This report analyzes the financial performance of Ryanair, EasyJet, and Flybe using financial ratios and investment appraisal techniques. It assesses liquidity, profitability, and financial stability, highlighting strengths and weaknesses to guide investment decisions.
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Accounting pg.1
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Table of Contents INTRODUCTION...........................................................................................................................3 TASK 1........................................................................................................................................3 Financial ratio and non financial ratio........................................................................................3 CONCLUSION...............................................................................................................................9 REFERENCE................................................................................................................................10
INTRODUCTION Accounting is thesystematic and comprehensiverecording of financial transaction pertaining to a business.It is the process of summarizing, analysing & reporting the financial translations. Financial statement are formal records of the financial activities & position of an organisation and it involves balance sheet or statement of financial position. Financial statement analysis is done so that financial position of company can be analysed. It allow the individuals to examine its profit and loss account and it involves financial statements such as: balance sheet, income statement etc. In this report there are three companies that have been chosen which are Ryanair Holdings Public Limited, EasyJet Plc &Flybe group. The ratios has been calculated for the three financial years and make comparison and on the basis of it investment decision can be taken. Apart from this it also discuss about to develop a memo on investment appraisal which is helpful in decision making process. TASK 1 Financial ratio and non financial ratio Financial ratios: These are the key indicators of financial performance of organisation which are derived by three financial statement such as: balance sheet, cash flow and income statement. It is helpful to consider liquidity, profitability and financial stability (Financial ratios. , 2019). Financial ratios are very effective accounting tool which is beneficial for the organisation as well as for the shareholders and investors so that they can evaluate & compare relationships among distinct pieces of information in context to the business and operations of company. While calculating the financial ratios a person can take help from the balance sheet, income statement and cash flow. It is helpful to develop the insights about the financial position of corporation. Asratiosare helpful to analyse the liquidity,efficiency, profitability of a company and it is helpful to analyse the financial performance and its position. The information has been taken from the financial statements. Non financial ratios involves product return ratio which describes the rate at which a specific product is returned as faulty. Business plan KPI's ratio shows the rate at which a key performance indicator is associated with a specific department for a specific product. As the staff turn over ratio is a non-financial ratio (Loughran and McDonald, 2016). 3
Current ratio:It is the part of financial ratio and it is calculated to know the liquidity of an organisation that how much it is able to pay off its debts in context to financial obligations. An ideal current ratio is require to be 2:1 and it provide help the investors to make its investment decisions. If current ratio is decreasing than it is not good for the company because corporation does not have assets to meet the liabilities. To analyse the liquidity of organisation current ratio has been selected. The formula of current ratio is current assets / current liabilities. Ryanair Holdings Public Limited Company:As from the financial statements of company it has been analysed that form the year 2016 to 2018 the current ratio is reducing and it becomes 1.43 to 1.23 and it is not good for the organisation(Ryanair Holdings Public Limited. 2018). Flybe Group Plc: As from the financial statement it has been analysed that current ratio of company is getting down from the year 2016 to 2018 and it becomes 1.06 to 0.71 and it shows the liquidity of this organisation is not good. EasyJet Plc: As from the financial statement of company it has been analysed that current ratio is continuously increasing from the year 2016 to 2018 and becomes 0.72 to 1.04. It shows that company can pay off its financial obligations. Shareholders liquidity ratio:This specific ratio has reflects as percentage reason being there are dividing total shareholder's equity by total assets of the company. This ratio has been chosen reason being it shows how much of an organisation's assets are being funded by equity shares (McNichols and Stubben, 2015). Ryanair holdings public limited company: As from the financial statements it has been reflected that shareholders liquidity ratio is increasing which is 0.85 to 1 from the year 2016 to 2018 and it shows that company can pay the amounts to their shareholders. Flybe group plc: From the year 2016 to 2018 it is reducing and becomes 1.03 to 0.38 and it shows that company cannot pay the amounts to its shareholders. EasyJet plc: In the year 2016 to 2018 this ratio is reducing and becomes 2.77 to 1.87 which reflects that organisation is not in the situation to pay the amounts to their shareholders. 4
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Gearing Ratio: This ratio emphasis on capital structure of organisation which shows the portion of finance which is provided by debt relative to the finance provided by equity. This ratio is selected because it shoes the liquidity of business. Flybe group plc: This ratio is increasing from the year 2016 to 2018 and it becomes 106.62 to 281.20. It is good for the company to pay off its debts. Ryanair holdings public limited company: As from the financial statements it has been analysed that from the year 2016 to 2018 this ratio is continuously reducing which is 130.73 to 109.97 which shows that organisation does not paying debts (Smith, 2017). EasyJet plc:Tt has been analysed that from the year 2016 to 2018 this ratio is continuously reducing which is 39.97 to53.50 and it is not good for the organisation and it reflects that company does not paying debts (EasyJet Plc,2018). Net assets turn over ratio:This ratio has been chosen because it analyse the organisation ability to generate sales from the assets by making comparison to the net sales with average total sales. If it is more than it is good for the company because the assets of organisation is able to increase sales. EasyJet plc: The financial statements of company shows that this ratio is reducing from the year 2016 to 2018 and it becomes 1.53 to 1.17 which is not good for the organisation. Ryanair holdings public limited company: According to the financial statement of company it has been analysed that this ratio is decreasing from the year 2016 to 2018 and it is 0.83 to 0.80 which shows that assets of company does not able bring sales. Flybe group plc: It has been analysed that from the year 2016 to 2018 this ratio has been reduced which is 2.08 to 2.25 and it is not good for the company. Net Profit margin ratio: This ratio has been selected by the companies to analyse the percentage of profits a corporation produces from its total revenue. If this ratio is increasing than It is shows that company is earning profits and its financial performance is good (Griffin and Wright, 2015). EasyJet plc: This ratio is reducing from the year 2016 to 2018 and it is 14.62 to 7.63 which shows that net profit margin is decreasing and it is not good for the organisation. 5
Ryanair holdings public limited company: This ratio is decreasing from the financial year 2016 to 2018 and it is 26.35 to 22.53 which shows that financial position of the organisation is not good. Flybe group plc: As per the financial statement of the company it has been analysed that this ratio is continuously reducing form the year 2016 to 2018 and it is 0.43 to (1.24) which reflects that company does not earning profits and it will affect the performance of organisation. Stock turnover ratio:This ratio is being selected by the organisation so that it can know stock is effectively managed by comparing COGS with average stock for a specific time duration. It shows that company is able to sell its stock over a certain period of time. EasyJet plc:This Company does not have stock turn over ratio. Ryanair holdings public limited company: This organisation does not have any stock turnover. Flybe group plc: As per the financial statement it has been shown that this ratio has been increased from the year 2016 to 2018 and it is 98.56 to 100.01 which shows that stocks of company are being selling over a period of time and it is beneficial for the growth of business. Return on equity:This ratio has been selected by the organisation so that it can analyse the profitability of business in relation to the equity. It is consider before dividend has paid to the shareholders. EasyJet plc: It has been analysed that form the year 2016 to 2018 this ratio has been reduced and it is 24.32 to 10.89 and it is not good for the growth of company. Flybe group plc: This ratio has beenreduced from the year 2016 to 2018 and it is 4.41 to 10.10 which is not beneficial for the organisation (Flybe group,2018). Ryanair holdings public limited company: As per the financial statement it has been shown that this ratio has been reduced from the year 2016 to 2018 and it is 43.55 to 32.45 which is not good for the financial wealth of corporation. Interest coverage ratio: This ratio has been selected by the organisation to analyse how well an organisation can pay the interest on its outstanding debts. If an organisation does not able to pay off its debts than it shows that company is not having sufficient profits to pay the interest. 6
EasyJet plc:According to the financial statements of company it has been shown that form the year 2016 to 2018 this ratio is reducing and become 62.55 to 14.07 which shows that company does not paying interest on the borrowed funds. Flybe group plc:Thisratio shows that from the year 2016 to 2018 it is reducing and it becomes 1.73 to (3.64) which is not good for an organisation. Ryanair holdings public limited company: As per the financial statements of company it has been shown that form the year 2016 to 2018 this ratio is continuously increasing and becomes 20.54 to 24.74 which shows that organisation is earning sufficient profits and able to pay the interest (Fourie and Kumar, 2015). Solvency ratio:This ratio has been chosen by the organisation because it is used to analyse the company's ability to meet the financial obligations. If it is good than it shows that company have sufficient cash flows to pay off short term & long term liabilities. EasyJet plc:As per the financial statements of company it has been analysed that from the year 2016 to 2018 this ratio is increasing and which is good for the organisation. Ryanair holdings public limited company: This ratio of company shows in assets based they does not have obligations regarding to cash flow. Flybe group plc:As per the financial statement it has been analysed that from the year 2016 to 2018 this ratio is continuously reducing. Return on capital employed: This ratio will use by the organisation in order to identify efficiency & profitability of organisation. It is useful for the investors for the investment purpose and decisions can be taken on the basis of it. Ryanair holdings public limited company: As per the financial statements it has been identify that this ratio is reducing from the year 2016 to 2018 and it becomes 20.77 to 16.88 which shows the poor financial position of the company. Flybe group plc: According to the financial statements it has been analysed that this ratio is continuously decreasing from the year 2016 to 2018 and it becomes 3.55 to (0.98) which shows that investors does not getting returns from their investment because of poor financial position of the organisation (Christensen and Zeng, 2015). (B) As from the ratio analysis it has been consider that Ryanair holdings public limited is better for the investment purpose as compare to the other two organisations.There are various reasons of it such as:liquidity ratio is increasing which is 0.85 to 1 from the year 2016 to 2018 and it 7
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shows that company can pay the amounts to their shareholders. As interest coverage ratio is continuously increasing and becomes 20.54 to 24.74 which shows that organisation is earning sufficient profits and able to pay the interest So these are the reason which shows that investors take investment decision. For the future improvement it is require for the company to make better strategies for the growth of business. As company should emphasis to maximize the sales so that profits can be maximize and a result it can give dividend to the investors. For future plan it can improve its financial position by increasing the revenue so that business can grow and get success. (C)As from the ratio analysis financial performance of organisation can be understand and it showsthat Flybe group plc have poor performance as compare to the other organisations. Trend analysis is helpful to know the trend of these three organisations that how they perform in the previous years so that better decisions can be taken in order to enhance the performance. With the help of ratio analysis there are various problems can be identified such as: liquidity, financial stability and profitability in the companies. As current ratio of company is getting down from the year 2016 to 2018 and it becomes 1.06 to 0.71 and it shows the liquidity of this organisation is not good. Liquidity ratio is reducing and becomes 1.03 to 0.38 and it shows that company cannot pay the amounts to its shareholders. Net profit margin ratio is reducing form the year 2016 to 2018 and it is 0.43 to (1.24) that shows that it does not earning profits. Return on equity ratio is reducing fromthe year 2016 to 2018 and it is 4.41 to 10.10 which is not beneficial for the organisation. Company can improve the performance by incresing the liquidity so that it can get funds to conduct day to day business operations. As the return on equity ratio is require to be improve so that investors can get higher returns on the investment. TASK 2 –Investment Appraisal:It is a technique which is helpful to identify the attractiveness of an investment proposal (Investment appraisal, 2019). 8
To analyse the capital investment there are four elements which are helpful in context to the effective decisions which are associated to the financial analysis. These elements are: ï‚·Anticipate expected cash flow ï‚·To analyse the risk ï‚·To consider proper opportunity cost of capital ï‚·Predict profitability of project & features of breakeven (Biddle and Song, 2016). As investment appraisal is specific field that is beneficial to take effective decisions in context to the capital expenditure. For that purpose quantitative technique is useful for the decision making purpose. For the growth of business it is necessary and contribute in the future success of organisation. Investment appraisal model: Proposal: A proposal is being made in order to know the investment criteria and how the project will go and what are the specific requirement. In how much time it will take to complete and how much funds are required (Investment appraisal model, 2019. Project screening:Project screening is required to know the feasibility of project and for that purpose it is require to select project carefully & diligently accordingly to clear the respecified objectives for the purpose of higher optimization potential. Analysis & acceptance:After the project screening analysis has done which is helpful to know the deliverables related to project. With the help of analysis project manager identify the risk which can be arise and suggest the corrective actions to reduce the risk so that project can completed successfully and after project is accepted. Monitoring & reviewing:After the acceptance project work is monitored in order to know the progress in the work and review the task so that manager can know how the work is going and what improvements are needed so that investment can be productive. CONCLUSION As from the above report, it has been concluded that accounting helps individuals to examine its profit and loss account and it involves financial statements such as: balance sheet, income statement etc. There are various ratio which are helpful to identify the performance of company and it shows the liquidity and financial position of the organisation. There are various investment appraisal techniques which are helpful to take effective decisions which is helpful for 9
the growth of organisation.Before making an investment it is require to make proper analysis about the financial position of the company and with the help the ratio analysis stability and performance of an organisation can be consider. So it is beneficial for an investor to take better decisions after evaluating all the factors which are related to the company. 10
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