Company Overview

Discuss about the Project Report for Investment Analysis and Portfolio Management.

Portfolio management and the investment analysis is an art as well as science which s used to make decision about the investment policy, investment mix and matching the investment of its goals and objectives. Evaluation on investment is a crucial for every investor. Investors are required to evaluate all the related factors of the investment security or assets so that a better decision could be made and great returns could be achieved by the investor. Investment analysis is basically a process of analyzing the investment for risk and the profitability (Baker and Nofsinger, 2010). Ultimately, the main purpose of the investment analysis is to measure the investment and a good fit in portfolio.

In investment analysis, investment is judged on the basis of their income, risk and the value of reselling. It is quite crucial for the investors to consider the investment, instead of the type of investment. Investment analysis methods evaluate various factors of resale value, cash flows and risk. There are various methods to evaluate the investment such as identifying the intrinsic value of the stock, evaluating the cost of equity, identifying the financial performance of the company etc. (Bierman, 2010). On the basis of these methods, it becomes easy for the investor to identify that whether the investment would meet to its goals or not. 

In the report, FLIGHT CENTRE TRAVEL GROUP LTD has been taken into the concern. The investment position of the company’s stock has been evaluated. FLIGHT CENTRE TRAVEL GROUP LTD is one the largest retail travel outlets in the Australian market. In 1982, company has been founded and it is currently situated at Brisbane, Australia. The total turnover of the company is around $ 20 billion. Currently, company ha employed more than 20,000 people to maintain and operate the business of the company. FLIGHT CENTRE TRAVEL GROUP LTD is a multinational company, it serves its service in Australia, UK, New Zealand, United Arc Emirates, US, Canada, Singapore, India and China. The company has licenses agreement in 80c countries to run the business (Home, 2018). The main competitors of the company are HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD.

Financial performance is measurement of a company. It evaluates that how well the company is performing and it is using its assets to manage the business and the performance of the company. Financial performance combines various techniques and it is used to identify that whether the financial performance of the company has been better or some negative changes have occurred into the performance of the company (Besley and Brigham, 2008). The financial performance of FLIGHT CENTRE TRAVEL GROUP LTD is as follows:

Financial Performance and Current Issue Analysis

Evaluating the financial performance is a crucial part of every investor, analyst and the manager. Financial performance process makes it easier for the investors to identify the performance of the company and it also evaluates that how well the company is performing its process. For evaluating the financial performance of FLIGHT CENTRE TRAVEL GROUP LTD of last 5 years, ratio analysis study has been conducted. The analysis of financial performance of the company is as follows:

Profitability position evaluates the profitability level and the capabilities of the company to generate the profit. Profitability ratios explain the total profit of the company in context with the sales, assets, equity and capital employed of the company (Brigham and Daves, 2012). Return on capital employed and operating profit margin has been calculated to identify the profitability position of the company.

Return on capital employed explains the net profit level in context with the capital employed. ROCE explains that the profitability position of the company has been lower from 2013 in 2017 due to less profits and higher capital employed. Further, operating profit margin explains the total operating profit in context with the sales (Morningstar, 2018). Operating profit margin calculations explains that the operating profit level of the company has been lowered due to high operating expenses. It explains that the profitability level of the company has been lower from last years. Though, the current performance of the company is still good.

Asset efficiency position evaluates the efficiency level and the capabilities of the company to manage the working capital. Asset efficiency ratios explain the total time period in which the cash conversion cycle get completes. Trade payable payment period and inventory turnover ratios have been calculated to identify the efficiency position of the company (Brigham and Ehrhardt, 2013).  

Trade payable payment period explains the total time period in which the creditors would pay back the credit amount. Payment period time of the company has been higher from 2013 in 2017. It explains that the credit policies of the company are required to be change as the cash conversion cycle of the company has been higher. Further, inventory turnover days explains the total time in which inventory would be converted. Inventory turnover calculations explain that the inventory position level of the company has been higher due to changes into the policy (Morningstar, 2018). It explains that the efficiency level of the company has been lower from last years. 

Peer Comparison

Liquidity ratio evaluates the short term debt payment capability of the company to manage the liquidity position of the company. Liquidity ratios explain the total liquidity position of the company to analyze the performance of the company. Current ratio and acid test ratio have been calculated to identify the liquidity position of the company.

Current ratio explains about the higher position in last 5 years. It explains that the current short term debt position of the company has been better and quick ratios position of the company explains about the better level as well. It explains that the performance of the company has been better.

Capital structure ratio evaluates the capital of the company. It measures the long term liabilities and capital employed of the company. Capital structure ratio explains that the optimal capital structure has been maintained by the company and the level of capital structure has been better in recent years. It explains about the better position of the company.

Lastly, the investor ratio explains about the investment position of a company. It briefs that how well the company is performing in the market and how the position of is the company in terms of investment Investor ratio evaluates the earnings per share of the company (Morningstar, 2018). The earnings per share of the company have been almost similar in last 5 years and it explains that the performance and the position of the company has been better and explains that the investment into the company would offer higher return.

On the basis of ratio analysis study, it has been found that the performance of the company is quite competitive in last 5 years. The company is just required to make few changes into its current financial performance and the position to make it better. The operating expenses of the company are also required to be maintaining for a greater performance in the market.

The financial performance of the company has been compared with the financial performance of the competitors of the company to evaluate the market position of FLIGHT CENTRE TRAVEL GROUP LTD (Morningstar, 2018). The peer comparison of the company is as follows:

Profitability position has been studied firstly and the ratio of FLIGHT CENTRE TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD. the return on capital employed of all the three company explains that the ROCE of the FLIGHT CENTRE TRAVEL GROUP LTD, HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD is 20.83%, 9.06% and 16.74% (Morningstar, 2018). It explains that the performance of FLIGHT CENTRE TRAVEL GROUP LTD is quite better than its peer.

Further, the operating profit margin of the company has been evaluated and it has been found that the operating profit margin of CORPORATE TRAVEL MANAGEMENT LTD is highest and the evaluation explains that the operating cost of FLIGHT CENTRE TRAVEL GROUP LTD is higher and it has impacted on the operating profit margin of the company. 

Asset efficiency position has been studied firstly and the ratio of FLIGHT CENTRE TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD. the payment payable days of all the three company explains that the trade payable of the FLIGHT CENTRE TRAVEL GROUP LTD, HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD is 20.83%, 9.06% and 16.74% (Annual report, 2017). It explains that the performance of FLIGHT CENTRE TRAVEL GROUP LTD is quite better than its peer as the payment would be received by the company at earliest.

Further, the inventory turnover days of the company have been evaluated and it has been found that the inventory turnover days of CORPORATE TRAVEL MANAGEMENT LTD is highest and the evaluation explains that the performance of FLIGHT CENTRE TRAVEL GROUP LTD is better as the less time is required to turn over the entire inventory.

Liquidity position has been studied firstly and the ratio of FLIGHT CENTRE TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD. the current ratios of all the three company explains that the liquidity position of the FLIGHT CENTRE TRAVEL GROUP LTD, HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD is 1.43, 1.18 and 1.04 (Appendix). It explains that the performance of FLIGHT CENTRE TRAVEL GROUP LTD is quite better than its peer as the payment would be received by the company at earliest. The quick ratio also explains about the better position of FLIGHT CENTRE TRAVEL GROUP LTD.

Capital structure ratios has been studied further and the ratio of FLIGHT CENTRE TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD. the capital structure ratio of all the three companies are quite completive and explains that the performance of FLIGHT CENTRE TRAVEL GROUP LTD is better.

Lastly, investor ratios has been studied and the ratio of FLIGHT CENTRE TRAVEL GROUP LTD has been compared with the HELLOWORLD TRAVEL LTD and CORPORATE TRAVEL MANAGEMENT LTD. the investor ratio of all the three companies explains that the position of FLIGHT CENTRE TRAVEL GROUP LTD is better among all the three companies.

Further, the current issues of the industry have been evaluated and it has been found that the various micro and macro factors have affected the financial performance of the company and the operations of the company. The micro and macro factors which have affected the financial performance of the company are as follows:

Macro factors of an industry explain about the factors which impacts on the entire industry as whole. The macro factors of aviation industry have been evaluated and it has been found that various macro economical factors have impacted on the performance of the aviation industry. Titman and Martin, (2014) has described that airline businesses are volatile business which associates with various macro economical risk. The major risk factors of the industry are terrorist attack, rising cost, decline in international tourism, currency effects, technological issues etc. Brown (2012) has explained that the terrorist attacks have impacted on the entire world and due to it; people do not prefer to go to other countries. The terrorist activities have been enhanced by 5% in current year. Further, it has been found that the international tourism has been enhanced by the industry due to various terrorist attacks and the sudden changes into the economical position of the company.

Madhura (2011) has also described that the technology s required to be advanced with time. The aviation industry has also been affected due to technological issues as the old crafts and planes are used by the firms and the technology is not advanced as well. Further, the competition of the industry has also been enhanced. Various companies are there at international level which is offering the same services to the customers in lesser price. The continuous changes into the economy position and the current value have also created major issues in front of aviation industry.

It explains that the macro factors have impacted at huge level on the performance of the industry.  The current scenario of the industry and the company has been affected. Though, the profitability position and other financial and non financial position of the company is still better 

Micro factors of the company have been evaluated and it has been found that various micro economical factors have impacted on the performance of the aviation industry and FLIGHT CENTRE TRAVEL GROUP LTD. Hillier, Grinblatt and Titman, (2011) has described that airline businesses are volatile business which associates with various risk. The major risk factors of the industry are demand and supply, price variation, labour turnover, service cost, substitute effect. Lee and Yue, (2017) has explained that the competitors of the company have changed into their prices and due to which the other companies in the industry has been affected in recent time. Further, it has been found that the service cost has been enhanced by the industry due to various terrorist attacks and the sudden changes into the economical position of the company.

Gibson (2011) has also described that the demand of the aviation industry has been enhanced but with the incensing demand, the number of supplier have also been enhanced which have maintained the balance and due to it, not profits have been got be the existing companies (Gourevitch et al, 2016). The substitutes factors have also impacted on the profitability and non financial performance of the company as people are prefer their own vehicle r trains for shorter route rather than using the flights (Higgins, 2012).

It explains that the micro factors have impacted at huge level on the performance of the company.  The current scenario of the industry and the company has been affected. Though, the profitability position and other financial and non financial position of the company are still better.

DuPont analysis is a method to measure the performance of an organization. In this methods, performance of an organization is evaluates according to its book value. DuPont analysis study has been conducted on FLIGHT CENTRE TRAVEL GROUP LTD to measure the ROE position of the company. On the basis of the DuPont analysis, it has been found that the ROE position of the company was 23.98%, 18.85%, 20.24%, 18.20% and 16.17% in 2013, 2014, 2015, 016 and 2017. It explains that the performance and the position of the company have been lower in current year in context with the last 4 years. The current net profit margin, assets turnover and total assets / common equity of the company are 9.08%, 0.80 and 2.24. Though, the position of return on equity is still competitive in context with the industry performance (Gapenski, 2008). The calculation of DuPont has been given in appendix.

The DuPont analysis of FLIGHT CENTRE TRAVEL GROUP LTD has been compared with the competitors of the company to evaluate the performance and the position of the company. The DuPont calculations express that the return on equity of the company is 16.17% whereas the competitors return on equity is 0.79% and 14.25% in 2017. It explains that the performance of the company is better in the industry and the investment into the company would offer higher returns to the investors. The calculation of DuPont has been given in appendix.

Valuation model is a method to evaluate the business value. It compares the value of a firm to its competitors or the past year data to analyze the financial worth of the firm. There are various ways to calculate the worth of the company. Some of them have been calculated in the report to identify the value of FLIGHT CENTRE TRAVEL GROUP LTD.

CAPM valuation model has been taken into the concern to analyze the performance of the company. The CAPM model explains that the cost of equity of the company is 9.11%. The CAPM model calculations have been done on the basis of risk free rate, market risk premium and beta. Beta explains about the volatility in the stock price of a company in a particular time with context to the industry stock price. The Beta of the company has been calculated on the basis of 5 year stock price. The beta of the company is 0.89 (Yahoo finance, 2018). Further, the risk free arte has been calculated on the basis of 10 year government bond yield rate which is 2.79% (Bloomberg, 2018). Lastly, the market premium is given is 7.07% which has been calculated through deducting the risk free rate of return from market rate of return. The CAPM formula is as follows:

Expected return = Risk free arte + Beta *(market risk premium) (Damodaran, 2011)

Cost of Equity: CAPM model
A. Risk free rate	2.79%
B. Market rate of return	9.86%
C. Beta	0.89
D. CAPM = A+(C*(B-A))	9.11%

On the basis of it, it has been found that the investors could expect 9.11% return from the stock of the company.

Further, intrinsic value of the company has been evaluated. Intrinsic value is the actual worth of an organization so an asset that is based upon an underlying perception about the true worth of the company. It includes the business aspect in terms of tangible and intangible value. Intangible value could be same or could be different from the market value of a company. For evaluating the intrinsic value of FLIGHT CENTRE TRAVEL GROUP LTD, DDM model and FCFF model has been calculated which are as follows:  

Dividend discount model is a system to evaluate the process to value a stock on the basis of discounting dividends to the present value. If the intrinsic value derived from DDM is higher than the market price than the stock is undervalued and a perfect time to buy the stock vice versa (Davies and Crawford, 2011). The DDM model requires growth rate, discount rate and expected dividend. Growth rate has been calculated on the basis of Roe* retention rate of last 5 years. The average growth rate of the company is 4.35% (appendix). Further, the expected dividend has been forecasted on the basis of past year dividend (yahoo finance, 2018) which is $ 1.91 and lastly, the discount rate is based on the CAPM model. It explains that the intrinsic value on the basis of dividend discount model of the company is 40.09. And the market value of the company is $ 56.35. It explains that the stock price is overvalued.

Free cash flow for firm (FCFF) model is a system to evaluate the process to value a stock on the basis of past year cash flows to the present value of the company. If the intrinsic value derived from FCFF is higher than the market price than the stock is undervalued and a perfect time to buy the stock vice versa. The FCFF model requires growth rate, forecast FCFF and other financial details of the company. Growth rate has been calculated on the basis of Roe* retention rate of last 5 years. The average growth rate of the company is 4.35% (appendix). Further, the FCFF has been forecasted on the basis of past year cash flows (Annual report, 2017) which is $ 30,082.76 (appendix) and lastly, the other data have been taken from the financial reports of the company. It explains that the intrinsic value on the basis of FCFF model of the company is 32.01. And the market value of the company is $ 56.35. It explains that the stock price is overvalued.

Evaluate the value of the company:

On the basis of DDM model and FCFF model, it has been found that the intrinsic value is $ 40.09 and $ 32.01 whereas the market value of the company is $ 56.35. It explains that the stock price is overvalued. It explains about huge difference among the market price and the actual worth of the company. These changes have occurred due to various internal and external factors of the company. Some of them are as follows:

1. Book value and earnings:

It has been found that the book value and the earning per share of the company is quite competitive and due to it, the investors have attracted more towards the stock and it has lead to the company towards the high stock price in the market (Bromwich and Bhimani, 2005).

1. Balance sheet woes:

Further, it has been found that the total financial position of the company is quite competitive and it is higher and due to it, the investors have attracted more towards the stock and it has lead to the company towards the high stock price in the market.

1. Share dilution:

Further, it has been found that the number of shares of the company has been lesser and due to it, the investors have attracted more towards the stock and it has lead to the company towards the high stock price in the market (Brown, 2012).

1. competition and obsolescence:

Lastly, it has been found that the competition position of the company is quite strong and due to it, the investors have attracted more towards the stock and it has lead to the company towards the high stock price in the market.

These are few reasons due to which the stock price of the company has been higher in the market.

Why the difference among intrinsic values:

Further, the DDM model and FCFF model has been compared and it has been found that the difference among both the values have taken place due to different items (Brooks, 2015). The FCFF model takes the concern of cash flows of the company and the DCF model takes the concern of dividends of the company due to which there is difference among the intrinsic value.

On the basis of the study and the evaluation, it has been found that the FCFF model is more appropriate than the DCF model as the FCFF model evaluates the entire financial performance and the cash flow statement of the company. And it examines the past year data of the company as well (Brigham and Houston, 2012). Thus, it is concluded that FCFF model is way better than DCF model.

On the basis of the above study, it is recommended that the financial performance of the company is better and the competitive level of the company is also higher. It leads to the suggestion that the company is a good choice for the purpose of investment. But on the other hand, it has been found that the stock price of the company is overvalued. Thus, the position of the company is riskier. To conclude, the investor should invest into the stock for long term. It would offer the high return to the company.

Conclusion:

To conclude, the financial performance of the company is better and the competitive level of the company is also higher. It explains that the company is a good choice for the purpose of investment. But the stock price of the company is overvalued. Thus, the position of the company is riskier. To conclude, the investor should invest into the stock for long term. It would offer the high return to the company. 

References:

Annual report. 2018. FLIGHT CENTRE TRAVEL GROUP LTD. [Online]. Available at: https://www.fctgl.com/wp-content/uploads/2017/09/Flight-Centre-Travel-Group-Annual-Report-2017.pdf [Accessed 03/12/2018].

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Morningstar. 2018. CORPORATE TRAVEL MANAGEMENT LTD. [Online]. Availbaale at: https://financials.morningstar.com/income-statement/is.html?t=CTMLF&region=usa [Accessed 03/12/2018].

Morningstar. 2018. FLIGHT CENTRE TRAVEL GROUP LTD. [Online]. Availbaale at: https://financials.morningstar.com/cash-flow/cf.html?t=FLT&region=aus&culture=en-US [Accessed 03/12/2018].

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Yahoo finance. 2018. FLIGHT CENTRE TRAVEL GROUP LTD. [Online]. Availbaale at: https://finance.yahoo.com/quote/FLT.AX/history?p=FLT.AX [Accessed 03/12/2018].

Yahoo finance. 2018. HELLOWORLD TRAVEL LTD. [Online]. Availbaale at: https://www.morningstar.com/stocks/XASX/HLO/quote.html [Accessed 03/12/2018]