Air Asia Financial Analysis

Topics: Malaysia Airlines, Kuala Lumpur International Airport, Kuala Lumpur Pages: 14 (5038 words) Published: April 9, 2013
1.0 Executive Summary

Malaysia Airline System Berhad (MAS)is a group having several businesses organization includes Malaysia Airlines, MAS Cargo, Firefly, MASwings, MAS aerospace and so on. Other businesses which are under MAS are hotel operations, catering, computerized reservation services, coach transportation, trucking and warehousing services, retailing of goods, terminal charges and tour and travel related activities(Malaysia Airline System Berhad, 2010). Malaysia Airlines had won awards of ‘5-Star Airline’ and ‘World’s Best Cabin Staff’ from Skytrax. It were also recognized as ‘Asia’s Leading Airline’ and the ‘Best Airline in SoutheastAsia’( Malaysian Airline System Berhad, 2011). MASkargo meanwhile was recognized as the ‘Best Air CargoCarrier in Asia’ at the 2009 while Malaysian Aerospace Engineering(MAE), Repair and Overhaul (MRO) arm wasawarded the ‘2009 Best Asia-Pacific Airline MRO Operation’by two leading magazines in the industry( Malaysian Airlines System Berhad,2010). Furthermore, Fireflywas recognized as the Best Value Airline of The Year Award in year 2010. In deciding whether or not to purchase shares in a company, a potential shareholder who applies the fundamental approach to share investment analysis will be particularly interested in forecasting the future level of profitability of the company, and the degree of risk to the associated cash flows (Viney, 2003). Profitability ratio, efficiency ratio, gearing ratio, liquidity ratio, investment ratio and price earnings ratio was done as a first part in the assignment to understand MAS financial performance in year 2009 and 2010. Besides, my research shows that MAS is using as bank service, finance lease, issuing ordinary shares and preference shares to finance its liability.In this report, Pest analysis includes political, economical, social cultural and technological environment was done to evaluate the macro environment of MAS and to analyze the impact of these environment on MAS. All these factors have great influencein MAS as a group as it holds several companies from different sector and industry. It also impact on the demand on MAS shares. Potential investor will have to understandthe current economic and market situation in order to make investment decision. Even though the chairman stated that MAS’s management is trying to cut the operating cost to reach cost efficiency thus to increase the revenue, but MAS has been reported having loss of profit in this recent years. Moreover,the market value of MAS shares have been in a dropping pattern since 2008 as shown in the chart in Figure 8. Finally, overall economic situation, political reasons and company performance shows that it is not a good time to invest in MAS at the moment.


2.0 Analysis of Account
2.1 Profitability ratio

MASIndustry Comparison (Air Asia)
Financial Year| 2009| 2010| | 2009| 2010|
ROSF| 21.38%| 11.65%| | 23.96%| 33.90%|
ROCE| -15.05%| 5.30%| | 23.79%| 10.12%|
Operating Profit Margin| -5.42%| 2.03%| | 29.13%| 27.02%| Figure 1
Return on Shareholder’s fund is to evaluate the amount of profit for the period available to the owners with the owners’ stake in the business (Atrill, 2006).Based on the chart, ROSF dropped as the finance costs from third party finance lease has a significant rise and it affected badly on the profit before taxation and net profit. Return on capital employed(ROCE) indicates the efficiency and profitability of a company's capital investments(Harrington,2007). The ROCE of MAS increased from -15.05% to 5.30% but ROCE of Air Asia is dropping. The operating profit margin ratio shows how successful a company generate income from operation and how good is the cost control(Groppelli and Nikbakht, 2006). The operating profit margin of MAS increased and operating profit margin of Air Asia dropped. Overall, it shows nearly all of MAS’s profitability ratios...
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