Analysis of Financial Ratios in the Aviation Industry

1
Accounting

2
Table of Contents
Introduction....................................................................................................................................3
Question 1......................................................................................................................................3
a)..................................................................................................................................................3
b)................................................................................................................................................12
c)................................................................................................................................................13
Question 2....................................................................................................................................14
a)................................................................................................................................................14
b)................................................................................................................................................15
Conclusion....................................................................................................................................18
References...................................................................................................................................19

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Introduction
The report will be covering the analysis about the ratios which will be describing the
financial position of three aviation companies. There will be consideration of various
ratios and in that non-financial aspects will also be covered. Aviation industry faced
various challenges such as change in the number of passengers and it depends on
various environmental factors. The companies which will be used include Easyjet, Flybe
and Ryanair. There will also be inclusion of the investment appraisal techniques and
they will be explained with the help of examples.
Question 1
a)
The aviation sector is growing and in that it is needed that proper evaluation shall be
made of the information which is provided in the financial statements. It is conducted in
respect of three aviation companies which are Easy Jet, Flybe, and Ryanair.
Profit margin ratio: There is decline in profits of easyjet due to the increase in
operating cost which leads to decline in profits earned. Flybe is having negative profits
and this is because the expenses which are incurred are more than revenue. Ryanair
faced fluctuations due to change in the financial expenses which are borne by company.

4
2015 2016 2017
-10
-5
0
5
10
15
20
25
30
Easyjet
Flybe
Ryanair
(Source: Easyjet, 2017: Flybe, 2017: Ryanair, 2017)
Return on equity: The ratio shows the return which is made on the equity. The decline
is faced by Easyjet and that is because of the decline in profits. There is a negative
result for the in Flybe and that is due to the negative earnings of the company. For
Ryanair, there is the rise and then the decline in the ratio due to the fluctuations of the
income.
2015 2016 2017
-50
-40
-30
-20
-10
0
10
20
30
40
50
Easyjet
Flybe
Ryanair
(Source: Easyjet, 2017: Flybe, 2017: Ryanair, 2017)

5
Cash flow to operating revenue: The ratio is declining for Easyjet and this is due to an
increase in the operating revenue as the cash balance has increased in all the years. In
Flybe, there is increase in financial expense and by that cash balance has reduced
thereby reducing the ratio. Ryanair showed an increase and then decrease in this ratio
because of the change in the interest which is paid by it.
2015 2016 2017
-5
0
5
10
15
20
25
30
35
Easyjet
Flybe
Ryanair
(Source: Easyjet, 2017: Flybe, 2017: Ryanair, 2017)
Net asset turnover: The Turnover which is made with the help of net assets is shown
in this. The decline in the same is noted in Easyjet as the assets are not being utilized in
effective manner. The ratio is rising due to effective utilization of assets. Ryanair has
efficient employees who are able to use assets appropriately leading to rise in ratio.

6
2015 2016 2017
0
0.5
1
1.5
2
2.5
Easyjet
Flybe
Ryanair
(Source: Easyjet, 2017: Flybe, 2017: Ryanair, 2017)
Interest cover: It shows the time's interest can be covered with the available profits. In
Easyjet, the ratio has reduced at a fast pace because the interest has increased
significantly. The negative profits result in the negative ratio for Flybe. The increase is
noted in Ryanair as the profits are increasing and the respective expense on interest is
declining.
2015 2016 2017
-20
-10
0
10
20
30
40
50
60
70
Easyjet
Flybe
Ryanair
(Source: Easyjet, 2017: Flybe, 2017: Ryanair, 2017)