You are on page 1of 3

Ratio Analysis: Profitability Return on Equity (ROE)

ROE
30.00% 20.00% 10.00% 0.00% 2004

60.00% 40.00% 20.00% 0.00%

ROE

2006

2008

2010

2012

AIZ CTD FLT JET OCE QAN SXR VBA WTF WEB -20.00%

ROE of Webjet is important, as it recognises returns to equity investors. ROE for Webjet can be considered healthy. Mean reversion to 20-27% level with volatility due to increasing shareholder capital ($13.16m in 200 to $23.21m at FY ending 2011) and increasing NPAT over target period Shareholder capital increases have required proportionate increases in NPAT to maintain Average Large Australian Firm ROE of 12%, of which Webjet has been profitable enough to reach. After removal of outlier VIA, average ROE of the industry (based on the comparable firms) is 13.93%, less than Webjets ROE of 27.46% (after adjustments). Therefore, per dollar of shareholder equity, Webjet is performing well compared to sample average. Webjets cost of equity capital is 11.735% compared to ROE of 27.46%; therefore, the ability of equity to generate profit surpasses the expenses of raising equity.

Net Profit Margin Another important profitability measure is the Net Profit Margin, as it measures how efficiently the company can convert revenue to profit.

Net Profit Margin


30.00% 35.00% 25.00% 15.00% 20.00% -5.00% 15.00% 2004 2006 2008 2010 2012 -25.00%

Net Profit Margin

Webjets net profit margin for FY 2011 is 25.36% (after adjustment), and as such is the second highest in the industry (behind its largest online competitor Wotif.com). Also important to note is Webjets 25.36% NPM as compared to its closest listed competitor (in terms of market capitalisation) Air New Zealand (AIZ) at 1.89% (although the two firms have different business structures).

As Webjet has one of the highest NPM within the industry, this implies that they are highly profitable, as they are able to convert a high percentage of revenue (through sales or other), into profits, after taxes, bills, interest, etc is paid.

Ratio Analysis: Asset Management Webjets working capital turnover is -3141.03% indicating that operating revenue is 3141.03 times less than operating working capital. This should not be cause for particular concern, as operating working capital is calculated as: (current assets cash) (current liabilities short-term debt). As part of Webjets business structure, the company does not have a high proportion of current assets other than cash. Due to the fact that cash deducted in the calculation, this results in the largely negative result observed. Webjets working capital turnover is below the industry average of 922.47% (based on the 10 comparable firms). This means that the company is not generating the amount of sales per dollar of working capital that is average for the industry, and has one of the lowest WCT within the industry In the longer term, Webjet holds a 382.82% Long Term Assets Turnover and a PPE turnover of 4089.01%. These ratios suggest that Webjet is quite efficient at using the long-term assets and PPE they have available to generate profit. Webjet is in a good position when compared with the ten comparable firms identified within the industry, as Webjet holds the highest ratio for both LT Asset turnover, and PPE turnover. Return on Assets (ROA) provides an indication of how much profit the companys assets generate. Webjet has an adjusted ROA of 20.73%, which is favourable when compared with the industry average (based on the ten comparable firms, with the exception of the outlier VIA) of 6.76%

Ratio Analysis: Leverage

Financial Leverage
500.00% 400.00% 300.00% 200.00% 100.00% 0.00% OCE 160.00% 140.00% 120.00% 100.00% 80.00% 2004

Financial Leverage

SXR

VBA

WEB

QAN

WTF

CTA

AIZ

VIA

FLT

JET

2006

2008

2010

2012

Webjets Leverage ratio of 137.22% is substantially lower when compared to the industry average (based on the ten comparable firms) of 236.02%. This has been influenced by the raising of debt and equity capital, but overall remains healthy. Thus, Webjet doesnt face any solvency issues.

Ratio Analysis: Liquidity

4 3 2 1 0

Quick Ratio

Quick Ratio
20 15 10 5

AIZ CTD FLT JET OCE QAN SXR VBA VIA WTFWEB

0 2004

2006

2008

2010

2012

At FY ending 2011, Webjet held a Current Ratio 3.33 of and a Quick Ratio of 3.33 (after adjustments). These two liquidity ratios are similar due to Webjets business structure and the fact that they do not currently hold any inventory, as a proportion of total assets. The industry average quick ratio (based on the ten comparable firms) is 1.22. Therefore, Webjet is in good shape, as they have a quick ratio significantly higher quick ratio than the industry average. This suggests that Webjet has a higher level of liquidity than its industry competitors. Due to Webjets higher than average quick ratio; this suggests that the company is in a good position to cover its short-term liabilities. This aligns with Webjets business structure, as they do not currently have any debt financing.