Discuss about the Financial Statement Analysis for Qantas Airways.
The report evaluates the financial statement of Qantas airways limited. In the report, current financial statement of the company has been evaluated and the industry changes have also been evaluated. On the basis of that, financial statement of the company has been recast. After that, the impact of the recast financial statement has been studied on the current financial statement of the company. The process of recasting is helpful for the companies to value the business performance and identify the position of the company. There are various accounting policies and standards which make a huge impact on the financial performance of the company, all these policies and standards have been taking into the concern while recasting the financial statement of the company. Recasting is an accounting concept which adjusts and removes the items from the financial statement of the company. The removed items are unrelated to the current process and the ongoing business.
Qantas airline limited is the oldest and largest Australian airline company on the basis of its fleet size. The company has been established in 1920. The company has firstly begun its first passenger’s flight in 1935. The current financial position and the performance of the company explain that the position of the company has been quite better from last few decades. The company has faced many up and down in last few years. The company has launched its services into various new destinations and currently the company is also focusing to enter into the new markets. The main strategy of the company is to tie up with the international brands so that it becomes easy to grab the new market and revenue could also be enhanced.
The current financial position of the company has been evaluated on the basis of annual report (2017) and it has been found that the financial performance as well as the financial position of the company is quite strong. Though, it has been found that various unrelated accounting figures are accounted by the company in the final financial reports which is of no use in current business scenario and thus it is required for the company to remove the unrelated figures so that the position and the performance of the company could be managed (Etzion & Ferraro, 2010).
Financial statement analysis is a process which evaluates all the final financial statement of a company such as statement of income statement, statement of balance sheet, statement of cash flows etc. The financial statement analysis has been done on Qantas airways limited and it has been recognized that the current sales turnover of the company is $ 15,680 million which includes $ 6475 cost of revenue of the company. Thus, the gross profit of the company in 2017 is $ 6,205 million. Further, it has been found that there are huge sales, general and administrative expenses of the company which reduce the level of net profit to $ 852 million (Begg, 2009).
Further, it also briefs that the current financial position of the company is quite better. The total assets of the company are $ 17,221 million in 2017. In addition, the total liabilities and total stockholders; equity of the company is $ 13,684 million and $ 3537 million in 2017. It explains that the level of debt of the company is quite higher than the level of equity of the company (Haldeman, 2006). Further, it expresses that the various unrelated accounting figures are accounted by the company in the final financial reports which is of no use in current business scenario and thus it is required for the company to remove the unrelated figures so that the position and the performance of the company could be managed.
It explains that the financial position of the company is quite better. Though, few changes into the financial statement of the company would make the fair final accounts of the company. It explains that the changes and the recast of the final financial statement of Qantas airways would make it quite easier for the company to manage and disclose the better performance of the company. It would also be easier for the companies to manage the performance of the company.
Recasting is an accounting concept which adjusts and removes the items from the financial statement of the company. The removed items are unrelated to the current process and the ongoing business (Ali, 2005). This process is perfectly acceptable and legal in a business. It makes it easier for the manager of the company to understand the true value of the company. It is required for the managers and the accountant of the company to evaluate all the unrelated items of balance sheet and income statement of the company and must be rectified in the final financial statement of the company so that the better worth of the company could be evaluated. Items removed by the balance sheet of the company could make a direct impact on the profit and loss account (Palepu & Healy, 2007). On the other hand, Items removed by the profit and loss account of the company makes a direct impact on the balance sheet.
The recasting of the final financial statement of the company is as follows:
|
Particulars |
Assets |
= |
Liabilities |
+ |
Equity |
|
|
Profit for year |
Other |
|||||
|
Inventories |
-64 |
= |
0 |
+ |
-64 |
|
|
Prepaid expenses |
-8 |
= |
0 |
+ |
-8 |
|
|
Cash and cash equivalents |
100 |
= |
0 |
+ |
100 |
|
|
Manager’s salary |
-40 |
= |
0 |
+ |
-40 |
|
|
Business rent |
-50 |
= |
0 |
+ |
-50 |
|
|
Shareholder’s fund |
50 |
= |
0 |
+ |
50 |
|
|
Business goodwill |
-97 |
= |
0 |
+ |
-97 |
|
|
Accounts payable |
100 |
= |
100 |
+ |
||
|
Depreciation expenses |
-100 |
= |
0 |
+ |
-100 |
The above statement of the recasting of financial statement of Qantas airways limited explains that there are various items which are of no use of the business in current year and should be recast in the current final accounts of the company. The financial statement of organization reflects the correct financial pros to the business managers. The above recast has been done in the balance sheet and the profit and loss account is as follows:
Inventories are the current assets of the company. The final statements of the comapny briefs that there are some inventory of the company which is not in a good position and could not be sell. The inventory has become damaged and thus the inventory amount has been adjusted and it has impacted on the assets and the profit and loss account of the company (Burns, Sale & Stephan, 2008).
Prepaid expenses are the current assets of the company. The final statements of the comapny briefs that there are some prepaid expenses of the company which do not remain along with the buyers after the purchase of the supplies or the business (Fülbier, HITZ, & Sellhorn, 2009). Thus the prepaid expenses amount has been adjusted and it has impacted on the assets and the profit and loss account of the company.
Cash and cash equivalents are the current assets of the company. The final statements of the comapny brief that there are cash which is related to the business of the company and still not accounted in the final statement of the company. Thus the Cash and cash equivalents amount has been adjusted and it has impacted on the assets and the profit and loss account of the company (Elliott & Elliott, 2007).
Manager’s salary is the expenses of the company. The final statements of the comapny briefs that the manager’s salary of the company which has not been recorded according to the market rate. Thus the salary amount has been adjusted and it has impacted on the assets and the profit and loss account of the company (Saunders & Cornett, 2014).
Business rent is the current expenses of the company. The final statements of the comapny brief that the extra rent has been paid by the company which is not even related to the operations and the business of the company. Thus the business rent amount has been adjusted and it has impacted on the assets and the profit and loss account of the company (Mulford & Comiskey, 2011).
Shareholder’s fund is the total liabilities and stockholder’s equity of a company. The final statements of the comapny brief that the extra amount has been retained by the comapny for the further projects which has not been accounted in the final accounts of the company. Thus the shareholder’s fund amount has been adjusted and it has impacted on the assets and the equity of the company.
Business goodwill is the fixed assets of a company. The final statements of the comapny brief that the goodwill of the company has been overvalued. Thus the business goodwill amount has been adjusted and it has impacted on the assets and the equity amount of the company (Kim, Kraft & Ryan, 2013).
Accounts payable are the current liabilities of a company. The final statements of the comapny briefs that there are some payable amount of the company which do not remain along with the buyers after the purchase of the supplies or the business. Thus the accounts payable amount has been adjusted and it has impacted on the liabilities and the assets of the company.
Depreciation expenses are the expenses of a company. The final statements of the comapny brief that there are some depreciation expenses of the company which has been imposed excessively. Thus the expenses amount has been adjusted and it has impacted on the assets and the profit and loss account of the company (Gill, 2011).
It explains that the recasting of the final financial statement of the company has been impacted a lot in the final financial accounts of the company.
The impact of recasting has been evaluated on the financial statement of the company. The statement of recasting explains that the total assets of the company has been lower by -109 million in 2017 whereas the total liabilities of the company has been enhanced by $ 100 million and the stockholder’s equity of the company has been lowered by -262 million (Brealey et al, 2012). It briefs that the recasting would make an impact on the total worth of the company as the total worth of the company would be reduced by $ 17,112 million. On the other hand, the changes would also make an impact on the income statement of the company. The income statement of the company would be reduced by $ 743 million (Deegan, 2013).
It explains that the total worth of the company is different and the managers are required to take the concern of recast values rather than final values which is stated in the final financial accounts of the company.
Conclusion:
To conclude, recasting process is perfectly acceptable and legal in a business. It makes it easier for the manager and the stakeholders of the company to understand the true value of the company. It is required for the managers and the accountant of the company to evaluate all the unrelated items of balance sheet and income statement of the company and must be rectified in the final financial statement of the company so that the better worth of the company could be evaluated.
The recasting study on Qantas airways limited explains that the recasting would make an impact on the total worth of the company as the total worth of the company would be reduced by $ 17,112 million. On the other hand, the changes would also make an impact on the income statement of the company. The income statement of the company would be reduced by $ 743 million. It explains that the recasting must be followed by the companies so that the true worth of the company could be evaluated.
References:
Ali, M. J. (2005). A synthesis of empirical research on international accounting harmonization and compliance with international financial reporting standards. Journal of Accounting Literature, 24, 1.
Annual report. (2017). Qantas airways limited. (Online). Retrieved as on 21st April 2018 from: https://investor.qantas.com/annual-report-2017/.
Begg, I. (2009). Regulation and supervision of financial intermediaries in the EU: The aftermath of the financial crisis. JCMS: Journal of Common Market Studies, 47(5), 1107-1128.
Brealey, R. A., Myers, S. C., Allen, F., & Mohanty, P. (2012). Principles of corporate finance. Tata McGraw-Hill Education.
Burns, D. C., Sale, J. T., & Stephan, J. A. (2008). A better way to gauge profitability. Journal of Accountancy, 206(2), 38.
Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.
Elliott, B., & Elliott, J. (2007). Financial accounting and reporting. Pearson Education.
Etzion, D., & Ferraro, F. (2010). The role of analogy in the institutionalization of sustainability reporting. Organization Science, 21(5), 1092-1107.
Fülbier, R. U., HITZ, J., & Sellhorn, T. (2009). Relevance of academic research and researchers’ role in the IASB’s financial reporting standard setting. Abacus, 45(4), 455-492.
Gill, R. (2011). Monty Hall problem. Mathematical Institute, University of Leiden, Netherlands, 10-13.
Haldeman Jr, R. G. (2006). Fact, fiction, and fair value accounting at Enron. The CPA Journal, 76(11), 14.
Kim, S., Kraft, P., & Ryan, S. G. (2013). Financial statement comparability and credit risk. Review of Accounting Studies, 18(3), 783-823.
Mulford, C. W., & Comiskey, E. E. (2011). The financial numbers game: detecting creative accounting practices. John Wiley & Sons.
Palepu, K. G., & Healy, P. M. (2007). Business analysis and valuation. Cengage Learning EMEA.
Saunders, A., & Cornett, M. M. (2014). Financial institutions management. McGraw-Hill Education,.
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