Example research essay topic: Cash Flow Balance Sheet - 1,560 words

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I have chosen Qantas Airways Limited & amp; Woolworths Limited to be examined in this literature. Qantas is Australia's leading domestic carrier and one of the world's premier long haul airlines. Qantas is also one of Australia's most recognized brand names, with a reputation for excellence in safety, operational reliability, engineering and maintenance, and customer service. Woolworths's upmarket is Australia's leading food retailer which provides customers with the best-priced and widest range of fresh produce, dry groceries and other merchandise, underpinned by its quality assurance commitment. However, from January 2003 onwards, due to the tumultuous events of 9 / 11, the bombings in Bali, the war in Iraq and the devastating outbreak of Severe Acute Respiratory Syndrome, all areas of Qantas were affected, including the profitability of the company throughout the year. Qantas recorded an EBIT of $ 567 million, down from $ 112. 3 million last year after being severely impacted by the effects of the SARS virus on international air travel. (web) Contrasting with Woolworths, it achieved an EBIT with increase of 13. 7 % to $ 945. 7 million, reflecting the excellent sales and profit growth accomplished in the market with further reductions in the operation costs. (web) In comparing the financial performance of both the companies, Qantas and Woolworths generated a return of 2 % and 8. 15 % on total assets respectively and a return of 6. 5 % and 49. 34 % on owners' equity respectively.

This shows that Woolworths performs better in terms of both the return on total assets and return on owners' equity than Qantas, allowing us to say that Woolworths appears to be performing significantly better in the efficiency of the use of assets and in making returns for the shareholders. There is a large contrast between the financial performance of Qantas and Woolworths. According to the annual report, all key performance measures, such as EPS before goodwill, dividend and free cash flow of Woolworths improved substantially. Their strong performance in the year was supported by excellent progress in managing the key variables of their balance sheet. A significant reduction in inventory of 3. 2 days compared with last year was a key factor which contributed $ 170 million to free cash flow. (web) In opposite, Qantas's performance was affected negatively and led to deterioration in all the key performance measures for this year. This is due to the fact that its international operations met a serious decline in demand and incurred an EBIT loss of $ 54. 5 million.

Domestic performance was also hit particularly badly by the effects of global events on the inbound market and increasing competition. (web) The gearing ratio for Qantas and Woolworths are 56. 89 % and 31. 02 % respectively. The excessive borrowing of Qantas was principally a result of the significant capital investment in product and fleet, partially offset by strong operating cash flows and equity raisings. (web) For Woolworths, it has a reasonable gearing which indicates that it has good profit coverage for its interest charges and is not being too risky. The Directors of Qantas declared a fully franked final dividend of $ 0. 09 per share, bringing total fully franked dividends for the year to $ 0. 17 per share (web) while the directors of Woolworths declared the final dividend of $ 0. 21 cents per share, bringing a fully franked dividend component of $ 8. 52. (web) ASPECTS OF FINANCIAL INFORMATION THAT MAY BE INSUFFICIENT OR MISLEADING The aspect of financial information that I suggest may be insufficient or misleading is the accounting principle that assets are shown at their original costs in the statement of financial position. This principle can be misleading because with changing price levels, the cost of an asset purchased several years ago may have no relationship to its current replacement cost or its current selling value.

Besides, the resale value can also be misleading because the special-purpose equipment may have no value for anyone except for the particular business. Furthermore, many people question the relevance of resale value for assets that are intended to be used rather than sold. By using replacement cost, two problems would be incurred. Replacement cost would have to be adjusted for improvements in technology and engineering adaptations. Moreover, its determination is subject to a considerable degree of uncertainty, which would make the balance sheet amounts be less objective. (Dearden and Shank, 1975) Such terms as 'cash earnings' or 'cash flow', which are nothing more than net earnings plus depreciation, are sometimes highlighted by companies as measures of their economic performance. This practice can be very misleading since it unfairly isolates and highlights one aspect of an overall cash flow analysis.

Furthermore, net earnings is a measure of return on investment, whereas depreciation is measure of the return of investment. Adding the two examples together is very confusing. (Dearden and Shank, 1975) The aspect of financial information that may be insufficient is the omission of changes in statement of financial position that do not affect cash flow, yet should be included in the cash flow statement. These changes normally result from such transactions as exchanges of bonds or capital stock for property assets or exchanges of capital stock for bonds. For example, assume that a company needed to borrow money to purchase equipment by selling its bonds.

If, instead, the company exchanged the bonds directly with the owner of the equipment, the net result would be precisely the same. Yet, in this instance, there would have been no cash flow because the bonds were never sold for cash. In case like this, if any time long-term debt or capital stock is exchanged, it should be recorded on the financial statement. (Dearden and Shank, 1975) IDENTIFY THE INFORMATION THAT MIGHT BE USEFUL TO YOUR INVESTMENT DECISION Being an ethical investor, I would put high priority of investment to company with great social and environmental concerns, which are ongoing to protect the natural environment while contributing to a just and sustainable human society. When considering investment in these companies, a high standard of environmental awareness of a company is utmost important. Qantas has remained committed to continual improvement in environmental performance by planning and managing operations in a manner that minimizes effects on the environment.

During the year, the airline focused particularly on waste management, resource use efficiency, air-craft noise and fuel emissions to address environmental issues at major operational sites. Its resource management projects resulted in increased energy and water efficiency at ground facilities, with innovative work undertaken in energy management. Qantas also continued to expand recycling programs, for the beneficiaries of the proceeds of aluminum can recovery program. (web) In the meantime, Woolworths has implemented a number of environmental initiatives involving the recycling of store and distribution centre plastic, green waste and cardboard waste. Other environmental activities include the trial and deployment of alternative fuel programs and the implementation of 'Energy Smart' electricity reduction programs.

Woolworths has also committed to a voluntary Code of Conduct aimed at reducing lightweight plastic bag usage in Supermarkets and increasing recycling to reduce the impact of plastic bags on the environment. (web) Promotion of employee welfare and equal employment opportunities also play important roles in influencing the investment decisions. On the ground, Qantas has introduced two important programs to enhance workplace safety - SAFE (Safe Airline For Everyone) and People Safe in order to systematically manage, record and monitor safety within their business as well as to reinforce safe behavior and build a work culture that continuously strives to be injury free. Between May 2002 and June 2003, these programs successfully enabled Qantas to halve its Lost Time Injury Frequency Rate. Qantas has also made a great effort in increasing the Indigenous employment. (web) In considering investment decisions, company with useful contribution to community welfare is preferable. In this difficult operating environment, Qantas continued with its commitment to the highest standards of corporate social responsibility.

During the year, Qantas acted quickly to assist customers and other Australians in need on numerous occasions, such as its ongoing efforts to communities in need following the tragic bombings in Bali and the devastating bushfires which hit Canberra and Sydney over the summer. (web) In 2002 / 03, Woolworths continued to build their vital work in the community by supporting a range of other community organizations and activities. They gave $ 50, 000 to the appeal for victims of the Canberra bushfires and raised an equivalent amount through employee and customer contributions collections in their stores. Woolworths has also been a sponsor of SIFE for more than four years, and has played a major role in introducing the program to Australia. (web) By making substantial charitable donations to the community, companies show high commitments to their social responsibilities which may assist in the investment decision of ethical investor. Qantas, being the first airline in the world to implement the initiative, has raised significant funds for UNICEF programs that help disadvantaged children around the world also continued to raise substantial funds for a range of causes. (web) Similarly, Woolworths raised around $ 3. 5 million on behalf of Children's Hospitals across Australia.

Woolworths has also worked with the Fred Hollows Foundation to make a contribution to the provision of healthy and fresh foods for several indigenous communities situated in remote areas near Katherine in the Northern Territory. (web)

Research essay sample on Cash Flow Balance Sheet