Question

What are the 4 critical success factors related to financial statement analysia of an airline business like Tiger Air and discuss it.

(1000words)

Answer 1

The analysis of any financial statement is extremely important for any kind of business entity. Having a microscopic view of the financial statements a user can get the idea of how the company's financial health is .The financial health reflects the soundness of the business transactions of the entity that are being carried on by the management of the entity. The financial analysis is usually carried on by the interested investors who decide whether or not to invest their money in the entity based on the facts presented in the financial statements of the entity.

Therefore it can safely be concluded that for any user of financial statement the analysis has to be conducted in a very critical manner may it be for any kind of business of any sector. Here are few critical success factors related to financial statement analysis of an airline business like Tiger Air:-

1. Market capitalization - the analysis should be done keeping in mind the market value and capitalization of the entity. Comparing the market structure and the growth of the sector  to which the company belongs gives a clear picture as to how strong or weak the condition of the particular company is. The market value of the entity is calculated by multiplying the number of shares to the market value of each share. A comparative study of how the entity has captured the market with respect to its competitors will give a better view.

2. Current profit/Net profit- Since the sale of flight tickets is never pre determined the flying industry always faces the challenge of determining the current sales value based on current sales. A critical microscopic view shall give a basis of of determining how much the company has increased or decreased its share from last year. An increased profit can further be studied to determine have the number of passengers increased or has the sales price gone up.

3. Statutory funds- The airline industry is affected by a lot of factors like the government rules and bylaws in force. The contribution to the statutory funds shall be studied in order to understand the government policy of promoting the concerned sector. Whether the political environment is hostile for the airline industry or favouring can be analysed by the compulsory contribution the company has to legally make to the reserves and surpluses. Also a study of special tax slabs if any applicable shall be noted.

4. Operating Ratios- the major expense of any company of this industry is in the form of operating expenses. An analysis of the operating ratios shall depict how much the revenue contribution and operating expenses are related and affecting the profitabilty and growth. The expense reduction the company needs or is doing can also be analysed by studying this factor.

Besides these the analysis of liquidity ratio, debt equity ratio and the Solvency ratio must also be done in depth in order to get a better understanding.