Evaluating financial management in kingfisher airlines - Free Essay Example

Financial management can be defined by managing the finances of a business in order to achieve financial objectives. Taking a commercial business as the most common organizational structure the key objectives of financial management would be as follows:- Create wealth for the business. Generate cash and Provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested. There are three major elements to the process of financial management and they are:- Financial planning Financial control and Financial decision making FINANCIAL PLANNING: Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term funding may be needed to invest in equipment and stocks pay employees and fund sales made on credit. FINANCIAL CONTROL: Financial control is a critically important activity to help the business ensure that the business is meeting its objectives financial control addresses question such as:- Are assets being used efficiently Are the businesses assets secure Does management act in the best interest of shareholders and in accordance with business rules FINANCIAL DECISION MAKING: The keys aspects of financial decision-making relate to investment, financing and dividends:- Investments must be financed in some way. However there are always financing alternatives that can be considered. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profit further. KINGFISHER AIRLINES: INTRODUCTION: Kingfisher airline is one of the seven airlines to be ranked as a five-star airline by the independent research consultancy firm. They operate more than three s daily flights to seventy one destinations, with regional and long-haul international services. In May 2009, they also carried more than a million passengers, giving it the highest market share among airlines in India. They also the sponsor of F1 racing outfit, which Vijay Malaya also owns. They also serve sixty three domestic destinations in eight countries across Asia and Europe. Their short haul routes are mostly domestic apart from some cities in south Asia, Southeast Asia and western Asia. All short haul routes are operated on the airbus A320 family aircraft ATR 42S and ATR 72S are used mainly on domestic regional routes. They have its medium, long haul destination in East Asia, South Asia and Europe. Its first long haul destination was London, United Kingdom. This was launched in September 2008. It has plans to launch new long haul flights to cities in Africa, Asia, Europe, North America and Oceania with deliveries of new aircraft. All long haul routes are operated on the airbus 330-200. DEPT. FINANCING FOR A MEDIUM SIZED FOR BOTH THE SHORT -TERM AND LONG -TERM: SHORT -TERM FINANCING: This term financing referring to any investment, financial plan, or anything else lasting for one year or less. In this term investments and financial plans usually involve less uncertainly than long term investments and financial plan because generally speaking, markets trends are easily predictable for one year than for any longer period likewise, There plans are more easily amendable, as a result of the little time frame this term plans usually involve investing in short term securities, such as T-Bills or Commercial Paper. LONG-TERM FINANCING: This term is describing a table, tactic, precautions or anything else with a term of longer than one year; the exact number of year varies according to the usage. For example a long term financial plan outline investment and other financial goal for any time more than one fiscal year, while a long term bond has a maturity of 10 or more years. Anything long term involves more uncertainly than anything short-term because generally speaking, market trends are more easily predictable in the short-term. Thus, while planning for the long-term is necessary, ones plan must be flexible to account for its inherent uncertainly. EQUITY FINANCING: Equity financing is a term used for companys issuance of shares of common or preferred stock to raise money. It is also commonly done when its per share prices are high the most money that can be raised for the smallest number of shares. Equity financing also known as capital structure As we can see the equity financing or you can say capital structure of kingfisher airlines as shown in the chart. IMPORTANCE OF FINANCIAL MANAGEMENT: The organization of the finances of a business/organization in order to achieve financial objectives. Taking a commercial business as the most common organizational structure the key objectives of financial management would be to as follows: Create wealth for the business. Generate cash, and Provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested. IMPORTANCE OF CREDIT CONTROL WITHIN A FINANCE DEPARTMENT: A strategy employed by manufacturers and retailers to promote good credit among the creditworthy and deny it to delinquent borrowers. This will both increases sales and decrease debts, thus improving a companys cash flow credits control is an important component in the overall profitability of many firms also known as credit management. Financial control is a critically important activity to help the business ensure that the business is meeting its objectives, financial control addresses question such as Are assets being used efficiently? Are the businesses assets secure? Does management act in the best interest of shareholders and in accordance with business rules? VARIABLE AND FIXED COSTS DURING ECONOMIC DOWNTURNS IN KINGFISHER AIRLINES: Buying the big jets: fleet planning for airline FLEET SIZE ECONOMICS: Fleet size economic alliance due to a major shift in their strategic direction. Although it was not the case, it could have been disasters if Aer-lingus had allowed their fleet strategy to be driven by their alliance partners only to find themselves compromised upon leaving the alliances. Airline undoubted reap revenue benefits due to alliance membership but true cost savings in big tickets items such as fleet acquisition may be out of reach for all but a handful of airlines. There will always be institutional obstacles, such as union issues and manufacturing pricing strategies, to airline reaping the fleet cost savings that might be apparent on paper. THE PROBLEM OF EXTERNAL FACTORS: Airline economics have always been affected by external factors, some of which are conditioned of the geographical area in which airlines operate and some of which just conspire to make difficult. The huge fuel price increases of the 2000s affected the entire industry and even those airlines able to hedge the majority of their fuel bill were simply postponing the moment when the higher fuel prices ate into profit margins. THE METHOD BEFORE INVESTING SPECIFIC AMOUNT OF MONEY IN FINANCIAL MANAGEMENT: There are three keys elements to the process of financial management:- 1. Financial planning 2. Financial control and 3. Financial decision making FINANCIAL PLANNING: Management need to ensure that enough funding is available at the right time to meet the needs of the business. In the short term funding may be needed to invest in equipment and stocks pay employees and fund sales made on credit. FINANCIAL CONTROL: Financial control is a critically important activity to help the business ensure that the business is meeting its objectives financial control addresses question such as:- Are assets being used efficiently? Are the businesses assets secure? Does management act in the best interest of shareholders and in accordance with business rules? FINANCIAL DECISION MAKING: The keys aspects of financial decision-making relate to investment, financing and dividends:- Investments must be financed in some way. However there are always financing alternatives that can be considered. For example it is possible to raise finance from selling new shares, borrowing from banks or taking credit from suppliers. If dividends are too high, the business may be starved of funding to reinvest in growing revenues and profit further. PAYBACK AND DIVIDEND RATIO FOR KINGFISHER AIRLINES: PAYBACK RATIO: The amount of time taken to break even on an investment. Since this method ignores the time value of money and cash flows after the payback period, it can provide only partial pictures of whether the investments are worthwhile. DIVIDEND RATIO: Five fundamentals reasons I am positive lying on dividends: Community income cover a lot rebound from their recessions level and are now approaching record levels short interest rates. Corporate cash on hand stands at an all time high payouts remain low, partially due to the speed of income improvement and the slower rate of dividend increase. Reporting rates, income dividends are very high. DIVIDEND AND PAYBACK RATIOS OF KINGFISHER AIRLINES: Dividend and payback ratios in RS.CR. JUNE 2007 MARCH 2008 MARCH 2009 MARCH 2010 Adjusted EPS -55.05 -18.64 -60.67 -48.5 Adjusted Cash EPS -51.81 -15.94 -54.22 -40.33 Reported EPS -30.97 -13.85 -60.5 -61.95 Reported Cash EPS -27.73 -11.16 -54.65 -53.78 Dividend Per Share 0 0 0 0 Operating Profit Per Share -19.37 -23.95 -20.8 -35.71 Net Operating Income Per Share 132.89 107.24 198.16 190.59 Free Reserves Per Share 15.46 2.68 -94.05 -167.98 Operating Margin -14.57 -22.32 -10.49 -18.75 Gross Profit Margin -15.55 -23.58 -13.02 -21.94 Net Profit Margin -22.92 -12.5 -27.43 -31.25 Adjusted Cash Margin -38.34 -14.38 -24.58 -20.34 Adjusted Return On Net Worth -209.52 -147.04 0 0 Reported Return On Net Worth -117.87 -109.29 0 0 Return On Long Term Funds -36.27 -36.52 -7.9 -23.99 Long Term Debt / Equity 0.98 3.54 0 0 Total Debt 2.38 4.95 0 0 Owners Funds 29.56 16.8 -63.14 -99.65 Fixed Assets Turnover Ratio 5.37 4.61 2.85 2.47 Current Ratio 2.33 1.71 1.09 1.34 Current Ratio (inc. st loans) 0.79 0.96 0.64 1.34 Quick ratio 2.2 0.87 0.52 0.57 Inventory Turnover Ratio 28.8 0 5,738.39 30.74 Dividend payout Ratio (net profit) 0 0 0 0 Dividend Payout ratio (cash profit) 0 0 0 0 Earning Retention Ratio 0 0 0 0 Cash Earning Retention Ratio 0 0 0 0 Adjusted Cash Flow Time Total Debt 0 0 0 0 Financial Charges Coverage Ratio -0.49 -0.63 0.02 -0.68 Financial Charges Coverage Ratio (post tax) 0.19 0.65 0.29 -0.3 Material Cost Component 2.55 3 0.97 0.8 Selling Cost component 0.99 5.83 12.97 0 Exports As Percent Of Total Sales 18.56 3.42 4.54 13.79 Import Comp. In Raw Materials Consumed 0 0 0 0 Long term Assets/Total Assets 0.01 0.03 -0.01 0 Bonus Component in Equity Capital (%) 20.14 20.09 10.26 10.26 PROFIT AND LOSS ACCOUNT OF KINGFISHER AIRLINES: profit and loss account in RS.CR. JUNE 2007 12 MONTHS MARCH 2008 9 MONTHS MARCH 2009 12 MONTHS MARCH 2010 12 MONTHS INCOME SALES TURNOVER 1,800.21 1,456.28 5,269.17 5,067.92 EXCISE DUTY 0 0 0 0 NET SALES 1,800.21 1,456.28 5,269.17 5,067.92 OTHER INCOME 342.1 113.62 598.9 -333.3 STOCK ADJUSTMENTS 0.00 0.00 0.00 0.00 TOTAL INCOME 2,142.31 1,569.00 5,868.07 4,734.62 Raw materials 45.94 43.79 51.19 40.89 Power and fuel costs 979.5 889.3 2,602.62 1,802.99 employee cost 247.72 244.96 825.42 689.38 Other manufacturing expenses 617.56 408.21 1,112.85 1,108.82 Selling and admin expenses 148.78 180.39 1,062.74 1,067.54 Miscellenous expenses 25.11 14.81 167.55 108.58 Preoperative exp capitalised 0.00 0.00 0.00 0.00 TOTAL EXPENSES 2,062.61 1,781.46 5,822.37 4,818.20 JUNE 2007 MARCH 2008 MARCH 2009 MARCH 2010 12MONTHS 9 MONTHS 12 MONTHS 12 MONTHS OPERATING PROFIT -262.4 -325.18 -553.2 249.72 PBDIT 79.7 -211.56 45.7 -83.58 Interest 466.05 434.44 2029.33 2,243.39 PBDT -386.35 -646 -1,983.63 -2,329.17 Depreciation 17.67 18.28 133.2 162.8 Other written off 26.25 18.31 38.39 54.49 Profit before tax -430.27 -682.59 -2,155.22 -2,546.46 Extra ordinary items 14.09 -0.97 0 31.28 PBT (post extra ord items) -416.18 -683.56 2,155.22 -2,515.18 Tax 3.4 -494.45 -546.38 -770.69 REPORTED NET PROFIT -419.58 -188.14 -1,608.83 1,647.22 Total value addition 2,016.67 1,737.67 5,771.17 4,777.31 Preference dividend 0 0 0 0 Equity dividend 0 0 0.00 0.00 Corporate dividend tax 0 0 0 0 PER SHARE DATA (ANNUALIZED) Shares in issue (lakhs) 1,354.70 1,357.99 2,659.09 2,659.09 Earnings per share (Rs) -30.79 -13.85 -60.5 -61.95 Equity dividend pert. 0 0 0 0 Book value Rs 28.4 13.9 -83.88 -150.54 CASH FLOW OF KINGFISHER AIRLINES: Cash flow statement for kingfisher airline in RS.CR. JUNE 2007 12 MONTHS MARCH 2008 9 MONTHS MARCH 2009 12 MONTHS MARCH 2010 12 MONTHS NET PROFIT BEFORE TAX -416.18 -682.59 -2155.21 -2417.92 Net cash from operating activities -552.58 -541.52 -645.78 -1665.09 Net cash from investing activities 119.48 13.82 206.63 235.13 Net cash from financing activities 993.68 -9.23 290.11 1964.55 Net decrease/Increase in cash and cash equivalents 560.57 -536.93 -149.04 34.6 Opening cash and cash equivalents 256.47 817.05 -320.91 171.87 Closing cash and cash equivalents 817.05 280.12 171.81 206.47 CONCLUSION: After doing a study of this project representing on Kingfisher Airlines, I have come to a conclusion that Kingfisher Airlines is one of the largest and most widespread airlines of the country providing its services not only in India as well as outside India also. It has alliance with many other airlines in this sector. Kingfisher Airlines offers world class services to the customer at a nominal rate. The airline uses the services of one of the advanced plans been operated in the world. To sum up I would like to say that Kingfisher Airlines is serving its customer in an appreciated way and going to be in the list of best services providers in coming years.