Financial analysis of five major airlines companies

Selectively chosen five major air hoses companies for fiscal analysis based on their one-year study 2008 & A ; 2009 for the ground that the five air hoses have comparatively close fiscal stoping period. Namely, they are British Airways, Qantas Airways, Japan Airlines, Ryan Air and Singapore Airlines. Four out of five air hoses one-year studies have the same fiscal twelvemonth stoping period on 31st March 2009 except for Qantas Airlines which falls on 30th June 2009. Currencies used in each of the one-year studies differ from each other. Therefore, common currency in Singapore Dollar ( SGD $ ) is used and is valued as of 31st March 2009 when needed in order to do more sense in any comparing that is carried out.

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Analysis of Key Determinants of Financial Position and Performance

I. Liquid

Airline concern is big in nature that sprouts from domestic demand to international ingestion. Thus the key job encountered in this liquidness analysis for the five selected air hoses is the graduated table of operation for the several air hose.

Below is a amalgamate tabular array for the five air hoses extracted from their single liquidness analysis shown in Appendix 1.

Company

Current Ratio

Acid Test Ratio

Cash flow Opss ratio

2009

2008

2009

2008

2009

2008

SIA

1.0

1.4

1.0

1.3

0.6

0.8

British Airway

0.5

0.8

0.5

0.8

0.1

0.1

Qantas Airway

0.9

0.7

0.8

0.7

0.5

0.3

Ryan Air

1.8

1.5

1.8

1.5

1.1

0.9

Japan Airlines

0.2

0.5

0.6

1.0

0.2

0.5

Singapore Airlines

The three constituents of the analyzed ratios showed significant diminution. However the Current ratio at 1.0 still showed that SIA is able to run into its short-run hard currency committednesss. It is further substantiated by its Acid trial ratio when the value of stock list and Prepayment were excluded. All these were accomplishable because SIA maintained stable stock list assets and maintain its Prepayment sum within a scope. A important factor is its policy of owing nil to its subordinate companies and attempts to cut down owing to its associated companies. This is applaudable for a big air hose with multiple operating weaponries. However, SIA ‘s hard currency flow has reduced by about 20 % within a twelvemonth.

British Air passages

British Airways has suffered hard currency flow diminution, quit drastically. Its jobs are farther compounded by high and increasing adoptions and keeping excessively high sum of trade payables. Though its Cash flow Operation ratio is changeless at 0.1 over two old ages, its hard currency & A ; hard currency equivalents had dropped by a humongous 42 % .

Qantas Air passages

Qantas has its liquidness ratios improved. Cash flow has besides increased by 39 % in tandem with its assets increase through its hard currency & A ; hard currency equivalent ( 39 % ) and aided by the decrease in Payables ( 15 % ) . All these resulted in the Cash flow runing ratio bettering to 0.5. Technically it is an betterment but missing the support of other assets increase.

Ryan Air

Ryan Air had improved its liquidness all unit of ammunition. Its overall assets increased in 2009 with a matching decreased in current liabilities. The air hose farther increased its liquidness with improved operating hard currency flow compared to 2008. Overall, the air hose is really liquid and strong.

Japan Airline

An initial expression revealed the hapless wellness of the air hose fiscal standing. For a start, its overall assets decreased by 40 % in one twelvemonth and of which a important per centum was tied up in Flight equipment spare parts and supplies. Its operating hard currency flow has dropped by 45 % , therefore seting its Cash flow operation ratio in a unsafe depression.

II. Gearing

Singapore Airlines

SIA has adopted a more conservative attack, whereby they have really low adoptions and a high modesty. The advantage is that it is low hazard, but the down side is that it has non optimum the possible ; of the group.

British Air passages

British air passages are runing on instead high pitching purchase. The amount of modesty plus capital is lesser than half of the long term adoptions. The top is that, it has maximising the earning capacity of the group.

Qantas Air passages

Similar to British Airways, Qantas Airways is besides runing on instead high hazard. The amount of militias plus capital is really much lesser than, half of the long term adoptions. Hence, the advantage is besides the same as it will maximise the gross capacity.

Ryan Air

Ryan Air has the highest in term of fiscal geartrain at per centum ration at 99.45 % . The group has really high liability in long term adoptions. As comparison with the other air hoses, Ryan has performed really good. Hence, this is a instance of high hazard, high return.

Japan Airline

JAL is besides runing on high hazard. Similar to Ryan air, the group has got high liability in long term adoptions. A point to observe is that JAL is merchandising on ‘Green Pack ‘ , the exchange rate will hold impact on, gross, adoptions, return of adoptions and other factors.

III. Profitableness

Profitability Ratio Analysis is the chief involvements of investors to find their uninterrupted entrustment of their financess, with the head of bring forthing continuous/greater returns for them. Profitability ratios, like gross net income border, net net income border, return on stockholders ‘ equity ( RoE ) , and Return on Total Assets ( RoA ) , are the utile determiners for the investors. Below is the drumhead tabular array of the profitableness ratios:

Company

Tax return on Equity ( RoE )

Tax return on Assetss ( RoA )

Net Net income Margin

Gross Profit Margin

British Air passages

-24.9 %

-3.7 %

-4.5 %

-4.5 %

Qantas Air passages

2.1 %

0.9 %

1.2 %

1.4 %

Singapore Airlines ( SIA )

7.6 %

4.7 %

7.5 %

5.6 %

Japan Airlines

-15.2 %

-3.0 %

-3.0 %

13.5

Ryan Air

-6.9 %

-2.8 %

-6.1 %

3.1 %

Average

-7.4 %

-0.8 %

-1.0 %

3.8 %

a. Tax return on Shareholders ‘ Equity ( RoE )

Of the 5 air hoses, SIA gives the highest Roe of 7.6 % , being the most worthiness company to put in, than the least RoE of -24.9 % by British Airlines. Relatively impacting this return ratio, SIA has generated S $ 1,146.8mil in net net income, than ? $ 358mil ( S $ 773.8mil ) net loss by British Airways. Having positive RoE, SIA and Qantas are doing better than the remainder, which have negative RoE.

B. Return on Entire Assets ( RoA )

Having RoA runing from 4.7 % to -3.7 % , SIA has attained the highest RoA, with RoA of 0.9 % for Qantas, on the positive efficiency and effectivity of this ratio. SIA and Qantas have generated S $ 1,198.6mil and AUD $ 181mil ( S $ 188.1mil ) severally in net net income before revenue enhancement, comparing the remainder with negative RoA, particularly British Air passages of -3.7 % , standing with ? $ 401 mil ( S $ 866.8mil ) of a negative net net income before revenue enhancement.

In comparing with the 2 return ratios, both SIA and Qantas have achieved positive returns on both stockholders ‘ and entire assets. This shows that they are of better pick of investors, holding interest in their concern.

c. Gross Profit Margin

With an addition of gross net income border from 13.5 % to -4.5 % , Japan Airlines has topped at A?263,277mil ( S $ 4,115mil ) , comparing British Air passages of a negative gross net income border of ?401mil ( S $ 866.8mil ) . All air hoses, except British Airways, attained a positive gross net income border, holding a less profitableness on purchasing and merchandising of the goods/services. This meant that British Airways has a higher Cost of Goods Sold ( COGS ) , than the remainder.

d. Net Net income Margin

The net net income border of all the air hoses is runing from 7.5 % to -6.1 % , with SIA and Qantas accomplishing positive a net net income border, of S $ 1,198.6mil and AUD $ 181mil ( S $ 188.1mil ) severally. Ryanair achieved a negative net net income border of a‚¬ $ 180.5mil ( S $ 362.3mil ) , runing at loss, before any revenue enhancement.

In decision on the profitableness ratio analysis, assorted ratios will supply tell-sign of assorted comparative measurings in concern operations and significantly its profitableness, depending on what the investors will concentrate on and hold every bit critical in act uponing their investing determination.

IV. Operation Management ( Efficiency )

How concerns utilise its scarce resources will be reflected on efficiency ratios. The Airlines company efficiency ratios will be calculated based on the followerss:

Average Settlement Time period for Debtors

Average Entire Asset Turnover Period

Average Fixed Asset Turnover Period

Average Inventory Turnover period is non taken into consideration for efficiency ratio analysis merely because air hoses concern is strictly dependent on its fixed assets instead than its current assets such as stock lists to bring forth concern. Fixed assets include but non limited to belongings, works, equipment and other intangible assets.

Average Settlement Time period for Debtors & A ; Average Debtors Turnover Ratio

Average Settlement Time period for Debtors

Average Debtors Turnover

Airlines Companies

Period ( Days )

Airlines Companies

Timess

British Air passages

23

British Air passages

16.1

Qantas Air passages

13

Qantas Air passages

27.6

Singapore Airlines

40

Singapore Airlines

9.1

Japan Airlines

39

Japan Airlines

9.5

Ryanair

5

Ryanair

77.5

As understood, mean colony period for debitors will depict the continuance of which creditors take to pay the sum they owe. It can besides be deduced as how efficient is the company in roll uping its history receivables and change over it into financess. Ryanair has the shortest debt aggregation period while Singapore Airlines has the longest. Ryanair short Average Settlement Period for debitors signifies a positive mentality for possible investors as it is able to keep concern sustainability if this tendency were to go on over the coming old ages. Ryanair balance sheet shows an addition of Trade Receivables during 2009 fiscal period but if Ryanair still maintains its current mean colony period and make non better over the following fiscal twelvemonth, Ryanair will decidedly see a low efficiency in debt aggregation.

Average Entire Asset Turnover Period & A ; Asset Turnover Ratio

Average Entire Asset Turnover Period

Entire Asset Employee turnover

Airlines Companies

Period ( Days )

Airlines Companies

Timess

British Air passages

442

British Air passages

0.83

Qantas Air passages

499

Qantas Air passages

0.73

Singapore Airlines

586

Singapore Airlines

0.62

Japan Airlines

362

Japan Airlines

1.01

Ryanair

789

Ryanair

0.46

The thought behind this ratio is to hold a signifier of measuring which describes how long the assets utilized to bring forth gross. This ratio comparing illustrates a instead obscure thought on how efficient air hose companies use its fixed assets and current assets on separate history to bring forth gross. Airline companies ‘ nucleus concern depends to a great extent on the fixed assets, peculiarly on aircrafts and trim engines and less on current assets such as involvement bearing sedimentations or other fiscal assets. However, by holding mean entire assets turnover ratio analyzed and calculated, Japan Airlines seems to pull off its entire assets better in footings of coevals of gross over its entire assets as compared to others.

Relationship between Profitability and Efficiency

ROA ( % ) = Net Net income Margin ( % ) ten Entire Assets Turnover Ratio

Airlines Companies

ROA ( % )

Net Net income Margin ( % )

Entire Assets Turnover Ratio

British Air passages

-3.69 %

-4.46 %

0.83

Qantas Air passages

0.91 %

1.24 %

0.73

Singapore Airlines

4.67 %

7.49 %

0.62

Japan Airlines

-3.05 %

-3.02 %

1.01

Ryanair

-2.83 %

-6.13 %

0.46

Another method to analyse Asset Turnover Ratio is to compare it with profitableness ratio. The cardinal result of such comparing will find whether companies with low net income border tend to hold higher plus turnover and those with higher net income borders have low plus turnover. Singapore Airlines Net Net income Margin is the healthiest among other air hoses but Total Assets Turnover Ratio is moderate. This merely means that Singapore Airlines profitableness is sustained by high net net income border but with lower entire assets turnover ratio.

Average Fixed Assets Turnover Period & A ; Fixed Asset Turnover Ratio

Average Fixed Asset Turnover Period

Fixed Asset Turnover

Airlines Companies

Period ( Days )

Airlines Companies

Timess

British Air passages

331

British Air passages

1.1

Qantas Air passages

353

Qantas Air passages

1.03

Singapore Airlines

413

Singapore Airlines

0.88

Japan Airlines

241

Japan Airlines

1.52

Ryanair

483

Ryanair

0.76

Average fixed assets turnover ratio will portrait a better apprehension on how air hose companies use their existing fleets, belongingss, equipments and intangible assets like set downing rights to supply services and therefore bring forthing grosss. By comparing all five air hoses, Japan Airlines once more has the lowest fixed assets turnover period. In this context, it is shown that Japan Airlines is effectual in squashing out gross from its assets investing over short period. British Airways and Qantas Airways besides portrait comparatively high efficiency in use of the available fixed plus.

External Stockholders Perspective

Introduction

Diagram on the assorted group of external stockholders in an organisation

Government

Although with the enlargement of Narita International Airport and Tokyo International Airport in Haneda, Japan Airlines was non able to increase its runing gross from 2008 to 2009.

The overall operating gross in 2008 was A?2,230,416 ( 1000000s ) where else in 2009 the gross was A?1,951,158 ( 1000000s ) in 2009. The gross decreased by 12.5 % in 2009 which is a significant sum which will impact the income of the air hose.

Although Japan Airlines increased its domestic and international paths, the grosss based on the dislocation of these 2 sectors are non assuring for the company. The operation gross for the domestic path declined by 1.6 % and the gross on the international path declined even farther by 6.7 % .

Anti-trust cases on JAL have besides weakened the fiscal place where JAL had to pay US $ 110 million in the twelvemonth 2008.

Through the assorted cost film editing steps taken, Japan Airlines managed to cut down the merchandising, general and administrative disbursals by 13.5 % to A?314,162 ( 1000000s ) in 2009. Although the disbursals were lower in 2009, the air hose posted a lower net income in 2009 which consequence to the lower revenue enhancement paid to the authorities. The revenue enhancement paid to the authorities was A?5,961 ( 1000000s ) which is a lessening of 10.4 %

Financiers

One of Japan Airlines scheme is to regenerate its fleet by replacing the aircrafts with the little – medium aircrafts. This is to assist Japan Airlines to cut the disbursal cost incurred on fuel and care of the aircrafts. To finance portion of the purchase, Japan Airlines issued new common and preferable portions in 2008 where the hard currency returns from this funding activity were A?151,825 ( 1000000s ) .

In 2009, Japan Airlines took lesser long term loans. The returns from long term loan in 2009 was 43 % lesser than the old twelvemonth. There was besides a 7 % addition in refund of the long term loans which was A?132,015 ( 1000000s ) .

Japan Airlines besides redeemed A?28,000 ( 1000000s ) of the bonds in 2009. In comparing with the old twelvemonth, this is a lessening 60 % .

The high monetary value of fuel and planetary economic system downswing brought a hard environment to JAL to maintain the company profitable. In the twelvemonth 2009 and 2008, Japan Airlines decided non to do any dividend payout on the common stock.

In the twelvemonth 2009, there was a hard currency escape of A?116,767 in the funding activities compared to a hard currency influx of A?36,896 ( 1000000s ) in the twelvemonth 2008.

Suppliers

Due to the low demand by clients and besides the high monetary value of fuel, Japan Airlines targeted to cut its disbursals and increase profitableness in the company. In the twelvemonth 2009, there was a minimum addition to the entire operating disbursals by 2 % .

New investing was done on regenerating the fleet by buying little and average aircrafts. Japan Airlines were non able to cut down the aircraft fuel cost in the twelvemonth 2009. There was a 23 % addition in the use of the aircraft fuel to A?509,100 ( 1000000s ) and this could be due to the high monetary value of rough oil worldwide.

Based on the capital raised, Japan Airlines paid A?101,200 ( 1000000s ) in the twelvemonth 2009. This is a lessening of 6 % on the rental paid for the aircrafts in 2008.

Investing on the new air hoses led to a lower care cost in the twelvemonth 2009. The care of the aircrafts reduced to A?116,600 ( 1000000s ) from A?122,000 ( 1000000s ) which is a decrease of 4 % .

Expenses on airdrome installations were reduced by 4 % in the twelvemonth 2009 to A?123,100 ( 1000000s ) .

Although the operating disbursal increased, the air hose reduced the entire liabilities by 6 % to A?1,553,907 ( 1000000s ) in the twelvemonth 2009.

Customers

Customers ‘ satisfaction is of import for concern continuity. One of the schemes followed by JAL is to ever offer first-class merchandise and services to the client. Performance and Service quality for the clients were done by cut downing flight holds and supplying on clip public presentation of the flights. Since Japan Airlines focal point is on service and quality degree, their chief income is from the premium market and non from the low cost air hose sector.

One of the really first steps taken was to redefine the First Class and Business Class in the aircraft and besides the debut of smaller planes for international paths. In the twelvemonth 2009, the Revenue Passenger Kilometres reduced by 5 % to 80,941 ( Million ) .

One of the scheme Japan Airlines followed to increase the rider burden is by partnering with other air hose companies like China Eastern Airline and China Southern Airline.

To farther heighten the agencies of profitableness by cost film editing, JAL passed the excess cost incurred from fuel by bear downing the clients on the fuel surcharge.

In the twelvemonth 2009, the histories receivable decreased by 30 % to A?170,912 ( 1000000s ) .

Local Community

One of the corporate missions for JAL is to continue the environment. The Sky Eco Project was started and a assortment of environment orientated activities where done. The list below is one of the many activities done by the company.

Atmospheric Observation from Aircraft

Forest wildfire studies by pilots

Operating Biofuel flights.

Reducing CO2 emanations.

Analysis of Cash Flow Statement

In analysis of hard currency flow, it is of import that, hard currency sufficiency meets the demands of the organisation and hard currency efficiency step how good the organisation generates its hard currency to future periods and its other entities.

Cash Sufficiency Ratio/ Adequacy Ratio

Cash flow adequateness ratio is used to measure the organisation ‘s ability to bring forth hard currency to cover the chief hard currency demands which are payment of debts, acquisition of assets and besides dividend payments.

Based on the chart above, by and large all the air hoses had lesser ability to bring forth its hard currency from operation s to cover its dividends, debt and acquisition. From the analysis above, Singapore Airlines had the biggest decrease when it fell from 1.16 in the twelvemonth 2008 to 0.43 in the twelvemonth 2009. The autumn is a decrease of 73 % .

The lowest was recorded by Ryan Air where the hard currency adequateness ratio merely reduced by 20 % in the twelvemonth 2009.

Refund of Long Term Borrowings Ratio

Refund of long term adoptions ratio is used to measure the organisation ‘s ability to bring forth hard currency to cover long term adoptions by the company.

The ratio explains that Japan Airlines paid more than 416 % from its hard currency operating activities to pay up its debts. This will do a deficit of its hard currency from the operation activities to run into its hereafter hard currency demands.

The ratio is comparatively low and there were non many alterations recorded for Singapore Airlines, this is a good illustration where the organisation is able to pull off the debt payment utilizing its hard currency from the operations.

Dividend Payment Ratio

This ratio assesses the organisation ‘s ability to bring forth hard currency from the operating activities for the payments of dividends for both ordinary and penchant stockholders.

Based on the analysis, Ryan Air did non do any dividend payment to its stockholders for both the twelvemonth. In the instance of British Airways, although no dividend payment was made in the twelvemonth 2008, in the twelvemonth 2009, 44 % hard currency from the operating activities was utilized for dividend payments. The ratio for Singapore Airlines is 0.87 in the twelvemonth of 2009 which is a 54 % addition from the old twelvemonth.

Reinvestment Ratio

The reinvestment ratio is used to measure the organisations ability to bring forth hard currency from its operating activities for the intent of plus acquisition.

By and large all companies have increased its plus acquisition. This could be one of the tendencies in the air hose industry in the twelvemonth 2009. From the above, Japan Airlines have made the highest figure on the ratio in the twelvemonth 2009 where there was a leap of 418 % from the old twelvemonth.

Ryan Air recorded the lowest difference when compared between both the old ages where it was 37 % .

Debt Coverage Ratio

Debt coverage ratio is used to measure the organisation ‘s ability to bring forth hard currency from operating activities for paying its long term debt committednesss.

The ratio about measures on how many old ages it will take for the organisation to refund its long term debt committednesss based on the current hard currency flow from operating activities. Because of the extra adoptions done by Nipponese Airlines in the twelvemonth 2009, the payback period jumped from 6.3 old ages to 28.5 old ages.

Singapore Airlines recorded the lowest addition on debt ratio in the twelvemonth 2009 which is about 0.65 points.

Cash Flow Efficiency Ratio

Cash Flow to Revenues Ratio ( % )

This ratio assesses the proportion of the organisation ‘s gross which is used for hard currency flow from operating activities. By and large, all air hoses used fewer sums from the gross for its hard currency from the operating activities in the twelvemonth 2009.

Based on the analysis, Japan Airlines recorded the lowest sum in the twelvemonth 2009 where merely 1.17 % of hard currency flow from operating activities used for gross. Where else Ryan Air, recorded a ratio of 14.04 % which is the highest during the period.

Operationss Index

This ratio compares the organisation ‘s net income with the hard currency flow from operating activities and based on that provides an index of the hard currency bring forthing productiveness of the operations of the organisation.

Among all the 5 air hoses in the twelvemonth 2008, Japan Airlines have been the rental efficient and Qantas Airways have been the best efficient. In the twelvemonth 2009, although most air hoses fell further in the operation index, Qantas Airlines recorded a leap of about 700 % in the twelvemonth 2009.

Cash Flow Return on Assetss

This ratio measures the organisation ‘s return on assets in footings of hard currency flow generated from operating activities.

Comparison of this ratio explains that Qantas Airways and Singapore Airlines portion the same ratio followed by Ryan Air at 6 % . British Air passages and Japan Airlines have the lowest return of assets from hard currency flow generated from operating activities with 3 % each.

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