Professional Documents
Culture Documents
Mid Term Assignment: Financial Accounting
Mid Term Assignment: Financial Accounting
Mid Term Assignment: Financial Accounting
Financial Accounting
PLP TEAM 2
SECTION A
Aryan Raj (PG2021/0280) (Aryan.raj.pgdm23@iilmgsm.ac.in
Himashree Bora (PG2021/0470)
(Himashree.bora.pgdm23@iilmgsm.ac.in)
Ujjwal Tandon (PG2021/0222) (Ujjwal.tandon.pgdm23@iilmgsm.ac.in)
Vivek Kumar (PG2021/0482) (vivek.anand.pgdm23@iilmgsm.ac.in)
Virkyn Koul (PG2021/0021) (Virkyn.koul.pgdm23@iilmgsm.ac.in)
SpiceJet is India’s second-largest low-cost carrier and domestic
operator. With a fleet of Boeing 737s and DHC Q400s, the carrier is
similar to many budget airlines globally. When looking up SpiceJet’s
founding year, many might point to 2004, the year Ajay Singh began
flying the low-cost carrier. However, in reality, SpiceJet can trace its
origin and Air Operators Certificate (AOC) to an airline known as
ModiLuft. ModiLuft was founded by Indian businessman SK Modi and
Lufthansa in 1993, which was eying a stake in the recently liberalized
aviation industry. The carrier began flying that May with a Lufthansa
737-200 and crew training from the German flag carrier. As India’s
first major joint-venture, expectations were high. At the end of 1996,
the airline officially shut down after Lufthansa pulled out. Notably,
ModiLuft’s AOC lapsed but remained dormant, an important point
for the future.
In 2004, a young entrepreneur named Ajay Singh drew up plans to
create SpiceJet, one of India’s first low-cost carriers. However, while
the usual process would be owners chasing the all-important AOC,
Singh found a simpler way. He opted to purchase ModiLuft’s AOC
and rename it SpiceJet, helping save time in starting operations.
SpiceJet began operations in 2005 using a leased Boeing 737-800,
setting it apart from competitors IndiGo and GoAir, who opted for
the A320 family. The first flight departed from New Delhi to Mumbai
on 24th May, officially kicking off the airline. SpiceJet quickly racked
up losses in 2012 due to the rise in oil prices and faced scrutiny from
regulators over safety concerns. While an influx of cash helped it
survive that year, the carrier’s underlying debt put it at high risk of
failure. By the end of 2014, SpiceJet was days away from bankruptcy.
The airline was losing planes and loans were getting harder to
secure. However, the carrier made a series of changes in 2015 to
remain afloat and once again gain a major presence in the market.
This change was helmed by the savvy and politically connected Ajay
Singh, who took over a major share of SpiceJet again and became
MD. In July 2021, SpiceJet reported net losses shrunk to US$34.6
million during the fiscal quarter ended 31 March 2021, as revenue
fell by 28% annually to $294.8 million. The airline plans to raise funds
to the tune of $337.2 million to ensure its long-term sustainability.
We have used the consolidated balance sheet of Spice Jet, and from
that we have made these financial statements of last five year to
analyse its financial condition. Financial statements are the written
records that convey the business activities and financial performance
of a company. Financial statement analysis enables investors and
creditors to evaluate past performance and financial position, ad
predict future. And there are four techniques to analyse financial
statements, and they are;
Horizontal analysis
Vertical analysis
Ratio analysis
Trend analysis
We have used the first three tools, to analyse the financial statement
of SpiceJet.
Horizontal Analysis: This analysis calculates the amount and
percentage changes from the previous year to current year. While an
amount change in itself may mean something, converting it to
percentage is more useful in appreciating the order of magnitude of
the change. It is presented in the form of comparative-size
statements. First two excel sheets, presents the horizontal analysis
of SpiceJet’s financial statements.
The calculations shown in the first excel sheet are quite
revealing. In 2018, both sales and net profit increased by 26%
and 30% respectively. But “revenue from operations” and
“other income” are highly volatile, and they move into two
different directions. From this we can infer that in 2018,
company’s profit growth was better than sales. From the
comparative balance sheet, we can infer that the company is
limiting its operations because its fixed assets are in negative.
From the 2018-2019 comparative analysis, one thing that is
sure that the company has started incurring losses since it has
been earning negative net profit i.e, -154%.
In 2019-2020, the company started expanding its operations,
since its fixed assets have increased substantially.
In 2020-2021, there is huge negative increase in non current
assets, which is worrisome. This could have different reasons,
one of which could be insufficient inventories to maintain the
momentum in sales.