Assignment
You can see that the Balance Sheet and Profit and Loss statement have been 'reformulated' to separate out operating, investment and financing items. [See Rows 32 and below for the income statement and Rows 43 and below for the Balance Sheet].
1. Examine the way in which the reformulation has been done (ie look at the cell references to determine what is operating, financing etc). Identify at least two items in the Balance Sheet that could have been reclassified in a different way. Explain why the alternative classification would be plausible or valid.
2. Analyse Qantas' profitability in the past three years.by calculating the following ratios (do not use the ratios from the "Ratio Analysis" tab - they will give you the wrong numbers. You can submit this as an excel spreadsheet. Do each of the ratios below on a new row.
a. Return on equity (use average shareholders' equity as the denominator)
b. Net operating profit after tax
c. Operating asset turnover [from b. and c. you can, and should, then calculate Return on operating assets]
d. Return on (average) investment assets
f. Return on business assets (hint: it's the 'weighted' average of the return on operating and investment assets)
e. Spread [net interest expense after tax - return on business assets]
g. Financial leverage
h. Financial leverage gain
i. Calculate ROE as Return on Business Assets + Financial leverage gain to ensure your calculations are correct. This serves as a useful
checking mechanism
3. Create a chart in Excel that shows ROE, Net operating profit margin, operating asset turnover for 2013-2015 using the ratios you have calculated above. Use a separate vertical axis for the operating asset turnover to the ROE and Net operating profit margin. [There is a ton of material out on the googlemachine about creating excel charts.]
4. a) Briefly describe Qantas' performance by making references to the ratios you have just calculated. b) Discuss in particular how you would interpret the 2014 profit margin and therefore Return on Operating Assets. Identify the main concern you have with the 2014 results.