Answers :-
1. Company description:
Qantas limited is an aviation firm which is situated in the Australia. The company runs its activities and operations at domestic level as well as international level. The company is offering its services through various segments. The mains segment of the company are Jetstar, Qantas international, Qantas loyalty, Qantas freight etc. All of this segment offers the different services and offers to the customers of the company (Reuters, 2018). Bloomberg (2018) explains that the corporate strategies of the company have been changed from earlier and the current strategies have helped the company to change the operations and the performance of the company at a great level.
The company has been founded in 1920 and from that time, it is serving the best aviation services in the Australian market as well as at international market. The fleet size of the company is 124 and it is oldest Australian aviation firm. The current annual report (2017) of the company briefs that various changes have occurred into the financial position of the company in last few years. However, the current performance of the company is quite competitive.
2. Ownership governance structure:
i. Main shareholders of the company:
Ownership governance structure is a policy which explains about the stock of the company and the stockholders of the company. It explains that whether the company is following a proper structure of ownership into the company or not. On the basis of the annual report (2017), it has been found that the only one stockholder of the company i.e. HSBC Custody Nominees (Australia) Limited has more than 20% ownership in the company. The company has around 40.21% of total stock of the company. HSBC Custody Nominees (Australia) Limited is a company and it is not connected with main people and directors of the company in any way (Annual report, 2018).
Further, it has been found that there are only 3 companies who are having more than 5% holdings in the share of the company. On the basis of the evaluation on the company, it has been found that the ownership governance structure of Qantas airways limited is quite better.
Figure 1: Shareholder information
(Annual report, 2017)
ii. Main people of the company:
The main people of the company are Leigh Clifford AO, who is chairman of the company, Alan Jayce who is chief executive officer (CEO) of Qantas limited, Tino La Spina, Andrew David, Gareth Evans, Lasley Grant and Jayce Hardicka are the main board of the directors of Qantas limited.
The study on governance structure of Qantas explains that the shareholders who are having more than 20% stock in the company do not have any connection with the directors of the company. There is no surname matching. Further, none of the shareholders own more than 5% stock in the company. It explains that the no directors and their family are involving in the governance of the company.
3. Fundamental ratios:
Fundamental ratios are the key financial analysis tool which evaluates the financial statement of an organization to measure the performance of the company. Fundamental ratios evaluate the main item from income statement, cash flows statement and balance sheet of an organization to measure the internal and market performance of the company (Hillier, Grinblatt and Titman, 2011).
In the report, fundamental ratios of Qantas limited have been evaluated to measure the performance of the company and the changes into the organization from last year. The liquidity ratio, profitability ratio, efficiency ratio, market ratio, long term solvency ratio etc has been calculated to measure the performance of the company. Following is the study of fundamental ratios of the company:
i. Short term solvency position:
Short term solvency ratios are calculated to measure the ability of a business to meet all the obligations of short term of the company. Short term solvency ratios seek to measure the ability of a business to avoid all the financial risk in short term (Jiashu, 2009). The short term solvency position of a business could be evaluated on the basis of current ratio and quick ratio of an organization.
Current ratio is a short term solvency ratio which is calculated on the basis of current assets and liabilities of a business. In case of Qantas limited, it has been found that the current ratio of the company has been lowered from 2016 in 2017. It explains that the risk position of the company has been higher and it briefs that the company is required to enhance the level of current assets to manage the performance.
|
Current Ratio |
2,016 |
2,017 |
|
|
Current Assets / |
3,458 |
3,119 |
|
|
Current liabilities |
7,028 |
7,095 |
|
|
Answer: |
0.49 |
0.44 |
(Mornngstar, 2018)
Further, quick ratio is a short term solvency ratio which is calculated on the basis of quick assets and liabilities of a business. In case of Qantas limited, it has been found that the quick ratio of the company has been lowered from 2016 in 2017. It explains that the risk position of the company has been higher and it briefs that the company is required to enhance the level of current assets which could be liquidate at any time to manage the performance
|
Acid test ratio |
2,016 |
2,017 |
|
|
Current Assets – Inventory / |
3,122 |
2,768 |
|
|
Current Liabilities |
7,028 |
7,095 |
|
|
Answer: |
0.44 |
0.39 |
ii. Long term solvency position:
Long term solvency ratios are calculated to measure the ability of a business to meet all the obligations of long term debt of the company. Long term solvency ratios seek to measure the ability of a business to avoid all the financial risk in long term. The long term solvency position of a business could be evaluated on the basis of total liabilities, debt and equity of an organization.
Gearing ratio is a long term solvency ratio which is calculated on the basis of long term liabilities and capital employed of a business. In case of Qantas limited, it has been found that the gearing ratio of the company has been enhanced from 2016 in 2017. It explains that the risk position of the company has been higher and it briefs that the company should reduce the level of long term liabilities.
|
Gearing ratio |
2,016 |
2,017 |
|
|
Long term liabilities / |
6,422 |
6,589 |
|
|
Capital employed |
9,677 |
10,126 |
|
|
Answer: |
% |
0.664 |
0.651 |
(Morningstar, 2018)
Further, debt ratio is a long term solvency ratio which is calculated on the basis of total liabilities and total assets of a business. In case of Qantas limited, it has been found that the debt ratio of the company has been lowered from 2016 in 2017. It explains that the risk position of the company has been lower and it briefs that the company is still required to reduce the level of total liabilities to manage the performance.
|
Debt ratio |
2,016 |
2,017 |
|
|
Total liabilities / |
13,450 |
13,684 |
|
|
Total Assets |
16,705 |
17,221 |
|
|
Answer: |
0.81 |
0.79 |
iii. Asset utilization:
Long term solvency ratios are calculated to measure the ability of a business to meet all the obligations of long term debt of the company. Long term solvency ratios seek to measure the ability of a business to avoid all the financial risk in long term. The long term solvency position of a business could be evaluated on the basis of total liabilities, debt and equity of an organization.
Gearing ratio is a long term solvency ratio which is calculated on the basis of long term liabilities and capital employed of a business. In case of Qantas limited, it has been found that the gearing ratio of the company has been enhanced from 2016 in 2017. It explains that the risk position of the company has been higher and it briefs that the company should reduce the level of long term liabilities.
|
Gearing ratio |
2,016 |
2,017 |
|
|
Long term liabilities / |
6,422 |
6,589 |
|
|
Capital employed |
9,677 |
10,126 |
|
|
Answer: |
% |
0.664 |
Further, debt ratio is a long term solvency ratio which is calculated on the basis of total liabilities and total assets of a business. In case of Qantas limited, it has been found that the debt ratio of the company has been lowered from 2016 in 2017. It explains that the risk position of the company has been lower and it briefs that the company is still required to reduce the level of total liabilities to manage the performance.
|
Debt ratio |
2,016 |
2,017 |
|
|
Total liabilities / |
13,450 |
13,684 |
|
|
Total Assets |
16,705 |
17,221 |
|
|
Answer: |
0.81 |
0.79 |
iv. Profitability ratios:
Profitability ratios are calculated to measure the ability of a business to generate the case on the basis of sales and the available resources. Profitability ratios seek to measure the ability of a business to generate the cash in a particular period (Jiashu, 2009). The profitability position of a business could be evaluated on the basis of gross profit, operating profit and net profit margin.
Net profit, gross profit and operating profit margin is a profitability ratio which is calculated on the basis of total generated operating profit, net profit and gross profit of the organization. In case of Qantas limited, it has been found that the gross profit ratio of the company has been enhanced from 2016 in 2017. However, the net profit and the operating profit rate of the company have been lowered. It explains that profitability level of the company has been lower and it briefs that the company should focus on the operating expenses due to which the profitability level of the company has been lowered.
|
Net profit |
2,016 |
2,017 |
|
|
Net profit / |
1029 |
852 |
|
|
Sales revenue |
15,784 |
15,680 |
|
|
Answer: |
% |
6.52% |
5.43% |
|
Gross Profit Margin |
2,016 |
2,017 |
|
|
Gross profit / |
9,172 |
9,205 |
|
|
Sales Revenue (note used operating revenue) |
15,784 |
15,680 |
|
|
Answer: |
58.1% |
58.7% |
|
|
Operating profit margin |
2,016 |
2,017 |
|
|
Operating profit / |
1,029 |
852 |
|
|
Sales Revenue |
% |
15,784 |
15,680 |
|
Answer: |
6.52% |
5.43% |
Market value ratios are calculated to measure the ability of a business to manage its place in the market and manage the stock price in the security market. Market value ratios seek to measure the performance of the company in the market. The market value position of a business could be evaluated on the basis of dividend coverage ratio and earnings per ratio (Gapenski, 2008).
Earnings per share of the company measure the net income on the basis of total stock of the company. According to the calculations, it has been found that the earning per share of the company has been lowered from 0.49 to 0.46 in 2017due to lower net income. Further, it has been found that the dividend coverage ratio of the company has been higher from last year. It explains that however the earnings of the company have been reduced but still the company has higher the dividend coverage ratio to offer good returns to the stockholder of the company.
|
Earnings per share |
2,016 |
2,017 |
|
|
Net income |
1,029 |
852 |
|
|
Weighted average shares outstanding |
2,083 |
1,853 |
|
|
Answer: |
0.494 |
0.460 |
|
|
Dividend coverage ratio |
2,016 |
2,017 |
|
|
Net income / |
1,029 |
852 |
|
|
Dividend paid to shareholders |
350 |
264 |
|
|
Answer: |
2.94 |
3.23 |
4. Share evaluation:
Share price movement:
Figure 2: Stock price
(Yahoo Finance, 2018)
Business report:
The above graph explains that with the stock price of AORD and QAN both are volatile. The stock price f QAN has been volatile more than the AORD prices. The average return of QAN is higher than the AORD and it briefs that the changes into QAN stock is higher. Further, the correlation function explains that the QAN stock and AORD stock are facing a correlation of -0.11 (Yahoo Finance, 2018). It explains that the changes into the QAN price do not affect the index price (Higgins, 2012). Further, it explains that the stock price of both the stock are average volatile and it briefs that changes into QAN price does not affect the AORD prices more. On the basis of investigation, it has been found that the QAN does not lead to AORD stock.
5.Factors which affect the share price:
Yahoo finance (2018) briefs that various changes have been faced by the company in last 2 years. The changes have occurred due to various internal and external alterations into the activities and market performance of the company. On the basis of AFR (2018), it has been found that the stock price on 31-8-2016 has been lowered due to changes in the industry factors (4 traders, 2018). Further, on 31-1-2017, stock price has been enhanced due to announcement from the company (The wall street Journal, 2018). It further explains that on 30-11-2017, the significant news about the company has been leaked and it has directly impacted on the stock price of the company (Financial Times, 2018). Further, it has been found that the operations and the performance of the company are quite competitive in last 2 years and due to which the stock performance of the company is quite impressive.
6. Beta and equity return calculations:
Beta calculations:
|
ANOVA |
||||||||
|
df |
SS |
MS |
F |
Significance F |
||||
|
Regression |
1 |
0.001401 |
0.001401 |
0.258323 |
0.616572 |
|||
|
Residual |
21 |
0.113889 |
0.005423 |
|||||
|
Total |
22 |
0.11529 |
||||||
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
Lower 95.0% |
Upper 95.0% |
|
|
Intercept |
0.038084 |
0.01564 |
2.435051 |
0.023893 |
0.005559 |
0.070609 |
0.005559 |
0.070609 |
|
X Variable 1 |
-0.37796 |
0.743651 |
-0.50826 |
0.616572 |
-1.92447 |
1.168542 |
-1.92447 |
1.168542 |
CAPM:
|
Calculation of cost of equity |
|
|
Risk free rate |
4.00% |
|
RM |
6.00% |
|
Beta |
-0.378 |
|
Required rate of return |
3.24% |
(Gapenski, 2008)
Conservative company:
Conservative company is the one where the risk of the company is lower and the return of the company is higher (Gibson, 2011). In case of Qantas limited, it has been found that the beta of the company is -0.378 which explains about the total risk of the company and the return of the company is 3.24%. It briefs that the risk and return position are according to the conservative definition and thus the project should be accepted by the company.
7. WACC:
WACC calculations:
|
Calculation of WACC |
||||
|
Price |
Cost |
Weight |
WACC |
|
|
Debt |
3,386 |
4.55% |
49.59% |
0.02256 |
|
Equity |
3,442 |
3.24% |
50.41% |
0.01635 |
|
6,828 |
Kd |
3.89% |
|
Calculation of cost of debt |
||||
|
Outstanding debt |
3,386 |
|||
|
interest rate |
6.50% |
|||
|
Tax rate |
30.0% |
|||
|
Kd |
4.55% |
|
Calculation of cost of equity (CAPM) |
|
|
RF |
4.00% |
|
RM |
6.00% |
|
Beta |
-0.3780 |
|
Required rate of return |
3.24% |
(Dixon and Monk, 2009)
Implication of WACC:
The above calculations explain that the total cost of capital of the company is 3.89%. It assists an organization to evaluate the various investments proposals. It explains that if the internal rate of return of a project is higher than its WACC of the company than only the company should accept the proposal as if the WACC is higher than the company would have to face more loss than the profit. In case of Qantas, the company should only accept the proposal which would offer more than 3.89% IRR to company.
8.Debt ratio:
i. Debt ratio:
Debt ratio of the company explains that the debt of the company has been lower than the total assets of the company from last year. It briefs that the debt ratio of the company is not stable. Company is making few changes into the capital structure to make it optimal. The liability and assets must be in a proportion that the company could manage the long term solvency position.
|
Debt ratio |
2,016 |
2,017 |
|
|
Total liabilities / |
13,450 |
13,684 |
|
|
Total Assets |
16,705 |
17,221 |
|
|
Answer: |
0.81 |
0.79 |
(Annual report, 2017)
ii. Gearing ratio:
Further, the gearing ratio of the company has been calculated to measure the long term liabilities in context with the total capital of the company. On the basis of the below table, it has been found that the company has enhanced the borrowings as well as shares have also been issued by the company to manage the performance of the company.
|
Gearing ratio |
2,016 |
2,017 |
|
|
Long term liabilities / |
6,422 |
6,589 |
|
|
Capital employed |
9,677 |
10,126 |
|
|
Answer: |
% |
0.664 |
0.651 |
9.Dividend policy:
Dividend policies are of two types: relevant dividend policy and irrelevant dividend policy. Relevant dividend policy express that the company should offer good dividend amount to the investors whereas irrelevant dividend policy express that the company should retain the entire profit for future investments. On the basis of annual report (2017) of the company, it has been found that the company has paid good dividend amount to the stockholders which briefs that the dividend policy of the company is quite attractive, company is following relaxant dividend policy. This policy attracts the customers more towards the company.
10.Recommendation:
To,
Investors
Subject: portfolio investigations
Dear Client,
According to your choice, we have evaluated Qantas limited to add this company into your portfolio. Investigation over Qantas limited briefs that the governance structure of the company is quite better and the directors are not involving into the governance. Further, the ratio analysis explains that the performance of the company is quite competitive in the market.
The strategies and the policies of the company are quite strong that it is helping the company to manage the position in the market. The stock evaluation of the company also explains about better market position of the company. Lastly, the WACC, debt structure and dividend policy of the company are also better on the basis of the investment into the company.
Thus, it is recommended to you to add Qantas airway limited into your portfolio for better returns.
Regards,
Financial analyst
Company name.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download