Introduction

Introduction

The purpose of this report is to conduct financial analysis for Singapore Airlines and New Zealand Airways. The financial analysis of a company is related to the businesses, budgets, and other finance-related transactions. The financial analysis of a company helps to explore and determine performance and suitability. With the help of financial analysis, a company evaluates its stability of business growth, solvency, liquidity, and profitable environment in the market. There are many types of financial analysis, such as vertical financial analysis, horizontal financial analysis, growth rate analysis, profitability analysis, etc (CFI Education Inc, 2022). In financial analysis, the common financial analysis is related to presenting balance sheet, income statement, and cash flow statement. In these presentation related to transactions, unique details are included that is all interconnected.

Financial Analysis for Singapore Airlines

Singapore Airlines is the flag carrier airline of Singapore government that was founded in 1947as Malaysian Airways. This airline hub at Singapore Changi Airport makes it world-famous company because of stellar service standards and huge earnings. The financial condition of Singapore Airlines is average right now because of Covid-19 pandemic. Now, the financial analysis of Singapore Airlines for last 2 years based on liquidity, profitability, and market value, etc. can be analyzed as below:

Liquidity Ratios:

A liquidity ratio is useful to assess the change in a firm’s ability to meet short-term financial obligation when they arise. The below table summarizes the key liquidity ratios of Singapore Airlines for the last fiscal year:

The above table shows that current ratio of Singapore Airlines is increased from 0.44 to 1.69 in the year 2021 from the year 2020, which indicates that liquidity position of the company increased in this period. From this, it is determined that Singapore Airlines ability to meet its short-terms obligation is improved in the last fiscal year, which shows good liquidity position. The above table also depicts that acid test ratio of the company is also improved in this period, which reflects its better performance in the market (Singapore Airlines, 2021).

Profitability Ratios:

Profitability ratios help to measure profitability of the business in terms of generating higher profit through effective utilisation of resources. The below table summarizes the key profitability ratios:

The above table depicts that operating profit margin of Singapore Airlines is decreased in 2021, but at the same time the net profit margin also decreased. The decreasing in operating profit margin reflects loss in company’s operational efficiency that is not good from earnings point of view. At the same time, negative and massive decline in net profit margin of Singapore Airlines indicates that returns to owners are lesser in the year 2021 from the year 2020. From this, overall it can be interpreted that profitability of Singapore Airlines is declined in the last fiscal year (Singapore Airlines, 2021).

Market Value Ratios:

Following table is presented the key market value ratios:

From the above table, it is determined that price/earnings (P/E) ratio of Singapore Airlines is increased from -9.65 to -9.29 in the last fiscal year, which indicates that company’s shares are undervalued which is doubtful from investors point of view. It is because it reflects that Singapore Airlines share is not performing more to provide higher return to investor in the future. The above table shows decrease dividend payout ratio that means company paid no return to investors, which is also not good from the investing point of view (Singapore Airlines, 2021). Form the ratio analysis, overall it can be interpreted that financial performance of Singapore Airlines is declined in the last fiscal year compared to earlier due to decrease in profitability, liquidity, short-term solvency position and management efficiency.

Financial Analysis for New Zealand Airways:

Air New Zealand Limited is New Zealand based airlines that operate its passenger flights to 20 domestic destinations from Auckland. It also manages its passenger flights throughout the world in 31 international destinations in 20 countries. Further, the financial analysis of New Zealand Airways can be seen as below:

Liquidity Ratios:

A liquidity ratio is useful to assess the change in a firm’s ability to meet short-term financial obligation when they arise. The below table summarizes the key liquidity ratios of New Zealand Airways for the last fiscal year:

The above table shows that current ratio of New Zealand Airways is decreased from 0.48 to 0.35 in the year 2021 from the year 2020, which indicates that liquidity position of the company decreased in this period. From this, it is determined that New Zealand Airways ability to meet its short-terms obligation is reduced in the last fiscal year, which shows decreasing liquidity position. The above table also depicts that acid test ratio of the company is also reduced in this period, which reflects to do more for better performance in the market (Yahoo Finance, 2022). 

Profitability Ratios:

Profitability ratios help to measure profitability of the business in terms of generating higher profit through effective utilisation of resources. The below table summarizes the key profitability ratios:

The above table states that operating profit margin of New Zealand Airways is increased in 2021 with decreasing net profit margin. The decreasing in operating profit margin reflects loss in company’s operational efficiency that is not good from earnings point of view. At the same time, negative and massive decline in net profit margin of New Zealand Airways indicates that returns to owners are lesser in the year 2021 from the year 2020. From this, overall it can be interpreted that profitability of New Zealand Airways is declined in the last fiscal year (Yahoo Finance, 2022).

Market Value Ratios:

Following table is presented the key market value ratios:

From the above table, it is determined that price/earnings (P/E) ratio of New Zealand Airways is increased from -4 to -5.97 in the last fiscal year, which indicates that company’s shares are undervalued, investors can be made in the expectation of future growth. This is because it reflects that New Zealand Airways share can perform to provide higher return to investor in the future. The above table also shows no dividend payout ratio in last two years that means company paid no return to investors. Form the ratio analysis, overall it can be interpreted that financial performance of New Zealand Airways is declined in the last fiscal year compared to 2020 due to decrease in profitability and liquidity, as well as short-term solvency position (Yahoo Finance, 2022).

Conclusion

After discussion of financial analysis for Singapore Airlines and New Zealand Airways, it can be stated that Singapore Airlines has ability to meet its short-terms obligation that is improved in the last fiscal year, which shows good liquidity position, but New Zealand Airways cannot meet its short-terms obligation. In the context of profitability ratio, there is negative and massive decline in net profit margin of both Singapore Airlines and New Zealand Airways indicates that returns to owners are lesser in the year 2021 from the year 2020. In terms of market value ratio, both financial performance of Singapore Airlines and New Zealand Airways is declined in the last fiscal year compared to earlier due to decrease in profitability and liquidity.

References

CFI Education Inc. (2022). What is Financial Analysis? Retrieved from: https://corporatefinanceinstitute.com/resources/knowledge/finance/types-of-financial-analysis/

Singapore Airlines. (2021). AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2021. Retrieved from: https://www.singaporeair.com/saar5/pdf/Investor-Relations/Financial-Results/SGXNET/sgxann-q4fy2021.pdf

Yahoo Finance. (2022). Air New Zealand Limited (AIR.NZ). Retrieved from: https://nz.finance.yahoo.com/quote/AIR.NZ/financials?p=AIR.NZ