Analysis of Cathay pacific

In analysing Cathay Pacific financial performance, we implement the horizontal

analysis. The trend under analysis is five years (2011-2015). This is because when the five
years trend is observed, it will be easy to predict the future of the airline. The comparison of
the years provides a clear trend of the companys performance. The three important
documents to analyse are balance sheet, income statement and the cash flow.

Analysis of the balance sheet

A balance sheet is a financial document also known as statement of financial position.
This is because it tells the financial position of a company in a given period for example one
year. The main items in the balance sheet are assets and liabilities .An accounting equation
used to calculated assets is represented below
Assets= Stakeholders Equity + Liabilities
The assets included in the balance sheet for Cathay pacific represent what the airways
own. The importance of assets is that they help the normal operations of a company and boost
the monetary value of the company. The liabilities on the other hand represent either short
term or long-term loans that the company owes other organisations and used for business
operations. The Stakeholders equity represents the value we get after deducting liabilities
from the assets.
The annual report of Cathay Pacific shows that, during the given period the total
assets had a high increment between 2011 and 2012, which increased 12.87%, followed by
2012 to 2013 which had a 10.85% growth rate. The other two years had a very small growth
rate, 2014 been the worst with 0.23% and 2015 with 0.50% .Therefore, the growth of assets
is seen to be high at the beginning of the five years but decrease towards the end of the
period. The total liabilities however is seen to have an increment as you move from the year
2011 to 2015.The highest percentage increase is 72.19% in the year 2015, whereas the
lowest is 63.27% in the year 2013.

Assets
Fiscal year is January-December. All
values HKD millions.
Cash & Short Term Investments

2011

2012

2013

2014

2015

19.6B

25.28B

29.76B

21.99B

21.79B

11.49B

12.8B

12.36B

10.21B

7.21B

8.11B

12.48B

17.4B

11.78B

14.59B

28.98%

17.73%

-26.11%

-0.90%

14.29%

16.33%

17.34%

12.79%

12.61%

9.86B

8.83B

5.49B

5.65B

5.49B

5.91B

5.6B

5.42B

5.53B

5.36B

5.91B

5.65B

5.47B

5.58B

5.41B

(54M)

(53M)

(52M)

(52M)

3.95B

3.23B

70M

123M

127M

-10.46%

-37.80%

2.90%

-2.88%

9.98

11.26

18.30

18.76

18.65

1.16B

1.19B

1.51B

1.59B

1.37B

Finished Goods

Work in Progress

Raw Materials

1.16B

1.19B

1.51B

746M

911M

2.43B

4.24B

4.58B

746M

911M

2.43B

4.24B

4.58B

31.36B

36.21B

39.19B

33.47B

33.23B

Cash Only
Short-Term Investments
Cash & Short Term
Investments Growth
Cash & ST Investments / Total
Assets
Total Accounts Receivable
Accounts Receivables, Net
Accounts Receivables,
Gross
Bad Debt/Doubtful
Accounts
Other Receivables
Accounts Receivable Growth
Accounts Receivable Turnover
Inventories

Progress Payments & Other

Other Current Assets
Miscellaneous Current Assets

Total Current Assets

2011
Net Property, Plant & Equipment
Property, Plant & Equipment Gross

2012

2013

2014

2015

73.5B

84.28B

94.94B

98.47B

100.55B

130.67B

142.37B

154.24B

156.95B

157.36B

Analysis of the income statement

An income statement helps to report the revenues and expenses of a company over a
given duration. This document is also called profit and loss account. The major components
of the income statement are; Sales/Revenue, Net income, Earnings Per share and profit/loss.
When the income statement show a positive net income, it means a profit was made whereas
the vice versa shows a loss was incurred by the company. The analysis of the five years for
Cathay assures the investors that this company is growing. We can look at the top line of the
income statement i.e the sales/revenue. There has been a significant growth because if we
look at the figures starting from 2011, the value has been moving up. At the same time , the
bottom line is very important i.e the net profit or loss. In Cathay pacific airline, the year that
recorded a loss was 2012 which shows a -84.33%.The highest income growth was realised in
2013 which had a 203.94%.The net income growth also was not consistent because in 2014
there was 20.23% compared to 2015 with 90.48% growth.

Fiscal year is January-December. All

values HKD millions.
Sales/Revenue

2011

2012

2013

2014

2015

98.41B

99.38B

100.48B

105.99B

102.34B

0.99%

1.11%

5.48%

-3.44%

85.18B

89.27B

91.85B

94.71B

82.55B

79.02B

82.54B

84.49B

86.37B

73.69B

6.17B

6.74B

7.35B

8.34B

8.86B

6.13B

6.62B

7.14B

8.02B

8.39B

41M

122M

210M

323M

472M

4.80%

2.88%

3.11%

-12.83%

13.22B

10.1B

8.64B

11.29B

19.79B

Gross Income Growth

-23.60%

-14.49%

30.64%

75.36%

Gross Profit Margin

19.34%

Sales Growth
Cost of Goods Sold (COGS) incl. D&A
COGS excluding D&A
Depreciation & Amortization
Expense
Depreciation
Amortization of Intangibles
COGS Growth
Gross Income

2011
SG&A Expense

2012

2013

2014

2015

7.72B

7.98B

5.88B

5.54B

4.81B

Other SG&A

7.72B

7.98B

5.88B

5.54B

4.81B

SGA Growth

3.38%

-26.38%

-5.72%

13.26%

Unusual Expense

619M

753M

(522M)

1.82B

8.79B

EBIT after Unusual Expense

4.88B

(753M)

3.28B

3.93B

6.19B

Non Operating Income/Expense

466M

97M

290M

272M

200M

Non-Operating Interest Income

318M

373M

274M

236M

168M

909M

1.11B

1.11B

1.16B

1.06B

21.78%

-0.09%

4.52%

-8.39%

909M

1.11B

1.11B

1.16B

1.06B

Research & Development

Other Operating Expense

Equity in Affiliates (Pretax)

Interest Expense
Interest Expense Growth
Gross Interest Expense

2011
Interest Capitalized

2012

2013

2014

2015

4.76B

729M

2.74B

3.28B

5.5B

Pretax Income Growth

-84.67%

275.99%

19.55%

67.84%

Pretax Margin

5.37%

803M

409M

675M

599M

1.16B

63M

(4M)

146M

201M

233M

Income Tax - Current Foreign

272M

218M

182M

177M

197M

Income Tax - Deferred Domestic

468M

195M

347M

221M

727M

Income Tax - Deferred Foreign

Income Tax Credits

1.72B

754M

838M

772M

1.97B

Consolidated Net Income

5.67B

1.07B

2.9B

3.45B

6.31B

Minority Interest Expense

169M

212M

284M

300M

308M

5.5B

862M

2.62B

3.15B

6B

Net Income Growth

-84.33%

203.94%

20.23%

90.48%

Net Margin Growth

5.86%

Extraordinaries & Discontinued

Operations

Cumulative Effect Accounting Chg

Discontinued Operations

Net Income After Extraordinaries

5.5B

862M

2.62B

3.15B

6B

5.5B

862M

2.62B

3.15B

6B

1.40

0.22

0.67

0.80

1.53

Pretax Income

Income Tax
Income Tax - Current Domestic

Equity in Affiliates
Other After Tax Income (Expense)

Net Income

Extra Items & Gain/Loss Sale

Of Assets

Preferred Dividends
Net Income Available to Common
EPS (Basic)

2011

2012

2013

-84.33%

204.11%

20.27%

90.39%

3.93B

3.93B

3.93B

3.93B

3.93B

1.40

0.22

0.67

0.80

1.53

-84.33%

204.11%

20.27%

90.39%

3.93B

3.93B

3.93B

3.93B

3.93B

11.67B

8.86B

10.11B

14.08B

23.84B

EBITDA Growth

-24.08%

14.17%

39.26%

69.30%

EBITDA Margin

23.30%

EPS (Basic) Growth

Basic Shares Outstanding
EPS (Diluted)
EPS (Diluted) Growth
Diluted Shares Outstanding
EBITDA

2014

2015

Analysis of the cash flow statement

Cash flows statements are very useful in determining how much the company has
without external financing .The company is able to pay its dividends, debts, buy stock and
invest for future growth with the help of free cash flow .when calculating cash flows the
elements to consider are; Net income, Amortization/Depreciation, Changes in working capital
and Capital expenditures. When considering the operating activities, the operating cash
should be higher than the net income for the company to be doing well. The free cash flow
growth for Cathay Pacific is negative at the beginning of the period meaning the company is
not doing well between 2011 and 2012.there is a small growth of 1.07% between 2013 and
2014 and a very high growth of 146.27 in the following year. This show that as we move
towards the end of the given five years, the free cash flow is increasing.
When we evaluate the overall performance of the company for the five years, the
attributed profit of Cathay Pacific in the year 2011 was HK$ 5501 million, which was 50.1%
less than the previous year. This was highly affected by the economic variability, decline of
demand for shipment at Hong Kong and Mainland China and the high fuel prices. The year
2012 experienced more difficulties and these affected the entire aviation industry. The prices
of fuel went up by 1.7% and competition increased on different routes. The profit f attributed
6

to HK$ 916 million. In the next year 2013,the profit increased to HK$2620 million .the
improvement was attributed to the strengthening of the business and reduction of the fuel
prices by 4.6%.The same year, several measures were taken to reduce costs such as reducing
capacity, withdrawing older aircrafts and using fuel-efficient aircrafts. The year 2015 was
than 2014 due to the reduction in fuel prices .There was high load factor, which came because
of demand for the economy class. However, the revenue in 2015 decreased by 3.5 %
compared to the previous year. The decrease in revenue was because of increased
competition, unfavourable changes in the foreign currency and passengers using different
connections to reach their destination. The operating costs increased in 2015 by 2.3% due to
increased workforce, operations and increased congestion at Hong Kong.

Operating Activities
Fiscal year is January-December. All
values HKD millions.
Net Income before Extraordinaries

2011

2012

2013

2014

2015

5.5B

1.61B

3.76B

4.44B

6.66B

-70.67%

133.11%

17.95%

50.26%

6.17B

6.74B

7.35B

8.34B

8.86B

6.13B

6.62B

7.14B

8.02B

8.39B

41M

122M

210M

323M

472M

Deferred Taxes

Investment Tax Credit

(2.35B)

(1.16B)

(1.89B)

(751M)

6.77B

9.32B

7.19B

9.23B

12.02B

22.3B

4.66B

685M

3.72B

(1.52B)

(6.02B)

Receivables

1.15B

Accounts Payable

2.59B

Other Assets/Liabilities

1.05B

724M

4.04B

(1.44B)

(6.25B)

13.98B

7.88B

12.95B

10.51B

16.28B

-43.64%

64.35%

-18.87%

54.91%

14.21%

7.93%

12.89%

9.91%

15.90%

Net Income Growth

Depreciation, Depletion & Amortization
Depreciation and Depletion
Amortization of Intangible Assets
Deferred Taxes & Investment Tax Credit

Other Funds
Funds from Operations
Extraordinaries
Changes in Working Capital

Net Operating Cash Flow

Net Operating Cash Flow Growth
Net Operating Cash Flow / Sales

Investing Activities
2011
Capital Expenditures

(17.61B)

2012
(20.98B)

2013
(20.53B)

2014

2015

(14.82B)

(13.18B)

Information technology
The Company has also improved its information technology every year, which has
aided in operations. There has been introduction of reservation systems, mobile services,
procurement systems, digital communication, and cargo booking systems among others.
Provision of services to the customers has been made easy by use of IT technology such as
use of IBM servers. The servers are very fast and clients are very impressed by the response
time of the systems. In addition, a simplified data management system ensures that the users
can access their details without any complications. The company therefore relies so much on
systems for its effectiveness and efficiency.