B01BAVA320 Business Analysis and Valuation Assignment Help

B01BAVA320 Business Analysis and Valuation Assignment Help

B01BAVA320 Business Analysis and Valuation Assignment Help

Executive summary

The report focuses on the importance of the five forces model of Porter in order to develop the competitive advantage. The report has been prepared on Qantas, a company having business in aviation service industry. The comparison of the financial position of 2013 and 2016 has been depicted in the report. Along with the financial performance, the report included the corporate and competitive strategy of the company.

Introduction

Qantas is a company dealing in the business of airline industry, situated in Australia. In the words of Kenny (2012), Competitive strategy enable the company to compete in the environment full of competition. The effective business strategy should be developed by the companies and with the changes in the demands of market, strategies should be updated (Kenny, 2012).The airline provide services of domestic as well as international flights with premium quality services to the customers. The report explains the competitive strategies adopted by the company in order to differentiate it in the airline industry. The report describes the SWOT analysis of Qantas and on the basis of which the competitive advantage has been determined. The report also includes the financial analysis of the company for the year 2013 and 2016.

B01BAVA320 Business Analysis and Valuation Assignment Help

Analysis of competitive forces facing Qantas, using ‘five forces’ framework.

According to Dobbs (2014), Porter five forces model is the competitive analysis that indicates all the competition present in the industry as well as development of business strategy. It analyze all the aspects that can affect the industry along with its attractiveness of industry. It helps in analyzing all the weakness and strength of the industry in an effective manner. There are five forces that describe about the various aspects that affects competition in the market. They are power of suppliers, buyers, threat of new entrant, substitute and competition in the industry. All the forces help in obtaining profitability as well as attractiveness in the business (Dobbs, 2014).

In this case, Qantas is the organization that is one of the biggest airline company of Australia. It is also the third oldest airline company in the world. Porter five forces in relation Qantas is shown below-

Threat of new competitors- Airline industry in growing day by day that leads to threats that can affect the business of Qantas.

Power of suppliers- There is the problem of low concentration of suppliers for Qantas along with problems of similarity of input to the business within the industry.

Power of customers- There are enormous number of customers that affects the competition as well as pricing aspects of the business.  There is low dependency over the distributors that is important for the industry.

Threat of substitute- There is availability of limited number of substitute in the market which works in favor for the Qantas as they can establish their mark without any fear.

Existing competition in the market-Airline industry is growing day by day due to which many exiting competition exist in the market. Existing competition for Qantas are Singapore airlines, virgin airlines and many other well established also (Indiatsy, 2014).

Conduct a SWOT evaluation of Qantas competitive strategy.

According to Hueter (2013), SWOT analysis stands for strength, weakness, opportunity and threat. This is used to determine all the competitive aspects of the business by analyzing all the internal parameters of business. This is a type of internal evaluation in which all the competitive aspects are dealt in an effective manner to properly evaluate the competitive strategy and its scope in the business (Hueter, 2013).

Strength

Weakness

  • Due to its effective strategy it is able to create monopoly in Australian market.
  • It build its brand by proper advertisement and sponsorship.
  • It maintain strong relation with Australian government which provide political support over competitors. 
  • Its only focuses on Australian market which leads to the advantage to the competitors as they cover market other than Australia.
  • Internal management is also weak that leads to conflicts among employees.

Opportunity

Threat

  • It tie up with different airlines that reduce competition.
  • It is making strategy to cover market of Asia.
  • There is emergence of new start up as well as SE airlines.
  • Air New Zealand and Singapore airlines are making new and effective strategy that would become a threat to the Qantas.

According to Awwad, et., al. (2013), competitive strategies developed by the companies in the form of core competencies established. The effective competitive strategy enable the company to maintain a stable position in the market and gain a competitive advantage. The competitive advantage can be attained by the company by offering better products and services to the customers as compared to the other competitors available in the same industry (Awwad, et., al. 2013).

SWOT evaluationIn case of Qantas, which is an airline industry that offer premium quality services to the customers. The company, in order to gain the competitive advantage, formulate the business strategies such as innovations, superior infrastructure, efficient safety measures and forward thinking. Sustainability in the business operations is also an important aspect which has an impact on the success of competitive strategy of Qantas airline. Qantas focus the efforts on strategy consisting the safety measures and strong brand reputation. Competencies in accomplishment of these strategies differentiate the position of company from other companies.

Qantas’s corporate strategy across its domestic and international divisions since 1992.

According to Mainardes, et., al.(2014), the corporate strategy refers to the strategies formulated for the fulfilment of goals and objectives of the organization. The corporate strategy gives the direction to the organization towards the achievement of organizational goals. The corporate strategy of Qantas (Queensland and Northern Territory Aerial Services Limited) since 1992 is to provide high quality services in the aviation sector in order to satisfy the customers. The pricing strategy of the company has also been formulated to offer the affordable services to the clients. For this purpose, the company launched a low cost Jet-star. In the year 1992, the Australian Government sold the domestic airline to Qantas as a result of privatisation. After 1992, Qantas expanded the business from domestic airlines to international airline services. Qantas’s corporate strategy to establish a superior position in market were based on the reliability, safety of customers and engineering excellence to expand the business on international level.

With the changes in the technology on a rapid phase and recent developments in the field of aviation, Qantas has also updated the corporate strategies of the company. The policies and strategies are formulated on the basis of the updated goals and objectives considering the needs of the customers. Qantas added more features in its services after 1992 in order to meet the increasing demands of customers such as in-flight entertainment, establishment of clubs and lounges, meeting rooms, valet parking and exit row seating. These development differentiated the position of Qantas and helped in the success of the operations of business.

Two best suitable accounting policies for airline industry.

The accounting policies are the set of standards used by the companies for preparing the financial statements. The accounting policies used in financial statements of the airline industries in Australia are based on Australian Accounting Standards. The laws applicable for accounting policies are International Financial Reporting Standards (Alayemi, 2015). The auditors have the responsibility to check whether the financial reports of the company presents the true picture of the financial position of the company. There are various accounting policies that are used by the organizations, but the two policies that are suitable for the airline industry are;

1. The auditor should closely evaluate the compliance of the accounting policy consisting plant, property and equipment asset valuation. The plant, property and equipment are disclosed in the financial statements at cost or at deemed cost after deducting the accumulated depreciation and impairment losses.

2. Auditor should also watch in the financial statements of a company in airline industry, an accounting policy of depreciation. The auditor should consider the facts that the items are depreciated from the date of acquisition and the company is adopting the straight line method for depreciation.

Evaluate Qantas’s financial performance (Revenues and Expenses) and financial position (Assets, Liabilities, and Owner’s Equities) at the end of 2013.

Computation of ratio of Qantas Airways Ltd.

Particular

2013 ( Amount $ million)

Revenue

15,902

Market price share

2

EPS

0.2

NPAT

6

Current Assets

5245

Total Assets

20,200

Current  Liabilities

6,370

Total shareholders’ equity

5,954

Noncurrent liabilities

7,876

Quick Assets

4,881

Inventories

364

Dividend payout per share

0

Quick Ratio

0.766248038

Current Ratio

0.823390895

Net Profit Margin ratio

0.000377311

Solvency Ratio

0.00029703

Assets turnover ratio

0.787227723

P/E ratio

0.111731844

Current ratio: This ratios shows the relationship between current assets and current liabilities of the company (Delen, et., al., 2013). This ratio shows the ability of current assets to pay off current liabilities of company. Current ratio of Qantas Airways Ltd. is 0.82 which is not an ideal ratio. This shows that current assets of Qantas Airways Ltd. Are not enough to pay off its current liabilities.

Quick ratio: This ratio shows the relationship between quick assets and current liabilities of the company. Quick ratio of Qantas Airways Ltd. Is 0.76 which shows that quick assets of company are capable enough to pay off its current liabilities through its current assets.

Net profit margin ratio: This ratio shows the profit earned by company after deduction of all expenses. Net profit margin ratio of Qantas Airways Ltd. is 0 this means company has not earned much profits in 2013.

Solvency ratio: This ratio shows the relationship between profit and total assets. Solvency ratio of Qantas Airways Ltd. is 0 which shows that company assets are not able to create profits.

Asset turnover ratio: This ratio shows the relationship of net assets with net sales of the company. Asset turnover ratio of Qantas Airways Ltd. is 0.78 which shows that company’s assets are capable enough to create sales.

P/E ratio: This ratio shows the current value of company through its market price per share and earnings per share. P/E ratio of Qantas Airways Ltd. is 0.11 which shows that company has maintained a positive P/E ratio in 2013

Qantas’s financial performance (Revenues and Expenses) and financial position (Assets, Liabilities, and Owner’s Equities) at the end of 2016.

Computation of ratio of Qantas Airways Ltd.

Particular

2016 ( Amount $ million)

Revenue

16,200

Market price share

3

EPS

49.4

NPAT

1,029

Current Assets

3,458

Total Assets

16,705

Current  Liabilities

7,028

Total shareholders’ equity

3,260

Noncurrent liabilities

6,417

Quick Assets

3,122

 

Inventories

336

Dividend payout per share

0

Quick Ratio

0.444223108

Current Ratio

0.492031873

Net Profit Margin ratio

0.063518519

Solvency Ratio

0.061598324

Asset turnover ratio

0.96976953

P/E ratio

14.61538462

Current ratio: The current ratio represents the relationship between the current assets and current liabilities of the company. Solvency of the company can be analyzed and the ability of the company in order to meet the obligations is expressed from the current ratio analysis. The current ratio of Qantas is 0.49 which is not an ideal ratio.

Quick ratio:0.44 is the quick ratio of Qantas. The quick ratio express the relationship between quick assets and the current liabilities of the company. The ratio indicates the ability of Qantas to meet the short term obligations.

Net profit margin:0.06 is the net profit margin of Qantas. The relationship between the net sales and net profit of the company is established with the net profit margin ratio.

Net profit ratio:6.9 is the net profit ratio for Qantas. The net profit ratio express the relationship between net profit after tax and net sales of the company. The measurement of the net income to the net sales is explained by net profit ratio.

Return on Assets ratio:9.31 is the return on asset ratio of Qantas. The return that the company can earn on its investments can be calculated by the return on asset ratio. Higher return on assets ratio is considered to be favourable for the company. The return on asset ratio of Qantas shows the positive financial position of the company.

P/E ratio: The price earnings ratio shows the relationship of earnings per share with the market price per share. The willingness of the market to pay the price of the services as per the earnings of the company is represented by the price earnings ratio. The P/E ratio of is 14.61

Solvency ratio: Solvency ratio of the company is 0.06 which shows that company is not earning higher profits.

Differences and similarities in financial performance of 2013 and 2016. Make a clear recommendation to potential/existing investors on whether they should buy or sell Qantas shares.

The financial performance of the year 2013 and 2016 of Qantas has been analysed using different ratios. There are certain differences and similarities in the financial performance in consideration of the ratios being calculated.

Current ratio for the year 2013 is 0.82 and for the year 2016 is 0.49. The current ratio for these years are not considered to be ideal as the ratio in both the years shows that Qantas is not capable to meet the liabilities. The performance has decreased in 2016 and company should work for maintain the higher current ratio.

Quick ratio for the year 2013 is 0.76 and of 2016 is 0.44 which shows that the capabilities of quick assets of Qantas Airways Limited to meet its current liabilities has decreased in 2016 in comparison to 2013.

Net profit margin ratio of Qantas Airways Limited is 0.00 in 2013 which has increased to 0.06 in 2016 which shows that even though company has not earned much profits but still there is a slight increase in net profit of Qantas Airways Limited in 2016 in comparison to 2013.

Solvency ratio of Qantas Airways Limited is 0.00 in 2013 which has increased to 0.06 in 2016 which shows that company’s capability to generate profits through its assets has increased.

Asset turnover ratio of Qantas Airways Limited is 0.79 in 2013 which has increased to 0.97 which shows that the company’s capability to generate sales through its assets has increased in 2016 in comparison to 2013.

P/E ratio of Qantas Airways Limited is 0.11 in 2013 which has increased to 14.61 in 2016 which shows that progress of company has been improved in comparison to 2013.

Conclusion

The report concludes that Qantas has been following the profitable corporate strategies since 1992 for maintaining the competitive advantage. The report has been prepared identifying the strengths, weaknesses, threats and opportunities of Qantas. On the basis of the SWOT analysis, the competitive strategy of the company has been explained. The report also focuses on the comparison of the financial position of the company in the year 2013 and in the year 2016.

References

Alayemi, S., 2015, “Choice of Accounting Policy: Effects on Analysis and Interpretation of Financial Statements”, American Journal of Economics, Finance and Management, Vol. 1, No. 3, pp. 190-194.

Awwad, A., Khattab, A., & Anchor, J, 2013, “Competitive Priorities and Competitive Advantage in Jordanian Manufacturing”, Journal of Service Science and Management, Vol. 6, pp. 69-79

Delen, D., Kuzey, C., &Uyar, A., 2013, “Measuring firm performance using financial ratios: A decision tree approach”, Expert Systems with Applications

Dobbs, M., 2014, “Guidelines for applying Porter's five forces framework: a set of industry analysis templates”, Competitiveness Review, 24(1), pp.32-45.

Hueter, M., 2013. 'Global Business Strategies'. GRIN Verlag.

Indiatsy, C, Mwangi, M, Mandere, E, Bichanga, J., &George, G., 2014, “The Application of Porter’s Five Forces Model on Organization Performance: A Case of Cooperative Bank of Kenya Ltd”, European Journal of Business and Management, Vol.6, No.16, pp.75-78.

Kenny, G., 2012, “From the stakeholder viewpoint: designing measurable objectives”, Journal of Business Strategy, Vol. 33 No. 6, pp. 1-7.

Mainardes,E., Ferreira, J., &Raposo, M., 2014, “Strategy and Strategic Management Concepts: Are they Recognised by Management Students?”, Business Administration and Management, vol. 1, pp. 44-48.