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Financial Stability
Currently, we are in an environment that has a very complex and difficult macroeconomic position for all businesses around the world. The financial crisis has disclosed that businesses are required to realise effectively the connections between real economic and financial sectors. Virgin Australia Holdings Ltd has a considerably lower margin than Qantas Airways Ltd and obtains less profit it could. Qantas Airways Ltd has considerably higher mark-ups and may be pushing clients into the arms of other companies. Net profit margin evaluates the sum of money created from sales after all appropriate expenses, including fixed cost, direct costs, and wages, have been included in the calculation (Shin, 2009, p. 314). Here, Qantas Airways Ltd has higher net profit and has more advantage over Virgin Australia Holdings Ltd. This evaluates a company’s financial stability to retain earnings after attaining existing goals, an important element of stability.
Financial stability analysis helps businesses assess, identify, and prioritise possible causes of system threats in the business environment and financial structure (Patel & Sarkar, 2010, p. 57). This is mainly performed through the application of several quantitative tools, for example, indicators to evaluate system risk and the degree of pressure in the financial structure. The debt to equity ratio evaluates the quantity of assets in Virgin Australia Holdings Ltd and Qantas Airways Ltd that are financed by debt matched up to equity elements like sustained income and stock sales. In general, Qantas Airways Ltd has a higher reliance on debt more than Qantas Airways Ltd and finds itself in difficulty over the long run, likely leading to unstable stock costs and valuations (Patel & Sarkar, 2010, p. 57).
Qantas Airways Ltd has higher capacity to place its productive assets to suitable application due to the calculation of Return on assets (ROA). A higher ROA that Qantas Airways Ltd shows that it is using its assets in a manner that creates extra profit matched up to assets values (Yokoi-Arai, 2002, p. 60). This can show confidence and innovative administration activities within Qantas Airways Ltd that can generate a competitive advantage over Virgin Australia Holdings Ltd. Keeping a competitive benefit via effective functions and the application of productive assets can maintain Qantas Airways Ltd somewhat stable in the long run.
Most management employees of several businesses deem that net profit margin not only portrays the productivity of the business matched up to sales, but it also provides great support in expenses management. Therefore, along with the management employees, it is unnecessary to apply any profitability ratios. It is seen that other major ratios, such as gross margin ratio and expenses analysis ratio, contribute a major function to establish the profitability, as net profit ratio reduces and the expenses analysis ratio raises, the gross margin ratio reduces (Monczka & Handfield, 2008, p. 252). There is a study association between these ratios to evaluate profitability of any business so that they can manage expenditures within the income obtained to assume an appropriate process for the future financial expenditures and income.
Conclusions and Recommendations
These ratios have been evolving throughout many years since many companies are emerging to compete and have to provide quality services compared to competitors. These have been show through the ratios of Qantas Airways Ltd. Financial statement analysis includes examining the organisation’s financial reports or statements to take out information that may support when making decision-making. The application of accounting concepts as among major approaches applied in financial statements analysis may direct administration in decision making through contributing a major function in evaluating the strengths and weaknesses of the business or organisation. Accounting analysis for a firm enterprise provides a major role to derive quantitative measures or direction regarding the anticipated ability of the business to attain its future financial commitment and prospects (Schinasi, 2005, p. 8).
Most management employees agree that the functions of accounting in decision making are extremely important, but they reported the issue of inadequate ability to benefit from them. First, the application of accounting concepts applied by several businesses support decision making and evaluations since there is simple storage and access of information and records within a company. Second, the application of various accounting concepts and other important forms like the flexible market may offer information from different parts of the company, and all these processes place the supervision and decision-making body in a better point in providing a better decision for the business. Consequently, the combination of these features among other important aspects can ensure reliable and efficient decision making.
The businesses and organisations should enhance its ability to draw prospective investors through estimating its return to equity ratio and evaluate it to outcome of this ratio from the company in similar industry to examine their capability of raising the equity from the outer sources that the business can profit from prospective investors. The calculation of several distinguished analyses should be provided at the end of all accounting stages to examine the historical information so that the company can foresee the financial crisis for all business entity to validate growing concern condition.
Reference List
Monczka, R & Handfield, R 2008, ‘Purchasing and Supply Chain Management’, Handfield, Mason, OH.
Patel, S & Sarkar, A 2010, ‘Crises in developed and emerging stock markets’, Financial Analysts Journal, vol. 54 no. 6, pp. 50–59.
Schinasi, G 2005, ‘Preserving Financial Stability’, International Monetary Fund, Wishington.
Shin, H 2009, ‘Securitisation and Financial Stability’, The Economic Journal, vol. 119, pp. 309–332.
Yokoi-Arai, M 2002, ‘Financial Stability Issues: The Case of East Asia’, Kluwer Law International, London.
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