Discuss about the Symposium on Computers and Informatics.
Virgin Australia Holdings Limited (VAH) established as Virgin Blue in the year 2000, which engaged in providing domestic as well as international network services from the main hub Brisbane Airport services. The VAH ltd. is segregated through different segments such as Virgin Australia, Virgin Samoa, Virgin Australia Regional Airlines and Tigerair Australia. Presently, it is considered to be a global brand, as the company is able to expand more than 300 companies along with 50,000 number of workforce across the world. The company deals in the financial service, transportation, travel, fitness, music, media and mobile. The VAH ltd. is also listed under the ASX (Australian Securities Exchange), whose main proprietors are Singapore Airlines, Air New Zealand, and Etihad Airways. In the year 2014, the Pacific Blue again integrated with the Virgin Australia (CAPA, 2016).
The major competitor of VAH Ltd. includes Quanta Airline, which deals in providing quality air services within a less possible cost with the help of its subsidiaries including Jester. Apart from this, other competitors include Singapore Airlines Ltd and United Continental Holdings Ltd. The company majorly concentrates on the businessmen, corporate and foreigners from the USA as the potential customers of the company (CAPA, 2016).
The study intends to determine the risk profile of the company along with the initiative implemented by the company to identify and mitigate the risks. To elaborate the possible risk associated with the company, the paper accordingly examines the financial performance and returns of the VAH Ltd. In addition, the time value of money, the funds sources such as equity and debt and dividend policy of the company are also determined in the paper.
The risk profile enables to determine the ability of an organization to identify the risk factors, which help the company to alleviate these potential risks and threats. With the support of appropriate risk management, the company can reduce the probable risks, which in turn can enhance the effectiveness of the work process. It further ensures less financial loss and brings out the appropriate methods and techniques to identify the risk examine the consequence and implement appropriate measures.
As per the risk profile of VAH Ltd, to manage the risk, the audit and risk management committee will need to have direct link with the employees and seek for the advice or feedback to perform the duties efficiently.
Concerning the internal operation of the company, it is observed that the board committee of VAH Ltd has initiated the audit and risk management committee to concentrate on the safety and operational risk and to maintain the risk management system including financial, safety and security, commercial, operations of the group (Virgin Australia 2014). Since the company operates in the global market, VAH Ltd has to deal with a huge number of risks related to the national as well as international airline industry. In this regard, the most possible risk faced by the company includes rising cost of fuel. In addition to this, consistently increasing number of airports has also become a huge threat to VAH Ltd, as other companies have started to provide alternatives of transportation for the customers, thereby making the competition tougher. Besides, another risk to the company is regarded as the increasing cost for ensuring air traffic safety and landing, or transit fees that affects the financial status of the company. Stating precisely, the company needs to maintain a particular level of service quality as per the current market trend to retain its potential customers, as other competitors aimed to attract the customers by providing better services within lower price range. Hence, by maintaining such trend the company might be unable to balance the cost and service, which on the other hand can affect its overall financial abilities as well. The government policies and changes in technologies can also affect the company to operate efficiently, as due to currency and liquidity risk, the company might fail to meet their financial obligations in the present competitive market situation (Virgin Australia 2014).
The financial performance is usually examined to measure the extent to which the objectives of companies are being accomplished, which also has a huge contribution in managing the financial risks that might be raised during the work process. In this contemporary market, the industry has experienced huge transformation within few years for which every company further needs to change its process as well. Evaluating the financial performance is helpful, which assists to obtain knowledge regarding the company’s overall financial status as per the market condition within a given period of time as well as in determining the profitability and financial growth (1Drake & Fabozzi, 2012).
As per the report presented by The Financial Times Ltd (2016), it can be understood that VAH Ltd has been constantly going through loss due to fall in the net income of 135.47% despite having growth in the revenues. The main reason behind the loss is the increasing percentage of sales and administrative costs that accounted for 34.66% to 36.94% (The Financial Times Ltd, 2016). In addition, the company has a debt in total capital ratio of 76.95%, which is lower as compared to the last year. The records of the company show that the earnings per share has been declined by -134.77%, whereas the cash reserve has been increased by 9.27% and the total revenues incurred through the cash flow is 5.26% (The Financial Times Ltd, 2016).
According to the financial performance of the VAH was $5,021.0 million, which has been increased by 5.7% in the financial year 2015. The EBIT of the company recorded as $210.6 million, which has also been increased by $144.7 million (Virgin Australia Group, 2016). Therefore, based on the financial performance of the company it can be asserted that the company is able to perform effectively. However, it still has a chance to improve the net income by maximizing the cash flows from operations (Virgin Australia Group, 2016).
The time value of money determines the value of the currency in the present market, which shows the advantages of receiving money in the present day instead of in the future. It is mostly included while dealing with the investment analysis, loans and making the financial decisions as per the company requirements (2Drake & Fabozzi, 2009). The time value of money can be applied from different prospective areas, which include capital budgeting, bond valuation and stock valuation, which are further segregated into two groups namely the present value and the future value. The present value determines the cash flow to be received in the future rather has more value in the present situation. However, the future value determines the investment of the present will be added in the future. In order to apply the time value of money, the company will require to have effective marketing strategies and with a better financially capable (2Drake & Fabozzi, 2009).
The VAH Ltd has taken initiatives for restructuring the provision and optimizing the fleet as well as to minimize the future cost. The company has also conducted hedging program, which helps in managing the adverse fluctuation of prices in assets. In the year 2014, the hedging program has enabled the company to accomplish efficient fuel and foreign exchange rate. Therefore, the result obtained was more favorable in comparison to the current market price. Concerning the present situation, the company still holds a strong position in terms of its case flow along with strong balance sheet and liquidity (Virgin Australia, 2014). Therefore, the VAH with its effective strategies and better financial performance still has possibility to expand its earning capacity in future (Virgin Australia, 2014).
The sources enable the company to raise its funds, which can be in the form of capital market, retained earnings and loans. In this regard, the company needs to be financially capable to gain high growth and profitability in the market along with the increasing competition. The maturity of the business also plays a crucial role in determining the appropriate funding sources, wherein retaining the tangible assets can help the company to attain the financing sources more easily rather than the intangible assets. The debt refers to burrowing of money, which is supposed to be paid within an expected time period by the company and the equity is considered as the investment made by the owners that do not have specific date of reimbursement (IVCC, 2009).
The equity shares have significant role in order to meet the financial needs of the company. The objective of VAH is to produce quality products and services as well as manage the financial system effectively. The funds obtained through equity sources therefore enable the company to manage and fulfill their objectives, wherein it does not become mandatory for the company to pay the dividends. In case the company’s financial conditions depend on the equity sources, it might burrow the debt from any other financial institutions as per the requirements (IVCC 2009).
On the other hand, the company can also conduct its operations with the help of debt financing. The debt is an important source of fund in particular projects through which the company with efficient record of credit will be needed. To utilize the debt financing, the company should have sufficient cash for reimbursement of loan. The debt financing can be considered as total amount of the cash burrowed form the moneylender, which would be at the anticipated date of maturity at the fixed rate of interests. The debt can be in form of the sale of bonds or loans. In this case, the primary amount must be paid within the date of maturity. Considering the stated fact, the company alone is not liable to change the rule that is set for the transaction, where the lenders holds the right to lend the cash and can order to return the same (Turner & Doty, 2007).
VAH Ltd is an airline industry is a public company, which is recognized to be one of the leading companies. The sources of the company are generated through the Space and Air transport in Australian Industry. According to the report presented by Bloomberg (2016), VAH is continuously making negative returns on equity with a total debt of A$2.1 billion, which was recorded in the year ended 2015. The long-term debt of $1,572 million of VAH for three months was ended by June 2016, whereas the total equity for the quarter was $675 million and the debt to equity was $3.29 million at the end of June 2016. Therefore, it can be identified that the company is involved in financing for the business growth with debt and volatility in earnings (Freed, 2016).
The VAH is able to secure loan facility of $425 AUD from its main shareholders including Etihad Airways, Singapore Airlines, Virgin Group and Air New Zealand. This loan facility will enable the company to strengthen the balance sheet along with short-term flexibility. However, VAH was taking more time in order to repay the unsecured loan facilities (Freed, 2016). According to the report, the in 2015, the company is able to make revenue including sales (CAPA, 2016). Based on the review of the capital structure, the company is able to maintain their balance sheet, thereby enhancing their cash flow and profitability. In order to improve the financial performances, the company emphasizes maximizing the earning capacity in the year 2016, wherein it is able to set a benchmark in the Australian market by expanding the market share, thereby providing the quality services to the air travelers to the expected level as well (Virgin Australia, 2015). The company has around four major shareholders those are providing the sources of funding and secured loan facilities. Therefore, the effective capital structure of the company will be more helpful in maximizing the long- term growth as well as value for the shareholders (Virgin Australia, 2015).
The financial concept is based on bearing the risk and yielding return. The risk and return are interrelated to each other in which shows that higher the risk involved than higher will be the return. The return can be calculated by reducing the amount of investment, which has been included in the final amount (Mc Graw Hill Australia 2011). In order to ensure the effectiveness of the capital structure and mitigate the associated risks, it has expanded the networks in the international market by collaborating with other companies including Singapore Airlines, Etihad and Delta Airlines. The company started a joint venture with the Tiger Airlines, which has enabled the company to gain competitive advantage in the market. The acquisition of the SkyWest also enabled the company to maintain its capital structures as well (CAPA, 2016). In order to retain the positive rate of return and maximize the wealth of VAH, the investors intend to purchase the financial asset, which is helpful to implement appropriate decisions regarding the financial investment (Virgin Australia, 2016).
The dividend or payout policy can be considered as the framework, which provides guidance to the company in implementing decisions regarding the amount earnings to be paid to the shareholders. The payout policy has a significant role in case of distribution of profit or any kind of dividend distribution policies. It helps the company in augmentation of the earnings, thereby encouraging the shareholders to make appropriate decisions for the growth of the company. In case, the investors do not prefer to follow the company’s dividend policy, they can sell the parts of the equities in order to enhance the capital (CS Investing, 2016). The payout policy can be categorized into different forms, which includes surplus policy, fixed policy, steadily increasing policy, fixed payout rate and low normal dividend and extra dividend policy (Mei & Xing, 2015).
As per the report of Virgin Australia Airlines Pty Ltd (2013), the company emphasizes to maintain the balances sheet. In this regard, the company has tried to compensate the debt and maintain the liquidity with limited borrowings. The VAH believes in reviewing the dividend policy rather than declaring extra dividend. According to the report presented by Murmann & Cogin (2012), the company has stopped paying dividends after it has been listed under ASX at the end of 2014. Based on the stated information, it can therefore be affirmed that the dividend policy of the company mostly rely on the factors such as financial condition, financial requirements, financial agreements and earnings of the company. In addition to this, the VAH dividend policy is initiated or implemented based on the decision of directors of the company (Murmann & Cogin, 2012).
In the present market situation, VAH has not decided to declare the extra dividend to its shareholders unless they are able to repay the debt as of the year ended 2012. Initially, the company will focus on strengthening the balance, minimize the economic uncertainties, and support the future strategic plans and procedures. The payout policy will be reviewed only during certain circumstances such as requirement of cash. In order to compensate the debt, the company has further initiated the Game Change Program, which strengthens the capital structure of the company and intends to gain competitive advantages in the market. This program will enable the company to maintain the economic stability and attain the growth opportunities for the commercial aspects. With the help of the Game Change Program, the company has been able to maintain its financial and operating performances. In addition, along with the strategy of Game Change, the company aims to stabilize the stock price with the help of fixed payout policy as well as the information provided through the fixed payout policy help the investors to anticipate that if the future growth could remain stable or not (Mei & Xing, 2015).
From a different perspective, in order to retain sufficient profit, the company’s profit growth rate has to be higher as compared to the dividend growth rate. Therefore, the steady increasing dividend policy enables the investors of VAH Ltd to obtain the information regarding the overall performance, thereby reducing the risk of business in the long run. On the other hand, the low normal dividend and extra dividend policy will also be adopted by VAH after repaying or stabilizing the financial ability of the company. Thus, it can be asserted that this dividend policy initiated by VAH will ensure the flexibility within the operations, thereby reducing the risks and solving the problems related to the payout policies (Mei & Xing, 2015).
Conclusions
The study discusses about the financial concepts and principles concerning the operations and overall financial performance of VAH Ltd, which is recognized as the leading airline company in Australia. The company serves under both the national and international airline market. The company is specialized in offering quality services to its customers within lesser possible cost. The study emphasizes analyzing the financial performance of the company and the risk profile indicated certain possible risk factors due to which the company is not able to mitigate their financial obligations. Based on the overall financial performance of the company, it can be asserted that the possible risks associated with the company include changes in technologies and geographical such as bad weather and natural disasters, fluctuation in the currency value, increasing cost of fuel and increasing landing and transit fees. Concerning the return performance, it is also observed that the present financial position of the company is comparatively down, as it has been experiencing continuous loss for a certain period of time due to fall in the net income and increase in the percentage of sales and administrative costs. Apart from this, the company is currently consuming excessive time for reimbursing the unsecured loan that was taken for maintaining the balance sheet, which implies negative consequences in the long run. Based on the debt to equity ratio of the company, it can be understood that the company is engaged in financing for business growth along with debt and volatility in earnings. Through the analysis of dividend policy of VAH Ltd, it is also observed that the company is not willing to declare a dividend unless they are able to repay the debt. In order to strengthen the balance sheet and make their business strategies more effective, the company has implemented the Game Change strategy, which is expected to provide positive outcome in this competitive era.
References
CAPA. (2016). Virgin Australia Holdings Limited. Retrieved September 21, 2016, from https://centreforaviation.com/profiles/airline-groups/virgin-australia-holdings-limited
CS Investing. (2016). Paying out dividends or retaining the money. Introduction, 1-55.
1Drake, P.P & Fabozzi, J. F. (2012). Analysis of financial statements. USA: John Wiley & Sons.
2Drake, P.P & Fabozzi, J. F. (2009). Foundations and applications of the time value of money. USA: John Wiley & Sons.
Freed, J. (2016). Virgin Australia gets $425m loan from airline shareholders. Retrieved September 21, 2016, from https://www.smh.com.au/business/aviation/virgin-australia-gets-425m-loan-from-airline-shareholders-20160320-gnmvcu.html
Guru Focus. (2016). Virgin Australia Holdings Ltd (OTCPK:VBHLF) debt to equity. Retrieved September 21, 2016, from https://www.gurufocus.com/term/deb2equity/VBHLF/Debt-to-Equity/Virgin-Australia-Holdings-Ltd
IVCC. (2009). A firm’s sources of financing. Chapter 12, 1-13.
Mc Graw Hill Australia. (2011). Risk and return. Introduction, 1-40.
Mei, X & Wei, X. (2015). Analysis of dividend policy of listed company and its financial impacts. International Symposium on Computers & Informatics, 1-7.
Murmann, J. P & Cogin, J. A. (2012). Changes at Virgin Airlines (Australia) 2000-2012. AGSM, 1-30.
The Financial Times Ltd. (2016). Virgin Australia Holdings Ltd VAH: ASX. Retrieved September 21, 2016, from https://markets.ft.com/data/equities/tearsheet/financials?s=VAH:ASX
Turner & Doty. (2007). Energy management handbook. USA: The Fairmont Press, Inc.
Virgin Australia. (2014). Virgin Australia Holdings Limited. Annual Financial Report, 3-144.
Virgin Australia Group. (2016). Virgin Australia Holdings Limited (ASX: VAH) reports financial results for full year ended 30 June 2016. ASX Release, 1-10.
Virgin Australia. (2015). Virgin Australia Holdings Limited (ASX: VAH) reports financial results for half year ended 31 December 2014. Retrieved September 21, 2016, from https://www.virginaustralia.com/nz/en/about-us/media/2015/VA-FINANCIALS-31DEC2014/
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