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Business Analysis And Valuation : Organizational Qantas

Business Analysis And Valuation : Organizational Qantas

 

Question:

Describe about the Business Analysis and Valuation for Organizational Qantas.

Answer:

Introduction

The assignment will focus on evaluating the business operations of the selected organization Qantas. Qantas is one the Australian famous Airways limited company, and it is the largest airline in Australia, when measured regarding international flights and international destinations. The report will analyze all the crucial factors, which will concentrate on the business as well as marketing operations of Qantas Airline (Qantas.com, 2016). There are eight major questions in this particular report, which will focus on the critical business as well as the marketing operations of the organizations

Competitive Advantages of Qantas by using Porters Five Forces

The use of porters five forces is one of the primary marketing tool, which different groups irrespective of the nature of the business follows towards developing a proper business plan. Qantas operates its business both in national boundary and beyond national boundary. The application of this particular marketing tool will analyze all the crucial elements, which are required by the organization to develop its business operations overseas. The five important factors, which are included in this particular marketing tool, involve Power of the suppliers, Powers of the buyers, Potential threats, threats of substitute and competitive rivalry.

The level of competitiveness in the airline industry is high. In Australia, there are many firms, which operate its business activities in the same domain. Australia has the vision of becoming the world’s largest aviation market within the financial year 2020. The various airline industries are competing for the same customers when measured regarding prices, technology, and customer services. The second factor will summarize the bargaining powers of the suppliers, which includes fuel, aircraft, and labor (Jenkins and Williamson 2015). Qantas Airline mainly focuses on these three factors, which will evaluate the bargaining power of the suppliers. Qantas Airline strongly divides the customer’s base into two divisions, which includes direct clients and customers buying tickets through agents. The bargaining powers of these two groups of customers differ from each other. There are some threats of substitution in this particular industry as the purchasing options of the buyers are diversified. The customer can choose other forms of transport to get to their destinations (Fleisher and Bensoussan 2015). The primary variable is time. Planes are the fastest mode of transportation and majority of the passengers prefers this particular way. However, if Qantas develops a proper pricing strategy, it will put a positive impact on the overall business policies. As in Australian market, the entry and exits of new firms are not restricted; it is another important aspect of the firm, which Qantas follows, as the switching cost in the airline industry is very low (Rogers and Davidson 2015). On the other hand, if the customers are not satisfied with the service of Qantas, they will automatically shift to the next alternative brands to satisfy their demands by maintaining an affordable price.

 

Three Factors for Qantas Competitive Environment

Qantas has been in the business with the firm for 90 years and has been acclaimed for its success and milestones. The growth of the Qantas group, despite certain drawbacks, is remarkable (Grant, 2016). However, there are certain factors, which possibly affect the competitive environment of Qantas.  Cost cutting, lower oil price and the end of the carbon tax, lower depreciation charges, end of the domestic capacity war and international competition are some of the crucial factors, which affect the competitiveness of Qantas Airline. Nevertheless, out of all the important factors some of the fundamental factors, which influence the competitiveness of Qantas, are highlighted in the following part of the report. To support this particular question based on real facts and findings, a proper situation analysis needs to be developed keeping in mind the requirements of the organization (Fill and Turnbull 2016). A business design and its competitiveness need to be analyzed, but the market conditions may evolve. Customers, suppliers, products and competitors are some of the key attributes, which affect the business proceedings of the selected organization. As compared with other Airline Organization the depreciation charge on different kinds of fixed assets is much low, which is one of the main elements, which affects the competitiveness of the selected organization (Bryman, and Bell 2015). The second factor is the cost cutting factors, which often drops the performance in the business operations, which is one of the major barriers competiveness. The third factor is the fluctuation of the international price of crude oil, which often hampers the business operations for all the aviation industry.

Qantas Competitive Strategy with the application of the SWOT Analysis

Competition exists in every corner. Business exists in a dynamic environment, which is changing on a frequent basis. To analyze the competitive strategy of the organization, there are certain points, which the Qantas Airline needs to evaluate in the overall business proceedings. The role of situation analysis contributes as one of the most significant aspects of the overall business operations of Qantas Airline (Rosemann and vom Brocke 2015). There are two kinds of business environment; one is the internal environment, and the other one is the external environment. With the application of the SWOT Analysis, Qantas Airline will be able to scan both the internal environment as well as external environment. The four factors contribute Strength, Weakness, Opportunity and Threats. The first two factors conclude the scanning of the internal environment and the reaming two factors will find the scanning of the external environment (Hollensen 2015).

Strength

The organization maintains an active as well as the trustworthy name in the aviation sector of the airline industry.

Along with its subsidiaries, this particular airline operates its business across the major cities of the globe; some international flights include almost in all the cities of the world.

Being the oldest airlines in the country, Qantas Airways is far ahead of the different aviation industry in Australia when measured regarding the experience, operational accountability, technology, and services.

Qantas Airline is a promising airline company, which provides a comfortable journey to all the passengers by proving cost effective as well as cost-efficient services.

Weakness

Due to environmental constraints, some long route flights are often delayed.

In spite of expanding to the international region, Qantas still depends on the domestic market for its primary revenues.

The over-dependence on the single market and in the domestic sector leaves the Airways vulnerable to any politics situation or economic depression and in Australia.

Opportunity

The company develops a proper pricing strategy which in the business operations which will attract the customers in many ways.

It is one of the oldest airline and aviation sector in the country and maintains a high brand value among the passengers.

A lease has been announced for a new aircraft fleet to carter more passengers and provides different kinds of employment opportunities and services to the people.

Threats

Due to increase in the global fuel price, there are certain negative impacts in the overall pricing decisions of the company.

The purchasing options of the customers are diversified in the aviation sector of the country, which is one of the major threats in this particular industry.

Congestion and airport capacity issue affect the industry, due to the increase in the population and number of flights in the country.

Three Accounting Policies of Qantas

The answer to this particular question will address the three accounting policies, which Qantas developed in the business operations and strategies. There are three important principles, which Qantas Airline selected in the process of conducting an efficient financial management system. The role of the effective financial system contributes as one of the most significant aspects of the business, as finance is one of the primary as well as key attributes in the overall business proceedings (Strauss 2016). The ideas of the accounting policies are some of the specific objectives as well as specific principles, which follow specific rules and regulation in the financial management of the organization towards the preparation of the financial statements. The application of accounting policies includes certain standards and regulations in the process of measurement systems and produces for presenting disclosures.

However, one of the main things, which need to follow by the majority of the multinational organization, includes following all the accounting standards and principles developed by IFRS. GAAP is the core principles in the accounting standards (Kotler 2015). The following part of the study will highlight what are the three top accounting standards and principles followed Qantas Airline in the business operations.

Period Policy

With the idea of this particular accounting policy, Qantas Airline reports the complex and ongoing activities of the business in a relatively short manner which distinct time intervals measured in months of different commercial years. This is one of the best accounting practices used by the different organization with the view of developing a proper forecasting activity (Sheth and Sisodia 2015). Fox example the income statement for the year ended in December is known, however, the income statement for the next three months ended for example in the month of March is not known, with the help of this particular accounting tool the organization will be able to forecast the income statement for the month of March.

Cost Principle policy

Cost is one of the major factors in all aspects of business. From the auditor’s point of view, cost refers to the amount spend on cash and cash equivalence (Slater 2015). However, valuation is also an important aspect in aspects of the business. Nevertheless, assets do not reflect the actual amount of money, which the company would receive. With the use of the cost principle, Qantas Airline will be able to determine the true cost by analyzing some specific parameters of the financial system.

Revenue Recognition Policy

Revenue is one of the prime sources of income for every organization. With the application of the Revenue Recognition Policy, the revenue earning points of the organization will determine the revenue, which is recognized as soon as the product has the organization, has performed the overall service (Vitell and Hunt 2015). With the help of this particular accounting, policy the organization will be able to incorporate the different principles based on revenue recognition principle.

These are the three major principles which the organization in the Qantas need to follow in the overall operations of the business and the reason behind choosing these policies and principles ensures the organization to develop a high as well as a proper organizational functioning in the financial system.

Corporate level strategies of the Qantas Airlines

Qantas Airline is the oldest airline organization in the Australia. The objective of the group is to develop on different kinds of the main organizational strategies, which will focus towards satisfying the demands of the customers (Clay, et al. 2015). The corporate level strategy will concentrate on the achievement of the common organizational goals, which will concentrate towards meeting the requirements and wants of the customers.

The business objective of the organization will focus on a proper technological advancement, which will incorporate towards providing all the modern facilities to the passengers at a reasonable cost (Glassman 2015). To execute all these operations in a proper manner, the organization developed an appropriate pricing strategy, which has provided one of the better competitive advantages.  However, it has become the Australia’s largest group when measured regarding flights (Yadav, Dokania and Pathak 2016). With the vision of becoming the largest Aviation industry by the year 2020, the organization needs to provide the best options for the customer largely. The corporate level strategies includes financial performance, mergers and acquisition, a proper human resource management and allocation of proper resources are some of the key parameters which Qantas Airlines needs to follows in the part of corporate level strategy.

Analysis of Financial Performance and Financial Position in year 2013

Financial Performance 2012-2013

The financial performance of Qantas in 2012-2013 can be given as

Qantas 2012 (Million dollars) 2013 (Million dollars) Growth in Performance
Revenues 15,724 15,902 +1.13%
Expenses 15,897 15,698 -1.25%
Return on Equity (ROE) -4.07% 0.08%

Table: Revenues and Expenses of Qantas

Source: (Qantas Annual Report 2013)

According to the results calculated from the revenues in 2013 has shown an increase of 1.13% whereas the expenses have decreased by 1.25%. Overall, the financial performance of Qantas has been growing while reducing expenses to a degree. However, the growth remains insignificant. Moreover, the return on equity for the year 2013 has increased after the fall experienced in 2012

Financial Position 2012-2013

Qantas 2012 (Million dollars) 2013 (Million dollars)
Total Assets 21178 20200
Total Liabilities 15289 14346
Owner’s Equity 5889 5954
Debt to asset Ratio 0.721 0.710
Liabilities to Equity 2.596 2.409

Table: Revenues and Expenses of Qantas

Source: (Qantas Annual Report 2013)

According to Qantas financial position, Liabilities to equity ratio has been large which depicts that the shareholders provide 2.5 dollars in 2012 and in 2.4 dollars in 2013. However, the company needs to lower its liabilities for a favorable position in debt to equity ratio. On the other hand, the debt to asset ratio is favorable to as many 0.72 assets as its liabilities are there to pay back the loan. For the both the years, the ratio has been more or less the same.

Analysis of Financial Performance and Financial Position in year 2014-2015

Financial Performance 2014-2015

The financial performance of Qantas in 2014-2015 can be given as

Qantas 2014 (Million dollars) 2015 (Million dollars) Growth in Performance
Revenues 15,352 15,816 +3.022%
Expenses 19,124 14,768 -22.777%
Return on Equity (ROE) -64.53% 17.67%

Table: Revenues and Expenses of Qantas

Source: (Qantas Annual Report 2015)

According to the results calculated from the revenues in 2015 has shown an increase of revenues by 3.022% whereas the expenses have decreased by 22.77%, which is commendable reduction. Overall, the financial performance of Qantas has been growing while the expenses have fallen to a greater extent as well as the growth has been significant. Moreover, the return on equity for the year 2015 has drastically increased after the all time low ROE in 2014.

Financial Position 2014-2015

Qantas 2014 (Million dollars) 2015 (Million dollars)
Assets 17318 17530
Liabilities 14452 14083
Owner’s Equity 2866 3447
Debt to asset Ratio 0.838 0.8033
Liabilities to Equity 5.0425 4.085

Table: Revenues and Expenses of Qantas

Source: (Qantas Annual Report 2015)

According to Qantas financial position, Liabilities to equity ratio has been considerably higher than the previous year’s which depicts that the shareholders provide 5.04 dollars in 2014 and in 4.08 dollars in 2015. However, the company needs to lower its liabilities as the favorable as the debt to asset ratio is not favorable as the shareholder’s price to invest has gone higher. On the other hand, the debt to asset ratio has also grown turning it to be not favorable to pay back the loan by 0.83 for every asset. For the both the years, the ratio has been more or less the same but it assumes to be decreasing in 2015.

Analysis on Findings and clear recommendation to potential/existing investors on whether they should buy or sell Qantas share

According to the report in the two years, according to valuation methods, the return on equity has been increasing in 2013 and 2015 from 2012 and 2014 respectively. However, 2014 shows to have a drastic change made in the interest income as the expenses have grown in a period of 3-4 years. Overall, there also have been fluctuating financial performance of Quantas and it has been making attempt to maintain a stable financial position as well.

Conversely, the following are the recommendations based on the financial performance that the Quantas needs to take in to maintain its position in the market.

Firstly, there has been need to decrease the expenses based on the competitive strategy such that there is more opportunity in building assets

The investor needs to wait for sometime before investing in Qantas as recently the liabilities have increased and the investor may have to pay more for a dollar in the share prices.

The years 2012 and 2014 has seen many fluctuations. As a result, the investor needs to evaluate its money so that the investor money can be valued.

Conclusion

The overall report will evaluate the operational management of the selected organization Qantas. Qantas is one of the most popular aviation industries in Australia. The overall assignment is classified into different segments, which summarize all the factors towards focusing on the business operations of the organization. Some of the important factors that are discussed in the overall reports include Qantas Competitive Strategies, development of different marketing tools that includes SWOT Analysis and Porters 5 forces. The final part of the report will conclude the analysis of the financial statement of the company followed by providing proper recommendations.

 

References

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