Webjet Limited is known to be a digital travel company that provides its services to the consumers across the globe. The company conducts its operations across Australia, New Zealand, North America and other countries across the world. The company is listed on the Australia Securities Exchange (ASX) and is recognized as a leader in the world of digital travel businesses. The company conducts its business with the help of two distinct segments that are business to consumer travel and business to business travel segments. It is involved in providing comparing, combining and booking domestics and international air travel, hotel accommodations, holiday packages, travel insurance, rental cars and offering digital marketing consultancy services (Webjet Limited, 2018).
The present report is developed for analyzing the financial performance of the selected company over the last five years. This has been carried out by examining the profitability, liquidity and solvency analysis of the company using ratio analysis technique. The key financial ratios are analyzed for examining the financial performance of the selected company in the specific areas. The financial performance analysis carried out with the use of ratio analysis method is carried out for presenting the outcomes in the form of a report to the company’s manager. The financial results gained are depicted with the use of charts and tables for making them attractive for the readers. The report will guide the manager during the decision-making process for developing strategies to foster the company’s future growth and development. This is because the ratios depict the financial position of a company through extracting information from the financial statements and thus helps in gaining an analysis into the problematic areas that a company needs to resolve for sustaining in the future. In addition to this, the key financial ratios of the company are compared with the Flight Centre Travel Group Limited for comparing the financial performance of Webjet Limited with its main competitors.
The analysis of the profitability position of a company is carried out for developing an insight into its ability to generate profit from its primary operations. The profitability analysis is mainly undertaken for examining the ability of a company to sustain in the future by creating return for its shareholders.
The profitability analysis of Webjet Limited is carried out by calculation and analysis of the following ratios as follows:
|
Profitability ratios of Webjet for last five years |
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|
Ratios |
Formula |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Return on equity |
Net income after tax /Average shareholder equity |
13.84% |
29.42% |
27.81% |
19.20% |
13.97% |
|
Net Profit margin |
Profit (after tax) / Net Revenue |
8.67% |
19.37% |
17.70% |
14.54% |
10.94% |
|
Return on Assets |
Net income after tax /Average Total Assets |
6.90% |
14.52% |
12.71% |
7.74% |
5.90% |
(Note: Financial data is provided in appendix section)
|
Profitability ratios of Flight Centre Travel for last five years |
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|
Ratios |
2013 |
2014 |
2015 |
2016 |
2017 |
|
|
Return on equity |
23.98% |
23.65% |
20.20% |
20.00% |
16.44% |
|
|
Net Profit margin |
12.65% |
11.76% |
10.86% |
10.25% |
9.23% |
|
|
Return on Assets |
11.30% |
11.73% |
9.86% |
9.64% |
7.97% |
Return on Equity (ROE): This can be regarded as a major financial indicator of the profitability position of a company. It indicates the level of profit generated by a company from equity and creating return for the shareholders. The formula for its calculation is as follows:
The return on equity of the company has depicted a decreasing trend over the financial years from 2013-2017. This depicts that the company’s ability to create value for the shareholders has declined that cannot be regarded as good for its future growth. The ratio is an indicator of its sustainability position as an increasing trend of ROE ensures that it will be sustainable over the long-term. This is a strong indicator of the efficiency of a company to create a balance capital structure that can provide returns to the shareholders (Diamond, 2017).
Webjet’s ROE can be regarded as better in comparison to the ROE of Flight Centre Travel as it has reached the best of industry average in the year 2014 to 29.42% while the best ROE generated by Flight Centre Travel is up to 23.98%. Therefore, it can be said that maintaining a competitive ROE is essential for the company to maintain existing investment levels and attracting new investors. However, the major point of concern that can be stated in this context is keeping an analysis of the ability of a company to maintain an increasing trend of ROE in the future context. The decreasing trend of ROE both in Webjet and Flight Centre Travel can be attributed to increase in the operational expenses incurred for the use of online technologies and tools for providing travel services to the customers (Annual Reports: Webjet Limited, 2018).
Net Profit Margin: Net profit margin ratio is an indicator of the ability of a company to generate revenue after meeting all the expenses and deducting them from the sales realized. The formula used for its calculation is depicted as follows:
Formula: Net Profit Margin=Net Income/Total Revenue
The net profit margin has depicted an increasing trend from the year 2013-2014 and thereafter it has significantly decreased from 2014 to 2017. This indicates the significant increase in the operational expenses of the company that have resulted a decline in its net profit margin. This cannot be regarded as good for the future growth and profitability of the company as net profit depicts its ability to meet up all its operational expenses effectively and achieving a residual profit after covering them up (Bragg, 2012).
The net profit margin of the company has recorded an optimum value of 19.37% in the year 2014 that can be regarded as best value as compared to the industry benchmark. However, the highest net profit margin recorded by Fight Centre Travel Group is 12.65% and therefore it can be said that Webjet Limited has maintained a competitive edge in its net profit position over its competitor. However, the company is recommended to adopt the use of effective measures for sustaining this trend for measuring to maintain its competitive position within the travel industry of Australia (Annual Reports: Webjet Limited, 2018).
Return on Assets: Return on assets can be regarded as a financial ratio that depicts the ability of a company to generate profit from effective utilization of its asset resources. The ratio can be calculated using following formula:
The ratio for Webjet Limited has depicted an increasing trend form the year 2013-2014 while it has significantly declined from the year 2014-2017. The major reason for the declining the return on assets of the company can be regarded due to its non-efficiency for generating income from the use of assets (Robinson, 2015).
Webjet Limited return on assets has reached an optimum value of 14.52% in the year 2014 that can be regarded as best of the industry. However, Flight Centre Travel has attained an optimum value of 11.30% over the last five years 2013-2017. Therefore, it can be stated that Webjet return on assets on an average can be regarded as better in comparison to Flight Centre Travel. This can be attributed due to great success achieved by the company in B2B market that has enabled it to provide best services to the customers by providing them the most appropriate product offering as per their diverse needs and requirements (Padarth, 2015).
The liquidity analysis is carried out for depicting the efficiency of the company for meeting its financial obligations as they become due. The liquidity analysis of Webjet is carried out by the calculation of the following ratios:
|
Liquidity ratios of Webjet for last five years |
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|
Ratios |
Formula |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Current Ratio |
Current Assets/Current Liabilities |
1.27 |
1.59 |
1.34 |
1.05 |
1.46 |
|
Acid Test Ratio |
Quick Assets/Current Liabilities |
1.27 |
1.59 |
1.34 |
1.05 |
1.46 |
|
Cash Ratio |
Cash and Cash Equivalents/Current Liabilities |
0.95 |
1.05 |
0.87 |
0.59 |
0.79 |
|
Liquidity ratios of Flight Centre Travel for last five years |
||||||
|
Ratios |
Formula |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Current Ratio |
Current Assets/Current Liabilities |
1.39 |
1.50 |
1.48 |
1.44 |
1.43 |
|
Acid Test Ratio |
Quick Assets/Current Liabilities |
1.39 |
1.50 |
1.48 |
1.44 |
1.43 |
|
Cash Ratio |
Cash and Cash Equivalents/Current Liabilities |
0.89 |
0.95 |
1.00 |
0.95 |
0.84 |
Current Ratio: The current ratio provides a measure of the ability of a company to meet its current liabilities with its current asset base. It is calculated using following formula:
Current Ratio=Current Assets/Current Liabilities
The ratio provides a fundamental measure of the ability of a company to transform its asset base into cash for paying up its short-term liabilities and thereby predicting its future continuity of operations. The current ratio of the company has shown an increasing trend from the year 2013-2014 but has gradually declined from the year 2014-2014. However, overall the company has shown improvement in is liquidity position over the past 5 financial years. It has maintained a current ratio of above 1 for over the selected financial period and thereby it can be said that it has maintained an effective base of asset for meeting its short-term obligations (Kline, 2007). The comparison of the current ratio trend of the company over the last 5 financial years with that of Flight Centre Travel Group
Cash Ratio=Cash Equivalents/Current Liabilities
The cash ratio of Webjet Limited have depicted a decreasing trend over the financial year period of 2013-2017. It can be due to less capital inflows in the company that can be stated as a main point of concern for its liquidity (Annual Reports: Webjet Limited, 2018). The comparison of the ratio with its competitors is depicted by the following graph:
There is a declining trend presented by both the companies in their cash ratio. However, the decline in the ratio of Webjet is sharper as compared with that if Flight Centre. Thus, it can be stated that cash flow position of Webjet is relatively weak in comparison to the competitor (Annual Reports: Webjet Limited, 2018).
The analysis helps in depicting the ability of the company for meeting its long-term financial obligations. The solvency position of Webjet can be calculated using following ratios:
|
Liquidity ratios of Webjet for last five years |
||||||
|
Ratios |
Formula |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Debt Ratio |
Total Liabilities/Total Assets |
54.74% |
46.38% |
59.35% |
59.89% |
56.10% |
|
Net Interest Coverage ratio |
EBIT/Interest Expenses |
0.00 |
100.52 |
77.86 |
25.95 |
24.36 |
|
Debt to Equity Ratio |
Total Liabilities/Shareholders Equity |
63.23% |
120.95% |
86.50% |
145.98% |
149.32% |
|
Liquidity ratios of Flight Centre Travel for last five years |
||||||
|
Ratios |
Formula |
2013 |
2014 |
2015 |
2016 |
2017 |
|
Debt Ratio |
Total Liabilities/Total Assets |
56.75% |
54.46% |
54.44% |
55.15% |
55.29% |
|
Net Interest Coverage ratio |
EBIT/Interest Expenses |
10.96 |
11.44 |
13.89 |
13.02 |
11.62 |
|
Debt to Equity Ratio |
Total Liabilities/Shareholders Equity |
131.20% |
119.57% |
119.50% |
122.99% |
123.66% |
Debt Ratio: The ratio is used for depicting the proportion of the assets of a company that are financed by debt. It is calculated using following formula:
The debt ratio of the company has significantly increased from the year 2013-2017 with only depicting a declining trend in the year 2014. This indicates the increasing use of debt by the company for asset financing (Friedlob, 2003). The comparison of the ratio of the company with its competitor is depicted in the graph:
It can be stated from the comparison made in the graph that Webjet Limited have shown an increasing trend whereas Flight Centre Travel have depicted a decreased trend in its debt ratio. Thus, it can be said that the competitor of Webjet is adopting less use of debt in financing its asset base and this an be regarded as major financial risk for the company in the future context. This is because less use of debt lowers significantly the financial risk and increase n debt increases the risk of default on the part of the company (Annual Reports: Webjet Limited, 2018).
Interest Coverage Ratio: It examines the efficiency of a company to pay interest on its debt obligations and is calculated with the use of following formula:
Interest Coverage Ratio=EBIT/Interest Expenses
The interest coverage ratio of the company ahs shown a positive trend reaching to a maximum of about 13. 89% in the year 2015. This can be regarded as good sign of growth for the company in the future as it is highly efficient in meeting its debt obligations (Griff, 2014).
The interest coverage ratio of Webjet can be regarded as better as compared to Flight Centre Travel. There is an increase in the ratio of both the companies but the ratio of Webjet has increased largely as compared with that of its competitor depicting that it is more efficient in meeting off its debt obligations as compared to Flight Centre Travel (Annual Reports: Webjet Limited, 2018).
Debt to Equity Ratio: The ratio is used for depicting the relative proportion of equity and debt used for financing the assets by a company. The ratio can be calculated with the use of following formula:
Debt-Equity Ratio=Debt/Equity
The debt-equity ratio of Webjet has shown an increasing trend that depicts that the company is adopting larger use of debt as compared to equity in its capital structure. The comparison of the ratio of Webjet with that of its Flight Centre Travel can be depicted by the following graph:
Webjet has shown an increasing trend while Flight Centre Travel has depicted a declining trend over the past five financial years assessed. Thus, it can be said that Flight Centre Travel is adopting less use of debt in its capital structure as compared to Webjet and this can prove to be a major point of concern impacting to the Webjet future growth and development (Nikolai,2009). Conclusion
Webjet can be regarded as a leading online travel company of Australia having its operations across the globe. The company operates in a highly volatile marketplace and thus sudden changes in the global economy can negatively impact the continuity of its operations. The report has analyzed the profitability, liquidity and solvency position of Webjet in comparison to its competitor Flight Centre Travel. It ahs been identified using ratio analysis technique that Webjet profitability and liquidity position is better as compared with that of its competitor. This indicates the effective management of the company that ahs facilitated it in maintaining healthy net profit margin and current ratio both of which are better than industry benchmarks. The solvency position of the company is not good as compared to its competitor and it is using more debt in the capital structure that reflects a financial risk regrading its future growth and development. As such, it is recommended to the investors to invest in the company as it is presently in a phase of growth and development but need to carefully analyze its solvency position for reducing the financial risk.
References
Padarth, R. (2015). 3 reasons Webjet Limited is a likely takeover target. Retrieved 20 September, 2018, from https://www.fool.com.au/2015/11/13/3-reasons-webjet-limited-is-a-likely-takeover-target/
Diamond, S. (2017). Finnancial Accounting and Its Environtment: Financial Accounting. Bukupedia.
Kline, B. (2007). How to Read and Understand Financial Statements when You Don’t Know what You are Looking at. Atlantic Publishing Company.
Nikolai, A. (2009). Intermediate Accounting (Book Only). Cengage Learning.
Robinson, T. (2015). International Financial Statement Analysis. John Wiley & Sons.
Griff, M. (2014). Professional Accounting Essays and Assignments. Lulu Press, Inc.
Friedlob, G. (2003). Essentials of Financial Analysis. John Wiley & Sons.
Bragg, S. (2012). Business Ratios and Formulas: A Comprehensive Guide. John Wiley & Sons.
Annual Reports: Webjet Limited. (2018). Retrieved 20 September, 2018, from https://www.webjetlimited.com/annual-reports/
Webjet Limited. (2018). Retrieved 20 September, 2018, from https://www.webjetlimited.com/
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