Airline Financial Analysis: Lufthansa vs. Turkish Airlines

This assignment presents a comparative analysis of the financial positions and performance of Lufthansa and Turkish Airlines. It evaluates profitability, solvency, and efficiency ratios for both airlines, concluding that Lufthansa outperforms Turkish Airlines in each area. The report also includes an analysis of Emirates' cash flow from sales, finding a decrease over time. Based on the findings, the assignment recommends investing in Lufthansa rather than Turkish Airlines.

Financial Analysis Management & Enterprise

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
1. Critically comparing and contrasting financial performance of Turkish and Lufthansa...3
2. Critically analyzing annual cash flow statements of Emirates over the five year period
from 2012 to 2016................................................................................................................12
CONCLUSION........................................................................................................................15
REFERENCES.........................................................................................................................16

INTRODUCTION
Financial analysis refers to the process that business entity and monetary analysts
undertake for making evaluation of company’s performance as well as suitability.
Management of financial resources is the key that contributes in the growth and success of
business organization to a great extent. In this regard, financial statement analysis provides
high level of assistance in evaluating business performance from several perspectives such as
profitability, liquidity, solvency and efficiency. On the basis of cited case situation small
investment bank in UK is willing to assess financial position and performance of the
companies operating in airline sector namely Turkish and Lufthansa. In this, report will
highlight financial position and performance of such airline companies through ratio analysis.
Besides this, report will also provide deeper insight about the extent to which cash flow
position of Emirates was good during the period of five years from 2012 to 2016.
1. Critically comparing and contrasting financial performance of Turkish and Lufthansa
Ratio analysis of two LSE listed organizations namely Turkish and Lufthansa for the period
of 4 years from 2013 to 2017 are enumerated below:
Profitability ratios
Turkish Airlines Lufthansa
2013 2014 2015 2016 2013 2014 2015 2016
Profitability ratio
Gross profit 1,823 2,002 2,102 1,136 12,518 12,728 14,416 14,551
Net profit 357 845 1,069 -77 313 55 1,698 1776
Net sales 9,826
11,07
0
10,52
2 9792 30,028 30,011 32,056 31,660
GP ratio
18.6
% 18.1% 20%
11.6
%
41.69
%
42.41
%
44.97
%
45.96
%
NP ratio 3.6% 7.6% 10.2% -0.8% 1.0% 0.2% 5.3% 5.6%
Interpretation: The above depicted table presents that from 2013 to 2015 GP margin
of Turkish Airlines increased but at the end of 2016 it accounted for only 10.8% (Annual
report of Turkish Airlines (2016), n.d.). Income statement of Turkish Airlines present
decreasing trend in sales revenue from 10522 to 9792 million. On the other side, cost of sales
or direct expenses of such airline firm inclined from 8420 to 8656 million. Hence, this is

recognized as one of the main reasons due to which GP margin of the firm was lower in the
period of 2016. On the other side, Lufthansa GP margin inclined from 41.69% to 45.96% at
the end of 2017. Hence, such increasing sales pattern and GOP margin can clearly be
supported with the strength such as high market share and brand image. By taking into
account all such aspects it can be stated that Lufthansa had exerted effectual control over
direct expenses.
Further, outcome of ratio analysis presents that NP ratio of Turkish Airlines
accounted for -0.7% significantly. Due to the high level of indirect expenses and tax
obligations negative NP margin was generated by Turkish Airlines. Swot analysis of the
company presents that Turkish Airlines charges higher prices in comparison to the
competitors. In addition to this, customers had experienced bad experience from company’s
website (Swot analysis of Turkish Airlines, 2018). Thus, both such aspects caused of negative
margin generated in the 2016. From the period of 2013 to 2016, Lufthansa NP margin
increased to the significant level as such firm has maintained high brand image and coverage
in Europe. In comparison to the rival firm and other low cost airlines present in the market
Lufthansa has attained high net profit by making control on indirect expenses.
Liquidity ratio analysis
Turkish Airlines Lufthansa
2013 2014 2015 2016 2013 2014 2015 2016
Liquidity ratio
current assets 2,125 2,831 3,146 3,601 9,663 8,247 8,936 10,193
Current liabilities 3,117 3,667 3,871 4,497 10,947 10,974 12,437 11,009
Stock 160 195 216 217 641 700 761 816
Prepaid expenses 42 60 74 98
Current ratio 0.68 0.77 0.81 0.80 0.88 0.75 0.72 0.93
Quick ratio 0.62 0.70 0.74 0.73 0.82 0.69 0.66 0.85
Outcome of ratio analysis presents that current ratio of Turkish Airlines falls
within .68 to .81 during the four consecutive years. In addition to this, fluctuating trend has
found in the current ratio of Lufthansa. It presents that for meeting 1obligation both the
companies have approximately one current asset. This is not good as compared to ideal ratio
such as 2:1 respectively. Thus, referring the current position and benchmark it can be
depicted that liquidity position of Turkish Airlines is good but not sound.

Tabular presentation of data set clearly exhibits that quick ratio of both the airline
companies was higher in comparison to the ideal standard. In every year, from 2013 to 2016,
quick ratio of the concerned business unit was higher than .5:1 (Annual report of Turkish
Airlines (2014), n.d.). Hence, it can be said that in against to 2 current obligations more than
1 quick asset were maintained by Turkish Airlines and Lufthansa that can easily be converted
into cash. Hence, liquidity position of both the companies can said to be good in the FY 2015
& 2016.
Solvency ratio analysis
Turkish Airlines Lufthansa
2013 2014 2015 2016 2013 2014 2015 2016
Solvency ratio
Long-term debt 4,856 5,318 6,636 7,822 1,912 2,405 1,947 2,425
Shareholders’ equity 3,262 3,950 4,842 5,087 6,056 3,968 5,768 7,060
debt-equity ratio 1.49 1.35 1.37 1.54 0.32 0.61 0.34 0.34
From the analysis of balance sheet, it has assessed that in all the concerned four years
debt-equity ratio of Turkish Airlines was greater than 1. This is not a good because high debt
level imposes fixed periodical financial burden in front of the company and adversely
impacts profit margin. In accordance with the ideal ratio optimal structure is when company
issues 2 equities over 1 debt. In the context of Turkish Airlines, management team placed
high level of emphasis on debt sources for meeting monetary requirements. On the other side,
in 2013 and 2014 debt-equity position of Lufthansa was implied for .32 & .61 respectively. In
contrast to this, in the accounting year 2015 and 2016 dent-equity ratio of such company was
constant such as .34:1 significantly. Thus, comparatively, it can be depicted that solvency
position of Lufthansa was good during the 4 years considered for the investigation purpose as
compared to Turkish Airlines.
Efficiency ratio analysis
Turkish Airlines Lufthansa
2013 2014 2015 2016 2013 2014 2015 2016
Efficiency ratio
COGS 8003 9068 8420 8656
17,51
0
17,28
3
17,64
0
17,10
9

Stock 160 195 216 217 640 670.5 730.5 788.5
Total assets
11,90
2
13,74
6
16,38
3
18,49
1
29,08
4
30,47
4
32,46
2
34,69
7
Net sales 9826
1107
0 9792
1052
2 30028
3001
1 32056 31660
Inventory turnover
ratio 50.02 46.50 38.98 39.89 27.36 25.78 24.15 21.70
Total assets turnover
ratio 0.83 0.81 0.60 0.57 0.97 1.02 1.01 1.10
Efficiency ratio analysis entails that inventory turnover of Turkish Airlines declined
from 50.02 to 39.89 times. In addition to this, stock turnover ratio of Lufthansa was 27.36 &
25.78 in the year of 213 and 2014. On the contrary to this, in 2015 and 2016, inventory
turnover ratio of Lufthansa accounted for 24.15 & 21.70 respectively. By taking into account
such aspect, it can be presented that inventory of Lufthansa was sold and replaced more
frequently in against to the rival firm. Hence, for making improvement in the turnover and
avoid cost associated with the excessive stock Lufthansa needs to lay emphasis on
undertaking methods like EOQ, JIT etc.
Total assets turnover ratio’s result presents that decreasing trend or movement, in the
context of Turkish Airlines, from 2013 to 2016. In 2013, total assets turnover ratio of Turkish
Airlines was .83, whereas it reached on .57 at the end of 2016. This aspect shows that Turkish
Airlines failed to generate high sales by using both current and fixed assets. From internal
and external environmental evaluation it has assessed that employees of Turkish Airlines are
not highly skilled. In against to this, such ratio of Lufthansa inclined from .97 to 1.10 times
which in turn exhibits that over the years company had made effectual use of assets while
performing business activities. Hence, competitively, Lufthansa’s management is good
pertaining to making use of assets for the generation of sales revenue.
Investment ratio
Turkish Airlines Lufthansa
2013 2014 2015 2016 2013 2014 2015 2016
Investment ratios
EPS 0.26 0.61 0.77 -0.06 0.68 0.12 3.67 3.81

Interpretation: Investment ratios are highly considered and evaluated by the
shareholders, both existing and potential, while taking decision in relation to investing funds.
EPS of Turkish Airlines increased from the period of 2103 to 2015 but due to the attainment
of negative margin it was accounted for -0.06 at the end of 2016. In contrast to this, profit
which was allocated by the company to its outstanding shareholders increased significantly.
Hence, with the rise in profit margin, Lufthansa has provided shareholders with high returns.
Thus, from the investment context, Lufthansa is highly suitable which in turn provides
shareholders with enough returns.
To
Head of Equity Research
Date: 18th March 2018
Subject: Financial assessment of Turkish Airlines and Lufthansa
Introduction: The main purpose behind conducting such investigation is to analyze the extent to
which monetary performance of Turkish Airlines and Lufthansa is good over the years and in against
to each others. Hence, ratio analysis tool has been undertaken for summarizing and evaluating the
performance of such two airline companies.
Findings: By doing evaluation, it has identified that airline sector is growing with the very high pace.
Moreover, now individuals give high level of preference to the air mode of transportation over other.
As it provides high level of convenience to them and now there are several companies which offer air
services at low cost. Hence, from the future investment perspective, Lufthansa is considered ads
highly good.
2013 2014 2015 2016 2013 2014 2015 2016
Turkish Airlines Lufthansa
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
Profitability ratios
GP ratio
NP ratio
Figure 1: GP and NP ratio

Graphical presentation reflects that profitability position of Lufthansa was good from 2013 to 2016
in comparison to Lufthansa. Moreover, Turkish Airlines has less participation in CSR projects. This
in turn places negative impact on the image of company and thereby customer’s decision making. On
the other side, Lufthansa is known for the quality in-flight services offered by it. In addition to this,
multi-passenger branding also contributes in attracting customers and thereby enhancing both revenue
as well as margin. Further, financial strategies pertaining to cost control undertaken by Lufthansa are
highly effective and good.
2013 2014 2015 2016
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Current Ratio
in proportion (:1)
Figure 2: Current ratio assessment
Quick ratio
2013 2014 2015 2016
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0.620000000000
001
0.700000000000
001
0.740000000000
001 0.730000000000
001
0.820000000000
001
0.690000000000
001 0.660000000000
001
0.850000000000
001
Turkish Airlines Lufthansa
Figure 3: Quick ratio evaluation

Further, it is reported to the management team of equity research that not enough current assets were
maintained by both the airline companies for meeting liabilities that need to be fulfilled within a year.
However, current position presents that company is capable to meet its obligations from current
assets. Hence, for the enhancement of liquidity position focus need to placed by the companies on the
maintenance of current assets.
2013 2014 2015 2016
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Solvency ratio
in :1
Figure 4: Debt-equity ratio
Line graph shows that level of debt in the capital structure of Turkish Airlines was high rather than
equity. Hence, it is recognized as main reason behind lower level of profit margin generate by Turkish
Airlines during the 4 years time frame. Solvency position of Lufthansa is good as from 2013 to 2016,
debt-equity ratio of Lufthansa was near to the standard. Hence, it can be entailed that optimal capital
structure is built and employed by Turkish Airlines.
2013 2014 2015 2016 2013 2014 2015 2016
Turkish Airlines Lufthansa
0
10
20
30
40
50
60
Inventory turnover ratio
Inventory turnover ratio
Figure 5: stock turnover ratio

2013 2014 2015 2016
0
0.2
0.4
0.6
0.8
1
1.2
Total assets turnover ratio
in Times
Figure 6: Total assets turnover ratio
Further, from the efficiency aspects, inventory turnover ratio of Lufthansa was over as compared to
Turkish Airlines. This reflects company’s inefficiency in relation to managing stock as per the
requirements during the specific time frame. On the other hand, Lufthansa made effectual use of
assets with the help of skilled workforce. Along with the strategies, success of the company is highly
influences from the abilities and proficiency level of personnel. Hence, Lufthansa has high potential
in relation to attaining success and gaining competitive edge with the talented team or employees.
2013 2014 2015 2016 2013 2014 2015 2016
Turkish Airlines Lufthansa-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
EPS
Axis Title
Figure 7: Earnings per share
Referring the outcome of investment ratio evaluation it can be depicted that by offering higher return
to each shareholder Lufthansa has fulfilled its accountability towards them. This shows that as per the
profit margin attained company has provided its shareholders with suitable returns.
Hence, by taking into account overall evaluation it can be said that sound strategies and policy

framework has employed by Lufthansa for managing business operations as well as functions
prominently. The main motive behind making investment is to attain high margin and ensure that
company will achieve success in the near future. Thus, by keeping such objectives in mind,
investment in Lufthansa is suggested.
(Source: Lufthansa SWOT: new low cost platforms are smarter strategy than resorting to
protectionism, 2018)
Conclusion: It can be inferred from the evaluation that Lufthansa has attained leading position in the
airlines sector, by seats, over others. Through the evaluation of 4 years time period from 2013 to
2016, it has asserted that financial performance of Lufthansa is good. Further, referring the current
financial trend and both internal as well as external aspects it is anticipated that Lufthansa will grow
in the upcoming time period. Thus, from the investment perspective Lufthansa will prove to be more
beneficial which in turn helps in getting the desired level of outcome or success.
Thank You!
Sincerely
Financial Analyst

2. Critically analyzing annual cash flow statements of Emirates over the five year period
from 2012 to 2016
Cash flow statement furnishes information about the inflow and outflow of funds in
relation to the specific time frame. By analyzing and evaluating cash flow statement manager
can assess the extent to which effectual control has exerted over the expenses. Further, it also
reflects company’s ability in relation to making optimum utilization of cash. Hence, operating
and free cash flow ratios are highly significant in this context which in turn helps in making
assessment of monetary position of the firm more effectually. This task is based on Emirates
Airlines that known for the high quality airline services offered by it. Such business unit is
recognized as world’s fourth largest airlines in terms of scheduled revenue and passenger-
kilometres flown and international passengers carried.
Cash flow ratios of Emirates from the period of 2012 to 2016 are enumerated below:
Particulars 2012 2013 2014 2015 2016
operating Cash
Flow AED Mil
12330 12,814 12,649 13,265 14,105
Sales revenue 77,536 71,159 (Annual
Report of
Emirates
(2013), n.d.)
80,717 86,728
(Annual
Report of
Emirates
(2015),
n.d.)
83,500
Operating cash
flow to sales
ratio (in %)
15.9% 18.0% 15.7% 15.3% 16.9%
From cash flow statement analysis, it has assessed that operating cash flow to sales
ratio of Emirates was fluctuated during the concerned five years period. In 2013, operating
cash flow to sales ratio of Emirates was 18% respectively. It shows that in 2013, company
was highly able to convert sales into cash. On the other side, in 2014 and 2015, such ratio
accounted for15.7% & 15.3% respectively. Further, at the end of 2016, operating profit to

sales ratio of the company was 16.9%. Due to high level of competition takes place in the
airlines sector such fluctuated trend has assessed
Free cash flow based ratios
Particulars 2012 2013 2014 2015 2016
Free Cash
Flow AED Mil
703 355 1068
(Annual
Report of
Emirates
(2014),
n.d)
893 206
Sales 77,536 71,159 80,717 86,728 83,500
Net profit 3,102 3408 3,417 4,728 7,318
(Annual
Report of
Emirates
(2017),
n.d.)
Free Cash
Flow / Sales %
0.91% 0.50% 1.32% 1.03% 0.25%
Free Cash
Flow / Net
Income
0.23 0.10 0.31 0.19 0.03
From cash flow statement analysis, it has assessed that, in the accounting year 2013
and 2016, company’s cash flow surplus in against to the sales revenue was high lower. Out of
five years period, in 2012, 2014 & 2015, free cash flow to sales ratio of the company was
higher as compared to other period but it was not higher. Hence, business unit needs to
develop suitable budgeting framework for exerting control over cash expenses. In addition to
this, cash flow statement evaluation exhibited movement in free cash flow to net income ratio
as per sales. The rationale behind this, profitability of the company is highly associated with
the sales revenue during the specified time frame.
Business Report

To
Head of Equity Research
Date: 19th March 2018-03-19
Subject: Cash flow statement assessment
Introduction: Considering the concern of client cash flow analysis has been done to analyze the level
to which company has generated enough cash flow from different activities such as operating,
investing and financing. For this purpose, several ratios have been calculated to ascertain the
company’s capability in relation to cash generation.
Main body: Graphical presentation entails that company’s ability in relation to obtaining cash from
sales was lower. Further, pictorial view of data set presents that the level of free cash flow to sales and
profit was also not high. Thus, competitor’s policies and strategies may be served as major cause due
to which Emirates failed to generate high sales and thereby cash. Thus, for achieving success
company needs to make focus on innovative offerings.
2012 2013 2014 2015 2016
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
18.5%
Operating cash flow to sales ratio (in
%)
Operating cash flow to
sales ratio (in %)

2012 2013 2014 2015 2016
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Free Cash Flow / Sales %
Series2
Free Cash Flow / Net
Income
Series4
Conclusion: Evaluation of cash flow statement highlighted that Emirates was not highly able in
relation to convert sales into cash. Hence, for the generation of high cash through sales Emirates need
to make focus on offering high discounts to the customers and provide them with attractive tour
packages. Hence, through undertaking such measure cash flow from operating activities can be
improved significantly.
Thank You!!
Sincerely
Financial Analyst
CONCLUSION
In conclusion to this report, it can be concluded that financial position and
performance of Lufthansa is good over Lufthansa. In each area such as profitability, solvency
and efficiency performance of Lufthansa is noticeable as compared to Turkish Airlines.
Further, it has been articulated Turkish Airlines need to take strategic actions for making
improvement in the profit margin, liquidity and solvency position. Hence, concerned
investment bank should focus on investing money in Lufthansa rather than Turkish Airlines.
Further, it can be summarized from cash flow statement evaluation that Emirates ability
decreased in relation to generating cash from sales decreased over the time frame. As
compared to 2014 and 2015, such business has generated higher cash from sales. Hence, out
of the three airlines firm considered for the investigation purpose, it can be depicted that
Lufthansa is highly suitable from investment and growth perspective.

REFERENCES
Online
Annual report of Turkish Airlines (2014). n.d. [pdf]. Available through:
<http://investor.turkishairlines.com/documents/ThyInvestorRelations/download/finansal/
2014_12_Months_Financial_Report_USD.pdf>.
Annual report of Turkish Airlines (2016). n.d. [pdf]. Available through: <
http://investor.turkishairlines.com/documents/ThyInvestorRelations/
THY_2016_ANNUAL_REPORT-v2.pdf>.
Swot analysis of Turkish Airlines. 2018. [Online]. Available through: <
https://centreforaviation.com/insights/analysis/turkish-airlines-swot-a-recent-pattern-of-
falling-quarterly-profits-but-many-strategic-strengths-183230>.
Swot analysis of Lufthansa. 2018. [Online]. Available through: <
https://www.marketing91.com/swot-analysis-lufthansa-airlines/ >.
Lufthansa SWOT: new low cost platforms are smarter strategy than resorting to
protectionism. 2018. [Online]. Available through: <
https://centreforaviation.com/insights/analysis/lufthansa-swot-new-low-cost-platforms-
are-smarter-strategy-than-resorting-to-protectionism-217932 >.
Annual Report of Emirates (2013). n.d. [pdf]. Available through:
<http://cdn.ek.aero/downloads/ek/pdfs/report/annual_report_2013.pdf >.
Annual Report of Emirates (2014). n.d. [pdf]. Available through: <
http://cdn.ek.aero/downloads/ek/pdfs/report/annual_report_2014.pdf>.
Annual Report of Emirates (2017). n.d. [pdf]. Available through:
<https://cdn.ek.aero/downloads/ek/pdfs/report/annual_report_2017.pdf >.
Annual Report of Emirates (2015). n.d. [pdf]. Available through: <
http://cdn.ek.aero/downloads/ek/pdfs/report/annual_report_2015.pdf>.