FINANCIAL ANALYSIS

Qantas Airways Limited - Financial Analysis

Qantas Airways Limited - Financial Analysis

Part A - Analysis of Accruals, EPS and Net Profit Margin

Earnings Per Share (EPS) Trend

From 2010-2012, Qantas has shown a mixed trend of Earnings per share. Analysis of the past three years performance indicates that Qantas has earned an average EPS growth of 1.7 cents, which is 17.8 cents less than that of average industry players.

 

2012

2011

2010

EPS (cents)

(10.80)

11.00 4.90

Table 1: Qantas EPS Trend (Qantas, 2012, p. 65)

 

Three Years Average

Qantas EPS Growth

1.7

Industry EPS Growth

19.5

Difference

17.8

Table 2: EPS Growth Comparison (Morningstar, 2013, p. n.d.)

Ratio Analysis - Net Profit Margin (NPM) Ratio

Net profit margin is a profitability ratio that is calculated by dividing net profit with annual sales. In general, it measures that how much of each $ sale is converted into or kept as business earnings. In an industry comparison of two or more companies, a company with higher NPM will reflect relatively better cost control resulting in higher business results.

Qantas' Net Profit Margin

For the last three years, Qantas has reported mixed trend of net profit margin (table 3).

 

2012

2011

2010

Net Profit Margin

-1.55%

1.67%

0.84%

Table 3: Qantas NPM for the Last Three Years (Qantas, 2012, p. 65)

Trend Analysis

In the year 2010, company reported NPM of 0.84%, which was mainly attributed to the robust performance of Jetstar that posted 20% increase in the passenger revenue and increased Qantas international capacity by 50% (Qantas, 2010, p. 6). Consistent operational excellence and commitment to customer care enabled Qantas to report 1.67% NPM in the year 2011. It was 98% more than the previous year results, as the company achieved improved earnings across all operational segments.

In the year 2011, Qantas reported 8% increase in the overall business profit due to record financial performance of Qantas Frequent Flyers and Jetstar (Qantas, 2011, p. 8). Despite complex environmental conditions and challenging business environment, Qantas and Qantas Freight had reported improved business profits. However, the year 2012 seemed to be weak financial year as Qantas posted -1.55% NMP because the company reported a net loss of $244 million.

Net loss was mainly associated with the launch of five years plan to turnaround the international business; it cost the company $376 million. Moreover, decline in NPM was also attributed to global economic crisis and poor operating conditions within the region of Europe (Qantas, 2012, p. 6).

Comparison with Industry

Based on trailing twelve months (TTM) analysis of the industry performance, average industry players are reporting net profit margin of 2.20. However, Qantas has reported NPM of -1.7. Qantas has not only reported negative NPM, but also 0.5% less financial results than average industry players.

 

Net Profit Margin (TTM)

Qantas

(1.70)

Industry

2.20

Table 4: Net Profit Margin Comparison (Morningstar, 2013, p. n.d.)

The difference between the company performance and average industry might be linked to certain internal and external business factors. As stated in the annual report of 2012, the global aviation industry was undergoing a difficult financial year due to increased input cost, escalating fuel and oil prices. Moreover, the impact of increasing fuel prices was reflected in the ...