Financial Management: Analyzing the Financial Performance and Position of Companies

This report analyzes the financial performance and position of Ryanair and Easy Jet using ratio analysis. It covers profitability, liquidity, efficiency, and financial gearing. Learn how to compare the performance of two companies.

FINANCIAL MANAGEMENT

Executive Summary
The report is about analysing the financial performance and position of company. The financial
statement show only figures but actual performance is not analysed by direct. For knowing t5he
actual position of company ration analysis is performed by companies and investors for knowing
the true position of company. This provides them with base to make decision for theie
investments and management to make decisions for improving the performance of company.
Ratio analysis has helped to compare the results and operation of two companies.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Business profiles of two companies.................................................................................................1
ANALYSIS......................................................................................................................................1
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial management refers to organizing, planning directing & controlling financial
activities like procurement and utilizing funds for enterprise. It refers to the application of
management principles over the financial resources of enterprise. There are various companies
operating in market in which investment can be made. Financial statement of company do not
provide the direct and clear position of company. Before making any decision about the
performance of company, users perform ratio analysis for comparing the results of companies.
Ratio analysis helps users to identify the difference in performance of two companies. This
report is based on Ryanair Plc which offers airline services to the customers at suitable prices.
Hence, the present report perform the ratio analysis of two companies that are listed on London
stock exchange. For analysing the financial performance of Ryanair, from several perspectives
such as profitability, liquidity, efficiency and financial gearing, in against to its competitor Easy
Jet of Ryanair has been taken as the company and Easy jet ratio analysis tool has been applied.
Business profiles of two companies
Ryanair Holdings Plc
Ryanair is Irish airline company founded in 1984, having headquarters in Dublin, Swords
and Ireland. It is largest of the in Ryanair Holdings. It became largest Budget airline in Europe
that carried international passengers more than other airline. Ryanair is operating above 400
Boeing 737-800 aircrafts with only one 737-700 charter aircraft. Ryanair networks are serving
over more than 38 European countries. Company faced criticism over employee conditions and
extra charges. Parent company of Ryanair airlines is Ryanair Holding plc. Company is serving
from last 34 years and now is having an employee base of 17500 people (Furse, 2016).
Easy Jet plc
It is UK based airline carrier with low costs. Company is operating as company with low
costs as short haul airline. Company is serving over more than 1000 routes in 30 countries. It is
listed over LSE. Company has expanded its growth by number of acquisitions and demands for
low cost travel. Company with its associate companies like easy jet Switzerland and easy jet
Europe is operating above 300 aircraft. It carried above 65 millions of passengers in 2014 that
made it 2nd largest budget airlines in Europe behind Ryanair. Company is serving from last 24
years since 1995 with staff base of nearly 14000 persons (Milkiewicz, 2015).
1

Evaluating financial performance and health of Ryanair Holdings Plc using ratio analysis
Ratio Analysis of Ryanair holding plc Profitability ratios
Ryanair Holding plc
Particular
s Formula 2018 2017 2016
Profitabilit
y Ratios
Return on
capital
employed
Net
operating
profit/Emp
loyed
Capital 19.85% 20.17% 20.29%
Return on
Equity
Net
Income /
Shareholde
r's Equity 32.45% 29.73% 43.35%
Gross
profit
margin
Total Sales
–
COGS/Tot
al Sales 23.33% 23.06% 22.35%
Operating
profit
margin
Operating
Income/
Net Sales 23.31% 23.08% 22.34%
Assets
Turnover
Sales / Net
assets 90.59% 87.85% 85.75%
Interpretation: From the above it could be interpreted that profitability of company is
significantly high as compared to others in the industry. Return over capital employed has
decreed from previous year but the return over equity has increased as profits and revenues have
increased and company has employed new capital in its business (Annual Report, 2017, 2018).
2

Return on equity of company has increased from last year as company has not issued any shares
in current year. And is giving high performance adding to the shareholder's wealth. Operating
profit margin of Ryanair is high in comparison to easy jet plc. Over the three years it has shown
increasing trends (Edwards, Schwab and Shevlin, 2015).Company' s overall profitability is
healthy and good.
Liquidity ratios
Ryanair Holding plc
Current
ratio
Current
assets /
current
liabilities 1.23 1.56 1.43
Quick
ratio
Current
assets -
(stock +
prepaid
expenses) 1.23 1.56 1.43
Interpretation: For knowing the ability of company to manage its regular operations
liquidity ratios are calculated. Current ratio of Ryanair has declined in current year due to
increase in short term debts (Annual Report, 2017, 2018). Company should avoid short term
borrowings for improving its liquid position (Parson, R. and et.al., 2015). For in increasing the
liquidity ratio of company should avoid short term borrowings.
Efficiency ratios
Ryanair Holding plc
Inventory
days
Inventory/
COS*365 0.246 0.221 0.237
Debtor
days
Debtor/
Sales*365 2.94 2.98 3.69
3

Creditor
days
Creditor /
Sales*365 12.76 16.14 12.88
EPS 1.215 1.05 1.16
Interpretation: Efficiency ratio shows the management of company in running its
operation and the cash conversion cycles. From the above it could be assessed that Ryanair
collects it dues within 3 days and collection days are same from last three years. It helps
company to rotate its cash quickly within its operations. Ryanair is efficiently managing the
receivables and payables periods that is creating positive image of company in market.
Financial gearing
Ryanair Holding plc
Debt-
equity
ratio 0.79 0.89 0.99
Interpretation: Debt to equity ratio of Ryanair has decreased continuously over the past
three years. Decrease is also seen as company has issued new share capital where the debts have
not been increased with increase in share capital. Ratio of the company is continuously declining
as company has issued new shares against the debt.
Comparing financial performance and health of Ryanair with Easy Jet Plc
Ryanair plc Easy Jet Plc
2018 2017 2016 2018 2017 2016
Profitabilit
y ratios
Return on
capital
19.85% 20.17% 20.29% 9.32% 9.39% 13.03%
4

employed
Return on
Equity
32.45% 29.73% 43.35% 13.56% 13.74% 18.82%
Gross profit
margin
23.33% 23.06% 22.35% 26.60% 24.17% 25.12%
Operating
profit
margin
23.31% 23.08% 22.34% 7.80% 8.00% 10.92%
Assets
Turnover
90.59% 87.85% 85.75% 180.98% 180.12% 173.31%
Liquidity
ratios
Current
ratio
1.23 1.56 1.43 0.97 1.04 0.92
Quick ratio 1.23 1.56 1.43 0.97 1.04 0.92
Efficiency
ratios
Inventory
days
0.25 0.22 0.24 - - -
Debtor days 2.94 2.98 3.69 25.25 19.89 16.03
Creditor
days
12.76 16.14 12.88 63.31 51.64 44.17
EPS 1.22 1.05 1.16 0.9 0.77 1.1
Gearing
ratios
Debt-equity
ratio
0.79 0.89 0.99 0.3 0.34 0.25
5

Interpretation and Comparisons
From the above table financial position and performance of Ryanair and it Competitor
Easy Jet can be analysed. Ryanair is serving from last 34 years in the industry. It is one of the
biggest low budget airline followed by Easy Jet plc that is in market from last 25 years. Both the
companies are performing well therefore they have attained such growth in market. Analysis of
the financial figures is been carried out for knowing the financial health of organisations.
Revenues of Ryanair are increasing than also there is decline over the capital employed. Ryanair
is serving from last 34 years in the industry. It is one of the biggest low budget airline followed
by Easy Jet plc that is in market from last 25 years. Both the companies are performing well
therefore they have attained such growth in market.
In comparison of easy jet, Ryanair is giving more return over its capital employed
(Edwards, Schwab and Shevlin, 2015). Return of Equity of Ryanair has taken upward trend.
And is giving high performance adding to the shareholder's wealth. Where the Easy Jet's is still
having decline in its Return over equity. Margins of Ryanair have increased as company had
improved its operational performances. Where the operations of easy jets have been declining in
last three years. Current ratio of Ryanair is near to standard that shows company is having
enough liquid assets for meeting its short term obligations Where of its competitor it has
decreased in current year. Ryanair shall ensure that it maintains the liquidity level and increase in
assets should be invested productively. It is reducing it collection time where easy jet has
increased its debtor days. Debt ratio of company is not high that shows company raise funds
from market in borrowings in near to equal proportion of equity (Annual Report, 2018, 2019).
Where it's competitor easy jet do not raise high debts against its equity. Ryanair should not raise
funds more through debts, but through issue of shares or debentures.
CONCLUSION
Carrying out the above analysis it can be concluded that ratio analysis helps the user of
financial statement of company to know the true position of company. Financial statements are
prepared for comparing the position and performance of companies operating within the market.
But it is difficult to make comparisons as one company might be big and other may be small.
Ratio analysis facilitates comparison be dragging both companies over same point. Standards are
6

given for ratios of different industrial sector. In the present report analysis of Ryanair is showing
that company is having very strong position in the market. And position is built by continuous
improvement in its performance. It is giving high returns over capital employed and equity
adding to the wealth of shareholders. Company should take new projects for expanding it
networks over new regions utilising its earnings.
7

REFERENCES
Books and Jourmals
Edwards, A., Schwab, C. and Shevlin, T., 2015. Financial constraints and cash tax savings. The
Accounting Review. 91(3). pp.859-881.
Furse, M., 2016. Testing the limits: Ryanair/Aer Lingus and the boundaries of merger
control. European Competition Journal. 12(2-3). pp.462-483.
Milkiewicz, O., 2015. easyJet plc (Doctoral dissertation).
Parson, R. and et.al., 2015. Methods and apparatus for analysing and/or pre-processing
financial accounting data. U.S. Patent 9,031,873.
Rahman, I.A., 2015. THE EFFECT OF PRICE EARNING RATIO, DEBT TO EQUITY RATIO,
PRICE TO BOOK VALUE TO STOCK RETURN IN BANKING COMPANY LISTED IN
INDONESIA STOCK EXCHANGE (Doctoral dissertation, President University).
Online
Annual Report, 2017. 2018. [Online]. Available through :
<http://www.annualreports.com/HostedData/AnnualReportArchive/e/LSE_EZJ_2017.pdf>.
Annual Report, 2017. 2018. [Online]. Available through : <https://investor.ryanair.com/wp-
content/uploads/2017/07/Ryanair-FY2017-Annual-Report.pdf>.
Annual Report, 2018. 2019. [Online]. Available through :
<http://www.annualreports.com/HostedData/AnnualReports/PDF/LSE_EZJ_2018.pdf>.
Annual Report, 2018. 2019. [Online]. Available through : <https://investor.ryanair.com/wp-
content/uploads/2018/07/Ryanair-FY-2018-Annual-Report.pdf>.
8

APPENDIX
Ratio analysis of Ryanair
Ryanair Holding plc
Particular
s Formula 2018 2017 2016
Profitabilit
y Ratios
Return on
capital
employed
Net
operating
profit/Emp
loyed
Capital 19.85% 20.17% 20.29%
Employed
Capital
Total
assets –
Current
liabilities
(12361-
3963) 8398
(11989-
4384.5) 7604.5
(11218-
4023) 7195
Net
operating
profit 1667 1534 1460
Return on
Equity
Net
Income /
Shareholde
r's Equity 32.45% 29.73% 43.35%
Net
Income 1450 1315 1559
9

Sharehold
er's Equity 4468 4423 3596
Gross
profit
margin
Total Sales
–
COGS/Tot
al Sales 23.33% 23.06% 22.35%
COS 5483 5114 5075
Sales 7151 6647 6536
Operating
profit
margin
Operating
Income/
Net Sales 23.31% 23.08% 22.34%
Operating
income 1667 1534 1460
Revenues 7151 6647 6536
Assets
Turnover
Sales / Net
assets 90.59% 87.85% 85.75%
Sales 7151 6647 6536
Net assets 7894 7566 7622
Liquidity
Ratios
Current
assets 4189 4706 4821
Current
liabilities 3412 3011 3369
Inventory 3.7 3.1 3.3
Quick
assets 4185.3 4702.9 4817.7
10

Current
ratio
Current
assets /
current
liabilities 1.23 1.56 1.43
Quick
ratio
Current
assets -
(stock +
prepaid
expenses) 1.23 1.56 1.43
Efficiency
Ratios
Inventory 3.7 3.1 3.3
Trade
Receivable
s 57.6 54.3 66.1
Trade
Payables 250 294 230.6
Days 365 365 365
COS 5483 5114 5075
Sales 7151 6647 6536
Inventory
days
Inventory/
COS*365 0.246 0.221 0.237
Debtor
days
Debtor/
Sales*365 2.94 2.98 3.69
Creditor
days
Creditor /
Sales*365 12.76 16.14 12.88
Investor
11

Return
EPS
Total
Earnings/
Outstandin
g shares
Total
Earnings 1450 1316 1559
Outstandi
ng Shares
(in
millions) 1193.5 1249.7 1341
EPS 1.215 1.05 1.16
Gearing
Ratio
Long-term
debt 3528 3928 3573
Shareholde
r's equity 4468 4423 3596
Debt-
equity
ratio 0.79 0.89 0.99
Ratio analysis of Easy Jet Plc
Easy Jet plc
Particular
s Formula 2018 2017 2016
12

Profitabilit
y Ratios
Return on
capital
employed
Net
operating
profit/Emp
loyed
Capital 9.32% 9.39% 13.03%
Employed
Capital
Total
assets –
Current
liabilities
(4994+200
1)-2060 4935
(4237+173
4)-1670 4301
(4042+144
2)-1569 3915
Net
operating
profit 460 404 510
Return on
Equity
Net
Income /
Shareholde
r's Equity 13.65% 13.74% 18.82%
Net
Income 445 385 507
Sharehold
er's Equity 3259 2802 2694
Gross
profit
margin
Total Sales
–
COGS/Tot
al Sales 26.60% 24.17% 25.12%
COS 4329 3827 3496
13

Sales 5898 5047 4669
Operating
profit
margin
Operating
Income/
Net Sales 7.80% 8.00% 10.92%
Operating
income 460 404 510
Revenues 5898 5047 4669
Assets
Turnover
Sales / Net
assets 180.98% 180.12% 173.31%
Sales 5898 5047 4669
Net assets 3259 2802 2694
Liquidity
Ratios
Current
assets 2001 1734 1442
Current
liabilities 2060 1670 1569
Inventory 0 0 0
Quick
assets 2001 1734 1442
Current
ratio
Current
assets /
current
liabilities 0.97 1.04 0.92
Quick
ratio
Current
assets -
(stock +
0.97 1.04 0.92
14

prepaid
expenses)
Efficiency
Ratios
Inventory 0 0
Trade
Receivable
s 408 275 205
Trade
Payables 1023 714 565
Days 365 365 365
COS 4329 3827 3496
Sales 5898 5047 4669
Inventory
days
Inventory/
COS*365 0.000 0.000 0.000
Debtor
days
Debtor/
Sales*365 25.25 19.89 16.03
Creditor
days
Creditor /
Sales*365 63.31 51.64 44.17
Investor
Return
EPS
Total
Earnings/
Outstandin
g shares
Total
Earnings 358 305 437
Outstandi 397 397 397
15

ng Shares
(in
millions)
EPS 0.902 0.77 1.10
Gearing
Ratio
Long-term
debt 968 963 664
Shareholde
r's equity 3259 2802 2694
Debt-
equity
ratio 0.30 0.34 0.25
16