The Effect of IFRS16 Application on Financial Performance Case Study – Air Arabia

Abstract

The purpose of this research is to analyze the effect of applying IFRS 16 on the financial performance of Air Arabia. Aviation sector is one of the most affected sectors from IFRS16 application Air Arabia interim financial statements for the period ended March 31, 2019 are analyzed and changes in relevant financial statements elements and related ratios are calculated and then compared with interim financial statements for the period ended September 30, 2018 and the expected effects from the literature. Analysis shows increase in revenues, gross profit, net income, current assets, current liabilities, total assets, total equity, cash from operating activities, and decrease in total liabilities, cash from financing activities, net change in cash, and earnings per share. For financial ratios, liquidity ratio, return on equity, return on assets, current ratio, they increase while net profit growth ratio debt ratio and debt to equity ratio decrease. Results have to be interpreted carefully as the effect from IFRS16 application depends on the amount of operating lease and whether the company is a lessor or a lessee.

Keywords

• ifrs16
• finance lease
• operating lease
• financial ratio
• air arabia