ASSESSMENT: Financial Statement Analysis

Aim

This assignment is a comparative financial analysis of two airlines in Australia: Qantas ('Qantas') and Virgin Australia Holdings Limited Group ('Virgin'), as public companies listed on the ASX.  This is to be presented in the form of a business report to advise potential investors as to which company would be the better investment.

Resources

To complete this assignment, you will need to access the Annual Reports of both Qantas and Virgin, found on their websites.  The Investor/Shareholder Information sections of the Qantas and Virgin websites may also provide you with other relevant resources for your analysis.

Qantas: http://investor.qantas.com/investors/?page=annual-reports

Virgin: http://www.virginaustralia.com/au/en/about-us/companyoverview/investor-information/annual-reports/

Required-

Task 1 - Prepare the Analytical Data

1. Vertical analysis - For both companies, prepare a Vertical Analysis of the following statements for the years 2014 and 2015: (a) Income Statement

2. Horizontal analysis - For both companies, prepare a Horizontal Analysis of the following statements, comparing the data for the year 2015 with the previous year (2014): (a) Balance Sheet

3. Trend analysis - For both companies, prepare a Trend Analysis for the following accounts/items for the years 2012, 2013, 2014 and 2015:

(a) Sales revenue

(b) EBIT

(c) Profit after tax

(d) Net cash flow from Operating Activities

4. Ratio analysis - For both companies, show the mathematical formula for each of the following ratios and calculate them (show workings) for the years 2013, 2014 and 2015:

(a) Return on Assets (Profitability)

(b) Current Ratio (Liquidity)

(c) Cash Flow Ratio (Liquidity)

(d) Debt to Equity Ratio (Capital Structure)

There is no word limit for task 1, as you will be preparing tables of data only and the interpretation will take place in task 2.

Task 2 - Analyse and Interpret the Data Separately for Each Company

1. Vertical analysis - For each company separately, identify and describe two key differences between the two years that have been highlighted with the vertical analysis.  Comment on whether they are favourable or unfavourable.

2. Horizontal analysis - For each company separately, identify and describe two key differences between the two years that have been highlighted with the horizontal analysis.  Comment on whether they are favourable or unfavourable.

3. Trend analysis - For each company separately, describe the trends that have occurred over the last 4 years for each of the items analysed.  Comment on whether the trend is favourable or unfavourable, and why you think the trend may be occurring.

4. Ratio analysis - For each company separately, describe the trends that has occurred over the last 3 years for each of the ratios calculated.  Comment on whether the trend is favourable or unfavourable, and why you think the trend may be occurring.

For all of the above analyses, you can use Internet research and examine the other information in the financial reports to try and identify and explain what has happened with each company.  Good research will be rewarded in the marking.  Remember you MUST REFERENCE all sources by using in-text references and a reference list.  There is a maximum of 1,000 words total for task 2.

Task 3 - Compare the Companies to Develop a Recommendation

Using your interpretations of the vertical, horizontal, trend and ratio analyses for each company above, compare the two companies and develop a clear argument towards your final recommendation to invest in EITHER Qantas OR Virgin (maximum of 350 words).

Task 4 - Write an Executive Summary of your Findings and Recommendations

Prepare a brief executive summary of your findings and investment recommendation (maximum of 150 words) to appear at the beginning of your report.

Task 5 - Format your Reference List and Report Appropriately

• Ensure you provide appropriate in-text referencing when referring to sources, and include these sources on a reference list.
• Ensure you have used good English expression with correct grammar and spelling.
• Ensure professional presentation of your report.
• While there are no marks directly allocated to this task, your overall mark will be adjusted for poor referencing and presentation. A lack of referencing may also be a breach of academic integrity.

1500 words.

10 references.