Business Valuation of Qantas Airways-Free-Samples for Students

Question: Anayse Business and valuation of Qantas Airways Limited. Answer: Introduction This study deals with business analysis and valuation of Qantas Airways Limited. The current segment discusses external environment analysis through use of Porters five forces model (Wheelen and Hunger 2017). The next segment discusses internal environment analysis for Qantas Airways Limited by using SWOT analysis. The corporate strategy of Qantas Airways Limited had been discussed in the study with proper justification. The accounting policies used by Qantas Airways Limited are mentioned in the research study. Financial ratio had been calculated for the year 2013, 2015 and 2016 for the company named as Qantas Airways Limited. Company overview Qantas Airways Limited is one of the oldest airline industries in Australia. The market share of Qantas Airways Limited is higher as compared to any other firm in the aviation industry (Qantas.com. 2017). Qantas Airways Limited mainly engages in offering longest distance airways. Qantas Airways Limited came into existence in the year 1901 in Queensland. The company manages the performance of Qantas holidays and budget airlines. Porters five forces model Industry Rivalry- There is severe competition from rivalry firms where the operators are competing with each other based on price. The service levels have gone up that will decrease the operational expenses at minimal levels for maintaining the margin of operations (Rothaermel 2015). In addition, there are differentiators in the airline industry and this is the number of flights that are being offered where the main players have an edge but the price factors in the calculation. Based on relationships, there are various airlines that offers loyalty programs for the customers so that there are low switching costs for the customers. Threat from new entrants- In case of domestic players, the entry is easier in terms of licenses. The major changes are required in the initial stages where many peripheral operations are outsourced. The new entrants face difficulty to enter in the airline industry because of capital outlay as well as time to manage analysis. In case of global players, the entry barrier is high and it is needed to plan out the entry for the industry as the rivalry is high and very easy to be sidelined in the marketplace (Peteraf, Gamble and Thompson 2014). Threats from substitute products- On analysis, it is noted that there are many substitutes to airline industry especially in case of short routes such as bus and train. In case of long distances, there are many other options such as video conferences, net meetings as well as video messages that has been a substitute but not as effective (Peppard and Ward 2016). Bargaining power of buyers- Bargaining power of buyers are high in the aviation industry for most of the routes. The buyers actually have lot of options to select from different airline companies as most of the routes are being covered by more than one operator and there is huge competition based in prices that provide sufficient power to the customers (Morschett, Schramm-Klein and Zentes 2015). Bargaining power of suppliers- Bargaining power of suppliers are high in the aviation industry. One of the main factor that affect aviation industry is the fuel prices where the suppliers does not have much of a control as well as decided by the political factors in and across the globe (Morden 2016). The investments that the manufactures make for the suppliers as well as consider high value orders that had little chance that would move or increase the prices at certain level SWOT analysis Strengths Weakness Qantas Airways Limited has strong backing from Australian Government Qantas Airways Limited enjoys monopoly in Australian market Qantas Airways Limited is one of the top and largest airlines that operates in Australia Qantas Airways Limited is one of the oldest airlines operators in and across the world Qantas Airways Limited operates in 20 international and domestic destinations Qantas Airways Limited has good brand recognition and identity through advertising as well as sponsorship (Hill, Jones and Schilling 2014) Too much concentration around Australasia At Qantas Airways Limited, issues among the employees is one of the main concern Opportunities Threats There is opportunity in the Australian market as it is less tapped and guarantee that no other airline can get a chance by gaining a huge market share global destinations in Asia Tie-ups with worldwide airlines for combined service offerings to the potential targeted clientele Intense competition from new starts-ups as well as other airlines companies Increased labor costs Increased fuel prices Corporate strategy The value of corporate strategy at Qantas Airways Limited mainly based on the degree to which the business under the management of the company relies upon, that is whether it is of greater worth than it were managed by a participant or separately (Hill and Jones 2013). The Corporate strategy of Qantas Airways Limited help in generating aggregate returns in and across portfolio that contributes to the company competitive advantage as well as ability for generating above average returns. Segment Revenue % of Total EBIT % of Total Domestic 5828 37% 480 39% International 5467 35% 267 22% Jetstar Group 3464 22% 230 19% Qantas Freight 1067 7% 114 9% Qantas Loyalty 1369 9% 315 26% In the year 2015, Qantas Airways Limited generates $15816 billion in total revenue and it had been generated across 5 main segments or trade units that are highlighted in the above table. Qantas Airways Limited operates with low levels of diversification in a dominant business strategy with 84% revenue generation through their passenger airline business that focus on a core set of capabilities as well as competencies for generating above average returns in a single business marketplace (Goetsch and Davis 2014). There is less dominance of passenger airline business that can be understood from the segment profit contribution perspective where Qantas Freight and Qantas Loyalty generates 35% of the companys EBIT for tipping their plan into more reasonable diversification with linked trade units that shares product, sharing linkages as well as technology. After analyzing the segments, it is understood that revenue contributions have remained comparatively steady over time where the profit levels of the passenger airlines are far more unstable. In addition, the profit from freight and faithfulness are presented in the above table where increased return provides supports for other segments when they challenges by internal as well as external influences that creates sustained value and returns for Qantas Airways Limited (Eden and Ackermann 2013). From resources perspectives, Qantas Airways Limited derives value-neutral benefits that include tangible as well as intangible resources. For instance, low Australian dollar increases international passenger travel. Accounting policy The case study company named as Qantas Airways Limited had been used for the research for analyzing the financial data of 2013, 2015 and 2016. It had been noted that companies need to manage the reports depending upon the accounting policies already mentioned in the reports. From the case study, the final data information needs to be analyzed by an auditor for making reliable financial statements (Durand, Grant and Madsen 2017). It is the responsibility of the auditor to analyze the final information of Qantas Airways Limited based on the accounting policies. In addition, accounting policies are the rules, principles and process that should be executed in the financial reports of company at top level management. There are various accounting policies used in the aviation industry that is for accounting assets and liabilities. The accounting policies need to be observed by the auditors at the time of investigating the financial statements of Qantas Airways Limited and the major concept s are mentioned below with proper justification: Revenue and expenses recognition- From the rules of IFRS and US GAAP, it is clear that an association need to identify overall expenses as well as income that depend widely on the market valuation as presented in the income statement. Revenue is present in the income statement that should be used by the corporation by trading of products or services such as short-term profits, sales, interest income and long-term gains (Bettis et al. 2015). On the contrary, expenses is present in the income statement that need to be paid by the corporation by trading of products or services such as labor, salaries and cost of goods sold. According to accounting rules, expenses are recorded in the debit column and income are recorded in the credit column of income statement. Asset and liability recording- From the rules of IFRS and US GAAP, it is clear that an association need to identify overall assets as well as liabilities that depend widely on the economical profit as presented in the balance sheet. Asset is present in the balance sheet that should be converted by the corporation depending upon the nature of assts where short-term assets will be converted less than one year and long-term assets will be converted more than 1 year (Bettis et al. 2016). On the contrary, liabilities is present in the balance sheet as debt of corporation that should be converted based on long-term liabilities that need some time such as plants and machinery. Financial position of the company for the year 2013 The table shows ratio analysis figures for the year 2013 for the company Qantas Airways Limited. Liquidity ratio is calculated for Qantas Airways Limited that help in analyzing the ability of the company for paying off both current liabilities as they become due and long-term liabilities as they become current. Current ratio, quick ratio and working capital ratio are calculated for Qantas Airways Limited for the financial year 2013. Current ratio of Qantas Airways Limited arrives at 0.83 for the year 2013 that help in measuring the ability of the firm to pay off short-term liabilities with its current assets. Qantas Airways Limited has enough current assets to pay off 83% of his current liabilities. This reveals the fact that Qantas Airways Limited is highly leveraged as well as highly risky. In that case, banks would favor a current ratio of 1 and 2 so that all the current liabilities would be covered by the current assets. Therefore, current ratio of Qantas Airways Limited is so lo w that is unlikely that the company will get approved for their loan (Bettis et al. 2014). Profitability ratio for Qantas Airways Limited is calculated for the company named as Qantas Airways Limited for the year 2013 where comparison is made between income statement figures and balance sheet figures. Operating profit margin, net profit margin, return on assets, return on equity and return to total assets are calculated in the above table that help in predicting the profitability position of Qantas Airways Limited (Barney 2014). Solvency ratio for Qantas Airways Limited is calculated for the company named as Qantas Airways Limited for the year 2013. This ratio will help in measuring the ability of the company to sustain its operations by comparing debt levels with equity, assets as well as earnings. In addition, the solvency ratio identifies going concern issues as well as ability of the firm to pay bills in the long run. Debt equity and interest coverage ratio are calculated for the year 2013 that help in predicting the solvency position of Qantas Airways Limited. Financial position of the company for the year 2015 and 2016 The table shows ratio analysis figures for the year 2015 and 2016 for the company Qantas Airways Limited. Liquidity ratio is calculated for Qantas Airways Limited that help in analyzing the ability of the business for paying off both current liabilities as they become due and long-term liabilities as they become current. Current ratio, quick ratio and working capital ratio are calculated for Qantas Airways Limited for the financial year 2013 and 2015. Current ratio of Qantas Airways Limited arrives at 0.49 for the year 2016 and 0.65 for the year 2015 that help in measuring the capacity of the firm to pay off short-term liabilities with its current assets. Profitability ratio for Qantas Airways Limited is calculated for the business named as Qantas Airways Limited for the year 2015 and 2016 where comparison is made between income statement figures and balance sheet figures. Operating profit margin, net profit margin, return on assets, return on equity and return to total assets are calculated in the above table that help in predicting the profitability position of Qantas Airways Limited. Solvency ratio for Qantas Airways Limited is calculated for the business named as Qantas Airways Limited for the year 2015 and 2016. This ratio will help in measuring the ability of the company to maintain its operations by comparing debt levels with equity, assets as well as earnings. In addition, the solvency ratio recognizes going concern problem as well as ability of the firm to pay bills in the long run. Debt equity and interest coverage ratio are calculated for the year 2015 and 2016 that help in predicting the solvency position of Qantas Airways Limited. Analysis the data of 2013, 2015 and 2016 From the above analysis, it can be analyzed that the financial data of 2013, 2015 and 2016 had been predicted where it is found that Qantas Airways Limited faced several issues during past years because of internal and external factors. The company had properly engaged in adopting new strategies and approach in their plan. Qantas Airways Limited faced issues in meeting short-term debt obligations. Qantas Airways Limited enjoys huge profits. The capital structure ratio of Qantas Airways Limited is not at all good. Conclusion It is recommended to Qantas Airways Limited to make some innovative changes so that they can meet short-term and long-term debt obligations. The changes should be made in the monetary as well as non-financial figures for attractive the level of presentation. Qantas Airways Limited faces external and internal issues where the performance of the company is lower as compared to other business. 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