Q1: Financial Statement Analysis

Q1: Fly Co is an international airline which flies to more than 226 international destinations in 118 countries. Fly Co experienced rapid initial growth but in recent years the company has been facing a range of difficulties and challenges. The following are the key financial data and information for recent years ending 31 December

Fly Co	2019	2018	Industry average
Net profit margins	8%	12%	10%
Total Asset Turnover (TAT)	0.75	0.73	0.75
Return on Assets (ROA)	6.%	8.76%	7.5%
Debt ratio	54%	80%	48%

The following information is relevant:

1. The numbers of flights operated by Fly Co has remained the same in 2018 and 2019.
2. It is expected that there will be a significant reduction in the numbers of flights operated by Fly Co in 2020.
3. The licenses with five more major airports are due to expire in Dec 2020.

Required:

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

1. Critically analyze and discuss the recent financial performance and financial conditions of Fly Co and highlight areas of concern for the future (9 marks)
2. Design an appropriate strategy in regard to the concern highlighted above. (3marks)
3. State clearly any limitations and assumptions that you made in your calculations. (3marks)