Qantas Airline Financial Valuation and Sensitivity Analysis

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Corporate Finance


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Executive summary1
1.Select a company listed on the Australian Stock Exchange, find and download the following data2 2. using the data from 1b and 1c construct a Characteristic Line and determine Beta for the company. Is this Equity or Asset Beta?2 3.Rebuild the Five Year Historical Financial Statement, extracting only relevant cash flow data for NPV analysis5 4. Forecast another five years of relevant data. You must explain the method you use to derive your forecast data. E.g. basis of your forecast growth rate, working capital consideration, nominal or real cash flows etc6 5.Estimate the WACC for the company. You must explain how you derive the Cost of Equity, Cost of Debt and other components required to work out WACC.9 6.Use the forecast data and a Terminal Value at year 5 to estimate the current valuation of your company. Comment on the quality of your forecast data and terminal value.12 7. Compare with the price in the market, and offer some explanation of any discrepancy.14 SENSITIVITY ANALYSIS15

8.Conduct sensitivity analysis on the forecast cash flow. Identify and comment on the sensitive factors affecting the value of the company.15 Conclusion and recommendation20

Executive summary

In this essay, we generally investigated Qantas Airways Limited, which is the largest airline in Australia mainly though historical data from the aspects of valuation and sensitivity analysis.

Based on our analysis, Qantas Airline Limited has an equity beta of 1.3711 which is greater than 1. It means that the stock has greater price volatility than the overall market and is also more risky. As such, the stock price is affected by the negative impact from global financial crisis in recent years.

We got average growth rate of 2.1% by using the historical data from last five years to forecast the future net cash flow from year 2011 to 2015. We assume that the revenue of the company will towards sustained growth by 2.1%.

Compare to the current market price of the company’s stock, the estimated price is approximately 3 times of the market price. As the price of the stock is undervalued based on our estimation, it represent a buying opportunity for investors.

Under our sensitivity analysis from the condition of optimistic and pessimistic, we found that the NPV we got under the two conditions ranged from the lowest NPV downs to $7043.83M to the highest $7812.21M, it showed a relatively stable performance for all the investors.

All these analysis showed that Qantas could be considered to be a proper investment target, however under a relative high risk.


We did a great deal of work to analyse Qantas Airways Limited by deeply investigated its historical data in order to provide a generous view of the company for existing and potential investors. At first we derived equity beta form historical data and then forecasted revenue growth to estimate the performance of the company for the next five years. After that, we calculate the weighted-average cost of capital by using the data from its financial statements. And we are able to estimate the fair value of the equity by utilizing all the data we got before. At last, as we don't have a high degree of confidence about the trends of costs and sales and future cash flows, we can use the sensitivity analysis to examine further business valuation by considering pessimistic and optimistic conditions to work out net present values of Qantas.


1.Select a company listed on the Australian Stock Exchange, find and download the following data

a)Five years of Historical Financial Statements
b)Five years of price data for the company – Australian companies ends with
.AX (
c)Five years of All...
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