Financial Management- Company Analysis

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Japan Airlines Corp Company Overview
Provide air transport services

Japan Airlines Corp.

Air transportation operation of passengers and cargo planes

Travel planning and sales - planning and sale of travel packages

Air transportationrelated Catering, develop ment of equipment etc

Card and leasing provision of financial, card and leasing services

Others - businesses related to hotels, resorts, logisti cs, wholesale, retail, r eal estate

Overview
y y y y y y y y y y

Common Primary Shares (mil) 546 Market Cap Consolidated (mil) 320.23 Enterprise Value (mil) 1,065,598.23 EPS -25.47 PE Ratio -7.85 Last Dividend 0.15 Dividend Date 7/11/2005 Dividend Yield n/a Beta 0.12 5 year growth rate -309.97%

JAL s story of Bankruptcy .
y Debt-saddled Japan Airlines (JAL), Asia's biggest air carrier by revenue, filed for ban ruptcy on 19th Jan 2010 to see protection from creditors. y Over 15000 employees lost their jobs. y JAL is now valued at $150m USD the price of 1 new jumbo jet... y By March 2013, the carrier is expected to cut 15,000 jobs one-third of its wor force - and shut down 53 of its 110 companies. It will also cut unprofitable routes and replace ageing planes to eep afloat and be able to post a profit of 115.7 billion yen ($1.27 billion) in the fiscal year ending in March 2012.

What went wrong??
y Founded in 1951, Japan's flagship carrier came to

symbolise the country's rapid economic growth, leading to privatisation in 1987 y It also found itself with growing pension and payroll costs, and running many unprofitable domestic routes, which it was politically obliged to maintain y More recently, it has seen falling passenger numbers in the global downturn, and as a result of increased competition from Japanese rival All Nippon Airways y It lost 131bn yen ($1.4bn; £880m) in the six months to September

Japan Airlines Financials
Net Income
50000 0 2001 -50000 -100000 2002 2003 2004 2005 Net I c

¢¡  

e

Financial Summary of last 5 yrs
03/31/09 Sales Operating Income After Depreciation NetIncome 1,951,158.00 -50,884.00 -63,194.00 03/31/08 2,230,416.00 90,013.00 16,921.00 03/31/07 2,301,915.00 22,917.00 -16,267.00 03/31/06 2,199,385.00 -26,834.00 -47,243.00 03/31/05 2,129,876.00 56,149.00 30,096.00 03/31/04 1,931,742.00 -67,645.00 -88,619.00

Net Cash Flow From Operating Activities Net Cash Flow From Investing Activities Net Cash Flow From Financing Activities

31,755.00

157,331.00

127,748.00

100,984.00

145,275.00

76,345.00

105,653.00

26,229.00

56,216.00

99,283.00

21,456.00

85,382.00

-116,767.00

36,896.00

-53,007.00

-91,384.00

-6,290.00

7,615.00

TotalAssets Total ia ilities

1,744,649.00 1,547,878.00

2,117,191.00 1,646,121.00

2,083,482.00 1,751,609.00

2,109,155.00 1,933,640.00

2,118,059.00 1,897,539.00

2,063,773.00 1,880,361.00

¤ £

All Nippon Airways Company Overview
Provide air transport services

All Nippon Corp.

Air transportation - operation of passengers and cargo planes

Travel planning and sales planning and sale of travel packages

Air transportation-rel ated Catering, develop ment of equipment etc

Maintenance of aircrafts in the country and overseas markets

Others - businesses related to hotels, resorts, logist ics, wholesale, retail, real estate

Overview
y Common Primary Shares (mil) 2506 y Market Cap Consolidated (mil) 752437.1 y PE Ratio 141.36 y Dividend Yield 0.34 y Beta 0.33 y Enterprise Value: 1,500,306 y 1 Yr Sales Growth: -6.40

All Nippon Financials
Net Income
1,600,000.00 1,400,000.00

1,200,000.00

1,000,000.00

800,000.00 600,000.00 400,000.00

200,000.00

0.00 Mar'06 Mar'07 Mar'08 Mar'09 Mar'10

All Nippon Financials
Net Sales
1,600,000.00 1,400,000.00 1,200,000.00 1,000,000.00 800,000.00 Net ales 600,000.00 400,000.00 200,000.00 0.00 Mar'06 Mar'07 Mar'08 Mar'09 Mar'10

¥

Profitability ratios comparison
Return On Invested Capital
All Nippon Japan Airlines 4.40 6.10 2.78 2.30 3.76 3.09 2.11 0.86 0.20 2006 -1.72 2007 2008 2009 2010 -2.96 -3.81 -2.36 -2.30 2006 -1.20 0.13 2007 2008 2009 2010 0.62 1.38

Return on Assets
All Nippon Japan Airlines

Profitability ratios
Total Debt Pct Total Assets
Japan Airline All Nippon 1.95 278.75 244.38 188.20 169.52 198.86 2006 -2.15

Net Margin
All Nippon 4.31 Japan

2.19 0.76 2007-0.71 2008 -0.31 2009 -3.24 -4.67 2010

Cost of Goods Sold To Sales
58.62 49.25 43.44 46.36 All Nippon Japan Airlines 81.42 73.58

2006

2007

2008

2009

2010

78.49 69.65

77.48 69.71

75.33 66.46

77.28

2006

2007

2008

2009

2010

Equity Pct Total Capital

Leverage ratios
Total Debt Pct Common Equity
32.95 11.73 2006 2007 All Nippon 2008 2009 Japan Airlines 2010

All Nippon

Japan Airlines 41.55 38.13 30.49

39.91

26.53

24.44

2.57 2006 2007 2008 2009 2010

Total Debt Pct Total Assets
Japan Airline All Nippon 278.75 244.38 188.20 58.62 2006 169.52 43.44 2008 46.36 2009 2010 198.86

49.25 2007

Liquidity Ratios comparison
Quick Ratio
All Nippon Japan Airlines

Current Ratio
All Nippon Japan Airline

0.91 1.10 1.07 0.77 0.71 0.64 0.63 0.55 0.53 0.46 0.61 0.89 1.07

1.23

0.87

0.89 0.75

0.89

2006 2006 2007 2008 2009 2010

2007

2008

2009

2010

Comparison between ANA and JAL
y Japan Airlines (JAL) and All Nippon Airways

(ANA), illustrate crucial differences in their financial condition and could signal change in the nation s aviation hierarchy. y Both carriers rang up deficits, with ANA recording a close to 30 billion yen (US$314.5 million) net loss and JAL with a staggering net loss of 99 billion yen (US$1.04 billion). y In June, JAL sought and obtained 100 billion yen in a rescue pac age from a group of five Japanese lenders led by the Japan Development Ban , 80% government guaranteed, to cover hemorrhaging losses. y a ing a self-styled standing on its own two feet approach, ANA went to the mar et in July and raised 141.7 billion yen in a new share issue, about 20% less than intended, as the shares price fell after the plan was announced, but within their target.

Comparison between ANA and JAL cont..
y ANA is procuring funds for capital investment in a growth strategy, JAL y

y y

y

is funding losses from its structural inefficiencies Of the two airlines, ANA is in a much stronger position financially, despite having made a loss last year of 4.3 billion yen, its first loss in six years. ANA has a strong balance sheet, with plenty of cash reserves and mar etable assets. On the other hand, JAL s balance sheet is not in such good order, having made losses in four of the past six years ANAs better financial shape is attributable to the airline s careful and timely restructuring. In the past seven years it has renewed and simplified its fleet, fine-tuned its networ and has generally been quic er to react to mar et changes than the less nimble JAL. Far-sighted ANA joined Star Alliance in October 1999 and has benefited tremendously from the synergies created with alliance partners.

Z-score values
The original Z-score formula is as follows: Z = 1.2T1 + 1.4T2 + 3.3T3 + .6T4 + .999T5. where, T1 = Wor ing Capital / Total Assets. Measures liquid assets in relation to the size of the company. T2 = Retained Earnings / Total Assets. Measures profitability that reflects the company's age and earning power. T3 = Earnings Before Interest and Taxes / Total Assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability. T4 = Mar et Value of Equity / Boo Value of Total Liabilities. Adds mar et dimension that can show up security price fluctuation as a possible red flag. T5 = Sales/ Total Assets. Standard measure for sales turnover (varies greatly from industry to industry).
y

Based on the above formulae , the calculated Z-score values are as follows, All Nippon : 3.2 Japan Airlines : 1.1

References
y Thompson online database y Google Financials y World scope DataStream y Wi ipedia y Yahoo Financials y To yo Stoc Exchange y Wall Street Journal y Credit Guru

Section 2, Group 14

y Aadarsh (FT11248) y Namit (FT11238) y Nidhi Garg (FT11240) y Shalini (FT11262) y Victor(FT11272)

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