Abstract
Financial statement analysis helps to improve the Emirates Airlines Company management’s decision making activities. Emirates Airlines Company is one of the world’s fastest growing airline companies. The company is based in Dubai, United Arab Emirates. The financials statement analysis shows that Emirates Airlines Company performed profitably well during the 2011 operational year.
The financial statement analysis ratios include the current ratio, quick ratio, net profit ratio, and return on investment ratio. The SWOT analysis is used to determine Emirates Airlines Company strengths. In addition, the SWOT analysis is used to determine the Emirates Airlines Company’s weaknesses.
The company’s SWOT analysis delves into the company’s opportunities to increasing its revenues. The SWOT analysis shows that the company hast o contend with its encroaching threats. Consequently, Emirates Airlines Company must focus on retaining its current position as the top passenger and cargo entity in the United Arab Emirates. Indeed, Emirates Airlines Company profitably performed in United Arab Emirates’ airline business operations during 2011.
Introduction
Emirates Airlines Company focuses on increasing its revenues. The research centers on financial statement analysis of Emirates Airlines Company. The research centers on
The SWOT analysis of the company. Emirates Airlines Company generated favorable SWOT and Financial Statement Analysis figures for 2011.
Background
Emirates Airline Company is the official flagship of the United Arab Emirates. The company offers air transportation services to its current and prospective clients. The clients come from different parts of the world. The clients arrive from different locations around the world. Similarly, the Emirates Airlines Company is strategically located in the United Arab Emirates residents. The residents are eager to leave their home country, United Arab Emirates, for a vacation or business trip to any part of the global market place.
Further, the Emirates Airlines Company generates different revenue types. Food service revenues are significant contributors to the Emirates Airlines Company’s revenues. The Emirates Airlines Company offers cargo flight serves. The service helps the augment the Emirates Airlines Company’s total revenues. The company also generates revenues from carrying physical mails. Physical mails may perish or become lost within the transportation delivery dates.
Literature review
There are different Emirates Airlines Company segments. Emirates Airlines Company operates from Dubai, the fastest growing cities in the global market place (Taneja, 2008). The Destination and Leisure Management is one very popular Emirates Airlines Company segment. The company also operates its own subsidiary.
One of the subsidiaries is the Emirates SkyCargo. Another Emirates Airlines subsidiary is the Skywards cargo services. A third Emirates Airlines Company is the Emirates official store display center. The Emirates Airlines Company operates its own commercial store; the store’s name is EmQuest. Further, the Emirates Airlines Company includes an engineering division. Lastly, the company opens its own airplane store market segment.
The company sells its passenger tickets at low prices. The low prices are understandable. The private enterprise would have to charge higher passenger and cargo fares to cover the amounts allocated to government taxes. Most companies prefer using Emirates Airlines Company’s services because it is faster than sending the cargo through land (Morrell, 2011). In addition, the company must include an additional amount to cover the operating expenses of the company.
The operating expenses include the employees’ salaries. In addition, the operating expenses include the advertising expenses. Further, the operating expenses include the cost of repairing and maintaining the Emirates Airlines Company airplanes in good working condition.
The operating expenses include the fuel, oil, and other expenses to ensure the Emirates Airlines Company planes can fly the customers to their preferred destination. The low Emirates Airlines Company passenger prices encourage the current Air France and Qantas airline passengers to shift to the cheaper Emirates Airlines Company’s airplanes (Besanko, 2009).
Methodology
In terms of methodology, the financial statement analysis was used to determine the financial health of the company, Emirates Airlines. The use of SWOT Analysis complements Emirates Airlines’ 2011 financial statement analysis.
Application (data analysis)
Financial statement analysis
For the year 2011, Table 1 indicates the above Emirates Airlines’ financial statement analysis’ current ratio shows the company’s current assets of 21,867 is 1.07 times higher than the company’s current liabilities of 20,498. The ratio indicates the company has enough current assets to pay its currently maturing current liabilities during the year.
For the year 2010, Emirates Airlines’ current ratio analysis shows the company’s current assets portion amounting to 18,677 is 1.01 times higher than the company’s 18,520 current liabilities portion. The financial statement ratio indicates the company has enough current assets available for the payment of its currently maturing current liabilities during the year.
Comparing the two accounting audited financial statements’ accounting periods, the year 2011 current ratio of 1.07 shows a better financial statement liquidity performance compared to the lower 1.01 current ratio financial statement performance for the year 2010. In terms of clarification, the company’s current assets portion of the financial statements is composed of cash, cash equivalents, short term investments, accounts receivable, short term loans, inventories, taxes, other current assets and assets held for sale during 2011 and 2010.
The company’s current liabilities portion of the financial statements include the company’s short term borrowings, accounts payable, dividends payable. For the year 2011, table 2 shows that the above financial statement analysis shows the company’s total debt to total equity ratio includes the company’s total debt amounting to only 44,188. The figure is 2.11 times the company’s total equity amounting to 20,902.
The company’s total debt figure is higher than the company’s total equity amount. For the year 2010, the above financial statement analysis shows the company’s total debt to total equity ratio. The ratio indicates the company’s total debt amounts to only 38,072. The figure is 2.18 times the company’s total equity amounting to 17,475. The ratio indicates the company’s total debt is higher than the company’s total equity.
The best debt to equity ratio is defined as a one to one relationship. Thus, the company must generate loan amounts equal to the amount invested by the stockholders of Emirates Airlines Company. Comparing the two accounting periods’ audited financial statements, the year 2011 debt to equity ratio of 2.11 is financially better because the 2010 financial statement liquidity performance ratio is lower when compared to the 2.18 debt to equity ratio for the year 2010.
The Emirates Airline Company’s preference for bank loans is understandable. The company may not prefer generating cash inflows from offering new shares of stocks. The shares of stocks are generally issued to current stockholders and future stockholders. In turn, the current stockholders and future stockholders will automatically become shareholders of Pfizer Company.
The owners’ share in the company is arrived at by dividing each stockholder’s own share by the total number of shares being offered to both the current investors and future investors. In turn, the current shareholders as and future shareholders prefer to invest their funds in the company with the intention of generating dividend income.
Dividends are arrived at by dividing the company’s annual net income amount by the total number of outstanding common stocks. In terms of prioritizing dividend payments, Emirates Airline must prioritize the payment of the preferred shares’ dividend income. After the preferred shareholders of the airline company are paid, the excess dividend amount is distributed to the owners of common stocks (Maguire, 2007).
Table 3 shows that Emirates Airlines Company’s 2011 quick ratio shows the company’s quick assets of 20,577is 1.00 times higher than the company’s current liabilities of 20,498. The Emirates Airlines’ 2010 quick ratio shows the company’s quick assets of 17,592is 0.95 times higher than the company’s current liabilities of 18,520.
The comparison shows the company has enough quick assets available to pay the company’s currently maturing current liabilities within the same year. Comparing the audited financial statements of 2011 and 2010, 2011 is financially better than 2010 because the 2011’s quick ratio of 1.00 is higher than the 2010 financial statement liquidity performance (quick ratio) of 0.95. In terms of clarification, the company’s quick assets are composed of cash, cash equivalents, short term investments, and accounts receivable (Fabozzi, 2010).
In terms of cash ratio analysis, table 4 shows that the 2011 Emirates Airlines’ 10,196 cash, cash equivalent, and marketable securities amount is 0.50 times lower than the company’s current liabilities. The higher liabilities amount is 20,498. The financial statement ratio shows the company does not have enough cash and cash equivalent amounts available to pay the airline company’s maturing current liabilities during the year.
For the year 2010, the above financial statement analysis shows the company’s 9,335 cash, cash equivalent, marketable securities amount is 50 percent of the company’s 18,520 current liabilities amount. The financial statement ratio indicates the company does not have enough current assets available for the payment of the company’s currently maturing current liabilities. Comparing the two accounting periods’ audited financial statements, Emirates Airlines has similar cash ratio results for both 2011 and 2010 (Wahlen, 2011).
For the year 2011, Table 5 shows that the above financial statement analysis (return on investment) shows the Emirates Airlines’ 5,129 net income is 9 percent of the United Arab Emirates’ 60,318.50 average total assets.
For the year 2010, the above financial statement analysis computation (return on investment) shows the company’s 3,418 net income amount is 6 percent of the company’s average total assets amounting to 55,547. Comparing the two accounting periods, the 2011 accounting period fared better than the 2010 accounting period (Pratt, 2010).
SWOT analysis
Strengths
Using SWOT analysis (Ferrell, 2010), Emirates Airlines has proven itself to be one of the world’s best airlines, in terms of quality service. As proof, the company was able to generated an estimated 20 percent airline passenger revenue has increase during the2001 November season.
The passenger seat sales continue to remain at 80 percent or more. In addition, the Emirates Airline Company generated an asset increase. The asset increase is on its 7th year continuing trend. In fact, the Emirates Airline’s fleet increased from its 60 aircraft status (2004) to its current 141 aircraft status (2011). Specifically, Emirates Airline has the most number of A380s as well as 17 crafts. In addition, the company has the largest number of Boeing 777s.
In addition, the Emirates Airlines Company caters to the airline passenger needs leading to and coming from more than 114 destinations around the world and within the United Arab Emirates. Emirates Airlines Company also fills the needs for airline flight going to and coming from over 66 countries around the world.
As usual, the Emirates Airlines Company is planning to add more flights to fill the increased needs for airline flights during 2012. The company will increase its A380 airplane passenger type from its currently owned 90 units s to the higher 120 units.
The company is currently purchasing an additional 192 units of passenger airplanes for fill the increasing demand for the company’s passenger planes in 2012. In addition, the Emirates Airlines Company has constructed seven lounges to fill the comfort needs of the Emirates Airlines Company current and prospective clients.
Another of the airline company’s strength is the Emirates Airlines Company’s open policy. The company is welcome to diverse inputs. The inputs include those coming form the company’s current and prospective clients. The client inputs include complaints regarding the company’s current services, suggestions on how to improve the Emirates Airlines Company’s services, recommendations to hasten the speed and quality of the company’s services.
The company includes inputs from the competitors’ products and services in line with retaining the company’s current position in the United Arab Emirates airline passenger market segment. The company continues to increase the number of flight schedules. The increase is needed to cater to the increasing demand for airline seats going into or going out of the United Arab Emirates.
Weaknesses
In terms of weaknesses (Ebers, 2007), Emirates Airlines Company’s current business operations is affected by the United States’ 2008 economic depression. The depression triggered a drop in the demand for airline tickets. Many of the people lost their jobs due to bankruptcy.
Many companies closed their shop during the 2008 economic meltdown. Consequently, the unemployment rate increase precipitated to a decrease in the company’s airline tickets. Specifically, the company’s net profits had declined to only 982 m Dirhams ($267.4 million) the 2011 annual accounting period. Emirates Airlines Company Chairman Sheikh Ahmed bin Saeed Al Maktoum emphasized the economic depression triggered a decline in the demand for airline tickets.
In turn, the decline in the Emirates Airlines Company airplane tickets triggered a decline in other business types within the United Arab Emirates territory. The Emirates Airlines Company revenue decline precipitates to the decline in Dubai’s tourism industry. The Dubai businesses cater to the demands, needs, wants, and caprices of local and foreign nationals.
Opportunities
In terms of opportunities (Ebers, 2007), the Emirates Airlines Company is committed to enhancing its current popular images as one of the best passenger -centered passenger plane companies. To comply with the projected Emirates Airlines Company image, the company is serving the passenger passing through the doors of the Unite Arab Emirates airport.
By increasing the company’s current airplane units, the Emirates Airlines Company is able to continue the Emirates Airlines Company’s current high quality service to the current and prospective discriminating clients. The company can increase its current airport passenger volume to new destinations around the world.
The company can negotiate with the countries to allow Emirates Airlines Company to increase its current flights going into a new country destination as well as increasing the number of flights going into the United Arab Emirates. To successfully increase the number of airline passenger, the company implements courage, honesty, and strengths in all its global business operations.
In terms of operations, the company focuses on research and development activities. The activities are geared towards increasing operational efficiency, passenger service effectiveness, cost reduction processes.
Another opportunity it to replace the decline for airplane passenger tickets with an increase in Emirates Airlines Company cargo space. The company can maximize the benefits of setting up the company own global airfreight business. The company can hire sales agents who fill focus on increasing Emirates Airlines Company airplane cargo space. Further, the company will focus on advertising its online website.
The clients will find it easier to book their next flights online. The online passenger registration system will encourage the current and prospective clients to book their flights in the safety and comfort of their homes, offices, restaurants, beach, and while travelling from one place to another.
Threats
Based on the threats (Ebers, 2007), the increase in gasoline prices significantly affected the other businesses within the Dubai environment. In addition, Emirates Airlines Company is dependent on third party vendors. Emirates Airlines Company is forced to buy its raw materials and other requirements. To resolve the situation, the Emirates Airlines Company should accept the supply bids from three or more suppliers. With the three supplier alternatives, Emirates Airlines Company can reduce its dependence on the suppliers.
On the other hand, Emirates Airlines Company’s use of only one supplier will force the company to succumb to the pressure of the monopolistic one supplier resource. Having three competing suppliers encourages the Emirates Airlines Company to choose the company having the least possible cost, highest possible quality and best after sales supplier services.
In addition, the volatility of the global oil prices hurts the Emirates Airlines Company financially. The increasing prices of oil precipitate to an increase in company’s gasoline and oil expenditures. The wars have contributed to the increase in the global market price of the fossil fuel, gasoline. The increase in gasoline and oil expenses forces the Emirates Airlines Company to increase its current airline ticker prices.
An increase in the Emirates Airlines Company passenger and cargo selling prices will translate to a lower demand for the airline passenger tickets. One of the economic principles (supply and demand theory) indicate that as the prices of commodities increase, the current and prospective clients’ demand for the commodities decrease. The selling prices of the Emirates Airlines Company passenger and cargo tickets are not exempt from the supply and demand theory of economics.
Conclusion
Based on the above discussion, financial statement analysis aids in enhancing the Emirates Airlines Company management’s decision making activities.
The financials statement analysis indicates that the company fared profitably well during the 2011 operational year. The SWOT analysis indicates how Emirates Airlines Company should focus on keeping its current position as the top passenger, and cargo entity in the United Arab Emirates. Indeed, Emirates Airlines Company generated positive financial statement analysis and SWOT data 2011.
References
Besanko, D. (2009). Economics of Strategy. New York: J Wiley & Sons Press.
Ebers, M. (2007). SWOT Analysis. New York: Grin Press.
Fabozzi, F. (2010). Analysis of Financial Statements. New York: J Wiley & Sons Press.
Ferrell, O. (2010). Marketing Strategy. New York: Cengage Press.
Maguire, M. (2007). Financial Statement Analysis. New York: Grin Press.
Morrell, P. (2011). Moving Boxes by Air: The Economics of International Economics. New York: Asghate Press.
Pratt, J. (2010). Financial Accounting in an Economic Context. New York: J Wiley & Sons Press.
Taneja, N. (2008). Flying Ahead the Airplane. New York: Ashgate Press.
Wahlen, J. (2011). Financial Reporting: Financial Statemetn Analysis and Valuation. New York: Cengage Press.