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Air New Zealand is the major airline which operates in the country New Zealand. The company started its operation in the year 1940 with the name Tasman Empire Airways Limited (TEAL). The company TEAL was owned by the New Zealand government in the year 1965, further it was named as Air New Zealand’s flight operates it 20 domestic flight and 31 international flights around 19 countries. International routes were served by the airline until the year 1978 after that the government merged and the domestic airline named as New Zealand National Airways Corporation form into a single airline name as Air New Zealand. The company was privatised in the year 1989 but after a few years it was again taken by the New Zealand government in the year 2001.The flight operation route was generally focused on Australasia and South Pacific, with longer flight duration served to eastern Asia, America, and the United Kingdom. The principal hub of the airline is Auckland Airport which is situated near Mangere in the southern most part of the Auckland. The principal headquarter of Air New Zealand is in the premises called “The Hub” which is situated almost 20 km form the Auckland Airport (NZX Limited,, 2018).
The long debt to asset ratio and long term debt to equity ratio of Air New Zealand Limited is 0.19 and 0.67 for the period. The said figures represents weighted average of total asset, total equity and total debts. Further, the lower ratio represent that company is majorly funded by owners which is a good sign for the company. Further, a lower debt shows the financial strength of the company and increases the capacity of the company to procure further loan from the market at a cheaper rate. Further, the computation of the debt/ asset and debt/ equity ratio is provided in the excel. It may also be observed that the liability has reduced over the years and company has been successful in reducing its debt to equity and debt to asset ratio significantly which has a positive impact on the financial of the company.
However, the above steps also have a drawback in the form of lower benefit of trading on equity.
The long debt to asset ratio and long term debt to equity ratio of Air New Zealand Limited is 0.29 and 1.01 for the period. The said figures represents weighted average of total asset, total equity and total debts. Further, the lower ratio represent that company is majorly funded by owners which is a good sign for the company. Further, a lower debt shows the financial strength of the company and increases the capacity of the company to procure further loan from the market at a cheaper rate. Further, the computation of the debt/ asset and debt/ equity ratio is provided in the excel. It may also be observed that the liability has reduced over the years and company has been successful in reducing its debt to equity and debt to asset ratio significantly which has a positive impact on the financial of the company.
Also, it may be highlighted that there are only four air competitors that are listed on Australian Stock Exchange, mainly, Qantas Airways, Virgin Australia, regional express holdings limited and alliance aviation services limited;.
On the part of industry, the average of the debt / asset ratio of the industry has been 0.25 which is lower than the chosen company. Also, the debt to equity ratio is 0.97 which is lower than the chosen company. Thus, Air New Zealand has a higher amount of debt compared to the industry. The above results may lead to two outcomes:
Also, the EBIT average of the company is lower than industry which is not a good sign.
The long debt to asset ratio and long term debt to equity ratio of Air New Zealand Limited is 0.29 and 1.01 for the period. The said figures represents weighted average of total asset, total equity and total debts. Further, the lower ratio represent that company is majorly funded by owners which is a good sign for the company. Further, a lower debt shows the financial strength of the company and increases the capacity of the company to procure further loan from the market at a cheaper rate. Further, the computation of the debt/ asset and debt/ equity ratio is provided in the excel. It may also be observed that the liability has reduced over the years and company has been successful in reducing its debt to equity and debt to asset ratio significantly which has a positive impact on the financial of the company.
Also, it may be highlighted that there are only four air competitors that are listed on Australian Stock Exchange, mainly, Qantas Airways, Virgin Australia, regional express holdings limited and alliance aviation services limited;.
Further, a similar company has been identified as Virgin Australia with a debt / asset ratio of the industry has been 0.36 which is higher than the chosen company. Also, the debt to equity ratio is 1.86 which is higher than the chosen company. Thus, Air New Zealand has a lower amount of debt compared to comparable.
Also, the EBIT average of the company is similar to the comparable.
The above findings shows that company can take more debt as similar structure company is higher debt laden.
Analysis Part 4 (Briefly write about optimum capital structure)
An optimum capital structure means a ratio of equity and debt in such a proportion that will maximise the wealth capacity of the firm. At the level of optimal capital structure, the market price of the share of the firm has reached its maximum level and the cost of capital of the company is minimum. At this level the shareholder benefit is maximum by giving best earning per share and the market price is also maximum at this optimal level. A sound and optimal capital structure is always fair to the outside people like creditors, employees and minority shareholders. (ACCA6A , 2018)
No, company does not have an optimum capital structure it should increase its debt level compared to peer to enjoy the benefit of trading on equity and also to procure cheaper capital to expand to global markets.
The computation has been done in excel and the date chosen is 25-08-2016 for final dividend of 10 P which increased from 0.95 P compared to past year.
Pant, S., 2018. Optimum Capital Structure of a Firm: Meaning and Features. [Online] Available at: http://www.yourarticlelibrary.com/financial-management/capital-structure/optimum-capital-structure-of-a-firm-meaning-and-features/65[Accessed 22 September 2019].
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