Q1:

FarEast Co is an international airline which flies to more than 226 international destinations in 118 countries. FarEast Co experienced rapid initial growth but in recent years the company has been facing a range of difficulties and challenges. Due to the pandemic of COVID-19 the company plans to sell a division as part of a restructuring program. The division to be sold is a regional airline that was acquired by previous management. The following are the key financial data and information for recent years ending 31 December

FarEast Co	2020	2019	Industry average
Net profit margins	1%	8%	10%
Total Asset Turnover (TAT)	0.64	0.74	0.77
Return on Assets (ROA)	0.06%	8.7%	7.6%
Debt ratio	65%	60%	48%

The following information is relevant:

1. The numbers of flights operated by FarEast Co has been significantly impacted by the pandemic of COVID-19 in 2020.
2. It is expected that there will be a decrease in the cost of license charged by three major airports at the beginning of 2021.
3. The licenses with five more major airports are due to expire in Dec 2021.

Required:

Prepare a report for the top management. In your report you should

1. Critically analyze the recent financial performance and financial conditions of FarEast Co and highlight areas of concern for the future (9 marks)
2. State clearly any limitations and assumptions that you made in your calculations. (3marks)
3. Up to 2 marks will be awarded for the format, structure and presentation of the report. (3 marks)