Company – AirAsia

Income Statement
Balance Sheet
1. Gross Profit Ratio:
The gross profit ratio (GP ratio) is a profitability ratio that indicates how gross profit and
overall net sales revenue are related. It is a widely used instrument for assessing a
company's operational performance. The ratio is determined by dividing gross profit by
net sales (net revenue).

The gross profit of a company is determined by measuring net revenue for a period of
time and subtracting the total costs of labour and supplies used to manufacture the goods
and services that the company is selling. The net sales statistic for a business reflects all
of its gross sales over a given period of time, as well as income from other sources such
as interest, rental assets, royalties, and other sources, minus returns, allowances, and
discounts.

The key advantage of the gross profit ratio is that it is a precise measure of how
effectively a business sells its goods and services. This will offer the company's managers
and potential investors an idea of how effectively the company continues to optimize its
processes, keep costs down, and make the most profit possible.

For AirAsia in 2019, from the Income statement, it can be viewed that the gross profit is
1226 Million MYR. The net sales is 11860 Million MYR. So, the gross profit ratio is
(1226/11860)*100 i.e. 10.34. The gross profit ratio has increased compared to last year
(2018).
Since this is an airline based company, the overheads and other costs are higher.
Therefore, as per the industry standards, 10% margin is considered to be average
performance. So, it can be concluded that the gross profit margin of AirAsia in 2019 i.e.
10.34 is average.

2. Net Profit Ratio:

The Net Profit Ratio (also known as "Profit Margin" or "Net Profit Margin") is a financial
ratio that is used to determine the amount of profit a business generates from its total
revenue. It calculates how much net profit a corporation makes per dollar in sales. 

It is the ratio of after-tax profits with respect to net sales. This ratio explains the profit
remaining after the income tax and all costs of production, administration and financing
have being deducted from sales.
 Net Profit Ratio is arguably one of the finest ways to understand how efficiently an
organization is using its working capital as it helps understand if the company is
generating enough profit from its sales and whether the operating costs and overhead
costs are being contained or not.

For AirAsia in 2019, from the Income statement, it can be viewed that the net profit is
-316 Million MYR (in negative). The net sales is 11860 Million MYR. So, the net profit
ratio is (-316 /11860)*100 i.e. -2.66. The net profit ratio has declined drastically and
reached negative in 2019 compared to last year (2018) which was 18.50. This massive
decline in 2019 has happened due to the increase in interest expense and unusual
expense.
Since this is an airline based company, the overheads and other costs are higher.
Therefore, as per the industry standards, slightly lesser than 10% margin (around 8-9%)
is considered to be average performance. Since it is very low i.e. in negative, it can be
concluded that the net profit margin of AirAsia in 2019 i.e. -2.66 is very low. The
company should reduce its costs and expenses to control the net profit margin.

3. Current Ratio:
The current ratio is a liquidity ratio that assesses a company's ability to pay short-term or
one-year obligations. It explains to investors and analysts how a firm can use current
assets on its balance sheet to pay down current debt and other obligations.
A current ratio of equal to or marginally higher than the industry average is usually
regarded as acceptable. A lower current ratio than the industry average could mean a
higher risk of default or distress. Similarly, if a company's current ratio is exceptionally
high relative to its rivals, it means that management isn't making the optimum use of its
assets.
 For AirAsia in 2019, from the Balance Sheet, it can be viewed that the current ratio is
0.74. The current ratio has declined drastically and reached lesser than 1 in 2019
compared to last year (2018) which was 1.29. This decline in 2019 has happened due to
decrease in current assets and increase in current liabilities.
Current Ratio greater than 1.0 (>1.0) is considered to be healthy for any company. Since
the current ratio of AirAsia is <1.0 i.e. 0.74, it is not considered as healthy. This indicates
that the company’s debts due in this year are greater than its assets. For every $1 debts,
company has only $0.74 assets to pay. It also means that the company doesn’t have
enough capacity to convert into cash in next one year.

4. Quick Ratio:
The quick ratio (or liquid ratio) is a measure of a company's ability to meet short-term
obligations for its most liquid assets and is an indication of its short-term liquidity status.
It's also known as the acid test ratio because it shows a company's willingness to pay off
current liabilities easily using near-cash assets (assets that can be converted directly to
cash).

The quick ratio is a more conservative measure than the current ratio, which considers all
current assets as current liability coverage. The higher the figure, the greater the firm's
liquidity and financial health; the smaller the ratio, the more likely it is that the company
would have trouble covering its debts.

For AirAsia in 2019, from the Balance Sheet, it can be viewed that the quick ratio is 0.72.
The quick ratio has declined drastically and reached lesser than 1 in 2019 compared to
last year (2018) which was 1.27. This decline in 2019 has happened due to decrease in
current assets and increase in current liabilities.
Quick Ratio greater than 1.0 (>1.0) is considered to be healthy for any company. Since
the quick ratio of AirAsia is <1.0 i.e. 0.72, it is not considered as healthy. This indicates
that the company’s debts due in this year are greater than its assets. For every $1 debts,
company has only $0.72 assets to pay. It also means that the company doesn’t have
enough capacity to convert into cash in next 2 to 3 months.