Financial statement analysis

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Financial statement analysis

1 . Introduction

This seeks to decide which of the companies --- Qantas or Virgin Blue -- is the better investment option by doing an analysis of the their stability- both short term and long term . The will also include appropriate justification based on the analysis and limitation of the analysis that the investor should consider

2 . Financial stability analysis

To conduct a financial stability analysis of the companies there is a need to compare

their relevant ratios as shown in Table A below

Table A- Comparative Ratios

Financial stability may be viewed in terms of liquidity and solvency . Liquidity connotes being able to meet a company 's currently maturing obligations . It is measured using the current ratio and the quick asset ratio . Current ratio gets computed by dividing current assets current liabilities while quick assets ratio assumes almost the same computation except that the inventory and prepaid expenses are being removed from the current assets to have a new numerator called quick assets and then dividing this figure to the same the denominator as in the current ratio computation . On the other , solvency refers to the company 's long-term capacity to keep up it stability over the long term . It can be measured by the debt to asset ratio with the formula of having the As applied to both companies , Qantas is less liquid than...