Executive SummaryA comprehensive financial analysis report will always helps to provide the knowledge about the strength and weakness factors of a company or two or more companies. The report always helps to maintain chained and superior communication with the investors for a company to take a clear idea of their investment into the particular company by giving them the clear concept about the company’s weak points and strength sector in a truthful and honest manner. That is why the investors are convinced in many ways by reviewing the financial report of a company. As per the financial analysis made on the company’s financial data, it always provides performance for the company in a particular time and reflects financial health of the same company. It is one of the major reasons that draw the attention of the investors and attract them highly of their interest by reflecting a clear appraisal about the financial health of particularly chosen company /companies. Now as per the case of this present report, the main intention is to provide the apparent and precise idea about two airline companies, which named as Emirates Airline and Turkish Airline. The comprehensive evaluation and also the financial analysis is conducted based on the two above mention airline services and this is done after retrieving the additional support by reviewing the annual financial statement or report that the airline companies published in every end of their financial or fiscal years. This reporting will concentrate on the financial ratios of the particular companies each individually by taking into consideration of the balance sheets and statement of profit & loss separately for each of the company for a minimum of three financial years as per the required criteria. The analysis of different ratios will suggest the clear concept about each of the company’s financial position and health for the mentioned time period. The overall motto of creating this report is to elaborate and create study that will deal with the understanding between both selected companies and help to supply reasonably comparative analysis of the airline companies, reflect their future as per the market and at last provide a supportive recommendation for the best opportunities therein.
Table of Contents
TOC o “1-3” h z u HYPERLINK l “_Toc392775806” Executive Summary PAGEREF _Toc392775806 h 2
HYPERLINK l “_Toc392775807” Introduction PAGEREF _Toc392775807 h 6
HYPERLINK l “_Toc392775808” Analysis PAGEREF _Toc392775808 h 9
HYPERLINK l “_Toc392775809” Financial Statement PAGEREF _Toc392775809 h 10
HYPERLINK l “_Toc392775810” Importance of Ratio PAGEREF _Toc392775810 h 11
HYPERLINK l “_Toc392775811” Financial Ratios PAGEREF _Toc392775811 h 13
HYPERLINK l “_Toc392775812” Profitability Ratios PAGEREF _Toc392775812 h 13
HYPERLINK l “_Toc392775813” Gross Profit/Operational Profit PAGEREF _Toc392775813 h 14
HYPERLINK l “_Toc392775814” Net Profit PAGEREF _Toc392775814 h 16
HYPERLINK l “_Toc392775815” Return on Shareholder’s Fund PAGEREF _Toc392775815 h 18
HYPERLINK l “_Toc392775816” Return on Capital (ROCE) PAGEREF _Toc392775816 h 21
HYPERLINK l “_Toc392775817” Efficiency Ratios PAGEREF _Toc392775817 h 23
HYPERLINK l “_Toc392775818” Sales Revenue to Capital Employed (SRCE) PAGEREF _Toc392775818 h 23
HYPERLINK l “_Toc392775819” Sales Revenue PAGEREF _Toc392775819 h 23
HYPERLINK l “_Toc392775820” Asset Turnover PAGEREF _Toc392775820 h 23
HYPERLINK l “_Toc392775821” Debtor Turnover PAGEREF _Toc392775821 h 25
HYPERLINK l “_Toc392775822” Stock Turnover PAGEREF _Toc392775822 h 26
HYPERLINK l “_Toc392775823” Liquidity Ratios PAGEREF _Toc392775823 h 28
HYPERLINK l “_Toc392775824” Current ratio PAGEREF _Toc392775824 h 28
HYPERLINK l “_Toc392775825” Acid Test PAGEREF _Toc392775825 h 30
HYPERLINK l “_Toc392775826” Gearing Ratio PAGEREF _Toc392775826 h 32
HYPERLINK l “_Toc392775827” Horizontal Analysis PAGEREF _Toc392775827 h 33
HYPERLINK l “_Toc392775828” Horizontal Analysis of Income Statement PAGEREF _Toc392775828 h 34
HYPERLINK l “_Toc392775829” Horizontal Analysis of Balance Sheet PAGEREF _Toc392775829 h 36
HYPERLINK l “_Toc392775830” Vertical Analysis PAGEREF _Toc392775830 h 41
HYPERLINK l “_Toc392775831” Current Asset PAGEREF _Toc392775831 h 43
HYPERLINK l “_Toc392775832” Current and Non Current Asset PAGEREF _Toc392775832 h 43
HYPERLINK l “_Toc392775833” Current Liabilities PAGEREF _Toc392775833 h 44
HYPERLINK l “_Toc392775834” Liabilities and Equity PAGEREF _Toc392775834 h 44
HYPERLINK l “_Toc392775835” Summarizing PAGEREF _Toc392775835 h 44
HYPERLINK l “_Toc392775836” Conclusion PAGEREF _Toc392775836 h 45
HYPERLINK l “_Toc392775837” Recommendation PAGEREF _Toc392775837 h 46
HYPERLINK l “_Toc392775838” References PAGEREF _Toc392775838 h 47
HYPERLINK l “_Toc392775839” Appendix PAGEREF _Toc392775839 h 50
IntroductionFinancial report always had been vital statistic of a company over the financial performance for a particular time period, so it has a great importance for the company. Company creates it for the purpose of giving the investors and auditors the added support to review and take their decision on the company’s aspect and also to make the comparison with the same kind of companies in the market i.e. the market competitors to get a proper idea about their own financial standings. This is one of the superior way to spot the weaknesses that the company have by thoroughly reviewing the financial statement of the overall time period and take positive measure to overcome those odds and weaknesses (Lambert and Larker, 2008). The main purpose it to identify the loopholes and try to eliminate those by taking some proper steps and also to secure the future of company. The financial position of Emirates Airline and Turkish Airline will be disclosed in this financial report and their financial health residing in airline financial market will be reflected on the basis of analysis done entirely in this report. It should be remembered that a financial reporting statement or annual report for an airline company or any other companies will be made on the basis of three particular things which are balance sheets, statement showing profit or loss and also the income statement. Balance sheet is a statement that helps to provide clear concept about value and distribution of assets and liabilities of the company as well as the capital structure of the airline company as what is the figure of equity for the shareholders, what is the amount of borrowed capital for the company. Balance sheet of a company is mostly important as it will help to calculate the important ratios which used to determine the solvency or liquidity of the company and also open up the facts regarding the risk factors of the business. On a given time period the statement of balance sheet is useful to gather the concept behind the efficiency of the firm. Next it is income statement which is other valuable record of the company that should be maintained on a time to time interval to keep track of the expenses incurred or income gained by the airline company throughout the financial year. So this process of recording and storing data by the income statement, it symbolizes as a significant aspect for the company. In the end of each financial year it reflects the profit earned or loss suffered by the company over the entire economic time period. Thus a clear and refined image of the company developed by assessing the income statement and also some of the important ratios also extracted during the reviews, which are as gross profit ratio, net profit ratio, return on capital employed etc. These ratios help to determine the overall structure of the company in term of the profit and loss scenario and reveal the margin of profit or loss that the company is currently carrying with it. One of the primary aspects of the company is its statement showing cash flow of the company, as each and every company forecast the cash flow statement into their each annual financial statement. The structure of a cash flow statement is basically focus on operating, financial and investing activities of the company over its given time period (Bierman and Smidt, 2009). The financial statements of the company like balance sheet or income statement often used to calculate the financial ratios of that same company and the profitability of the airline company is analyzed and derived out of the income statement. So in this report the net profit margin, gross profit margin and capital employed of both Turkish and Emirates Airline each will be calculated separately and later the comparison also can be made simply by deciding the better of the two scenarios. By this way the one set of proper ideas consisting of the understandings can be prepared for further usages. Balance sheet of the company can be analyzed to extract the liquidity, gearing and efficiency of the company to make the further evaluation. Then there will be the usage of horizontal and vertical methods for going to the dept of the analysis. Horizontal analysis always deals with the analysis of balance sheet and income statement and on the other side vertical analysis only capitalizes with the balance sheet only. The financial analysis is made on this report based on three years of financial performance by both of the airline companies starting from 2011 to 2013. Every company like the airline companies have their issues and challenges regarding the internal structure which concentrate on the financial activities of the company, so this report is purpose to make the solutions to those odds by suggesting the recommendation to be followed and also forecasting the future probable based on the investment for both of the companies (Bierman and Smidt, 2009).
So the key idea of writing this report is to be shortened here in this section. The main objective of writing the report is to provide the exact and accurate idea about the financial position of the selected company and also evaluate the performance level of the company by analyzing the values obtained from ratios, such as profitability, liquidity, efficiency and gearing ratios. This is done in order to examine the particular company’s financial stability in the current financial year based on the comparison of previous financial years (Lewellen, 2008). The financial standings and positions of two companies named Emirates Airline and Turkish Airline is to be evaluated on the purpose of giving their reviews to the favor of company as well as the financial stakeholders. So the analysis is based on the annual financial statement of the both companies as they published those copies annually at the end of each financial year. Three years will be considered to give the effect of the needed requirement and to do the comparative analysis. The ratios in this section will be calculated on the basis of financial data derived in each year for the companies (Weygandt and Kieso, 2009). The financial data that will be derived from the income statements and balance sheets of the respective companies for their corresponding accounting years will be taken into the analysis purpose. The ratios are calculated on the basis of the values generated into those statements. The financial years of 2011, 2012 and 2013 will be considered for the review purpose. So it is necessary for the report to look thoroughly the information obtained from the financial annual reports of Emirates Airlines and Turkish Airlines (Anacoreta and Silva 2005). The sectors that will be critically concentrated based on the analysis are the revenue earning capabilities of the firm, management of liquidity and credit status of the company, management related to the inventories and the management of company’s short term debt and their management or settlement to clear off. These aspects are done in order to weakness and strengths of the entire business operations involving in a present airlines market (Berry and Waring, 1995). Lastly based on the ongoing analysis of the same the following reviews and highlights will be made for the concept of offering explanation and some needed sector-wise changes. This report’s major section is to take into consideration about the analytical report and comment on the prospect of company after finding the comparative benefits between Emirates Airlines and Turkish Airlines. This all will give access to the recommendation section which is the primary result of creating the report and that will consist of the further development and improvement of performance of both companies (Curran and Blackburn, 2001). Limitations of pursuing the study based report and organizing the necessary information are always there as it is always a tough task to rely on the sources of information that can be manipulated for accessing and taking into the analysis purpose. But apart from the analysis the section of business report will give advantage on how a cash flow statement will be carried forward for the favor of business and how well it can be demonstrated to travel into the depth of transactions (Bierman and Smidt, 2009).
AnalysisThis financial report is the conductive form of the report that is entirely concentrated and based upon the annual financial document of each of the company during their end of the financial year (Ingram and Albright, 2009). The importance of the statement showing income of the airline company or the balance sheet is helpful in many ways as possible as told earlier in the reporting section. These documents or statements are the basics to calculate the ratios of the company to take further decisions for the favor of multiple parties like shareholders, stakeholders, investors of the company, financial analysts from different levels and also the auditors of the firm and used to deliver the fact behind the investment issues, whether or not the investment on the following company will be justified or not based on the profitability criteria. Also the needed strategies, the future proposal and set of collective decisions are taken on the basis of proper analysis. In this report the financial analysis has been done mostly on the aspect of statement reflecting the financial positions of the company and income statement of both Emirates and Turkish Airline (Lewellen, 2008). This collective analysis is collaborative of the set of two separate analysis combined to show the effect of profitability of these selected company of the ground of airline market.
Financial StatementThe financial statement includes the balance sheet and the income statement both of which is taken into consideration for giving effect based on the calculation of different financial ratios of these two companies and also based on that the results are put into the horizontal and vertical analysis to go into the depth of the report and reaching the conclusion portion (Lewellen, 2008). The statement showing the financial position of the company i.e. balance sheet is the one which will give the report the idea about the utilization of available resources of the and how well they able to make the proper usage in a particular time period. For this purpose the total assets, total current assets and total liabilities, total current liabilities are been considered majorly for right calculation of the necessary elements. Another financial statement is the income statement which supplies a clear views on the incomes gained or profit earned and expenses incurred or losses suffered by the both companies within a examined accounting year (Ingram and Albright, 2009).
Importance of RatioDifferent level of financial users and analysts are helped by the vital roles played by the financial ratios. Financial statement helps in many ways and that’s why its users are from different levels and their purpose of using is also different in kind. Shareholders needs to get the help of financial statement to get themselves knowledge about the company’s profitability and facts about revenues to make decision on holding shares to that particular organization or company as they get determined about the issues and challenges in the areas of profit and revenue of the company (Ingram and Albright, 2009). The purpose of investors is always clear as they followed the financial statement of the company to get alerted about the company’s profitability structure to make the investment profitable for them. So, all the strategies behind the stakeholders of the company and strategies of the company itself have to depend on the financial statements to make the company more profitable by accomplishing the possible and needed changes. Financial ratios are the ones that are the short result or effect of that particular financial statement of a company, that’s why the importance of ratio and analyze of it is a mandatory step and should be performed with great care and skills. Some of the key ratios are profitability ratios, liquidity ratios, gearing ratios and efficiency ratios which are calculated and discussed in this report knowing its importance to take necessary decisions and completing the task that is on hand (Lambert and Larker, 2008).
After discussing the advantages of ratio and its usage it is important to know about what effects it could bring to the organization or company for creating their business report and making the available resources useful. So ratio plays a important role in the financial sector of a company’s internal structure and that is why ratio analysis method or tool is one important tool that plays a significant role for measuring company’s financial performance. Accounting ratios and their advantages is the basic thing that should be discussed (Pitman 2003).
Financial Statement Analysis – as mentioned earlier that ratio is the basic for doing the financial analysis and creating the statement regarding that. For understanding the financial state of a particular company, accounting ratios are needful thing. It is often useful for the stakeholders of company like creditors, bankers, managers and investors have an exact idea of the company’s present situation based on the financial market and to take their effective decision regarding the knowledge of the company (Porter and Norton, 2010).
Judgment of Efficiency – in term of the manager’s capabilities to handle situation at the critical times and operations of business, the efficiency also can be judged by using the ratios. The efficiency of the company can be judged and decided by the smart utilization of their assets and profit earning capacity.
Spotting the Weaknesses – even the overall performance of the selected company is quite satisfying and doing good business in the market, there always can be the loopholes existed in the operation of business’s internal activities and financial positions; these all can be spotted using the calculation and analysis of ratios (Weygandt, and Kieso, 2009). The primary purpose of this is to pay attention of the manager to spot out those weaknesses separately and take effective measures to rectify them as in to progress more.
Formation of Plans – financial ratios of a business or a company is used to analyze the company’s financial performances that they are maintaining for the previous period of time. But the ratios are also useful measure up the company’s performances to make recommend it for some future trends that will do better improvement of the business activities and improve the financial performances (Lambert and Larker, 2008). So this will fall a direct impact to the company to formulate the strategic plan for doing the business operation and make the needed changes.
Comparison of Performance – this is one valuable step that entirely will be done over this entire business report using the ratios and their analysis. It is always an essential element for the company to know how they are running their business operations and how well their performances are comparative to the other similar natured companies in the same business environment. Beside that it is also significant for the business to learn about how well the performance of company during the different financial years as a comparison (Khan and Rehman, 2012). Such comparative analysis is facilitated by ratio analysis.
Financial RatiosProfitability RatiosAs by the name, the term profitability always signifies about the facts that how well the firm can able to make the profit presenting on the same environment or market. Profitability ratios help to reflect the rate and ability to make profit by the firm in different financial years that they are in based on the current condition and their ongoing business operations that time (Lambert and Larker, 2008). Also they easily help to reflect the financial position of the company and efficiency that they are having into the given accounting year. In the heads of profitability ratios different number of ratios comes under and these are to be calculated to give effect on the basis of sales and investment of the airline company (Anacoreta and Silva, 2005).
Gross Profit/Operational ProfitGross profit and the ration relating the gross or operational profit always reflects the relationship and the bonding between the net sales of the company for that given accounting year with the gross profit of the particular financial year. So the formula of gross profit or operational profit ratio is shown below:
Gross Profit Ratio = Gross Profit /Net Sales x 100
Where gross profit = Net Sales – Cost of Goods Sold
And net sales = Gross Sales – Sales Return
So the comparison should be shown with giving the effect based on calculation of the gross profit ratio of Emirates Airline and Turkish Airline for different financial years staring from 2011 to 2013. The calculation table is presented below:
Gross Profit Ratio for Emirates Airline
Items 2013 2012 2011
Net Sales 19375.9 16,748.01 14,416.39
Gross Profit 673.01 455.54 1,509.85
Gross Profit Ratio 0.03473 0.0272 0.104731
Gross Profit Ratio for Turkish Airline
Items 2013 2012 2011
Net Sales 18,776.80 14,762.10 11,812.50
Gross Profit 3,466.00 3,036.20 2,006.80
Gross Profit Ratio 0.184589 0.205675 0.169888
The above is a graph chart which represent Emirates and Turkish Airline company’s individual line of growth on the aspect of gross profits that these two company able to maintain during their financial years.
Gross profit ratio always defines the margin on which the airline companies are deciding to make their profit after maintain the rate during the last few financial or accounting years. It also able to determine the level of skills and abilities that the management section of the company need to improve their sales figure to achieve more profit on the basis of the business activities. As per the summary of this section the comparison will be done on the basis of this graph char where the better performance by the Turkish airline can be seen than the gross profit margin of Emirates Airline. it signifies that Turkish Airline able to improve their rate of gross profit by increasing the sales target of the company as comparing to the Emirates Airline (Anacoreta and Silva, 2005).
Net ProfitNext part of the report will analyze upon the net profit ratio of the two companies. Net profit ratio deals with the sales margin of any particular company that is why it is also called as the sales margin ratio. The main purpose of the ratio is to reflect the concise idea about the ability of the business to improve their part of the profitability residing on a business environment and the reflection is shown in a profitable manner (Ingram and Albright, 2009). The outcome of Net Profit ratio is determined by the difference of the net profit to the sales of the organization and that is presented in a percentage figure. Net profit comes in two different parts as before tax and either tax and both of the kinds are related with sales of the company by net profit ratio as it able to build the bridge between these two components. It is one of the best methods that considered for deciding upon the company’s overall structure of profitability and liquidity of the company as entire business operation and efficiency of the company is taken into the account in this method of calculation.
Net Profit Ratio for Emirates Airline
Items 2013 2012 2011
Net Profit after Tax 655.67 441.11 1,488.61
Sale 19376 16,748.01 14,416.39
Net Profit Ratio 0.0338 0.026338 0.103258
Operating Profit Turkish 1,240.00 1,490.50 122.6
Non Current Asset
Year 2013 2012 2011 2010
Emirates 16050 13,885.16 11,523.86 9,786.92
Turkish 20864 14896.4 12362.2 7157.1
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This pictures graph represents the idea of the Turkish and Emirate Airline where it can be seen that Turkish Airline has slightly more efficiency level than the Emirates Airline as it able to utilize its available resources quite well to make the firm’s overall profitability more improved as per the comparison (Bierman and Smidt, 2009). The whole picturised scenario suggests that the Turkish company able to generate more profit out of the invested capital they have utilized. On the other side of the analysis, the managers of Emirates company needs to be more efficient on taking the collective decisions carefully on utilization of the available resources as the competitor company is generating more income than them.
Return on Shareholder’s FundReturn of Shareholders’ fund is all about the investments in a business or company and in the views of a company it is considered as the shareholder’s fund, most of the capital gathered and structured with the investments of shareholders. That is why it is also called as the return on investment. It is considered as the return generated from the given investment in the business’s capital structure by its owner or the shareholders. This ratio is used to show the relationship between the owner and shareholders’ investment with EAT (net profit after interest and tax) and the ratios able to reflect the percentage of return the entire investment can give to the investors of the company (Ingram and Albright, 2009). So the ratio is the key to measure the effectiveness of the investment and the amount of return that it can generate through the company’s capital structure and business activity.
The formula generated during the calculation ratio is:
Return on Shareholders’ Fund = Net Profit (after interest and tax) /Shareholders’ Equity
So two individual tables of both the airline company can easily be made out of the formula and reviewing their financial statement for the respective years. These tables are shown below:
Return on Shareholder Fund Emirate Airlines
Year 2013 2012 2011
Net Profit 655.674 441.11 1,488.61
Shareholder Equity 6689.621 5,844.98 5,667.17
Net Effect 0.098014 0.075468 0.262673
Return on Shareholder Fund Turkish Airlines
Year 2013 2012 2011
Net Profit 682.7 1,155.70 18.5
Shareholder Equity 25,399.30 18,757.90 16,404.90
Net Effect 0.026879 0.061611 0.001128
On the basis of the above two tables graph chart on the following two companies of Turkish Airline and Emirates Airlines can easily be made. And that graph will be used to easily judge the two companies according to their shareholders fund structure (Bierman and Smidt, 2009).
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This is the pictures representation of the graphical chart for both of the companies to identify some of the business-concerned issues. The importance of the above graph will be valued as per the detailed brief over here. This graph about the return on shareholders’ fund help the analysts and other stakeholders to ascertain about the company’s effectiveness and profit making capacity as the line is when in high position. But the comparative lower position of the chart indicate that the firm needs to go through the risk assessment as the risk factor is there in investing into the company and on the other hand the shareholders are not getting the return as per their expectations (Khan and Rehman, 2012). So it directly signifies that the business eventually needs to consider some effective decision immediately to sort out the problem solving measures. So this graphic presentation as per the analysis makes a clear view that the Turkish company is achieving with lower profit than the Emirates profit in term of the investments.
Return on Capital (ROCE)As per the term suggests this ratio makes the relationship between the profit and total capital invested or employed in the business.
So, two tables will be shown separately in the below portion to give the effect of ROCE for both of the airline companies.
Return on Capital Employed Emirate Airlines
Year 2013 2012 2011
Net Profit 655.674 441.11 1,488.61
Gross Capital Employed 25813.9085 20,989.76 17,723.36
ROCE 0.02540003 0.021015 0.083991
Return on Capital Employed Turkish Airlines
Year 2013 2012 2011
Net Profit 682.7 1,155.70 18.5
Gross Capital Employed 25,399.30 18,757.90 16,404.90
ROCE 0.02687869 0.061611 0.001128
Now based on the above table and for making the summary more prominent, a graph chart must be presented after calculating the data.
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The main purpose of ROCE is to give the effect of how much return can be generated from the total capital invested into the business operation by its owner and it also helps to collect information about the profit portion of that individual company (Khan and Rehman, 2012). Here as per the analysis of both the companies, it is reflected that Emirates Airlines has well structured ROCE than the Turkish Airlines, as the line of ROCE is higher than the later company. as per the scenario and the given analysis report on the basis of this particular element, it is clear that the company of Emirate is producing more capital in against the capital employed into the company, which is a good sign indeed for making further investment.
Efficiency RatiosEfficiency ratios are a bunch of important ratios which with its various elements measure up the efficiency of the firm and able to identify the strength factors of the company with considering its multiple variables. So out of the multiple ratios under this head few of the important ones are selected for doing the analysis.
Sales Revenue to Capital Employed (SRCE)This ratio is the purposed to check the efficiency level the firm is able to utilize it available capital to the favor of firm to produce more revenues. As per the analysis made on the both companies it is found that SRCE of Turkish Airline had raised by 57% in 2011 to 2012 but after the next level during the year of 2013 it had dropped to 50%.
But in the case of Emirates airline the sales revenue had increased by 8% in 2911 but in the same year shareholders’ fund decreased by 3% and non-current liabilities had increased by 14%. So the increase and decrease effect had an offset effect to increase the SRCE for the company of Emirates as compared to Turkish Airlines Company.
Sales RevenueOne of the significant and also important ratio for doing the part of analysis as the main function of it is to indicate the amount or quantity of revenues that
