The business analysis report

Abstract：According to an analysis by Profitability，efficiency and financial stability between two companies，we may find which company is operates better.During the period of analysis，financial ratios are utilized to direct the discussion.However，there are some limitation relates to ratio analysis，which are addressed further.

Key words：business；analysis report；Qantas Group；Virgin Group

中圖分類號：F731

文獻標識碼：A

This report is prepared for both current and potential shareholders who are already or who are considering investing an amount of money in Qantas Group or Virgin Blue Group.The future investment decisions by analyzing the potential factors and strategies driving the financial trends that interpret and compare the ratios by referring to the notes of the financial statements and the financial press about Qantas Group Ltd and Virgin Group Ltd.Qantas Group，which offers the most comprehensive range of domestic and international flight options from Australia，is Australias largest airline.Virgin Blue，which offers flights to a number of international destinations through its associated services，is Australias second largest airline.The purpose of this report is that trough the discussion about profitability，operating efficiency and financial stability to evaluate and compare the condition and performance of Qantas with Virgin Group over a two years period （2007 to 2008） by using ratio analysis.

Ⅰ.Profitability

1.Net Profit Margin Ratio

In regards to the performance of these two companies，QANTAS Ltd and Virgin Blue Ltd，QANTAS has a lower net profit margin of 5.18% compared to Virgins 9.98% in 2007 but in 2008 it is fairly equal with QANTASs 4.71% and Virgins at 4.21%.

2.Asset Turnover Ratio

The Asset Turnover of the companies for 2007 at.7735 for QANTAS and.9374 for Virgin，then in 2008 asset turnover for Qantas increased to.7994 times，whereas Virgins decreased to.6956 times，this shows that QANTAS invested in assets better than Virgin did.

3.Return on Equity Ratio

The return on equity，which in 2007 for QANTAS was 12.69% and for Virgin was 29.02%，QANTAS then increased to 12.95% in 2008，whereas Virgins decreased considerably to 10.56%，shows that QANTAS has a better return on their investment by their owners.

4.Return on Assets Ratio

The Return on Assets ratio for QANTAS in 2007 was 4.93% Which then only decreased a little bit to 4.62%，compared to Virgin which was 11.11% in 2007，down to 4.38% in 2008，this shows that although Virgin had a higher Return on Asset ratio in 2007，QANTAS has been more consistent by not having a huge difference between years.

Ⅱ.Efficiency

1.Accounts Receivable Turnover

This ratio measures “the efficiency of the management of ‘credit customers”.Qantas group Ltd reached a very high ratio which is 24.8 to 25.2 from 2007 to 2008.It indicates that they cannot collect cash efficiently，and they have a lack of control over accounts receivable.In contrast，Virgin Group has a better control over their accounts receivable，which means they can recover their debts in a shorter time.However，it also shows the low credit sales in Virgin Group Ltd.

2.Accounts Payable Turnover

In general，companies that take fewer days to repay debts，the sooner and easier they get a good reputation.Qantas Groups accounts payable turnover increased from 48.3 to 50.4 days during 2007 and 2008 that is very high，which may “Inefficiency in this area may result in discounts for early payment being missed.It may also lead to the entity gaining a poor reputation for the payment of debt” .However，Virgin Group is lower than Qantas； it is 27.6 in 2007 and 35.3 in 2008.They will have a good reputation with their supplier，much better than Qantas Group.

Ⅲ.Financial Stability

Financial stability measures whether a company can pay its debts as soon as possible and accept the level of risk arising from its financial structure.It consists of short-term liquidity and long-term solvency.

1.Short-term Liquidity

The tables clearly show that the current ratio of Virgin group （1.10，0.88） is higher than Qantas group （0.87，0.74） both for 2007 and 2008.Thus，Virgin group have more current assets for every dollar of current liabilities although there is a drop in the current ratio from 1.10 in 2007 to 0.88 in 2008.However，the current ratio of two companies is less than 1：1 except Virgin group in 2007.Also below the rule of thumb of 2.Current ratio measures the ability of a company when it meets short-term liabilities.These ratios indicated that if either company comes up against an unexpected situation，they are unable to pay debts within a 12-month period.

Virgin Group has a higher quick ratio in 2007 and 2008 when compared to Qantas group in the same period.Both of companies in 2008 and Qantas in 2007 are below the rule of thumb of 1，whereas，Virgin Group got 1.10 quick ratio in 2007.The Qantas groups quick asset ratio is bolstered by the high level of debtors and it could fall dramatically if there was substantial bad-debt experience.The lack of cash in Qantas group is a little worrying，but the company is operating on a temporary bank overdraft that will be paid off as the receipts from credit sales start to flow in.

2.Long-term Solvency

One of the important tasks of financial management was said to be balancing the maturity structures of assets and liabilities..debt to equity ratio of Qantas group decrease from 100.5% to 72.69% for 2007 and 2008.But for Virgin Group，it has increased from 113.84% to 160.62% during these 2 years.The ratio indicated that the Virgin Group has the higher leverage of entity，increases in leverage increase the cost of finance as well as the amount of income committed to interest payments and they increase the risk of bankruptcy.Virgin Group may be likely to have difficulty borrowing funds or at the least，may accept higher interest charges.The creditors are more likely to take action to appoint an official receiver or liquidate the organization，if it defaults in payment of debenture interest.

Moreover，Debt Ratio is a financial ratio that indicates the percentage of a companys assets is provided via debt.It is the ratio of total debt.For this ratio，Both 2 companies were decreased from 2007 to 2008.It was around 70% on 30 June 2008 of these two companies.But compare with the Debt equity ratio of two companies，Qantas group better than Virgin Group.

Last but not least，interest coverage ratio of Qantas group has declined from 74.72∶1（Not a net expense） to 24.89∶1（Net interest income in 2008）.For Virgin group，it has decreased from 20.53 times to 6.14 times during 2007 to 2008.The interest coverage ratios of both companies were above the 3∶1 which is often considered desirable.The ratio in 2008 was worst for 2 companies.Although for the long run，we need several years data to make the comparisons，But Virgin group had a bad performance on the interest coverage ratio especially in 2008.

Ⅳ.Limitations

1.Timing

This ratio analysis of financial statements is merely based on two comparative ratios from 2007 to 2008.Some typical ratios which are produced in the report may not be exposed in the real situation of the entity.Besides that，the ratio analysis of financial statement is only a summary for years ended 30 June.

2.The Information Base

Using the information base for the analysis can result in series of problems.Firstly，the information from the ratios analysis may lack disclosure and specific detail in published financial reports.In addition，results from the analysis could be distorted by deliberate manipulation of data.Besides that，variation in classification of information would lead to error when compared between entities.Furthermore，using historical cost accounting information makes difficult to compare entities in a company.

3.End Use

The ratios analysis uses information from the past.This information cannot be used to evaluate the company in the future.Then，industry average ratios are usually used as a standard for comparison； however it may not be accurate.Some entities may be higher than the industry average and some may be lower.Moreover，according to Jackling et al.（2007），it is difficult to get a good conclusion concerning financial performance and financial position when some ratios may appear“satisfactory” and some may appear“unsatisfactory”.

Ⅴ.Recommendations

According to the information in the report above it has shown that in regards to the profitability of the two companies，QANTAS and Virgin Blue，that QANTAS has performed better overall，even though in 2007，Virgin had a higher Net Profit Margin and Asset Turnover，these dropped dramatically in the year of 2008，to lower than QANTAS.In regards to the operating efficiency，Virgin did better than QANTAS by reason of the debtor turnover of Qantas is higher than Virgin and increase in 2008 that means the QANTAS Group is hard to get the debits back as soon as possible.However，Most of the investors in short-term investment are more potentially to invest in a company that can get more profit，so it worth investing in Qantas.About the long-term investment，the ratios analysis just depended on two years，thus，it is hard to compare which one is worthy to invest.Therefore，invest in Qantas is more advisable than invest in Virgin.

Reference：

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[2]Z Zhang，P Vithayasricharoen，TE Dossey.Business Analysis and Solutions Report.Databases，2004.