Financial Report of Aviation Companies

This report analyzes the financial performance of three UK aviation companies: Ryanair, EasyJet, and Flybe, using financial ratios to assess profitability, liquidity, and solvency. It identifies Ryanair as the best performer and Flybe as the weakest. The report also explores capital investment decision-making processes and investment appraisal techniques, providing a numerical example to illustrate these concepts. Desklib provides past papers and solved assignments for students.

Financial report

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION A.....................................................................................................................................1
a) statement of financial ratios....................................................................................................1
b) the best performing company and its reasons.........................................................................6
C-The most poor performing company and its recommendation...............................................7
SECTION 2......................................................................................................................................8
A)capital investment decision making and its roles....................................................................8
b.techniques of investment appraisal........................................................................................11
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Financial report provide information about the performance and financial position
of the company over a specified period. It provides financial information to stakeholders,
creditors and promoter so that they evaluate company's performance before investing
money and also helps in planning and decision making.
This report is based on aviation company of UK namely Ryanair, Easy jet and Flybe.
This report includes financial ratios and non-financial ratio and evaluate good and bad
performer company. It also includes capital investment decision process and methods
of investment appraisal (Liang and et.al., 2016).
SECTION A
a) Statement of financial ratios
Ratio analysis may be served as quantitative tool which assists in analysing company’s
monetary performance from several perspectives such as profitability, liquidity & solvency etc.
The main motive of this report is to assess the extent to which one company performing better
over others. In this regard, to assess the best firm from investment perspective ratio analysis tool
has been selected.
Profitability ratios
Net profit ratio Net profit/sales*100
Years Easy Jet Flybe Ryan air
2016 14.62 0.43 26.35
2017 10.86 -6.68 22.12
2018 7.63 -1.24 22.53

Return on capital
employed
Net income/capital
employed*100
Years Easy Jet Flybe Ryan air
2016 18.24 3.55 20.77
2017 11.49 -12.9 15.41
2018 7.77 -0.98 16.88

Return on equity
Net
income/shareholders
equity*100
Years Easy Jet Flybe Ryan air
2016 24.32 4.41 43.35
2017 16.22 -44.28 29.75
2018 10.89 -10.1 32.45

Return on assets
Net income / Total
assets*100
Years Easy Jet Flybe Ryan air
2016 11.33 1.2 13.9
2017 7.97 -8.43 10.98
2018 5.11 -1.54 11.73

Interpretation- From the above analysis it is interpreted that the performance of
the companies in terms of profitability is said to be better of Ryan air than compared to
Easy jet and Flybe. The net profit ratio, return on capital employed, assets and equity
for the 3 years of Ryan are higher than the other companies which means that the
earnings of the company are more after the payment of all its cost, expenses and the
tax liability. However, Profits and returns of the Flybe shows the negative results which
means that company is not capable of meeting its cost, expenses etc. On the other
hand, The performance of Easy jet depicts the average results.

Operational ratios
Net assets turnover
ratio
Years Easy Jet Flybe Ryan air
2016 1.53 2.08 0.83
2017 1.19 1.86 0.74
2018 1.17 2.25 0.8
Interest coverage ratio
Earning before
interest tax/interest
expense
Years Easy Jet Flybe Ryan air
2016 62.55 1.73 20.54

2017 39.46 -10.78 22.83
2018 14.07 -3.64 27.74
Interpretation- From the above table it can be analysed that Operational
performance of the Easy jet is much better than the Ryan air and Flybe. This means
that assets of the Easy jet are generating more sales as compared to its competitor
corporates as its assets turnover ratio is greater. The interest coverage ratio for the 3
years of Easy jet is also higher which reflects that it has the capability to meet its
interest expenses. The operational ratio of Ryan air also evaluated as better which
means not too high and not too low. However, Flybe Does not have enough funds to
meet its interest realted expenses.
Structure ratios
Current ratio Current

assets/current
liabilities
Years Easy Jet Flybe Ryan air
2016 0.72 1.06 1.43
2017 0.92 0.96 1.56
2018 1.04 0.77 1.23
Quick ratio
Quick assets/current
liabilities
Years Easy Jet Flybe Ryan air
2016 0.72 1.04 1.43
2017 0.92 0.94 1.56
2018 1.04 0.69 1.23

Shareholders liquidity
ratio
Years Easy Jet Flybe Ryan air
2016 2.77 1.03 0.85
2017 2.21 0.47 0.97
2018 1.87 0.38 1

Gearing ratio
Years Easy Jet Flybe Ryan air
2016 39.97 106.62 130.73
2017 48.44 228.66 113.29
2018 53.5 281.2 109.97

Interpretation- The above analysis indicated that liquidity position of the Ryan
air is sound over its rivalry because the current ratio and quick ratio of this company is
close to ideal ratio that is 2:1. This states that an entity has efficiently managed its
current assets against its liabilities and has the ability to meet its short-term obligation
towards its shareholder and other creditors. The liquidity position of Flybe and Easy jet
are also reflecting good and average results.
Non-financial ratios
Profit per employee
Years Easy Jet Flybe Ryan air
2016 70 1 119
2017 49 -23 97
2018 33 -4 97

Average cost of
employee
Years Easy Jet Flybe Ryan air
2016 59 52 40
2017 59 56 42
2018 62 59 44
Interpretation- From the above evaluation it is stated that the non financial ratios that
includes profit per employee and the average cost of the employee which are better of

Ryan air as profits gained are higher and the cost resulted as low in comparison to Easy
jet and Flybe. The results of the Flybe are depicting negative profits and higher amount
of cost which leads to poor condition of the firm in relation to its survival in the market.
Easy jet profit are too close to its cost which reflects lower profit margin.
b) the best performing company and its reasons
The good performing company as per the graph is Ryanair and positioned as first
rank in the study. The overall performance of the company is better than the other
companies as the operating profit of the company are higher and the organisation has
the capability to meet its interest payments as it has the higher interest coverage ratio.
Though the net profit ratio of Flybe is lower than the other firms but it has managed its
other resources in the effective manner (Laitinen 2018). Higher the current ratio indicates
the firm's capacity to meet the short term requirement or liquidity for its day to day
operations and for meeting the working capital needs so as Ryan air is having the

higher current ratio as compared to Easy jet and Flybe it is a positive sign for the
company to maintain its liquidity for a longer period. The profit margin of the enterprise
is at increasing trend and greater in contrast with the other two entity which means
higher profits are generated in relation to the revenue that makes the company the best
performing company. The return on the assets of Ryanair company are also at higher
which act as a positive sign for the firm as it indicates the profits that it is earning on its
assets and how efficiently the resources are managed by the management of the
corporate. Hence, referring all the above assessment it can be presented that Ryanair is
best from investment perspective as it maintained good profitability and liquidity during
the period of 3 years over the rival firms.
C-The most poor performing company and its recommendation
From the above graphs of three year represent that Flybe company is the most
poor performing company within three years because company have no sufficient profit
to meet out his obligations so ranking of the Flybe company is third . Flybe company's
operating profit and net profit margins are lower than Ryan air company and Easy jet
company. This company have also low interest coverage ratio that represent that
company is not able to pay interest expenses on outstanding debt. Return on asset is
also lower so it indicates company not able to generate profit from its asset. Overall it
shows this company is not good performing so company must have to take action for
meet out his debt and enhance the profits (Lukason, Laitinen and Suvas. 2015).
In other words, it can be presented during the period if three years (2016, 2017 &
2018) Flybe failed to generate enough profit margin. In addition to this, profit attained by
Flbe from its employee are also too lower. Hence, for attaining success business unit
should make focus on undertaking budgetary control tools & techniques. By employing

such tool Flybe would become able to compare actual performance in against to the
standards and thereby would become able to take corrective measures for improvement
within suitable time frame. Further, for getting desired level of outcome or success Flybe
should conduct training & development session for personnel. Through this, personnel
would become able to perform business activities effectually and thereby contributes in
profitability.
Recommendations
Flybe company should provide better services to his customer so that customer can be
retain and maximised the profit of the company.
 Company should prepare strong strategy for target audience.
 This company must reducing his expenses and generate profit for meet out the
obligation.
 Company should build his goodwill in the market that helps to improve earnings
per share ratio and enhance shareholder's value of the company.
Memo
To- XYZ Ltd.
From- ABC Ltd.
cc- Mr John Sharma
subject- Capital investment appraisal
SECTION 2
A)capital investment decision making and its roles
Capital investment appraisal is the process of evaluating and selecting long-

term investments that are in line with the goal of investor's wealth maximisation. It is
also known as capital budgeting (Easton. and Sommers., 2018). Capital investment
appraisal includes the components like equipment, purchase of new plant and
machinery, r&d projects, property and advertising campaigns etc. The capital
budgeting decisions are essential, crucial and critical business decisions due to
substantial expenditure involved, log period for the recovery of benefits and the
complexity involved in capital investment decisions. The factors of capital investment
appraisal are selected on the basis of the preferences of the decision makers and the
stakeholders. The criteria for the selection of budgeting is based on long term growth
when they are compared with the short term profits. Capital investment refers to funds
are invested into the firms , enterprise for the purpose of profit maximisation , business
expansion and accomplish the company objectives. Financial institution , bank and
company have various option of funding such as invested in equity share , bonds etc.
All companies follow key stages before investing the funds such as :-
 Project identification- Company identify and analyse the most appropriate
project under this first stage of capital investment decision making that helps to
give several opportunities to company for accomplishment the goals. Project
identification is significant stage because company able to estimate cost,
resources and time before the capital investment (Laitinen 2018).
 Project definition – After identification the appropriate project then company
defines long terms goals and short terms goals of the project. Identify the
adapting techniques, policies and making budget for accomplish the project and
also define modes of investing funds also define feasibility of the project.
 Analysis the project benefits- At this stage company analysis the financial
benefits and non-financial benefits of the project. In the capital investment

process, financial benefits include profit maximisation, increase in sales revenue
and cost control in the project (Laitinen and Laitinen, 2018).
Non-financial benefits directly impact on financial benefits like customer satisfaction,
delivery quality services, enhance brand awareness.
 Approve capital investment – company's financial manager determine amount
which is invested into the project so that company can achieve goals and
objectives at the specified time .Financial manager analysis capital budgeting
which helps to determine payback period, investing amount and rate of return.
 Implement project – In this stage manager determine money to be spent for
implementation and allot responsibility regarding implement the project,
completion period of the project , cost management and analysis the market
trends.
 Project management- After implementation project management process is
important for improving relation between corporate strategy and project strategy
to ensure the capital investment performance. Project management process
done by effective research and controlling and monitoring to market trends ,
project strategy and corporate strategy that helps in achieve goal at the
specified time (Dixit, 2019).
 Performance review – Final stage of capital investment decision process is
review the project performance by comparing actual performance with standard
ones. If any variances found then corrective action can be take at the right time
that helps in achieving corporate goals and effective decision can be take
regarding capital investment.
Roles of investment appraisal in capital investment decision process
 Capital investment decision process helps to formulate strategies for long term

and short term goals achievements.
 It is significant in investment appraisal because capital investment decision
process help to determine profitability projects and also estimate future cash
flow values.
 This process helps to measure investing amount, balancing between risk and
return trade off and determine resources which is require for project.
 It is very useful for effective research and development process which is
required for investment and controlling expenditure (Asquith and Weiss, 2019).
 This capital investment decision process helps to take effective decision
regarding project acceptable and unacceptable. If effectively project
implemented that will enhance profitability and growth of the company.
b.techniques of investment appraisal
Various techniques of capital investment appraisal are-
The techniques are categorised into 2 sub divisions that are:-
a) DISCOUNTED CASH FLOW METHODS(DCF)- It is a method of valuation used to
evaluate the investment value on the basis of future flow of cash. Time value of money
concept is used for the valuation and with the use of cost of capital estimation and
discounting of all the future cash flow is done to calculate their present value. It
includes different tools like-
Net present value: this technique measures the inflow of cash whether shortfall or
excess. The primary objective of the investment appraisal is to arrive at the positive net
present value. NPV is calculated as (present value of net cash flow- total net initial
investment). Indirect relationship exist between NPV and discount rate as higher the
discount rate lower will be the NPV while lower the discount rate higher will be the

NPV.
Internal rate of return: this technique helps in measuring the efficiency of the
investment. Greater the cost of capital than IRR, higher are the chances of rejection of
the project. On the other side, lower value of cost of capital has higher the chances of
getting accepted. It is the discount rate that equates the present value of the expected
net cash flows with the initial cash outflows.
Profitability Index: It measures the per unit value of investments and also known as
desirability factor. Profitability index is the ratio of money invested to pay-off or profits
of the proposal. Mathematical calculation of PI is (sum of discounted cash flows/ initial
cash outlay). To compare a no. of projects involving different amounts of cash inflows,
profitability index is used (He and et. al., 2019).
Discounted payback period: It is similar to payback period, the difference here is
only that it uses discounted value or time value of money for the valuation of payback
period.
Modified internal rate of return: this technique of investment appraisal evaluates the
project by estimating that the rate of reinvestment is equates the cost of capital of the
company. The discount rate that is equal to the present value of the terminal cash
inflow to the zeroth year outflow is called as the MIRR.
b) NON-DISCOUNTED CASH FLOW METHODS- under this method the time value of
money is not considered for the valuation. It includes payback period and accounting
rate of return tools for investment appraisal.
Payback period: It is the length of time required for the cumulative total net cash flows
from the investment to equal the total initial cash outlays. Shorter payback period
proposals are generally preferred as compared to longer payback period projects for
the investment. The payback period is calculated as (Total initial capital investment/

annual expected after- tax net cash flow).
Accounting rate of return: this appraisal technique measures the average annual net
income of the project as a percentage of the initial investment. It compares the
requirement of money for initial investment to the earning of profits from the project.
Mathematical expression of ARR is (average annual net income/investment).
Numeric exhibit
For instance: Business unit has two investment proposals such as A & B with the initial
investment of £150000. Hence, from such financial projects business unit attain following cash
flows:
NPV assessment
Project A
Year
Cash
inflows
PV
facto
r @
10%
Discounte
d cash
inflows
1 50000 0.909 45454.54
2 57500 0.826 47521
3 52000 0.751 39068
4 59000 0.683 40298
5 64000 0.621 39739
Total discounted cash inflow 212080
Initial investment 150000
NPV (Total discounted cash inflows - initial
investment) 62080

Project B
Year
Cash
inflows
PV
factor
@
10%
Discounted
cash
inflows
1 53000 0.909 48181.82
2 59000 0.826 48760
3 54500 0.751 40947
4 62000 0.683 42347
5 68000 0.621 42223
Total discounted cash inflow 222458
Initial investment 150000
NPV (Total discounted cash inflows - initial
investment) 72458
IRR assessment
Project A
Year Cash inflows
0 -150000
1 50000
2 57500
3 52000
4 59000
5 64000
Internal rate of return (IRR) 25%

Project B
Year
Cash
inflows
0
-
150000
1 53000
2 59000
3 54500
4 62000
5 68000
Internal rate of return (IRR) 27%
Payback period
Project A
Year Cash
inflows
Cumulativ
e cash
inflow
1 50000 50000
2 57500 107500
3 52000 159500
4 59000 218500
5 64000 282500
Payback period: 2 + (150000 – 107500) / 52000
= 2 + (42500 / 52000)
= 2 + .8

= 2.8 years
Project B
Year Cash
inflows
Cumulativ
e cash
inflow
1 53000 53000
2 59000 112000
3 54500 166500
4 62000 228500
5 68000 296500
Payback period: 2 + (150000 – 112000) / 54500
= 2 + .7
= 2.7 years
By doing analysis, it has assessed that business entity should lay focus on investing money
in project B over other alternative available. Moreover, in project B, firm would become able to
recoup initial investment within the period of 2 years and 7 months. Along with this, NPV and
IRR associated with project B is higher as compared to others. Hence, referring all the selection
criteria it can be presented that investment in project B will prove be more beneficial for the
firm.
CONCLUSION
This report summarised that financial report is significant for all company
because this report disclose all information regarding financial position and performance
of the company. It also concluded that financial ratio and non financial ratios of the
aviation company which helps to determine financial position. Capital investment

process is significant before capital investing into the project and investment appraisal is
helps to determine net present value and internal rate of return.