Accounting Assignment
Accounting Assignment #434
Best Friends Vet Clinic
Part A
Qantas Airline
Short Report in accordance to Accounting Perspective
Introduction
On November 14, 2012, Qantas applied a capital management measure by 1) repaying its $650 million debt earlier than scheduled and 2) investing up to &100 million in an on-market share buy-back. This was fulfilled to reflect the Board’s goal: returning shareholders’ value, maintaining a strong balance sheet while still have the flexibility to engage in the present growth proposal. This measure will be funded by 1) Qantas’ share in Star Track and 2) settlement from Boeing in relation to the group B787 orders (The Official News Room of Qantas Airways Limited, 2012).
Debt pay-off
Qantas’ decision to pay its debt earlier than scheduled is quite advantageous. The company can save money from paying monthly interest and free up cash flow from having to pay back loan every month – especially if the company has a lot of expenses to cover (Almeida, 2013). Moreover it also improves the company’s credit score – the use of historical data and statistical techniques to evaluate the credit risk of a potential applicant (Bridges, n.d., p.2). With the improved credit score, Qantas would find it easier to secure another loan in the future. However, Qantas must note that the cash used to pay its debts could be invested onto other more opportunistic and profitable ventures.
Share buy-back
Its decision in share buy-back could increase its share price. In accordance to law of demand and supply, fewer shares on market will lead to higher price (Gans, King & Mankiw, 2012). This leads to enhanced shareholders value – higher earnings per share since the share is now split to fewer owners. However, this effect could backfire, as the company is perceived to have no other important new opportunities to spend its money for – meaning their growth could no longer improve.
Conclusion
In conclusion, Qantas’ measure could lead the
Best Friends Vet Clinic
Part A
Qantas Airline
Short Report in accordance to Accounting Perspective
Introduction
On November 14, 2012, Qantas applied a capital management measure by 1) repaying its $650 million debt earlier than scheduled and 2) investing up to &100 million in an on-market share buy-back. This was fulfilled to reflect the Board’s goal: returning shareholders’ value, maintaining a strong balance sheet while still have the flexibility to engage in the present growth proposal. This measure will be funded by 1) Qantas’ share in Star Track and 2) settlement from Boeing in relation to the group B787 orders (The Official News Room of Qantas Airways Limited, 2012).
Debt pay-off
Qantas’ decision to pay its debt earlier than scheduled is quite advantageous. The company can save money from paying monthly interest and free up cash flow from having to pay back loan every month – especially if the company has a lot of expenses to cover (Almeida, 2013). Moreover it also improves the company’s credit score – the use of historical data and statistical techniques to evaluate the credit risk of a potential applicant (Bridges, n.d., p.2). With the improved credit score, Qantas would find it easier to secure another loan in the future. However, Qantas must note that the cash used to pay its debts could be invested onto other more opportunistic and profitable ventures.
Share buy-back
Its decision in share buy-back could increase its share price. In accordance to law of demand and supply, fewer shares on market will lead to higher price (Gans, King & Mankiw, 2012). This leads to enhanced shareholders value – higher earnings per share since the share is now split to fewer owners. However, this effect could backfire, as the company is perceived to have no other important new opportunities to spend its money for – meaning their growth could no longer improve.
Conclusion
In conclusion, Qantas’ measure could lead the