This document provides an analysis of the aviation industry by examining the financial ratios of three companies: EASYJET PLC, FLYBE GROUP PLC, and RYANAIR HOLDING COMPANY. It discusses various financial ratios and their implications for the performance of each company. The document also includes a memorandum on investment appraisal.
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Running head: Accounting For Managers Accounting for Managers Name of the Student Name of the University Author Note
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1 Accounting for Managers Table of Contents Question No 1............................................................................................................................2 1A)..........................................................................................................................................2 1B)..........................................................................................................................................7 1C)..........................................................................................................................................8 Question No 2............................................................................................................................8 A)............................................................................................................................................8 B)............................................................................................................................................9 Reference and Bibliography.....................................................................................................10
2 Accounting for Managers Introduction The company analysis is been done so that the shareholder can know the performance of the business. The report shows the analysis of aviation industry by taking three companies from the industry. Aviation industry is the industry in which aircraft industry takes place and thecompanyareEASYJETPLC,FLYBEGROUPPLCandRYANAIRHOLDING COMPANY. Question No 1 1A) Financial ratio is been concern it represent the financial performance of the business as it represent different aspects of the company financial information so that the user of the financial statement can know the performance of business in the market (Abor 2017). It show the liquidity aspect of the company as how much liquidity the company is having in payment of the short term liability, that guide the user in regards of the liquidity position of company. It also show about the profitability aspects of the company as it show different level of profit which the company is earning so this help the user to know about how much the company is able to earn from the business (Almamy, Aston and Ngwa 2016). It also shows about other aspects of the company so that the user can get all the details which are required by the user to know the performance of the company. The below discussion show about the different financial ratio of 3 aviation company and also say which company is better in respect of performance (Al-Mutairi, Naser and Saeid 2018).The company which are been taken are EASYJET PLC, FLYBE GROUP PLC and RYANAIR HOLDING COMPANY. Current ratio – It show the company liquidity in regards of the payment of short term liability with respect to the current asset (Corporate.easyjet.com 2019). Current ratio state that the Ryan Air is having good current ratio in regards of other company as Ryan is having 1.56
3 Accounting for Managers as current ratio whereas Flybe is having 0.96 and EasyJet is having 1.04 so this signify that the Ryan is able to have more amount of ratio in compare of other two which clear that RyanAir is having good position in regards of finance so this will help the user to take decision more properly and they should select RyanAir as it is having better current ratio in contrast to other company. Shareholder Liquidity Ratio – It show about the ratio as how much the company asset are been funded with the help of the equity share (Flybe.com 2019). If the ratio is lower than it signifies about the debt usage of the company as it signify that the company is using high debt in the business. This help the individual to have the knowledge of debt in the company and how solvent the company is in regards of the usage of debt. So as per the ratio is been concern EasyJet is able to have more good performance in regards of other companies as it is having 2.21 so this show the company is having a better ratio as it is able to have finance in regards of the equity share as other companies are having low ratio as Flybe is having 0.47 which is a very low ratio and also Ryan Air is having 0.97 so this show that the company is not having ideal ratio which should be there in regards of shareholders equity ratio.
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4 Accounting for Managers Solvency Ratio (Asset) – It show how much the business is having their fixed asset with regards of total debt of the company. So this ratio helps the user to know how much the company is financially strong or not. As per the solvency ratio of the companies is been consider Flybe is having better solvency ratio as it is having 19.04 ratio whereas EasyJet is having and RyanAir is having 36.89 so this signify that EasyJet is having far better ratio which signify that it will able to give proper amount of return to the user so it can be consider as a strength to the company while taking the investment decision (Investor.ryanair.com 2019). Solvency Ratio (Liability) – This ratio show the debt to equity ratio of the company as how debt is been financed by the equity of the company as per the company is been concern Flybe is having the most appropriate ratio in compare to other company as it is having ratio of 23.52 where as EasyJet is having 88.42 and RyanAir is having 58.45 so after seeing all the three company ratio it can be said it is good for the investors to invest in Flybe as it is having proper ratio that will help them to give desired return to investors. Gearing Ratio – It show the company Long term liability with capital employed as it help the user to know leverage of the company as if the company is having high ratio than it is high leverage fund and as a result it can also go in bankruptcy so the more low ratio the more good for the company. As per the companies is been concern EasyJet is having better percentage in the ratio as it is having 53.50% which is still can be consider good in compare to other company as Flybe is giving 228.66% and RyanAir is having 113.29% so it can be said that as per the investor viewpoint the best option for investment is EasyJet as it is having the less percentage in regards of other companies (Corporate.easyjet.com 2019).
5 Accounting for Managers 201720162015 53.548.4439.97 228.66 106.62 125.79 113.29130.73128.97 Gearing Margin EasyJetFlybeRyanAir Net Asset Turnover Ratio -It help the user to know how much the business is generating sales by the usage of thier asset as it take into consideration of the sale and asset of the business (Flybe.com 2019). As per the given company Flybe is having 1.86 so this show it is having proper ratio as the more high ratio the more favourable for business as this show that the company is fulfilling the utilization of their asset for generating revenue in the company as other company is been concern it can be see EasyJet 1.17 and RyanAir is having 0.74 so it is better to invest in Flybe as it is having most appropriate ratio in all the three companies which signify that the company is able to meet the needs of the investors in regards of return from the compnay.
6 Accounting for Managers 201720162015 1.171.19 1.53 1.86 2.08 2.28 0.740000000000 0010.830.640000000000 001 Net Asset Turnover EasyJetFlybeRyanAir Interest Coverage Ratio – This ratio denotes about how the company is able to manage the finance cost by the profit which they are earning in the business so if the ratio is good that indicate the company is easily able to give proper amount of return from the profit (Investor.ryanair.com 2019). As per the company is been consider RyanAir is having good amount of ratio as it is having 22.83 whereas EasyJet is having 14.07 and Flybe is having -10.78 so this show that only RyanAir is having proper ratio so investors should invest on the same as it able to pay more amount of interest to the company. 201720162015 14.07 39.46 62.55 -10.78 1.73 9.33 22.8320.54 14.06 Interest Coverage Ratio EasyJetFlybeRyanAir
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7 Accounting for Managers Collection Period – This ratio show how the company is able to collect the amount of cash from the customers so less the collection period the more it will able to have more working capital rotation in the company. As per the company is been concern RyanAir is having lowest of the collection period as it is having 3 whereas Flybe is having 25 and EasyJet is having 6 so this show that only RyanAir is having lowest times so the investors should invest the same as it will able to convert cash more easily in regards of other company. Profit Margin- This show how much the company is able to earn by carrying the business operation in the market. It show the basic amount of profit which the company has earn by the sale of the services and product of the company. As per the given companies it can be seen that RyanAir is having more profit in compare to other company as RyanAir is having 22.12% whereas EasyJet is having 7.63 and Flybe -6.68 so this show RyanAir is having better amount of gross profit which denotes it able to get the customer in the market and able to convert them into sales so the investors should invest in RyanAir. 201720162015 7.63 10.86 14.62 -6.68 0.42 -5.22 22.12 26.35 17.38 Profit Margin EasyJetFlybeRyanAir EBIT Margin – This show how much the company is able to earn after deducting the operating expenses from the profit. So as per the company is been consider it can be seen RyanAir is having good percentage as it is having 23.08% whereas EasyJet is having 8.08
8 Accounting for Managers and Flybe is having -7.42 so this show that RyanAir is only having proper amount of profit and able to give proper amount of return to the investors. Non financial Ratio are the ratio which does not take into consideration of the financial part of the company where as it take into consideration the non-financial part of business. The non-financial ratio of business is been given below: Profit per Employees – This show how much the company is able to earn in respect of each employees of the company. As per the given company it can be seen RyanAir is having good amount of return of profit in regards of the employee as it is having 97 so this signify that per each employee it able to earn good amount where as Flybe is having -23 and EasyJet is having 33 so this denote business is having good ratio so investor should invest in RyanAir as it able to earn a good amount of profit in regards of the employee of the company. Average Cost of Employee – This ratio signify the business is paying how much to each employee by taking the average of the same. So this ratio should be less than only the company will have good position in the market. As per the company is been consider RyanAir is having the lowest of the cost as it is having 42 whereas Flybe is having 56 and EasyJet is having 62 so this show that only RyanAir is only having proper cost and able to save the cost which will increase the profit of business. Ranking Table Name of the Company Profit AspectsPerformance EasyJetGood amount of profit as the profit percentage is 7.63%Good FlybeBad as it is only having loss in the business as the loss margin is 6.68% Bad RyanAirGreat amount of profit is earning by the company as the grossBest
9 Accounting for Managers profit is 22.12% 1B) As per the above discussion it can be seen that RyanAir is the best company where the user can able to get more amount of return from the company. As it is having good financial position which can be seen from the financial statement as well from the financial and non- financial ratio of the company. As per the other company is been consider they are not able to have high amount of profit margin which RyanAir is having as it is having good margin in profit as well as EBIT Margin so this show that it is able to earn proper amount of return from the business so this show it can earn good revenue and to meet the requirement of the customers. So the company is able to have proper amount of revenue so it will be good to invest in the same as it is having good margin of profit which show that it able to carry the business easily and effectively in the market which will able to give the required return to the investors who are investing in the company business. 1C) The above discussion it can be said that Flybe is having poor performance in compare to other company. As per the financial statement of the company it is clear that the business is not able to have proper financial ratio so this denote the business is not properly financed as it does not have sufficient resources from which it can able to have good current ratio. It can also be seen that the business is not able to earn profit in the company as it having loss margin which denote that there is less amount of revenue in the business. So the investors should not able to invest in the same.
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10 Accounting for Managers As per the Recommendation is been consider company should evaluate their service and should able to the changes as per the customer demand and preference so that it able to generate more sales in the business. It should do different marketing of the product so that it able to create market value in the company that will help them to get more return from the customers. It should change its pricing strategies so that it will able to have more number of customers in the company.It should include many additional services as by providing more additional services to the client it help them to gain additional revenue in the business Question No 2 A) Memorandum To: Employer From: Employee Date: 19-06-2019 Subject: Investment Appraisal The key stages in Capital Investment Decision Making Process are: 1.Opportunity– Primarily it should check the different opportunity which is there in the market. As it should analysis all the plan which are there so that it can able to have more amount of return from the investment. It should check different intermediaries so that it can able to have proper amount of return from the project. 2.Capital Investment– Secondly it should check the capital investment required in the project as if the project is been evaluate than it will able to know how the company is able to invest as it should able to see the amount of investment which is been required by the company in the project
11 Accounting for Managers 3.Cash Inflow of the Project– Company should check the inflow of the cash as when it able to get return of the cash in the company. As if it is not able to satisfy from the return than it will not able to take the investment so it should take into consideration the cash inflow of the company. 4.Different Appraisal Method– It should analysis the project by different method so that it will able to know how much the company is able to earn from the project and also how much return it will able to get form the same. B) The main method of Investment Appraisal is: 1.NPV – The difference of the present of cash inflow and cash out flow, so this show how much the company is been earning form the project.The positive NPV denote that the project is able to give positive return but if the project is having negative NPV than it is not a good position to invest so if there is an negative NPV than the company should not invest in the project (Shivaani, Jain and Yadav 2017). 2.IRR - It is the method in which the estimate return is been calculated of the project as this help the user to know how much the rate of return the company is able to earn from the capital which is been invested in the company.This rate help the company to discount the inflow at different time so that the company will able to know the actual value of the inflow and it will help the company to know the inflow and help them to judge the project more effectively (Regehr and Sengupta 2016). 3.Non-Payback Period – This show in how many years the company is able to get the return from the investment. It help the user to know how early the company is able to recover the initial capital investment which is been done by the company.This technique help to know actual timing of return which the company will able to get the return of the project, this help the company to know how early the company will able
12 Accounting for Managers to get the return (Laitinen and Laitinen 2018). This process helps the company to judge the return of the project more easily and effectively.
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13 Accounting for Managers Reference and Bibliography Abor,J.Y.,2017.EvaluatingCapitalInvestmentDecisions:CapitalBudgeting. InEntrepreneurial Finance for MSMEs(pp. 293-320). Palgrave Macmillan, Cham. Almamy, J., Aston, J. and Ngwa, L.N., 2016. An evaluation of Altman's Z-score using cash flow ratio to predict corporate failure amid the recent financial crisis: Evidence from the UK.Journal of Corporate Finance,36, pp.278-285. Al-Mutairi, A., Naser, K. and Saeid, M., 2018. Capital budgeting practices by non-financial companies listed on Kuwait Stock Exchange (KSE).Cogent Economics & Finance,6(1), p.1468232. Alshatti, A.S., 2015. The effect of the liquidity management on profitability in the Jordanian commercial banks.International Journal of Business and Management,10(1), p.62. Chittenden, F. and Derregia, M., 2015. Uncertainty, irreversibility and the use of ‘rules of thumb’in capital budgeting.The British Accounting Review,47(3), pp.225-236. Corporate.easyjet.com(2019).2017.[online]Corporate.easyjet.com. Availableat:http://corporate.easyjet.com/investors/reports-and- presentations/2017 [Accessed 19 Jun. 2019]. Flybe.com(2019).[online]Flybe.com.Availableat: https://www.flybe.com/application/files/8915/3253/3125/Flybe_Annual_Report _2017-18.pdf [Accessed 19 Jun. 2019]. Gorshkov, A.S., Vatin, N.I., Rymkevich, P.P. and Kydrevich, O.O., 2018. Payback period of investments in energy saving.Magazine of Civil Engineering,78(2).
14 Accounting for Managers Investor.ryanair.com(2019).[online]Investor.ryanair.com.Availableat: https://investor.ryanair.com/wp-content/uploads/2017/07/Ryanair-FY2017- Annual-Report.pdf [Accessed 19 Jun. 2019]. Islam, M.A., 2014. An analysis of the financial performance of national bank limited using financial ratio.Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and Transport,2(5), pp.121-129. Kulakov, N.Y. and Kastro, A.N.B., 2017. New applications of the IRR Method in the Evaluation of investment Projects. InIIE Annual Conference. Proceedings(pp. 464-469). Institute of Industrial and Systems Engineers (IISE). Laitinen, E.K. and Laitinen, T., 2018. Financial reporting: profitability ratios in the different stages of life cycle.Archives of Business Research,6(11). Liang, D., Lu, C.C., Tsai, C.F. and Shih, G.A., 2016. Financial ratios and corporate governance indicators in bankruptcy prediction: A comprehensive study.European Journal of Operational Research,252(2), pp.561-572. Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case examination using Beneish model and ratio analysis.International Journal of Trade, Economics and Finance,5(2), p.184. Regehr, K. and Sengupta, R., 2016. Has the relationship between bank size and profitability changed?.Economic Review (01612387),101(2). Rossi, M., 2015. The use of capital budgeting techniques: an outlook from Italy.International Journal of Management Practice,8(1), pp.43-56.
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