The Airlines Industry
Autor: Sharon • November 3, 2018 • 2,890 Words (12 Pages) • 531 Views
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The debt to equity ratio decreased from 12.21 (2009) to 2.62 (2010) and increased again to 10.83 in 2011. Since then it has decreased to 4.39 in 2013. There is a dramatic difference between debt ratio and debt to equity ratio. MAB’s debt ratio of 81% seems less onerous than its debt-equity ratio of 439% in 2013. It indicates that debenture holders have more than twice money in the company than equity holders.
PROFITABILITY RATIO
Selected Ratio
2009
2010
2011
2012
2013
Net profit margin (%)
1.34
(5.42)
(18.47)
(3.24)
(8.03)
Return on equity (ROE) (%)
89.9
3.16
(238.73)
(20.15)
(28.85)
Return on asset (ROA) (%)
7.44
0.87
(20.17)
(2.49)
(5.35)
Table 3: Profitability Ratio of Malaysian Airlines Berhad (MAB)
Based on the table, the net profit margin of MAB has declined from 1.34% to -18.47% in 2011 and slightly increased with a negative margin in 2013 (-8.03%). It pictures that MAB is spending more than what it is earning. If this situation persists in long run, then MAB may have an unsustainable business model. If MAB could not take any corrective measures to regain net profit, it is essential to consider shutting down its airline business.
MAB’s ROE has declined drastically from 2009 (89.9%) to 2011 (-238.73) and increased back with negative ROE of -28.85% in 2013. With that, MAB have an inefficient management in utilizing its equity base and failed to provide good return to investors.
On the other hand, ROA of MAB has declined from 2009 (7.44%) to 2011 (-20.17%) and increased a little higher while maintaining a negative value until 2013 (-5.35%). The negative ROA gain proves that MAB did not employ their assets efficient to make profit.
ALTMAN Z-SCORE
Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5
X1 = (current assets − current liabilities) / total assets
X2 = retained earnings / total assets
X3 = earnings before interest and taxes / total assets
X4 = book value of equity / total liabilities
X5 = sales / total assets
2009
2010
2011
2012
2013
Net Working Capital ÷ Total Assets
-0.097
-0.116
-0.35
-0.186
-0.066
Retained Earnings ÷ Total Assets
0
0
0
0
0
Earnings Before Interest and Taxes ÷ Total Assets
0.031
0.049
0.02
0.027
0.026
Shareholders’ Equity ÷ Total Liabilities
0.089
0.381
0.096
0.14
0.228
Sales ÷ Total Assets
1.323
1.042
1.092
0.763
0.666
Z- Score
1.36
1.29
0.8
0.71
0.8
The Altman Z-score for all five years (2009:1.36, 2010:1.29, 2011:0.8, 2012:0.71, 2013:0.8) showing scores below 1.8. These scores clearly indicates that MAB is in distress zone where bankruptcy is likely to happen in the next two years.
On the financial aspects, both the financial ratios and Altman z-score has showed that MAB is in a critically bad financial condition. Therefore, it has incurred a doubt on MAB’s going concern risk.
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4. Going Concern Indicators
According to ISA 570 (Going Concern), the para A2 had some events that can question going concern assumption of MAS.
Negative Operating Cash Flow
YEAR
2009
2010
2011
2012
2013
Operating Revenue (RM’000)
11,309,855
12,980,447
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