Financial Statements and Financial Analysis

Part
A Reformatted Financial Statements and Financial Analysis (15 %)

Chosen
Company: Flight Centre (FLT)

TASK:

Reformat
the company’s financial statements for the past five years in an
excel spreadsheet. Produce an individual professional report where
ratio and cash flow analysis is performed to evaluate the current and
past performance of the company and its sustainability in the future.
The report should discuss in detail what happened and why the
ratios/cash flows changed. Specifically, the report should include
the following discussions:

Reformatting
(5 marks):

Present
detailed past five years’ reformatted financial statements as an
appendix in the report.

Ratio
analysis (6 marks):

Calculate
and discuss key ratios such as ROE, RNOA, PM, ATO, FLEV and
NBC.
Break down and analyse PM and ATO ratios in further
details. Identify and discuss three significant expense items that
have caused major changes in profit margin. Identify and discuss
three major assets or liabilities whose turnover ratios have
contributed to the overall change in assets efficiency.

Briefly
describe the ratios trend. The analysis should elaborate on the
economic, industry and business factors that drive the changes in
ratios. The discussion should consistently reflect the same firm
fundamentals identified in the group report.

Cash
flow analysis (3 marks):

Calculate
liquidity, solvency and cash flow ratios.
Analyse financial risk
and cash flow management of the company based on ratios.

Overall
Report Quality (1 mark):

The
report should be readily comprehensible, condensed and within the
word limit. Information should be collected from various reliable
sources to inform analysis and references are properly cited. Tables
and graphs should be used to effectively present information.

____________________________________________________________________________________________________________________

Length:
maximum 2000 words (exclusive of references and appendices).
Appendices are limited to a maximum of 7 pages. Please use a font
size of 11, 2.5cm page margins and a line spacing of 1.5.

Referencing
Style: Harvard

____________________________________________________________________________________________________________________

Some
Helpful Tips:

Reformatting:

Excel
takes much of the hard work out of the exercise by using formulas
which will link to later work in ratios, forecasting and the models
so take the time to familiarise yourself with how it works. I would
suggest you either use the QANTAS reformatted tab supplied online and
simply type your numbers in but DO NOT wipe out the formulas which
calculate the totals etc, OR create your own using the reformatted
QANTAS example without all the ancillary pages (your tutor will
explain). The reformatted statements should be attached as an
appendix. Students should ensure that the font is of sufficient size
so that all data is legible and that nothing is cut off in the
margins.

You
MUST provide the following correctly to score strong marks:

A
full breakdown of revenues and expenses, and balance sheet items as
per QANTAS example (i.e. it is NOT sufficient just to say revenue,
operating expenses, net operating assets, net financial obligations).
Doing so makes it impossible for you to undertake a proper analysis
and forecast so you must get it right here.

• Tax
  allocation to operating and financing activities are clearly shown
  in reformatted income statement.

• After
  reformatting, the calculated net income, comprehensive income, and
  equity figures MUST agree with the financial statements.
• Equity
  balance checks must clearly be shown. That is, opening balance of
  common shareholders’ equity (CSE) is reconciled with closing
  balance.
• Both
  FCF checks must clearly be shown.

Ratio
and CF analysis: Ideally
the ratios will be presented
in a clear table within
the report so the reader can digest them before reading your
analysis. You MUST provide all 6 ratios over the 5-year period. Do
not undertake a lengthy explanation of how to calculate the ratios.

The
ratios should be analysed in the following order ROE, RNOA, PM, ATO,
FLEV then NBC
as this is a natural breakdown of ROE as per lecture and tutorial
material. You must then clearly identify and discuss 3 significant
expenses which have impacted profit performance over past 5 years.
Then clearly identify 3 significant
assets
or liabilities which have impacted ATO for past 5 years. Again, this
will vary depending on the company and industry in which the company
is operating so don’t just adopt the same ideas as your peers as it
may not be relevant to your company.

CF
analysis should cover the aspects of liquidity, solvency and CF
management. Students should provide the 5-year ratios (in a table or
graphs), analyse them, then state the level of financial risk and
strength or otherwise of their CF management.

Students
should understand what makes up the numerator and the denominator of
each ratio and therefore what has caused the increase or decrease.
Wide reading about the company from its annual

report
and the press will help with this. Do not simply repeat what the
company has said in their report as this may just be spin. Analyse it
yourself.

The
real value of this section is providing an insight into the trend of
the ratios and the factors behind these trends. Weaker
responses
will simply track the movement over the 5 years which adds very
little to the report as the reader can determine that from the table
themselves. Stronger
students
will understand what is at play behind these movements in terms of
company performance, economic factors, new markets, changes within
industry, legislation, cost factors etc.

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