Financial Analysis Management and Expertise

FINANCIAL ANALYSIS
MANAGEMENT AND EXPERTISE
TABLE OF CONTENTS

INTRODUCTION.......................................................................................................................................1
1. Critical comparison of the financial performance of Turkish Airlines and Lufthansa.........................1
Profitability Ratios...................................................................................................................................1
Gross profit ratio..................................................................................................................................1
Operating profit ratio...........................................................................................................................2
Net margin ratio...................................................................................................................................3
Liquidity ratios........................................................................................................................................4
Current ratio........................................................................................................................................5
Quick ratio...........................................................................................................................................6
Solvency ratios........................................................................................................................................6
Debt to equity ratio..............................................................................................................................7
Interest coverage ratio..........................................................................................................................8
Efficiency ratios.......................................................................................................................................8
Assets turnover ratio............................................................................................................................9
Inventory turnover ratio.......................................................................................................................9
Investment ratio.....................................................................................................................................10
Earnings per share.............................................................................................................................10
2. Critical analysis of the cash flow statement of Emirates Airlines......................................................12
CONCLUSION.........................................................................................................................................14
REFERENCES..........................................................................................................................................15

INTRODUCTION
In today’s era where changes took place at faster pace, it seems too important for the
managers to not only to be aware of the market fluctuations but also to adjust their financial
plans accordingly to manage financial risk. The current investigation will compare the financial
results of two leading airline companies that are Lufthansa Group and Turkish Airlines for the
period of four years from 2013-2016 using different ratios. Later, Emirates Airline’s cash flow
statement will be used to investigate its cash management practices.
1. Critical comparison of the financial performance of Turkish Airlines and Lufthansa
Profitability Ratios
Gross profit ratio
Profitability ratios 2013 2014 2015 2016
Gross profit Turkish Airlines (USD million) 1823 2040 2102 1136
Lufthansa (Euro million) 12518 12728 14416 14551
Total sales Turkish Airlines (USD million) 9826 11070 10522 9792
Lufthansa (Euro million) 30027 30011 32056 31660
Gross margin Turkish Airlines 18.55% 18.43% 19.98% 11.60%
Lufthansa Group 41.69% 42.41% 44.97% 45.96%
2013 2014 2015 2016
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
18.55% 18.43% 19.98%
11.60%
41.69% 42.41% 44.97% 45.96%
Gross margin
Turkish Airlines Lufthansa
Gross margin ratio is used to assess the profit that is earned by the firm through mark-up
added to the product manufacturing cost. Throughout the period from 2013 to 2016, Lufthansa’s
gross margin depicted a growing trend from 41.69% to 42.41%, 44.97% and 45.96%. In 2014, its
1

worldwide sales grown up mainly driven by large regional disparities. Airfreight traffic has been
increased slowly compare to the passenger traffic. German market reported 2.3% growth,
Asian/Pacific region shos growth of 7.1%, North American market by 2.7%, Latin American by
6.4% whlist in Africa, it shown only 0.3% increase. However, Middle East shows fastest growth
above 11%. Although, traffic revenue dropped down, still, other revenues from catering, IT
services & MRO (maintenance, repair and overhaul) Business segment reported growth.
Later, in 2015, global economic growth favorably affected the demand for air travelling
all across the globe and in Middle East market, the growth continued. However, Original
Equipment Manufacturers (OEM) continued put pressure to move it into MRO market High cost
of development declined the margin on the sale of aircraft. GDS (Global Distribution System)
had been successfully implemented wherein distribution cost has been added to the cost per
ticket reported a good progress. Traffic revenue rose by 2% whereas due to air traffic tax and
high surcharge on fuel decreased prices (Lufthansa Group Annual Report, 2016). However, on
the other side, Turkish Airlines ratio shows a fluctuating trend as in 2014, it had been fallen to
18.43% then increased to 19.98%, afterwards, again dropped to 11.60%. It is because, in 2016,
its sales dropped down whereas cost shows a significant increase because of high tax and cost,
decreased gross margin.
Operating profit ratio
Profitability ratios 2013 2014 2015 2016
Operating profit Turkish Airlines (USD million) 651 676 895 -291
Lufthansa (Euro million) 851 767 1555 879
Total sales Turkish Airlines (USD million) 9826 11070 10522 9792
Lufthansa (Euro million) 30027 30011 32056 31660
Operating margin Turkish Airlines 6.63% 6.11% 8.51% -2.97%
Lufthansa Group 2.83% 2.56% 4.85% 2.78%
2