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RETURN ON EQUITY

ROE measures the return earned on the shareholders


investment in the firm. The higher this return, the better off
the owners are.
Calculated by (net profits after taxes)/(ordinary shareholders
equity).
18.1% in 2000, 6.5% in 2003, 16.9% in 2008, -4.1% in 2012
and 0.1% in 2013.
Ratios suggest in this period of time there has been increasing
competition with Qantas flights with the emergence of new
companies. This has led to a decline in profitability.
Due to increasing competition Qantas responeded with major
aircraft acquisitions resulting in net operating assets from
$4671.3m in 2000 to $11854m in 2013.
Reflected in the decline in RNOA (return on net operating
assets) from 12.3% in 2000 to 1.1% in 2013 due to the
Qantas increase into their assets.
Also seen in the increase in leverage as seen in the debt to
equity ratio increasing from 63.3% in 2000 to 109.2% in 2013.

PROFIT MARGIN
- Between 2000-13, total revenue has increased from $8624m
to $15902 and has an average annual increase of 4.8%
- Passenger revenues accounting for approx. 86%.
- Passenger numbers increased by 8.1%pa over 2000-13. 9.3%
increase in domestic passengers and 5.8% in international
passengers.
- Increase in domestic passenger numbers impacted by the
failure of Ansett in 2001/2002, although not sustainable with
only 3.1% increase domestically since 2008.
- Revenue yield increased from 0.116 in 1994 to 0.123 in 2013
with the highest in 2008 being 0.124.
- Increase in domestic competition such as Virgin, domestic
yields have experienced increasing pressure. Furthermore
events such as September 11, SARS in 2002/3 and Iraq War
has declined international activities.
- Signs of recovery in international yields through to 2008 but
set back with increase competition on the Australia-USA route.
- Created Jetstar to combat increasing yield pressure and has
shown to be successful.
- 2000-13 expenses increased from $7760m to $15696m,
average annual increase of 5.5%pa. Not favourable since
revenues increase at 4.8%pa.
- Expenses represent 90% of revenues in 2000 and 98.5% in
2013.
- Ratio of expenses to ASK (available seat kilometres), 0.091 in
2000 to 0.112 in 2013 at a rate of 1.6%pa significantly
outstripping growth in revenue yield.

Most significant expense is staff with $3825m in 2013,


equivalent to 24.4% of revenue.
- Increases in staff expenses of 3.1%pa per employee.
- Fuel expense is affected by the price of jet fuel which is
influenced by the world oil prices. Historiacally represented
around 19% of revenues reaching 21.1% in 2003.
ASSET TURNOVER
- measured by revenues/net operating assets
- increased from 1.31 to 2.08 in 2001, 1.19 in 2010, 1.28 in
2013. Currently low relative to its previous levels.
- Current operating assets and current operating liabilities are
both increasing relative to sales, although they offset one
another.
- Net non-current assets are decomposed into property, plant
and equipment (PPE). PPE turnover has fallen below 1 for most
of the past decade reaching a low of 0.761 in 2008 and
improving to be 0.879 in 2013.
- Changes in the ratio of book value to cost of aircraft over
2000-13 highlight the aging of the Qantas fleet. Between
2003-05 the ratio increased as a consequence of upgrading its
737 fleet.
- Aging of the 747 fleet has continued to drag the ratio down.
- In 2012 the ratio stood at 60%.
- Begin to phase out 747 fleet and replacing with the new
A380s. Also phase out 737-400 aircraft. Identified as capital
expenditure commitments which notes $9159m which is down
from over $10000m each year for the previous 3 years.
FINANCIAL RATIO ANALYSIS
SHORT TERM LIQUIDITY
- 2000-13 Qantas generated significant cash flows. For Qantas
in 2013 unearned revenues of $3032m were included in
current operating liabilities representing 47.6% of such
liabilities.
DEBT
-

SERVICING
leverage (debt/equity) of 0.54 to 0.99
interest coverage (earnings) of 7.05 to 2.25
interest coverage (cash flow) of 17.41 to 12.93
a debt to cash flow from operations ratio of 1.62 to 4.16 years.
Qantas has increased its use of debt, despite this it is
comfortably servicing its debt and is unlikely to experience
financial distress.

RETURNS TO EQUITY HOLDERS


- Qantas dividend payments were limited.
- Normal dividend payouts were steady ranging from 40.9% to
839% of NOPAT.

Fall in profitablility in 2009 and since 2010 in recognition of


the marginal profitability of the airline Qantas has not paid a
dividend.