Ratio Analysis and Investment Appraisal in Finance

FINANCE

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
TASK 2........................................................................................................................................................13
CONCLUSION............................................................................................................................................................13
REFERENCES..............................................................................................................................................17

INTRODUCTION
Finance is describe as management of capital or money which can be include various activities
such as investing, budgeting, lending to others, saving for future, borrowing and many more. It is
also consider 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 type’s 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 indentifying 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
Ratio Analysis can be used to express quick indication in regard to performance of firm.
The ratio will be divided as per short term solvency, efficiency ratio and investments ratio.
Strength – The strengths of the ratio analysis -
 It helps to validate operating, financing and investing decision of company. In ratio analysis company identifies problems and caught attention of management in
specific areas.
Weakness – There are weaknesses also -
 It ignores the price level because changes in inflation and looks in price level between
periods.
 Financial ratio cannot sort any problem related to financial problems.
Current Ratio – Current ratio shows how much company can pay off debts regarding
short terms (Porter, 2016). The financial report analysis depicts that from 2016 to 2018 Ryanair
has facing problems and fluctuation in current ratio. Decrease in the ratio means that FLYBE

isn’t in good position in liquidity. Current ratio is a comparison of current assets to current
liabilities.
Ryanair holdings public limited company – The ideal current ratio of company is 2:1, it means,
company have good ability to pay off their loans. In the year of 2018 to 2016 continue decrease
which is not good for the company.
Flybe group plc – From the financial ratio it’s been analysed that current ratio of the company in
2016 to 2018, 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 the company cannot reach to their ideal ratio.
Sh
areholders liquidity Ratio – It is describe about ratio which can be develop by dividing whole
equity of stakeholder by firm’s total assets (Philippon, 2015). They are generally indicate 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.