FM1 Assignment - AirAsia

8/9/2019 FM1 Assignment - AirAsia

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BA205 Financial Management 1 Sept 2014

Table of Contents

Introduction..........................................................................................................................2

Contents.................................................................................................................................

Financial Ratio for year 2011...........................................................................................4

Financial Ratio for year 2012...........................................................................................8

Financial Ratio for year 2013.........................................................................................11

Interpretation of AirAsia Financial Ratio Analysis........................................................14

Financial performance....................................................................................................16

Conclusion.........................................................................................................................17

Reference...........................................................................................................................1

Appendi!es........................................................................................................................20

1


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Introduction

Air Asia "er#ad $as %ein& esta%lis#ed in 13 $it# commenced operations in

16. In 2001' (une Air )dn "#d $#ic# $as (ony Fernandes*s company at t#at time'

purc#ased t#is airline from +R",-icom and Air Asia neer loo/ %ac/ after t#at.

Air Asia*s first and main %ase is t#e o$ Cost Carrier (erminal CC( at uala umpur

International Airport. Air Asia is $idely /no$n as alaysian lo$ cost airline and een

Asia*s lar&est lo$ fare' no frills airline. Air Asia slo&an is 5o$ eryone Can Fly .

CC( is said to %e carried a%out 10 million passen&ers a year. (#e &ro$t# of AirAsia is

closely associated $it# t#e entrepreneurial effort of (ony Fernandes. (ony $as sent to

%oardin& sc#ool in "ritain %y follo$in& in #is fat#er*s footsteps into t#e medical

profession. (#e -istory of AirAsia +urin& accountin& de&ree at t#e ondon )c#ool of

conomics' #e #ad ot#er ideas and $ent into music pu%lis#in&' first $it# ir&in' t#en

(ime 9arner. -e #ad #is mind,set to start airline $#en #e $as $atc#in& t#e telly in a pu%

a%out asy:et runnin& do$n t#e national carrier' "ritis# Air$ays. (#e idea of a lo$ cost

carrier $as attractin& to #im. -e #ad no idea $#at a lo$ cost carrier $as %ut #e still

$anted to start an airline t#at fle$ lon& flit $it# lo$ fares. -e &et ama;ed on #o$

people $ere flyin& to "arcelona and ust t#ree planes and a

%usiness model from cCart#y $#ic# are' Ryanair operational strate&y' a )out#$est

people strate&y' and an asy:et %randin& strate&y. Fuelled %y risin& prosperity in

alaysia and a lar&e potential mar/et for leisure and %usiness traellers see/in&

ine!pensie domestic transportation' AirAsia*s domestic %usiness e!panded rapidly. In

:anuary 2004' AirAsia %e&an its first international serice from to


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200?. And no$ AirAsia %ecome one of t#e successful airlines in t#e $orld. Fernandes

#ad set #is sits on lon&,#aul trael from t#e %e&innin&. -o$eer' t#is ris/ed #is &ood

relations $it# t#e alaysian &oernment %ecause it put AirAsia into direct competition

$it# t#e national airline' alaysian Airlines. -ence' Fernandes esta%lis#ed a ne$

separate company' AirAsia @ to run its lon& #aul %usiness separately. Corporate


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Financial Ratio for year 2011

i=uidity Ratios

Current ratio Total Current Assets

Total Current Liabilities

RM3,538,400,000

RM2,194,100,000

1.61

Buic/ ratio

Total Current AssetsInventory

Total Current Liabilities

RM3,538,400,000RM19,700,000

RM=2190000000 2,194,100,000

1.60

Actiity Ratios

Inentory (urnoer Cost of Good Sold

Inventory

RM2,798,300,000

RM19,700,000

142

Aera&e A&e of Inentory 365

Inventory Turnover

365

142

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2.6 days

Aera&e Collection


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(imes Interest arned EBIT

Interest

RM995,900,000

RM342,300,000

2.1


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arnin&s per )#are

Earnings Available

Coon Stoc!holders Nuber of Shares "utstanding

RM555,300,000

2,780,000,000

R0.20

Return on (otal Assets

Earnings Available

Coon Stoc!holders Total Assets

RM555,300,000

RM13,905,700,000

4

Return on =uity

Earnings Available

Coon Stoc!holders Total E#uity

RM555,300,000

RM 4,036,400,000

13.76

ar/et Ratio


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RM3.31

RM0.20

16.??

ar/et"oo/ Ratio Mar!et Price Per Share of Coon Stoc!

Boo!$alue Per Shareof CooncStoc!

RM3.31

RM1.45

2.28

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(otal Asset (urnoer RM 4,946,100,000

RM15,728,800,000

0.31

Financial eera&e Ratio

+e%t Ratio RM10,868,400,000

RM15,728,800,000

6.10

(imes Interest arned RM1,103,800,000

RM377,300,000

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arnin&s per )#are RM789,600,000

2,780,000,000

R0.28

Return on (otal Assets RM789,600,000

RM15,728,800,000

?.02

Return on =uity RM789,600,000

RM 4,860,400,000

16.24

ar/et Ratio


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Financial Ratio for year 2013

i=uidity Ratios

Current ratio RM 2,923,200,000RM 2,573,200,000

1.14

Buic/ ratio RM 2,923,200,000RM29,500,000

RM2,573,200,000

1.12

Actiity Ratios

Inentory (urnoer RM3,641,100,000

RM29,500,000

123.4

Aera&e A&e of Inentory

365

123.4

3 days

Aera&e Collection


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(otal Asset (urnoer RM5,111,800,000

RM17,856,100,000

0.2

Financial eera&e Ratio

+e%t Ratio RM12,855,200,000

RM17,856,100,000

72

(imes Interest arned RM892,800,000

RM426,800,000

2.0


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arnin&s per )#are RM362,100,000

2,780,000,000

R0.13

Return on (otal Assets RM362,100,000

RM17,856,100,000

2.03

Return on =uity RM362,100,000

RM5,000,900,000

7.24

ar/et Ratio


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Interpretation of AirAsia Financial Ratio Analysis

i=uidity ratios proide information a%out t#e firm*s a%ility to meet its maturin&

o%li&ations. A &reater li=uidity ratio represents less ris/ for creditors. )#are#olders prefer

lo$er li=uidity ratio so t#at assets can used to e!pand t#e company Financial Ratio

Analysis. (#e current ratio and =uic/ ratio of AirAsia for t#e t#ree years period is more

t#an 1' $#ic# mean it #as sufficient current asset to coer de%t. (#e ran&e %et$een

current ratio and =uic/ is not %i& %ecause AirAsia is a serice industry $#ic# #ae small

amount of inentories t#at proide lo$ li=uidity alues.

Actiity ratio also name as asset turnoer ratio. It used to s#o$ #o$ efficient a

firm utili;es its assets. (#e aera&e a&e of inentory for AirAsia in t#ree years period isaround t#ree days. (#is s#o$s t#at t#e outflo$ of inentories #appens =uic/ly in AirAsia'

reducin& t#e amount of sta&nant assets in its company. (#e aera&e payment and

collection period of AirAsia #appens %et$een seen to eleen days' $#ic# indicates t#at

t#e inflo$ and outflo$ of cas# $it# t#ese de%tors and creditors are relatiely fle!i%le and

fast. (otal asset turnoer ratio of AirAsia t#rouout t#ese t#ree years is around 0.3. (#is

means t#at eery rin&&it of assets &enerates 30 cent of sales and s#o$s t#at it is not ery

efficient in its use of assets.

Financial leera&e ratio suc# as de%t ratio indicates t#e solency of firm to its

lon& term o%li&ation. (#e de%t ratio of AirAsia is around 70 so t#e firm #as enou

assets to coer t#e de%t. -o$eer t#e times interest earned ratio for year 2011 and 2012 is

around 2. $#ile it is 2.1 for year 2013. In ot#er $ords' AirAsia afford to pay its interest

e!penses %ut year 2013 is more ris/y compare to t#e preious years %ecause it #as a

lo$er ratio.

or airline is ?.6' t#en

AirAsia is e!ceedin& t#e industry standard Industry )ummary. (#e earnin& per s#are is

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dependent to t#e net profit. En t#e ot#er #and' t#e return on total assets s#o$ t#e net

income produced %y t#e total assets. (#en t#e return on e=uity measure t#e profit

&enerated from t#e s#are#older*s inestment. (#ese returns on asset and e=uity are all

positiely related to t#e net profit.

ar/et,%ased ratio indicates t#e mar/et*s perceptions of a firm*s performance and

ris/. (#e price earnin&s ratio of AirAsia is %et$een 11 and 21. (#is means t#e stoc/ is

tradin& at multiple from 11 to 21. ar/et"oo/ ratio measures #o$ muc# a company is

$ort# in comparison of capital inested %y t#e s#are#olders. (#e " ratio for year 2011'

2012 and 2013 are 2.28' 1.86 and 1.?2 respectiely. Ga#oo Finance

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Financial performance

(#rouout t#e years of 2011 to 2013' AirAsia #ad many c#an&es and c#allen&es.

-ain& a current ratio of 1.61 in year 2011 and 1.14 in year 2013' it indicates its li=uidity

#as decreased alon& $it# its =uic/ ratio from 1.60 to 1.12. AirAsia cannot meet its

intermediate o%li&ation as efficiently as %efore.

In addition' its inentory turnoer rate #as decreased from 142 to 123.4 in year

2013. (#ere $as a period in year 2013 $#en AirAsia #ad a ery =uic/ aera&e collection

period $#ic# $as 7.4' %ut it eentually $ent %ac/ to a readin& of in year 2013.

-o$eer' t#e aera&e payment period for AirAsia #as decreased from 10.6 in year 2011

to 7.2 in year 2013' $#ic# means t#at it #as t#e a%ility to pay its de%t =uic/er.

(#e AirAsia*s de%t ratio #as not c#an&ed muc# in t#e years' ran&in& around 70'

%ut its times interest earned #as decreased drastically from 2.1 to 2.0' s#o$in& a poorer

performance in t#is aspect. oreoer' AirAsia*s &ross profit mar&in in year 2011 $as

37.7? %ut dropped to a mere 28.77 in year 2013. en $it# ot#er factors included' $e

can see its net profit mar&in #as also %een lo$ered from 12.?? to 7.08 in year 2013.

(#ese unfortunate c#an&es can %e seen from its earnin& per s#are Rm0.20 in year 2011 to

Rm0.13 in year 2013. (#ou' AirAsia #as #ad nota%ly a ery positie performance inyear 2012 as its net profit mar&in once rose up to 1?.6 and its earnin& per s#are of

R0.28.

AirAsia*s price earnin&s ratio $as 16.?? in year 2011' despite some of its %ad

performance' its price earnin&s ratio $ent up to 21.00 in year 2013. (#is mit %e a

scenario $#ere inestors are e!pectin& AirAsia to %e doin& $ell near in t#e future as t#e

aera&e mar/et price earnin&s ratio is 20,2? times.

Eerall' AirAsia #as its li=uidity' actiity ratio and profita%ility dropped after

t#ese 3 years %ut its leera&e and mar/et ratio #as improed a lot. Apparently' inestors

are still e!pectin& a %rit future for AirAsia.

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Conclusion

Years Evaluatio

n

Ratio 2011 2012 2013 Time Series2011-2013

Overall

Liquidity

Current ratio 1.61 1.42 1.14 E/ E/

Buic/ ratio 1.6 1.41 1.12 E/ E/

Activity

Inentoryturnoer

142 13?.7 123.4 E/ E/

Aera&e

collection period

. days 7.1 days days E/ E/

Aera&e payment

period

10.6 days 7.4 days 7.2 days E/ E/

(otal assetsturnoer

0.32 0.31 0.2 E/ E/

Det

+e%t ratio 70.7 6.10 72


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" ratio

Accordin& to t#e ta%le' an oerall result of financial ratio is &ood. Et#er t#an t#at'

t#e data s#o$s t#e li=uidities are not flo$s &ood' %ecause t#e ratio is decreasin& from

years 2012 to year 2013. e!t' t#e profita%ility of t#e company is also decreasin& at year

2013. It may %e t#e pro%lem of t#e mana&ement' and it effect t#e $ealt# of t#e

s#are#olders is reducin&.


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Reference

(n.d.). Retrieved October 2, 2014, from Yaoo !inance"

tt#"$$%nance.&aoo.com$'$#

*5099.+-a*11-b*31-c*2010-d*11-e*31-f*2013-*m

Corporate Profle. (n.d.). Retrieved October 5, 2014, from /ir/ia"

tt#"$$.airaia.com$m&$en$abot$cor#orate#ro%e.#ae

Financial Ratio Analysis. (n.d.). Retrieved October 2, 2014, from

m&accontincore.com accontin trainin for te ret of "

tt#"$$.m&accontincore.com$%nanciaratio$

Industry Summary. (n.d.). Retrieved October 2, 2014, from

tt#"$$bi.&aoo.com$#$m'#md.tm

The History o AirAsia. (n.d.). Retrieved October 3, 2014, from inin"

tt#"$$.inin.com$read$contem#orar&trate&ana&irant

7t$cae9$teitor&ofairaia

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Appendixes

22

Documents

FM1 Assignment - AirAsia