Accounting and Finance Contents

They are planning to calculate ratio of three years which will help in analysing their performance in order to determine which is good for investment and which is not. They are planning to calculate ratio of three years which will help in analysing their performance in order to determine which is good for investment and which is not.

Accounting and Finance for Managers
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Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
TASK 2 .......................................................................................................................................................9
REFERENCES..............................................................................................................................................13
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INTRODUCTION
Finance management is considered as most important function of a company that
manages the capital requirements in terms of investment, budget planning, future planning,
borrowing, lending and many more. It is also considered as wide term which consist of analysing
as well as processing stages related to money such as investment or any other stage (Antras and
Foley, 2015). It is generally bifurcate into three types’ i.e. public finance, personal finance and
corporate finance. The respective assignment is based on three companies i.e. Flybe group plc,
Ryanair holding public limited and EasyJet Plc. They are planning to calculate ratio of three
years which will help in analysing their performance in order to determine which is good for
investment and which is not. This will also help them in identifying which company is effective
in a particular marketplace. Then in second task they will develop a memo which is based on
investment appraisal in respect of procedure related to decision.
TASK 1
Ratio Analysis
This term can be defined as quantitative method used to gain insight of a company as
operational efficiency, liquidity and profitability and more. It provides details of financial ratios
that can be classified as – ratios of solvency, liquidity, efficiency, market prospect, coverage,
profitability.
Strength – The strengths of the ratio analysis -
 It helps in comparing the line-item data from financial statement of company to gain
insight of financial ratios. It also helps in revealing the current financial state of company as well.
Weakness – There are some disadvantages of ratio analysis also as-
 It ignores the price level due to fluctuation in rate of inflation.
 It fails to give detail about financial issues as well.
Current Ratio – Current ratio shows how much company can pay off debts related to
its short terms (Porter, 2016). Through ratio analysis, the company can depict that from last two
years i.e. 2016 to 2018, the present company Ryanair is continuously some problems and
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fluctuation in its current ratio. Decrease in the ratio means that FLYBE isn’t in good position in
liquidity. Current ratio is a liquidity ratios that is used mainly to pay dues or short term
obligations of current year.
Ryanair Holdings Plc – The ideal current ratio of this firm is 2:1, that reflects it has efficient
resources to pay off its loans. In context with last two years i.e. from 2018 to 2016, the ability of
company for paying its debts is continuously decreasing.
Flybe Group of PLC – From the ratio analysis, it is analyzed that current ratio of this firm from
2016, 2017 and 2018 are obtaining as 1.06, 0.96 and 0.71 respectively. In 2016 company can
touch ideal ratio but after some time it goes down.
Easy jet plc – The liquidity ratio of this firm has failed to achieve its ideal ratio.
Shareholders liquidity Ratio – It is describing about ratio which can be develop by dividing
whole equity of stakeholder by firm’s total assets (Philippon, 2015). They are generally
indicating the amount of assets on which stakeholder has its ownership. The respective ratio is
generally selected by an organization because through it an individual can evaluate total assets
which are funded by the equity shares.
Ryanair holdings Plc – This will indicate about ratio that the respective company has enough
amount to pay off their shareholder in effective manner. The ratio of respective company is
0.85, 0.97 and 0.1 which is from 2016 to 2018.
Flybe group plc – The respective company ratio is decreasing on continuous basis due to which
they are not able to pay their shareholders properly. According to data ratio of this company
is 1.03 in 2016, 0.47 in 2017 and 0.38 in 2018.
Easyjet plc – The ratio of respective firm is also decreasing day by day which shows that it will
not able to pay amount to its debt.
Gearing Ratio – This ratio refers to tool which is used by a company in order to determine
financial leverage as well as performance of a company (Cournède, Denk and Hoeller,
2015). It is mostly used method by a company in order to identify its financial fitness.
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Ryanair holdings Plc – the leverage of respective organization related with finance is not
effective because it is reducing day by day.
Flybe group plc – The leverage of company is boosting continuously because their performance
and popularity is increasing day by day.
Easyjet plc – The financial leverage is high which show that they are able to pay their debts in
effective manner.
Net assets turnover ratio – Through this ratio company able to determine its effectiveness and
its company assets which they earn from selling more and earning high revenue (Bouma,
Jeucken and Klinkers, 2017). If turnover ratio of a firm is high, it means they are gaining
profit.
Ryanair holdings Plc– The respective company turnover ratio is increasing as well as decreasing
year by year.
Flybe group plc – This Company is earning high turnover ratio as compare to other companies
which is effective for them.
Easyjet plc – The respective organization ratio is decreasing and increasing according to the time
and year.
Net Profit margin ratio – It is determined as a ratio or percentage which describe about income
generated by a firm by conducting their activities. It is determined in the income statement
of a company and always show in decimal form (Badarinza, Campbell and Ramadorai,
2016).
Ryanair holdings Plc – Hereby, net profits of respective corporation is fluctuating such as in
2016 it is increasing but suddenly in 2017 and 2018 it is starting decreasing.
Flybe group plc – The respective company net profit margin is decreasing due to which it
directly and indirectly affected on financial ratio.
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Easyjet plc – The ratio of this organization is reducing which describe that they are not able to
earn sufficient.
Stock turnover ratio – Through respective ratio company able to determine effectiveness of
sales which describe about its turnover (Dang, Li and YangKarolyi, 2016). It is generally
determined about sales conduct by company and purchase department.
Ryanair holdings Plc– The respective company didn’t have any stock turnover ratio because they
are not conducting business in stock.
Flybe group plc – Only respective organization is gaining stock turnover ratio because they are
dealing in it and its ratio is higher in 2017.
Easyjet plc – This company is also not having stock turnover ratio because they are also not
conducting business in stocks.
Return on equity (Net income) – It is generally measured by a firm in order to measure its
financial effectiveness and performance as well as it also describe about role of management
in order to use assets properly (Weber, Alfen and Staub, 2016).
Ryanair holdings Plc– The respective ratio of organisation is enhancing continuously which
shows that they can pay off its return on equity properly.
Flybe group plc – The equity of respective company is strong which shows that they can use it in
any function that is beneficial for them.
Easyjet plc – It shows that net income of respective company is reducing day by day which also
impact on their return on investment.
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Interest coverage ratio – This is calculated by a company when they want to know about
effectiveness of a firm and their ability to pay interest on expenses on its debts which are
outstanding. It will fluctuate on regular basis which impact on company (Verguet,
Laxminarayan and Jamison, 2015).
Ryanair holdings Plc – The corporation is incurred an overall interest on debt however this may
affect the expenditure on debts. If the entity maintains low ratio, this implies their
incapability to pay their interests on debts. In this regard, the ratios of this entity from the
year 2015 to 2017 are ascertained to be 14.06, 20.54 and 22.83 in the same order. This gives
them the opportunity to get loans as per the huge quantum of interest.
Flybe group plc – The state of this entity has been ascertained to be quite distinct as the ratios in
the respective entity comprise of negative figures from the time period of 2015 to 2017
exhibiting -9.33, 1.73 and -10.78. Thus lenders are apprehensive of loan repayment capacity
of company.
Easyjet plc – The ratios within this company are falling down at a continuous rate which implies
that the entity does hold much capability to make payment of interests and could not bear
debt expenditure of entity. The figures in this regard are 62.55, 9.46 and 14.07 from 2015 to
2017.
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Solvency ratio – This kind of ratio is based upon liability and asset as well as calculated
considering both sides. It is utilised for the evaluation of capability of entity for meeting its
obligation (Fourie, Opperman and Kumar, 2015).
Ryanair holdings Plc– It maintains a solvency ratio from 2016 to 2018 of around 32.06%, to
36.15% respectively.
Flybe group plc – It does not have abilities to pay off its liabilities to investor that can be figured
out as 27.11% in the year 2016, 19.04% in 2017 and near about 15.22% within 2018.
Easy Jet Plc – In context with liability side it refers to continuously increasing but asset side has
also decreased, whereby airline possesses an effective solvency ratio, with amount of
46.58% as calculated in 2016, 49.13% in 2017 and 46.93% within 2018.
Return on capital employed ratio – This concept can be defined as financial ratio which is
mainly helps for measuring the efficiency as well as profitability of organizations in terms of
capital (Norman and Nakhooda, 2015).
Ryanair holdings public limited company – The entity easily gets loan due to efficiency and
abilities in terms of assets and liabilities that has concluded as 20.77 within 2016, 15.41
within 2017 and 2018 as 16.88.
Flybe group plc – This entity does not have adequate ROCE. During 2016 to 2018, the ratios are
3.55, -12.9 and -0.98 which is not good for the business and implies inability to repay loan.
Easyjet plc – The Efficiency of this organisation is also considered as continuously decreasing
because its ratio which has concluded as 18.24 in 2016 has reduced to 7.77.
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Non Financial ratio
The non financial ratio contains can rate of particular product, efficiency of individual
employee and Key Performance Indicator ratio to measure performance in terms of fiscal or
non fiscal data (Gibb, 2016).
Profit per employee
It has been identified from the above illustration that there will be an preference for
individual employee profit as it will be containing higher proportion of profit in subject to
each and every employee. This approach can lead to higher efficiency which ultimately
leads to better profitability for the organization.
Operating Revenue or Cost of employees
The illustration above implies that cost upon operational revenue is inclusive of the
workforce. There is flybe group plc which is ascertained to be having low costing upon
personnel. This means that the business is marginally affected turnover of employees.
(b) In accordance with given financial or non-financial ratios, it is gained that Easy Jet is the best
performing airline because it has a number of sources of profitability (Avdjiev, McCauley
and Shin, 2016). The outcomes associated with profitability shows that Ryanair is best in
profitability. In terms of non financial ratio, Ryanair reflects good performance. Thus, the
wholesome data shows that Ryanair is best in 5 ratios, easyjet in 4 ratios while Flybe in 3
ratios.
(c) Ratio analysis provides entity's performance is implying that Flybe Group Plc as compared
with others, has less performance.
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TASK 2
Topic– Investment Appraisal
(a) There are generally major four stairs includes for financial investment which are concerning
about financial evaluation as well as it's going to assist within the procedure of decision-making
(Fourie, Opperman and Kumar, 2015). There is protected following stages -
 Project Screening – It could aid to take a look at the advantages of the task and allows
the business enterprise to warrants further attention.
 Analysis and acceptance- through recognising the mission and get specific data than
take delivery of inspiration regarding the commercial enterprise process.
 Monitoring and review – This step state to review and monitor the entire process to get
desired outcomes.
The investment appraisal is a specific location which could assist within the selection-making
technique regarding capital expenditure. This process is mainly engaged with some essential
activities like marketing, organisational layout, strategic plans and more. The particular
technique used within the selection making method which is mainly concerned on quantitative
approach and progressive searching method (Bouma, Jeucken and klinkers, 2017).
(b) A number of techniques can be carried out via organisation for investment appraisal that
includes -
 Accounting rate of return – Here, specific approach is used to compare the income for
making an investment from invested amount. The unique method is usually calculated by
considering the average profit annually. With this assistance, idea of economic ratio used
as capital budgeting (Norman and Nakhooda, 2015). It cannot be centred at the time fee
of cash, cash flows and more, due to the fact it’s miles important component to arrange
business in an effective manner as an instance, in case of total year profitability
regarding with targeted task over three years that span averages $100 in addition to
common investment in a particular year is near about $1000 as compared to ARR can be
$100.
Advantage – The main advantage of this method is calculation part which is easy to apply
Disadvantage –Typically it could forget about the cash flow via making investment in sports.
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 Payback period – In this approach, the quantity associated with time due to the fact
there is calculating the total duration by concerning to the invested quantity. In this
regard, money has acquired in given interval and calculate on specific rate and mission
is a hit as an instance, firm B is making plans to begin project desires an initial
investment of near about $110mn. The assignment is predicted to supply $20 million
according to year in net cash flow for five years. Therefore, pay returned length is
preliminary the annual cash flow or investment which is over $110 or $20 answer is five
and half years.
 Investment risk with sensitivity analysis – Here, specific analysis for analysing the
diverse values as an unbiased variable. The specific technique can be applied mainly on
those areas that could support to one or greater enter variables (Gibb, 2016). For
example- To determine the income fee of widget which is $1000 and sue sold final 12
months for total sales of $100,000, with transaction growth via ten percent and quantity
by means of 5% to increase economic version. It could inform what takes place in the
concerning of sales whilst boom purchaser traffic by using 10%, 50% or 100%.
Advantage – Using the concept of sensitivity evaluation, evaluation of overall information
extensive and identifying the relationship among different variables with reasons of its impact.
Disadvantage – It’s far especially primarily based on hypothesis instead of nature.
 Discounted cash flow - It is far referred to as assessment approach which is utilised to
describe the quantity of an expenditure which is mainly concerned with cash flows
availed in the future. With the assist of these strategies the use of a discount rate and
follow gift value for calculating the estimated cash flows in future. For an instance: Let
the annual interest be 5 percent of saving account which is $1 on the way to be well
worth $1.05 taken in a year. Similarly, for a $1 charge is behind schedule for a year then
the current value will be obtained as $ 0.95 which could not be considered as saving
amount (Badarinza, Campbell and Ramadorai, 2016.).
Advantage – It refers to closest to intrinsic cost of stock that resembles with valuation approach
as per analysis of confidence.
Disadvantage – This technique usually concerns on sensitivity for small or less adjustment to
entail the quality of an investment project.
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 Net present value – The particular technique can display net cash inflows and cash
outflows with acknowledgement to particular period of time (Avdjiev, McCauley and
Shin, 2016). This technique used the concept of capital budgeting as well as investment
plan for determining the profitability and beneficial that company might gain from its
projected investment.
Advantage – The primary key benefits of this approach to think about the capital's fee and the
danger which might inherent during projections making for future analysis.
Disadvantage – It includes a guesswork technique to analyse the company' price of capital
which leads to increase cost of capital.
According to the mention table, it has determined that company has projected over
£500,000 cash flows with connection with five-years having more than 10% as discount rate.
The Net Present Value has also been really worth of £368284 which implies to get fulfilment to
be able to have a good worth. Thus, it has been summarised from overall techniques that NPV is
higher than others.
CONCULSION
It has been evaluated from the given assignment that for every company finance is
necessary because through it they able to conduct their work in effective manner. Along with
this, it can be evaluated that through analyzing financial ratio of the companies Ryanair is
gaining high investment perspectives. Through which it is determine that performance of
respective company is effective and strong which help them in gaining high ratio. Appraisal of
investment can be determined through qualitative technique that can be adopted by an investor
for the purpose of investment.
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REFERENCES
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finance. Routledge.
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finance. Annual Review of Economics. 8. pp.111-144.
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finance. Journal of Banking & Finance. 86. pp.159-176.
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Gibb, K., 2016. Housing Finance in the UK: an Introduction. Macmillan International Higher
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Avdjiev, S., McCauley, R. N. and Shin, H.S., 2016. Breaking free of the triple coincidence in
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