ratio analysis aviation
DESCRIPTION
Ratio analysis of companies in Aviation sectorTRANSCRIPT
Kingfisher Airlines: Ratio Analysis
1. Liquidity Ratiosa. Current Ratio = Current Assets/ Current Liabilities
2009
2010 2011 2012 2013
Current Ratio 0.3 0.4 0.4 0.2 0.1
Current ratio of Kingfisher had declined steadily over the period. This was because the current liabilities on the company were increasing at a rate much higher than the rate of decrease of the current assets.
b. Quick Ratio = (Current Assets- Inventory)/ Current Liabilities
2009
2010 2011 2012 2013
Quick Ratio 0.53 0.66 0.32 0.16 0.08
Inventories on the company’s balance sheet followed no particular trend, though no major fluctuations either. Thus the quick ratio also followed the trend of current ratio.
2. Profitability Ratios:a. Gross Profit Ratio = (EBIT)/ Net Sales
2009 2010 2011 2012 2013Gross Margin -35.2 -18.7 -3.7 -39.3 -560.1
There was a net loss reported in all the 5 years making this ratio negative. However we can see the abnormal loss in the year 2013 because of which the company had to file for bankruptcy. This sudden increase of losses was due to steep drop in revenues due to poor image of the company.
b. Net profit ratio = PAT/ Net Sales
2009 2010 2011 2012 2013
Net Margin -30.7 -32.5 -16.5 -42.4 -857.9
Just like the gross margin, this ratio too is negative and the company ultimately went bankrupt in 2013.
c. Return on Assets = NPAT/ Total Assets:
Year 2009 2010 2011 2012 2013Return on Assets -12 -7.3 3.5 -11.5 -101.9
This ratio is negative because the net profit was negative i.e. a loss. However, the major jump in the ratio in the year 2013 was due to the heavy decline in the total assets of the company. Since the company filed for bankruptcy in 2013, the banks withheld a lot of assets of Kingfisher against their loans.
d. Return on Equity = (NPAT – Dividends) / (Paid up capital + reserves and surplus)
2009 2010 2011 2012 2013Return on Equity 0 0 0 0 0
Return on equity is not a valid ratio here since the company was running into losses and hence its equity shareholders or the investors were not earning any rupee on their shares.
3. Turnover Ratiosa. Inventory Turnover Ratio = 365/ (COGS/ Average Inventory)
2009 2010 2011 2012 2013Inventory Turnover 10 12 11 14 121
(in days)
b. Collection Period = 365/ (Net Credit Sales/ Average Debtors)
2009 2010 2011 2012 2013Average Collection Period 19 23 26 12 15
c. Fixed Assets Turnover ratio = Net Sales/ Total Assets
2009 2010 2011 2012 2013Net Assets Turnover 0.8 0.7 0.8 0.6 0.2
This ratio measures the efficiency and profit making capacity of the company. A lower ratio indicates underutilization of assets. This is exactly what happened in Kingfishers case, revenues declined sharply because of the malpractices in the company and the assets i.e. the airplanes remained unutilised.
4. Leverage Ratios:a. Debt/Equity Ratio: Debt/ Equity
2009 2010 2011 2012 2013Debt Equity Ratio -1.3 -1.1 -1.8 -1 -0.5
This ratio is negative for Kingfisher because it had a negative equity capital. A negative equity meant that Kingfisher had much more liabilities on its balance sheet that assets. These liabilities were mainly in the form in current liabilities, i.e defaults in payables like salaries, fuel charges etc. as debt started accumulating on Kingfisher’s balance sheet, so did the equity but in the negative side. Hence, this ratio is not a very appropriate measure to study Kingfisher.
b. Interest Coverage Ratio = EBIT/ Interest Expense
2009 2010 2011 2012 2013Interest Coverage Ratio -2.5 -0.8 -0.2 -1.7 -2
The lower the value of this ratio, the more is the company burdened with debt, and that it does not earn enough profits to pay its interest expenses. This ratio is negative because the company is in losses and also it is very high indicating that the company is in debt at the same time not able to repay its liability.
5. Valuation Ratios:a. Earnings per share = NPAT/ Number of Sharesb. P/E Ratio = Market Price per share/ Earnings per share
The above two ratios aren’t appropriate for the company since its shares are no longer trading on the stock markets. The company filed for bankruptcy in the year 2013.
Common Size Income Statement:
In Millions of INR except Per Share FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
12 Months Ending 03/31/2009 03/31/2010 03/31/2011 03/31/2012 03/31/2013
Sales 100.00% 100.00% 100.00% 100.00% 100.00%
+ Other Operating Income -4.07% 0.43% 2.03% 0.00% 0.00%
- Operating Expenses 136.14% 122.03% 105.78% 145.29% 698.30%
Operating profit (loss) -40.21% -21.60% -3.75% -45.29% -598.30%
- Interest Expense 10.95% 19.88% 17.95% 21.94% 272.85%
- Foreign Exchange Losses (Gains) -9.34% 0.99% 0.25% -1.98% 3.49%
- Net Non-Operating Losses (Gains) 7.84% 5.24% 2.44% -2.51% -16.79%
Pretax Income -49.66% -47.71% -24.40% -62.73% -857.85%
- Tax Provision -10.43% -15.21% -7.92% -20.35% 0.00%
Income Before XO Items -39.23% -32.50% -16.48% -42.38% -857.85%
- Extraordinary Loss Net of Tax 0.00% 0.00% 0.00% 0.00% 0.00%
- Minority Interests 0.00% 0.00% 0.00% 0.00% 0.00%
Net profit (loss) -39.23% -32.50% -16.48% -42.38% -857.85%
- Total Cash Preferred Dividends 0.00% 0.00% 0.69% 0.94% 10.33%
Net Inc Avail to Common Shareholders -39.23% -32.50% -17.17% -43.31% -868.18%
0.00% 0.00% 0.00% 0.00% 0.00%
Abnormal Losses (Gains) 0.00% 0.00% 0.00% 0.00% 0.00%
Tax Effect on Abnormal Items 0.00% 0.00% 0.00% 0.00% 0.00%
Normalized Income -39.23% -32.50% -17.17% -43.31% -868.18%
Source: Bloomberg
The most notable item here is the operating expenses. They inflated to 689% of the revenue leading to heavy losses for the company. The revenues in the year 2013 declined sharply because of the number of issues going on in the company at that time
Also the company kept delaying its interest payments to the banks which kept accumulating till the year when the company filed for bankruptcy
Hence there were consistent losses faced by the company during the 5 year period
Commonsize Balance Sheet:
In Millions of INR except Per Share FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
12 Months Ending03/31/200
903/31/201
003/31/201
103/31/201
203/31/201
3
Assets
+ Cash & Near Cash Items 2.29% 2.72% 1.07% 0.54% 0.37%
+ Short-Term Investments 1.63% 0.00
% 0.00% 0.00% 0.00%
+ Accounts & Notes Receivable 3.06% 4.24% 5.34% 2.06% 0.71%
+ Inventories 1.96% 2.17% 2.27% 2.25% 5.91%
+ Other Current Assets 19.15% 23.20% 12.55% 11.88% 23.79%
Total Current Assets 28.08% 32.33% 21.23% 16.73% 30.78%
+ LT Investments & LT Receivables 0.00% 0.00% 0.00% 0.00% 0.00%
+ Net Fixed Assets 42.26% 33.04% 18.80% 15.71% 25.23%
+ Gross Fixed Assets 46.28% 39.21% 26.65% 23.95% 45.70%
- Accumulated Depreciation 4.02% 6.18% 7.84% 8.24% 20.47%
+ Other Long-Term Assets 29.66% 34.63% 59.97% 67.56% 43.99%
Total Long-Term Assets 71.92% 67.67% 78.77% 83.27% 69.22%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%
Liabilities & Shareholders' Equity
+ Accounts Payable 37.70% 34.24% 26.64% 30.91% 94.03%
+ Short-Term Borrowings 68.54% 7.32% 31.67% 87.03%
+ Other Short-Term Liabilities 12.44% 24.99% 30.36% 132.44%
Total Current Liabilities 115.22% 58.95% 92.93% 313.50%
+ Long-Term Borrowings 35.70% 76.40% 62.50% 245.41%
+ Other Long-Term Liabilities 0.40% 0.34% 0.70%
Total Long-Term Liabilities 35.70% 76.81% 62.84% 246.11%
Total Liabilities 150.93% 135.76% 155.77% 559.61%
+ Total Preferred Equity 1.28% 6.70% 6.07% 19.68%
+ Minority Interest 0.00% 0.00% 0.00% 0.00%
+ Share Capital & APIC 4.55% 22.31% 22.40% 90.73%
+ Retained Earnings & Other Equity -56.76% -64.77% -84.24% -570.02%
Total Equity -50.93% -35.76% -55.77% -459.61%
Total Liabilities & Equity 100.00% 100.00% 100.00% 100.00%
Source: Bloomberg
The company being from a capital intensive industry, one can clearly see that a major portion of the company’s assets are in the form of fixed assets ie. Air planes, air busses, etc.
Other current assets on the balance sheet such are cash etc are a small number because the company doesn’t need to hold liquid assets.
On the liabilities side, we can see the current liabilities shooting up to 313% of the total assets! This had happened because Kingfisher defaulted on a lot of payments to its suppliers, employees and others. It kept delaying salaries to its employees, didn’t pay fuel charges to HPCL and BPCL, because of which its equity share capital ran into negative.
2. SpiceJet
Kingfisher Airlines: Ratio Analysis
1. Liquidity Ratiosa. Current Ratio = Current Assets/ Current Liabilities
2009 2010 2011 2012 2013SpiceJet 1.07 1.03 0.4 0.3 0.5
In 2010, SpiceJet began international operations, thus leading to drop in assets. Short term investments of SpiceJet dropped to 0 in 2011 thus lowering the assets and amount payable increased increasing the liabilities owing to slowdown of Indian economy. Purchase of nine more aircrafts in 2012 further increased liabilities.
b. Quick Ratio = (Current Assets- Inventory)/ Current Liabilities
2009 2010 2011 2012 2013SpiceJet 1.05 1.01 0.34 0.26 0.43
Increasing inventories from 2009 to 2013 led to continuous decrease in quick ratios consecutively. However, market Share of spice jet suddenly rose to 12.5 % from 10.5 % in 2013 causing a high quick ratio compared to previous years. This was made possible due to better aircraft utilization.
2. Profitability Ratios:a. Gross Profit Ratio = (EBIT)/ Net Sales
2009 2010 2011 2012 2013SpiceJet -0.23 0.02 0.03 -0.14 -0.03
In 2012, SpiceJet inducted 9 additional jets. This asset purchase activity to increase the overall capacity and future revenues reduced the operating profits even though net sales improved. This resulted in reduced gross profit ratios in 2012 and 2013.
b. Net profit ratio = PAT/ Net Sales
2009 2010 2011 2012 2013
SpiceJet -0.21 0.03 0.03 -0.15 -0.03
The net profit ratio follows the same trend as mentioned above for gross profit ratio.
c. Return on Assets = NPAT/ Total Assets:
Year 2009 2010 2011 2012 2013SpiceJet -0.34 0.04 0.09 -0.31 -0.06
Due to purchase of aircraft during 2012, the total assets increased. However, due to increased expenses, the net profit declined substantially and hence we observe a zero (negative) value of return on assets in 2012 and 2013
d. Return on Equity = (NPAT – Dividends) / (Paid up capital + reserves and surplus)
2009 2010 2011 2012 2013SpiceJet -0.77 -0.33 0.31 4.13 0.85
SpiceJet had a high ROE in 2012, indicating higher management's effectiveness with respect to the amount of net income returned as a percentage of shareholder’s equity. Spicejet’s ‘Get more when you fly’ campaign improved their online presence and helped drive the customers to the Spicejet website, as evident by the high ratio of 2012.
3. Turnover Ratiosa. Inventory Turnover Ratio =COGS/ Average Inventory
2009 2010 2011 2012 2013SpiceJet 129 146.5 157.6 150.06 143.89
High value of this ratio suggests that spicejet has shortage of inventory which can have effect on its sales.
b. Collection Period = 365/ (Net Credit Sales/ Average Debtors)
2009 2010 2011 2012 2013Kingfisher 19 23 26 12 15
SpiceJet
c. Fixed Assets Turnover ratio = Net Sales/ Total Assets
2009 2010 2011 2012 2013SpiceJet 6.68 5.57 3.48 2.57 2.45
Decreasing value of this ratio for spicejet indicates dwindling sales which can be attributed to shortage in inventory and changes in Indian Economy.
4. Leverage Ratios:a. Debt/Equity Ratio: Debt/ Equity
2009 2010 2011 2012 2013SpiceJet -0.01 0.96 0.22 -6.28 -7.06
In 2012, short term borrowings of spicejet significantly increased and equity fell considerably owing to slowdown of Indian economy and other changes in its investments.Interest Coverage Ratio = EBIT/ Interest Expense
2009 2010 2011 2012 2013SpiceJet -33.01 6.35 20.65 -13.72 -1.72
Spicejet data shows increasing and then decreasing trend of profit because of significant changes in sales, inventory, investments, liabilities and borrowings.
5. Valuation Ratios:
a. Earnings per share = NPAT/ Number of Shares
2009 2010 2011 2012 2013SpiceJet - 2.54 2.5 - -
Spicejet earned some profit in 2010 and 2011
COMMON SIZE BALANCE SHEET
In Millions of INR except Per Share FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
12 Months Ending05/31/20
0603/31/20
0803/31/20
0903/31/20
1003/31/20
11
Assets
+ Cash & Near Cash Items 0.89% 30.84% 29.87% 34.45% 1.26%
+ Short-Term Investments 8.52% 26.98% 18.10% 12.74% #VALUE!
+ Accounts & Notes Receivable 0.60% 0.08% 1.20% 1.45% 1.55%
+ Inventories 0.60% 0.57% 1.21% 1.13% 1.83%
+ Other Current Assets 14.51% 12.50% 25.11% 20.27% 20.76%
Total Current Assets 25.12% 70.98% 75.48% 70.04% 25.40% + LT Investments & LT Receivables 0.00% 0.00% 0.00% 0.00% 0.00%
+ Net Fixed Assets 72.46% 28.87% 24.20% 29.81% 7.71%
+ Gross Fixed Assets 73.81% 29.60% 26.05% 31.71% 10.29%
- Accumulated Depreciation 1.35% 0.73% 1.85% 1.91% 2.59%
+ Other Long-Term Assets 2.43% 0.15% 0.32% 0.15% 66.89%
Total Long-Term Assets 74.88% 29.02% 24.52% 29.96% 74.60%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%
Liabilities & Shareholders' Equity
+ Accounts Payable 16.00% 4.51% 15.16% 11.84% 24.22%
+ Short-Term Borrowings 1.09% 12.42% 3.54% 0.10% 7.66%
+ Other Short-Term Liabilities 13.33% 36.19% 51.89% 56.17% 36.91%
Total Current Liabilities 30.42% 53.12% 70.59% 68.11% 68.79%
+ Long-Term Borrowings 71.85% 14.94% 43.86% 33.40% 0.00%
+ Other Long-Term Liabilities 0.93% 2.27%
Total Long-Term Liabilities 71.85% 14.94% 43.86% 34.33% 2.27%
Total Liabilities 102.27% 68.06% 114.45% 102.45% 71.06%
+ Total Preferred Equity 0.00% 0.00% 0.00%
+ Minority Interest 0.00% 0.00% 0.00%
+ Share Capital & APIC 51.62% 27.41% 47.09% 37.19% 93.46% + Retained Earnings & Other Equity -53.89% 4.53% -3.03% -51.39% -64.52%
Total Equity -2.27% 31.94% 44.06% -14.20% 28.94%
Total Liabilities & Equity 100.00% 100.00% 158.51% 88.24% 100.00%
ANALYSIS
1. The total assets of spicejet increased from 2011 to 2012 by a huge 77%. This was because of the purchase of 9 aircrafts by the company in its existing fleet to improve its operations.2. The airlines began international operations in 2010, as a result of which cash and near cash items reduced by 97%. This fall was offset by increase in inventory, thus the decreasing the current assets by 67%.
COMMON SIZE INCOME STATEMENT
In Millions of INR except Per Share FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
12 Months Ending03/31/200
903/31/201
003/31/201
103/31/201
203/31/201
3
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
+ Other Operating Income 1.6% 0.7% 1.2% 1.2% 1.9%
- Operating Expenses 124.8% 98.9% 97.7% 115.6% 105.0%
Operating profit (loss) -23.2% 1.8% 3.5% -14.4% -3.1%
- Interest Expense 0.7% 0.3% 0.2% 1.1% 1.8%
- Foreign Exchange Losses (Gains) 1.6% -0.4% 0.3% 0.2% -0.4%
- Net Non-Operating Losses (Gains) -4.8% -1.2% -1.3% -0.3% -1.1%
Pretax Income -20.7% 3.1% 4.4% -15.4% -3.4%
- Tax Provision 0.2% 0.3% 0.9% 0.0%
Income Before XO Items -20.9% 2.8% 3.5% -15.4% -3.4%
- Extraordinary Loss Net of Tax 0.0% 0.0% 0.0%
- Minority Interests 0.0% 0.0% 0.0%
Net profit (loss) -20.9% 2.8% 3.5% -15.4% -3.4%
- Total Cash Preferred Dividends 0.0% 0.0% 0.0%Net Inc Avail to Common Shareholders -20.9% 2.8% 3.5% -15.4% -3.4%
0.0% 0.0% 0.0% 0.0% 0.0%
Abnormal Losses (Gains) 0.0% 0.0% 0.0%
Tax Effect on Abnormal Items 0.0% 0.0% 0.0%
Normalized Income -20.9% 2.8% 3.5% -15.4% -3.4%
Analysis1. SpiceJet considerably expanded its operations from 2012 to 2013. Addition of new aircraft and new travel destinations increased the passenger traffic, leading to 30% rise in operating revenue.2. Weakening rupee and rise in fuel prices drove the company into losses in 2012. It could not pass on these burdens on the passengers due to increasing competition and pricing pressures. However, a revenue increase in 2013 reduced the net operating losses.