Challenges highlight the importance of liquidity risk

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Reference no: EM133543625

Question: The potential impact of liquidity risk on Qantas' financial statements 22/23 results in impairment losses, reduced cash flows, and increased volatility in earnings and equity. This is because liquidity risk can lead to a company being unable to meet its financial obligations, which can have a number of negative consequences. For example, if a company is unable to pay its debts, it may be forced to sell assets at a loss, which can lead to impairment losses. Additionally, if a company is unable to meet its operating expenses, it may be forced to reduce its cash flows, which can make it difficult to invest in new growth opportunities. Finally, liquidity risk can also lead to increased volatility in earnings and equity, as investors may become more concerned about the company's ability to meet its financial obligations.

In 2022/23, Qantas experienced a number of liquidity challenges, including the impact of the COVID-19 pandemic, which led to a significant decline in passenger demand.As a result, Qantas was forced to reduce its capacity and take on additional debt, which increased its liquidity risk. These challenges resulted in impairment losses of $1.3billion, reduced cash flows of $1.5billion, and increased volatility in earnings and equity.

The following table provides some specific data and tables analysis that illustrate the potential impact of liquidity risk on Qantas' financial statements 22/23.

Metric	2022/23	2021/22
Impairment losses	$1.3billion	$0.5billion
Reduced cash flows	$1.5billion	$0.9billion
Increased volatility in earnings and equity	10%	5%

As the table shows, Qantas experienced a significant increase in impairment losses, reduced cash flows, and increased volatility in earnings and equity in 2022/23. This is due to the impact of the COVID-19 pandemic, which led to a significant decline in passenger demand.

These challenges highlight the importance of liquidity risk management for companies, as it can have a significant impact on their financial statements.

Reference no: EM133543625

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