressed between the debt and the total assets of the company.
The ratio has increased due to an increase in the total liabilities and increase in the total assets.
Earnings per share is the net profit that has been earned per share.
There is net loss and hence, net loss per share.
Price earnings ratio is the ratio that is expressed between the earning per share and the market price of the share.
The PE ratio is negative since there is net loss.
The following are the graphs for sales, cost of goods sold and expenses and net loss.
Qantas:
The auditor of the company is KPMG and it has issued an unqualified audit report. It states that the company has not contravened with any of the requirements as regards with the independence of the auditor that have been set out in the Corporations Act 2001 in relation with the audit and no contraventions have been made with relation to the applicable code of conduct.
Further, as per the annual report, the financial statements give a true and a fair view of its financial performance during the year ended 30.06.2014 and complies with all the Accounting standards of Australia and the Corporations Regulations 2001. Further, it complies with all the Internal Financial reporting standards that have been stated in the notes.
Virgin:
The auditor of the company is KPMG and it has issued an unqualified audit report. It states that the company has not contravened with any of the requirements as regards with the independence of the auditor that have been set out in the Corporations Act 2001 in relation with the audit and no contraventions have been made with relation to the applicable code of conduct.
Further, as per the annual report, the financial statements give a true and a fair view of its financial performance during the year ended 30.06.2014 and complies with all the Accounting standards of Australia and the Corporations Regulations 2001. Further, it complies with all the Internal Financial reporting standards that have been stated in the notes.
Qantas:
In respect of the cash flow statement, the company has earned from the proceeds from the disposal of plant, equipment during the year to the tune of $141 million.
There are not much of the changes other than the above in the cash flow statement.
Virgin:
The company has earned an amount of $376.8 million towards the proceeds from the disposal of planta and equipment.
Further, the company has spent a huge amount of money towards the acquisition of the net intangibles, interest in the joint venture.
The cash flows from the investing activities includes an amount of $1041.4 million as borrowings.
And net proceeds from shares.
Conclusion:
Ratio analysis helps an investor in ascertaining the investment that is secure for him and that could multiply in the future, but looking at these 2 companies one can easily conclude that none of the companies are worth an investment.
An investor will always want his investment to grow and will hope that his investment receives a certain amount of a return in the end of each period. But after assessing the performance of both the companies, it would be right to conclude that none of the companies should be invested in.
References:
Oneworld.com, (2015). Qantas – one world. Retrieved 29 January 2015, from https://www.oneworld.com/member-airlines/qantas
Virgin America, (2015). About Our Airline. Retrieved 29 January 2015, from https://www.virginamerica.com/cms/about-our-airline
www.qantas.com.au, (2015). Annual report 2014. Retrieved 29 January 2015, from https://www.qantas.com.au/infodetail/about/investors/preliminaryFinalReport14.pdf
www.virginaustralia.com, (2015). Annual report 2014. Retrieved 29 January 2015, from https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/annual-financial-report-2014.pdf
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