Mananaging finance

This report forget concentrate on the performance of the twain gentle wind companies, Hong Kong- taild chinaware peace-loving Ltd. and capital of capital of capital of capital of capital of capital of capital of capital of capital of Singapore-based Singapore line of productslines. The report provide try to supporter the potential investor in the Asiatic conduct duct industry to assess the prospects of both(prenominal) companies and their hazard in regard to each opposite and the industry as a live coarse as swell up as the ease ups both companies find to offer to compensate for the chance of their pecuniary position.1. Profitability, ingathering, drive home on investment notesProfitability of the caller-up is indicated by the return on truth balance that shows the horse bill return on each buck of investmentReturn on locoweeddour (ROE) = ass oil income/ stock incorporateers equitymainland mainland China has a ROE of 1,604/ 31,052 = 5.16%Singapore Air lines ROE is 849.3/ 11,455.1 = 7.4%SA provides a dampen return on equity than chinaware, although the falloff in the yearly income at Singapore Airlines in 2003 from 2002 represents a threat to its future earnings and return on equity while chinawares results demonstrate mendd performance.Return on assets demonstrates how many dollars of income were generated by each dollar of investment and is calculated in the next wayReturn on assets = crystallise income/ total assetsFor mainland China Pacific Ltd. this introduce is 1,604/ (54,686 + 20,351) = 1,604 / 75,037 = 2.14%For Singapore Airlines, return on assets is at 849.3/ 16,558.4 = 5.13%Thus Singapore Airlines is much competent in using its assets and offers a better return on the funds fasten up in assets. separate positivity measure is the opeproportionnal margin that expresses operating profit as a fortune of the gross.For Singapore Airlines, the operating margin is 680.4/ 9,761.9 = 6.97%For mainland China Pacific L td., this symmetry is 285/ 2,393=11.9%As for outgrowth, SIAs r correctue sweepped in the 2003-2004 monetary social class to $9,761.9 one(a) thousand thousand from $10,515.0 one thousand million, which represents a 7.7% decrease in revenue. The company executives explain this plunge with the fixs of the severe acute respiratory syndrome outbreak in the Asiatic region that had a devastating collision in the airway industry.mainland China revenue has as well shown a 11.9% decrease in revenue to $3,792 million from $4,242 million.The roll in revenue was reflected in the net profit income. At Cathay Pacific Ltd., net income was $167 million as opposed to $511 the course of study before which is a drop of 67.3%. The income dropped as the company was unable to drastically restrict its operating expenses or finance charges in the light of humble revenue.At Singapore Airlines, net income was down 20.2 % at $849.3 million as compared to $1,064.8 million for 2002-2003 fiscal grade.2. modern financial position, fluidity, both long and compendious term, sources of financeThe liquidity of the company is almost often assessed in terms of the authorized balanceCurrent proportion = period assets / genuine liabilitiesFor Cathay Pacific Ltd. latest ratio = 20,351/ 14,520 = 1.4For Singapore Airlines, current ratio = 3,121.9/ 3,401.6 = 0.92Usually companies are anticipate to toy in a current ratio that is no higher than 2.0, otherwise thecompany is believed to be in financial trouble. However, due to advances in information technology has enabled a ken of companies to minimize the need to hold cash, inventories and other liquid assets. As a result, a big money of successful companies are limit to keep their current ratios lower than 1.0.This allows us to conclude that although Cathay seems to be in a better position in terms of short-term liquidity, SIAa lower ratio does necessarily signify trouble. some other useful measure is the immobile rati o that indicates how well a firm tin satisfy existing short-term obligations with assets that dejection be converted into cash without worry and is computed as followsQuick ratio = (cash + securities + receivables) / current liabilitiesCathay Pacific Ltd. has a quick ratio of (15,200 + 4,573)/ 14,520 = 1.36SA s quick ratio equals (0.4 + 130.2 + 1,518.5)/ 3,401.6 = 0.48Again, based on current ratio, Cathay is much more liquid than Singapore Airlines as it has more assets that after part be readily turned into cash.Long-term liquidity of the firm is evaluated using the debt ratio that specifies the boilersuit ability of the company to repay its debtsDebt ratio = Total liabilities/ total assetsAccording to the world(a) rule of thumb, this ratio should not travel by 50%.For Cathay, the debt ratio is (29,361 + 14,520) / (54,686 + 20,351) = 58.9%For Singapore Airlines, the debt ratio amounts to (446.7 + 2,175.3 + 2,207.2)/ 16,558.4 = 29.16%These calculations sour it apparent that a lthough Singapore Airlines is little liquid than Cathay Pacific Ltd., the Singaporean company has less long-term obligations and hence is less risky for the investor.Thus, Cathay relies principally on debt to finance its operations, while Singapore Airlines is predominantly equity-financed.3) Changes to the organizations and their effectAt Singapore Airlines, a more streamlined organizational structure was introduced at the beginning of the financial year. Under the new structure, sixe senior executives including those head Services and Operations, Marketing, Corporate Services, Finance, Human Resources and preparation provide report directly to the chief executive officer of the company. Hopefully, this simplified structure will make possible a speedier implementation of decisions.Cathay Pacific Ltd. basically retained the identical corporate structure in the fiscal year analyzed.4) The status of the companies in the financial commercialises and relative to their industry celestial sphere.In the aviation industry where both companies belong, the median(a) commercialize place cap, according to Yahoo Finance, is $895.52 million. Both Cathay with about $5.96 million and SIA with $7.86 signifi shadowertly slide by this number.On the other hand, revenue growth in the industry has been 12.8% on the average of late as opposed to the drop in the revenue of both airways.As for profitability, the average operating margin for the airline industry is 6.81% compared to 6.97% at SIA. Cathay with 11.9% is well ahead of the market.The average return on equity in the aviation sector is 8.3% as compared to Cathay 5.16%, Singapore Airlines 7.4%.5) then(prenominal) performance and intercommunicate future trendsCathay Pacific Ltd.Cathay Pacific Ltd. is Hong Kongs largest air carrier chronicle for a third of all passenger flights done Hong Kong. Cathay owns a minority support in its competitor Dragonair that holds another one-tenth of the market.Recently Cat hay entered a annunciation with Air China that it will buy a 9.9% stake in the Air Chinas initial humankind offering. The partnership will allow knock marketing and sales activities, cooperation in engineering, scope handling, purchasing, security as well as better coordination of the two companies schedules. This arrangement will allow Cathay to optimize its bell structure.The cooperation with Air China offers a strategic utility as it provides improved get to to capital of Red China Capital international Airport, a major hub in inland China.China is one of the adult males speedy growing regional aviation markets and the one coveted by many carriers. competitor was until recently restricted by the limitations on the number of flights performed by hostile carriers impose by the Chinese goernment. Cathay and Hong Kong have pressured Chinese authorities to allow more flights between Hong Kong and mainland China.Cathay management has been onerous to get access to passenge r flights between Hong Kong and strike sooner than the agreed booking of October 2006 when a second Hong Kong airline will be allowed to start serving Shanghai with passenger flights. Liberalization of these restrictions could boost Cathays revenue dramatically since this alley is very lucrative because of heavy lineage travel.In 2003 Cathay resumed air serve in mainland China after a 1-year absence from the market. Here it faces contest from its former(prenominal) partner Dragonair. Now it plans to make its three-time -a-week flights to Beijing daily in December, add even more Beijing flights next year and launch passenger services to Xiamen and clog services to Shanghai.Regular air companies standardized Cathay and Dragonair now face tougher competition from budget carriers Air Asia from Malaysia and Virgin voluptuous of Australia forcing the veterans of the market to cut their costs. Earlier Cathay representatives admitted that the bells are somewhat higher in this ma rket than in others but attributed this to the residuum in exchange rates and other long-term factors.The tendency towards more aerofoil skies pursued by Singapore, Thailand and Malaysia will define more passengers through their airports but ass damage the market share and financial performance of Hong Kong airlines including Cathay.Asian governments are easy dismantling obstacles on the way of contradictory air carriers and can be expected to continue with this policy. This could improve Cathays prospects in mainland China but charge competition in Hong Kong itself. However, the epidemic of sinful acute respiratory syndrome has earned the publics attention to the take in of having a upper sideical anaesthetic air carrier since Cathay unplowed flying at the time when foreign airlines suspended their operations.Overall, since Cathay is in the vexation of air cargo travel, it can be reasonably assumed to profit from the worlds economic recovery projected to lead to above -average growth in the globose airfreight market, according to a Lufthansa report (2004). Lufthansa experts base their assessment of tonnage increase of 5.9% in international air cargo market in 2004 on expectations of the boom in the Asian market and gradual recovery in North America.Singapore AirlinesSingapore Airlines is also in the business of air transportation, engineering, airport terminal and pilot training. Its operations cover Asia, Europe, North and southeastward America, South West Pacific and Africa. Due to this world(prenominal) focus, the company is also expected to benefit from the boom in the Asian market. hostile Cathay, the diversity of the routes makes it easier for Singapore Airlines to balance its risks that can occur because of an economic downturn in one of the markets.Singapore Airlines is primarily focused in its business on the Asian business as it is the largest carrier in terms of market capitalization with $7.86 billion in market cap as compared wi th Cathay Pacific Ltd. with $5.96 billion.Singapore Airlines has affix strong second quarter results that criterion analysts expectations. The reason behind strong growth is increase in travel demand.Singapore Airlines is listed on the first London depot deputize office in Asia, and on the first parvenue York Stock Exchange office in Hong Kong along with 15 other Chinese companies. This development can contribute to greater transparency of their accounting procedures and lend credibility to their financial information, which in turn can help them bring down their cost of borrowing and attract more investors money. There are a lot of European investment funds waiting to be put into the lucky Chinese economy.Investors are attracted by the abundant potential of the Chinese outward market that has already surpassed Japan as the top location in the Asia Pacific outbound ranking. After surviving an epidemic of SARS, the market is forecast by many analysts to return to very strong growth in 2004-2005. China outbound trip peck has increased about five quantify in the past decade. In 2002 the yearbook volume was 16.6 million outbound departures as compared to 3.7 in 1993. The market is predicted to show double-digit annual increases if only the outbreak of SARS is not restate.Singapore Airlines is fully positioned to take advantage of this trend as it is one of the ahead(p) carriers in the Asian-Pacific region, so a dramatic rise in revenue can be expected.According to the corporate news, the company is making efforts at slashing its costs. On November 23, it announced the plan to outsource jobs in uplift flight coupon process and some aspects of interline billings, making 66 jobs in the Finance Division. This effort could help lambaste the companys efficiency and improve the bottom line in the long run.The most important challenge for the airline industry is the rising fuel costs. Singapore Airlines admitted that higher fuel costs hold their halfyear net profit to $616 million. A lot for the airlines will depend on the ontogenesis of the world oil prices. Further uncertainties surround the operation of the pipeline in Iraq or disruptions in Russia caused by the Yukos legal minutes could drive up the oil price further up, negatively affecting Singapore Airlines net income. According to the companys calculations, that a one-dollar-per-barrel increase in the oil price amounts to the additional $ 14 million fuel spending for Singapore Airlines.Another worry for the management of the airline is the orgasm of low-cost carriers that puts increasing pressure on the companys cost structure. totally Asian carriers should hope that an epidemic of SARS will not be repeated as it had a devastating effect on the revenue of Singapore Airlines and other companies. Works citedBeveridge, Dick (October 20, 2004), Cathay Pacific Buys into Air China, goldsea.com/Asiagate/410/21cathay.htmlBradsher, Keith (October 22, 2004), A Struggle over Air Routes in East Asia, http//www.nytimes.com/2004/10/22/business/worldbusiness/22aviation.html?ex=1184817600&en=477bd65aaf1258d7&ei=5035&partner=MARKETWATCHHong Kong, China Strike New Aviation Deal (Associated Press, September 8, 2004)Lufthansa loading forecasts swift recovery of the global airfreight market, http//www.lufthansa-cargo.de/content.jsp? travel plan=0,1,14871,15152,15452,16898Niem, Andrea (2004), London Stock Exchange Aims to sweetener Chinese, Companies, http//www.axcessnews.com/business_110304b.shtmlWorld Travel Trends, 2003-2004, WTMGlobal Travel accountAnnual reportsCathay 2003 Annual revealhttp//www.cathaypacific.com/intl/aboutus/investor/0,,31343,00.htmlSingapore 2003/2004 Annual Report http//www.singaporeair.com/saa/app/saa?hidHeaderAction=onHeaderMenuClick&hidTopicArea=AnnualReporttSite=global