Qantas Group Memo

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Recommended: External and internal analysis of qantas

MEMORANDUM
TO: The board of directors
FROM: THL Group
DATE: 15 September 2017
SUBJECT: Technical aspects of consolidation

After analyzing the annual report of Qantas Group, technical aspects of consolidation are represented and we need specific details to explain the intricacies of consolidation. Firstly, the composition and main business operation of Qantas will be shown. The next part will include consolidated financial statements, funding and corporate governance of the company. Finally, the memo will consist of details about non-controlling interest, goodwill on acquisition and foreign currency transactions. That will help the board of directors have a specific point of view about the consolidation of Qantas Group.

The composition of …show more content…

Although the subsidiary is a separate legal entity, the parent entity has to prepare consolidated financial statements. The consolidated financial statement shall include all subsidiaries of the parent (Paragraph 12 AASB 127). In Paragraph 19 AASB 127, it states that ‘the subsidiary is not excluded from consolidation because the investor is a venture capital organization, mutual fund, unit trust or similar entity’. The second reason is that the business activities of an entity are different from those of others within a group. The relevant information is provided by consolidating such subsidiaries and disclosing other information about the dissimilar business activities of subsidiaries (Paragraph 20 AASB …show more content…

Qantas Group maintains strong short-term liquidity, which is cash and cash equivalent ($2 billion as at 30 June 2016), cash inflow from operations and undrawn credit facilities ($1.04 billion as at 30 June 2016) (Qantas Group 2017). The Qantas Group uses some methods to meet liquidity needs. The aircraft provides the Group with an additional source of liquidity and funding flexibility. Nearly 55% of the Qantas Group’s fleet is debt-free with a fair value of about US$3.9 billion (Qantas Group 2017). More than half of the aircraft are the marketable narrow body.

The Qantas Group targets to have an optimal capital structure with debt ranging from $4.8 to $6 billion (Qantas Group 2017). Average invested capital is about $9 billion as at 30 June 2016. Therefore, its capital structure is consistent with investment metrics. Net debt, which has aircraft operating lease liabilities, was $5.6 billion (Qantas Group 2017). The Qantas Group tries to manage its on and off-balance sheet debt mix including cost of funding, fleet and maintenance flexibility and residual value risk. To be consistent with the Financial Framework, the Qantas Group has a various range of funding resources and has no financial covenants in financing. The Qantas Group expects to fund future capital expenditure from cash flow from operations, short-term liquidity sources and incremental funding (Qantas Group

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