B01BAVA320 Business Analysis And Valuation Assignment Sample
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Executive Summary
Qantas Airways Limited (Qantas) is Airline Company which is engaged in air transport services at both domestic and international levels. The purpose of this report is to identify analysis and interpret the different competitive situation and financial performance of the company Qantas. This study helped in developing understanding regarding the competitive force and competitive strategy by using different types of framework and model such as porter’s five forces model for analyzing competitive force and for analyzing competitive strategy, Ansoff’s Matrix model is used. In addition, Qantas financial report is also analyzed for two different financial years i.e., 2013 and 2017. This help in analyzing and interpreting the difference and similarity between the financial performance and financial position of the Qantas. This study also provided support to the existing and new investors by providing some recommendations which help them in making decision regarding they hold, buy and sell Qantas shares.
Answer a)
The following analysis was carried out using porter’s five force framework:
Competitive rivalry: There is an ever increasing competition now in the airlines industry after the increasing mergers and acquisitions, etc. In 2003, this airline created its two-brand strategy by launching a low-cost airline Jetstar. It helped the company to attain a competitive advantage over its competitors and assess the various opportunities in the market as well. The competition is also causing losses in their operations (Tatham, et al., 2012).
Threat of substitute: The threat of substitute is lower as air travelling mode is the fastest way availing the services in context of long distance which is not possible in terms of water and road transport.
Bargaining power of Buyers: The bargaining power of the buyers is very high as they are having various options with them to select from. There are many service providers which offer these services so it increases the buyer’s bargaining power (Oxenbridge, et al., 2010). As the switching cost for the customers is low, so it increases their bargaining power on the other hand.
Bargaining power of Suppliers: The bargaining power of suppliers is also quite low as there are many suppliers offering similar services to the customers (Gandolfi & Hansson, 2010). But if we look at the limited numbers of aircrafts suppliers the bargaining power of the suppliers are high.
Threat of new entry: There is lower threat of entry as the new players require huge capital investment in infrastructure as opening up an airline company is not that simple. Another barrier is also that there are not much of the landing slots in Australian Airports.
Answer b)
SWOT (Strengths, Weaknesses, Opportunities and Threats)
Strengths: This airline has been the second most trusted and oldest airline in the domestic, it has an enhanced integrated management market, it has a well known global brand reputation, advanced check-in technology, strong multi brand model, an on-time service provider, it provides it s services to a wide market area, alliance with “One World alliance”, latest an new aircrafts, its excellent safety records, etc (Flouris & Yilmaz, 2010).
Weakness: High costs, its international business performance is not satisfactory, management is also not efficient, low employee engagement, the airline market is very price sensitive, the high dependence on Australia because of its location, increasing airline prices because of the rise in jet fuel, etc.
Opportunities: The opportunity is that the ability of the airline to tap the available growth opportunities, the online retail, boom in resources, enhanced customer value as they get rewards from time to time, attracting lucrative policies launched for its customers, etc.
Threats: High level of increasing competition, high oil prices, the economic uncertainties both in global as well as the domestic economy, the failure of the IT system which had caused loss in context of sales, political instability, growing competition, etc.
Evaluation of Qantas’s competitive strategy
The evaluation of Qantas’s competitive strategy:
Cost leadership– This is a competitive advantage any business holds over its various competitors by obtaining or having the lowest production cost. Qantas had achieved economies of scale as it can negotiate over the fuel prices; it is also a member of the One World alliance which features only 13 top leading airlines from all over the world, it has increased or high volume of passengers, and reduced costs through economies of scale (Lawton, et al., 2011). It also achieved cost leadership as it focuses on waste minimization by recycling and using water saving devices, etc.
Differentiation– Qantas is one of the largest Australian airlines which offers or provides the most prominent services and coverage to both domestic as well as international markets. It offers business class and economy class in domestic flights while first, premium, economy and business class in international flights. It offers more features such as lounges, skybeds, self service kiosks, etc.
Answer c)
Ansoff growth matrix model
In domestic market, Qantas focuses on product development in which it invested in new products to better attract new potential customers within the existing market. For this it had a detailed insight into the needs or wants of the customers, and figure out what they are looking forward to have. Its new aircrafts and Jetstar which is a low-cost airline is one of the classic examples of its product development. It also focuses on market development by offering the customers with a range of new offers and deals or promotions. It also involves adopting new distribution channels and introducing its new pricing policies (Hong & Zhang, 2010). In international market it focuses on the diversification strategy. In this it markets its new products in new markets. It has also tried to change or alter its security methods so as to handle its cultural dress and practices.
How has that strategy changed in response to market changes?
These strategies gave helped the airline to capture a larger market share than before. It also helped the airline to access to better market opportunities as well as new customer base. It gave the opportunity to use or access the advanced technology by going and providing services in international markets (Shuk-Ching Poon & Waring, 2010). As the market changed with time, the needs and wants of the customers have also been changed. With this the company had to respond with the changes and develop effective strategies that will help the company or airline or gain competitive advantage in the market.
Answer d)
There are different types of accounting policies which can be used by Qantas Airline Group in the industry such as depreciation policy, lease accounting policy, consolidated financial account and asset valuation policy (Dickinson et al., 2016). The two accounting policies which auditors and analysts of airline industry must be considered are Consolidation of Accounts policy and Depreciation & amortization policy. These two policies are very important to be considered and focused by airline industry as this help in determining the actual financial position of the company in the competitive market. Both accounting policies may play a significant role in changing business environmental condition as it help auditor and analysts to audit the internal and external working process of the company (Haller & Wehrfritz, 2013). Qantas applies or follows Australian Accounting Standards (AAS) that help in preparing its financial statement report.
The Consolidates financial accounting policy is selected because it is very effective policy which that describes the financial position and also help in evaluating the financial stability. The airline company needs to adopt or implement these accounting policies for accomplishing the organizational goals and objectives efficiently and effectively (Henderson et al., 2015). The main reason that this policy is selected is because for auditors and analysts it becomes easier to analysis the financial condition of the company in the airline industry. Developing a consolidated financial account help the auditors in evaluating and analyzing the financial information which is set by the airline company. Using this policy by an company will help in maintaining some financial accounts like revenue, asset, liability, cost of goods sold and retained earnings that may require to consolidates per accounting policies.
On the other side, depreciation and amortization policy is selected as this policy help in depreciating the assets such as plant & machinery, equipment and property except leasehold land and freehold (Bujaki & Durocher, 2014). The depreciation is provided on assets is based on straight line basis where depreciation rates are calculated on allocates cost and value of an assets by reducing the estimated residual value over the life estimated for an assets of a Qantas Group. The main reason to select this accounting policy is that assets are amortized and depreciated from the acquisition date or from the day and time when an asset is completed installed and ready to be used. The improvement costs are also depreciated from the remaining estimated life or useful life of the asset whichever is shorter (Francis et al., 2013). Generally, assets under finance lease are amortized over term relevant lease where Qantas group will likely obtain the assets as an owner till the life of an asset.
Answer e)
The financial performance and financial position of the Qantas Airline Company is unstable and ineffective. The financial report clearly states that the company is unable to achieve an efficient financial position in today’s developing market and environment. While analyzing the financial position of the company, it is found that current asset of the company is $5245 and current liability is $6370 which depicts clearly that Qantas Company is facing problem in maintaining its financial liquidity position in the market (Annual Report, 2013). This is because current liability of the company is more than the current asset which is determined as negative factor that may affect the financial performance further.
But at the same time, it is also observed that financial performance of the Qantas is efficient because company is able to operate its business by managing the expenditures and generating revenue. In the financial report of 2013, it is clearly stated that Revenue generated by Qantas is 15902 whereas expenses made by the company is 15698 which shows that company is able to generate more revenue by making less expenditure. Thus, it can be interpreted that Qantas Company is somewhere unstable in maintaining its liquidity position but company is focusing on managing its financial performance by generating revenue.
Answer f)
The Qantas financial performance and position can be analyzed by using financial report of the end of financial year 2017. This financial report provides support in analyzing and interpreting the actual financial condition and situation of the company Qantas in the competitive global market. In similar manner, like financial year 2013, the financial performance and financial position of the Qantas airline company has not been improved and developed and this depicts that company is unable to cope up its business from such unstable and inefficient condition and that affect the business performance to a large extent.
The financial position of the company is analyzed by using Balance Sheet and from that it is found that current asset of the company is continuously decreasing and current liability of the company is increasing (Annual Report, 2017). This result into ineffective financial position of the company in the market because liquidity position of the company is becoming poor year by year. However, this affects the financial performance of the company also because to generate revenue more, company is declining its expenditure. This analysis also clearly demonstrates an actual unstable financial position and performance of the company that affects the overall business performance.
Answer g)
The similarity and difference in the financial performance of the Qantas Company in the competitive market is very high because the company performance in the market is very poor and inefficient. The similarity observed in both financial performance and position is that in both year company liquidity positions is getting poor and worst and that ultimately affecting the financial performance of the Qantas in the competitive international market (Francis et al., 2013). On the other side, recommendation to potential and existing investors is that they must not invest in buying a Qantas shares because from last five years company is unable to develop its liquidity position.
The recommendation to existing investor they must sell the Qantas shares because company is facing instability situation and also company will not provide additional benefits in return of investment to them. In similar manner, new investors must not buy share according to me because company is not developing with the change in technology and environment. The difference in both financial years i.e., 2013 & 2017 is very high because there is a difference in the change in the financial performance of the company which affects the goodwill and reputation of the company to a large extent. The other difference from my finding is that company performance in both financial year reporting is different because company is efficiently generating its revenue by minimizing its expenditure (Nobes, 2014). Thus, it can be interpreted from this study that Qantas Company is required to focus more on developing its technology and strategy which help company to attract investors and improve its financial position and performance in developing competitive market.
References
Annual report (2013) Qantas Group. [Online] Available at: http://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2013AnnualReport.pdf (Accessed: 27 December 2017)
Annual report (2017) Qantas Group. [Online] Available at: http://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2017AnnualReport.pdf (Accessed: 27 December 2017)
Bujaki, M., & Durocher, S. (2014) Depreciation in the Canadian Airline Industry. Accounting Perspectives, 13(3), pp. 209-218.
Dickinson, V., Wangerin, D. D., & Wild, J. J. (2016) Accounting Rules and Post-Acquisition Profitability in Business Combinations. Accounting Horizons, 30(4), pp.427-447.
Flouris, T., & Yilmaz, A. K. (2010) The risk management framework to strategic human resource management. International Research Journal of Finance and Economics, 36, pp.25-45.
Francis, J. R., Pinnuck, M. L., & Watanabe, O. (2013) Auditor style and financial statement comparability. The Accounting Review, 89(2), pp.605-633.
Gandolfi, F., & Hansson, M. (2010) Reduction-in-force (RIF)–New developments and a brief historical analysis of a business strategy. Journal of Management & Organization, 16(5), pp.727-743.
Haller, A., & Wehrfritz, M. (2013) The impact of national GAAP and accounting traditions on IFRS policy selection: evidence from Germany and the UK. Journal of International Accounting, Auditing and Taxation, 22(1), pp.39-56.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015) Issues in financial accounting. Pearson Higher Education AU.
Hong, S., & Zhang, A. (2010) An efficiency study of airlines and air cargo/passenger divisions: a DEA approach. World Review of Intermodal Transportation Research, 3(1-2), pp.137-149.
Lawton, T., Rajwani, T., & O’Kane, C. (2011) Strategic reorientation and business turnaround: the case of global legacy airlines. Journal of Strategy and Management, 4(3), pp.215-237.
Nobes, C. (2014) International Classification of Financial Reporting 3e. UK: Routledge.
Oxenbridge, S., Wallace, J., White, L., Tiernan, S., & Lansbury, R. (2010) A comparative analysis of restructuring employment relationships in Qantas and Aer Lingus: different routes, similar destinations. The International Journal of Human Resource Management, 21(2), pp.180-196.
Shuk-Ching Poon, T., & Waring, P. (2010) The lowest of low-cost carriers: the case of AirAsia. The International Journal of Human Resource Management, 21(2), pp.197-213.
Tatham, P., Oloruntoba, R., & Spens, K. (2012) Cyclone preparedness and response: an analysis of lessons identified using an adapted military planning framework. Disasters, 36(1), pp.54-82.
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