Financial Analysis of Ryanair and British Airways

Financial Analysis of Ryan blood line and British AirwaysFinancial analytic thinkingThe purpose of monetary depth psychology is to determine the financial health of a task. Generally, this analysis is performed by the professionals who prep ar reports using the proportions taken from non-homogeneous financial reports. The financial dimensions calculate are also helpful to compare with different bank line. The fol outseting analysis studies the four major financial positions of BA and Ryan assembly lineProfitability,Efficiency,Liquidity andFinancial gearing.ProfitabilityIt is the primary close for any parentage, without this the business arsenot be projected in unyielding run. The purpose of measuring moolahability is the account contribution for success of business. The ratios which are used to evaluate profitability are listed belowReturn on unremarkable shareholders funds (ROSF)Return on dandy apply (ROCE) remuneration profit borderline unprocessed profit margin. ROSFIt compares the amount of profit for the check available to the owners average stake in the business during that same compass point. The ratio is expressed below ROSF = (Net profit after taxation and preference dividend (if any) / ordinary share cap +reserves) 100The Ratios work out for BA Ryan glory are shown belowFrom the above parry, it is all the way seen that BA fosters are inconsistent but whereas Ryan channelise tends to show purifyment every category which gives more(prenominal) profits to the shareholders. From the definition we sight say that the high ROSF %, the more profit available to shareholders.The grade 2011 considered to be good for both credit linelines BA and Ryan air, since they are making huge profits and improved r veri flurry(a)ues compared to their previous course of study performance. As a take, their ROSF had risen to 26% 11.34% which resulting high profits to the shareholders.This scenario has changed completely when it comes to 20 12 for BA. If their investors left their bills in bank, they could have got some positive returns. just now instead BA returned (3.6%) to their investors. Though its revenue is increase by 8% and useable cost by 11% it continued to show appreciable direct results. However, due to exceptional costs items like expense related to pensions, BMIs acquisition affected the BA economy. On the new(prenominal) hand, Ryan air returned 16.11% which is higher than previous year to the shareholders. This is because Ryan air revenue change magnitude by 25% and profit by 50% approximately compared to 2011. (According to one-year report 2012).Though its operating costs are change magnitude due to ( enkindle price rise) it managed to balance that by increasing riders fares of about 15%.In 2013, BA has raised from loss of (3.6) % to 10.78%. This is because of order attains the profit from exceptional items (57m) and IAG voice of BA contributed (265m) and also revenue flush by 5.5%. Thoug h inconsistent in fuel prices affects their operational costs which is almost 0.3% of their total operational costs. But BA managed to stabilise it by non-fuel costs which has risen in 2012. Whereas Ryan air revenue increased by 13% which is less compared to 2012 change. Since its a low cost carrier it should maintain passenger fare as low as possible in order to compete with its rivals but, inconsistency in fuel prices had raised their operational costs by 45% and passenger fare by 6%. At the end connection operated in profits and returned 17.35% to the shareholders.Based on ROSF results, we whoremonger say that Ryan air has performed well free burningly in three consecutive years period by swelled profits to its shareholders but BA shown some ups and downs in its results. Further ratios give give us more idea why the residue has been evolved in their performance.ROCE (Return on corking employed)It is a fundamental measure of business performance. ROCE is defined as the rat io of net operating profit to the swell employed. Capital employed is the difference b/w total assets and flow liabilities. The ratio is expressed belowROCE = (NET PROFIT BEFORE tax income / CAPITAL EMPLOYED) 100The ratios calculated for BA and Ryan air is shown belowThe above instrument panel describes the ROCE of a ships company for a period 2011-2013. From the definition we can state that higher the value of ROSE is indicating that the company c generates more earnings per dollar of capital employed. It enables us to analyse and compare BA and Ryan air without the impress of tax. It also considered the long-term debt as a part of capital, which is not the case of ROSF.Thus this ratio reveals how BA and Ryan air economized on its overall capital.In 2011, BA performed well by giving a positive result due to increased revenue in 2011 from premium travel passengers. But the performance is shrined in 2012 due to rise in operational costs and loss of 41m on exceptional items and also 66m due to federation with IAG. Due to this it had shown negative result in 2012. But in 2013, it again rises to 4.11% from (1.86%) because of the factors explained in ROSF.Ryan air has shown continuous improvement for three old age. In 2011 its profit increased by 26% and carefully reconciliation the fuel costs and operating costs. For the other two years also it continuous to shown good result even though operating cost rise to 45%. Thus, we can say from ROCE ratios Ryan air performed much crack than BA. The gross-profit margin is studied below to measure the profitability.GROSS PROFIT MARGINIt is a key financial factor that asses the profitability of a company core activities excluding fixed cost. Gross profit represents the difference b/w trades revenue and the cost of sales. The ratio is represented by gross profit to the sales revenue generated for the same period. It is a given by the formula shown belowGross profit margin = (gross profit/sales revenue) 100Gross profit margin ratios of BA and Ryan air is shown belowIt can be seen from above table that Ryan air performed well compared to BA. Though the set over three years slightly fluctuate but they were generating good profitability by improving their sales and proper balancing and control of fuel costs which has almost rise to 38% in 2013. Similarly airport charges and other operational costs were stabilised to make airline in profitable condition.On other hand, BA also performed well except for the year 2012.in which its fuel costs rise by 14 %, nutrition by 15% and operating lease costs by 34%. Due to this they showed lower determine. But by gaining proper control over the above costs mentioned they started to improve their profitability by 2013. instantly net profit margin is studied in order to see whether the airline is able to improve its profitability.NET PROFIT MARGINIt is the defined as the ratio b/w net profit before tax to the sales revenue. It also measures how much each o f dollar earned by the company is translated into profits. If the value is low it indicates low margin of safety and higher risk that the sales decline will erase profits and lead to net loss. It is given by the formula as shown belowNet profit margin = (profit before tax / sales revenue) 100Net profit margin ratios for BA and Ryan air shown belowThe above table depicts us Ryan air is operating much better than BA. From annual reports it is known that BA invested much money for long-term asset. Hence, their net profit margins are quite low in these three years. In 2011, it invested in IAG, bought BMI at 172.5m in 2012 and from 2011 its investing 5 gazillion every year for new fleet and up gradation of fleet and other.in 2011 it opened T5 which will be home to A380 fleet from 2013. On the other hand, Ryan air net profit margins are high since its investments for long term assets are low compared to BA. Ryan air continuously invest to buy new a/cs hence its the agent that it has yo ungest fleet of planes in the world. In 2013 it decided to buy clxxv new Boeing 737-800 a/c which will be a long term asset for the Ryan air to transport more no. of passengers.In culture to the analysis of BA and Ryan air, profitability is measured by using various ratios. The results are fluctuated for BA whereas Ryan air tends to show improvement year by year from 2011-13. Both BA and Ryan air increased their revenues, gained some control over operational costs on the analysis and deliver positive returns except for the year 2012 for BA.EFFICIENCYThe efficiency ratios measure the efficiency in which various resources are managed and used in the business. The following ratios are used to evaluate the efficiency of the business middling settlement period for receivablesAverage settlement period for payablesSales revenue to capital employedSales revenue per employeeAverage settlement period for ReceivablesA business will usually be interested with how long it takes for customers t o pay the amounts owing. The efficient and timely pick upion of customer debts is a vital part of cash flow management. So this is the ratio which is very closely watched in many businesses. It is given by the formula as shown belowAvg.settlement period for receivables = (Trade receivables/sales revenue) 365.The ratios calculated for BA and Ryan air shown below tableThe values in above table depict the average number of years used to collect its revenue from debtors. Both BA and Ryan air has got appreciable shorter period to collect their revenue. In the analysis period from 2011- 13, BA managed to get back his revenue from receivables by an average of 17 days with slightly increased in 2013 compared to 2011. When it comes to Ryan air it has got very shorter period of an average of 5 days. From the table it is distinctly seen that debtor days have fallen which means business is converting credit sales into cash much quicker than BA. This shorter period certainly asset for Ryan ai r fluidity.Average settlement period for payablesThe average settlement period for payables measures how long, on average, the business takes to pay its trade payables. The ratio is calculated by a formula shown belowAverage settlement period for payables = (trade payables/credit purchases) 365The ratios calculated for creditors as shown belowSales revenue to capital employedThis ratio examines how effectively the assets of the business are being used to generate sales revenue. Greater the value represents higher productivity. The ratio is calculated by a formula shown belowSales revenue to capital employed= (sales revenue/ (total assets-current liabilities))The ratios are calculated for BA and Ryan air as shown belowFrom the table it is clearly seen that both BA and Ryan air have utilised their assets properly to improve their productivity and hence it is the reason their values of productivity rising over past three years. The values of Ryan air is small compared to BA because Rya n air revenue is almost half of BAs total revenue. At last disdain of their company size both are making use of their assets properly.Sales revenue per employeeIt is the ratio relates sale revenue generated to a particular business resource, which is labour. Higher the value indicates greater staff efficiency. Its ratio is calculated by a formula shown belowSales revenue per employee = (sales revenue / number of employees)The ratio calculated for BA and Ryan air shown belowThe above tables describes about sales revenue per employee. Both companies uses different currency so for better analysis BA revenue is converted to euros according to exchange rate in that periods. The values clearly states that Ryan air is more labour productive than BA and other fact is find from table is that two companies increasing their efficiency over the analysis period 2011-2013.LIQUIDITYThese ratios are concerned with the ability of the business to meet its short-term financial obligations. Higher th e ratio, the more perspicuous the business is considered to be, since fluidness is vital to the survival of a business. Liquidity is measured by the following ratios shown belowCurrent ratioAcid test ratio.Current ratioIt is defined as the ratio b/w liquid assets to the current liabilities. A higher current ratio is preferable to a normal one since liquidity is vital part in business. It is given by the formula as shownCurrent Ratio = (current assets/ current liabilities)The current ratio values for BA and Ryan air shown belowValues in above table clearly depict that BA current ratio values over three years On the other hand, Ryan air maintained its current ratio values 1 throughout analysis period in which it properly balanced short-term assets over liabilities and has got more liquidity compared to BA. In 2013 Ryan air current ratio value is decreased compared to 2012 because it has decided to buy 175 new Boeing 737 planes over next five years. Overall, Ryan air liquidity is bet ter than BA.Acid-test ratioThis is an indicator that determines whether a company has enough short-term assets to dorsum immediate liabilities without selling inventory. This ratio is more reliable compared to current ratio because it doesnt include inventory. This is given by a formula as shown belowAcid-test ratio=current assets / current liabilities. (Excludes inventories in current assets)The values for BA and Ryan are shown belowFrom the table it is seen that BA values during analysis period is 1.so, this ratio indicates that company experiencing good growth, fastly converting receivables into cash and also it can also overcome its financial obligations without depending on inventories.In conclusion to the analysis of BA and Ryan air, liquidity is measured by using various ratios. The results are fluctuated for BA whereas Ryan air tends to show improvement year by year from 2011-13. Ryan air has got more liquidity compared to BA and it can easily overcome its financial obliga tions.3.4 Financial GearingIt is the relationship b/w the contribution to support made by the owners of the business and the amount contributed by others in form of loans. A business direct of gearing is an important factor accessing risk. Gearing takes place of owners insufficient funds. Any business borrowing money from others agrees to pay interests if the borrowing is heavy then this can be significant financial burden to the company. The ratios used to measure gearing are shown belowGearing ratioInterest cover ratio.Gearing ratioIt is defined as ratio b/w long-term lenders to the long-term capital structure of a business. It is given by a formula as shownGearing ratio = (non-current liabilities/capital employed)The gearing ratios for BA and Ryan air calculated belowThe values from table states that both companies are super geared businesses since their gearing ratios 50%. Both the companies have high shares of long-term debt in their long-term capital structure. So both com panies are subjected to financial risk. Ryan air tends to decrease its debts during analysed period which can be seen from the table by controlling their operational costs effectively during analysed period. Whereas, BA managed to decrease their debts with some fluctuations in values which can be observed from the years 2011-2013.so, a cash flow which is strong and reliable can handle high gearing effectively compared to cash flow which is unreliable .