Ryanair's Financial Analysis: Identifying Factors Affecting Cost Structure

Ryanair's financial performance in 2015 was strong, with a profit of £1042.9 and a current ratio of 1.7. The company's profitability, liquidity, and performance ratios all indicate that it is performing well. Ryanair has planned to continue developing its ultra-low fares airline business by growing its successful low fares formula on new and existing routes. Additionally, the company prioritizes air safety and promotes the use of CHIRP, a confidential reporting system endorsed by the UK CAA. The long run factors affecting Ryanair's cost structure include changes in fuel costs and currency fluctuations, while short term risks include high fixed costs and seasonal demand.

Ryanair Annual Report

TABLE OF CONTENTS
INTRODUCTION..............................................................................................................3
BRIEF COMPANY INFORMATION.................................................................................3
HIGH LIGHTS OF THE YEAR INCLUDED PROVIDED BY RYANAIR ANNUAL
REPORT OF 2015 YEAR:................................................................................................3
Examination of historical data using ratio analysis tools.................................................4
Performance:current commercial issues facing Ryanair .................................................5
identify both the short and long run factors that affect the cost structure of Ryanair........5
SUMMARY.......................................................................................................................6
REFERENCES.................................................................................................................7

INTRODUCTION
The purpose of this report is to give a good overview on the Ryanair's financial
statements. It demonstrate an accurate understanding of the concepts and terminology of the key
financial statements. The annual reports used here are helpful source to achieve the objectives of
the research.
BRIEF COMPANY INFORMATION
Ryan air is is the biggest low budget/cost offering airline in Europe, based in Ireland.
The Company operates more than 1,800 daily flights at 78 bases, connecting 200 destinations in
31 countries on a fleet of over 300 Boeing 737 aircraft. The plan is to buy further 380 new
Boeing 737 aircraft, which will enable them to offer lower fares. In this way the traffic will grow
from 105m this year to 180m p.a. in FY24. Ryan air has a team of more than 10,000 highly
skilled aviation professionals delivering Europe’s No.1 on-time performance, and has an industry
leading 30-year safety record”. ( corporate.ryanair.com 2015)
HIGH LIGHTS OF THE YEAR INCLUDED PROVIDED BY RYANAIR
ANNUAL REPORT OF 2015 YEAR:
 There is an 11% increase in traffic air because the load factor has increased from 83% to
88%.
 Company has opened 8 new bases and 143 new routes
 The 200 Boeing 737-Max-20’s requested for delivery from 2019 to 2023
 Rynair has also issued two new Eurobonds with a increasing value of 1.7bn
 Company has paid special dividend in February 2015 and also paid 400 million for share
program.
In order to review the financial statements there is a need to understand the following terms
to be able to forecast the strength and weaknesses of the business.
Profit
According to the Investor.Ryaniar ‘s reports in 2015 year there was a 66% increase in
profit, from €523m in FY2014 to €867m this year, a 11 % increase in customers, a 5% point
increase in load factors to 88% . A strong cost discipline maintained in the business has led to
succesful financial performance. The industry leading punctuality and the low prices are the
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strategies that helped Ryan air to become strong. It also welcomed 90.6 m customers. For the
first time, reduction in the fuel bill was noticed as the cost of fuel got dropped by 10%.
Cash flow
According to the report from the Ryanair Holdings PLC the total cash flow from financing
activities was 701.700 million. In the year 2015, the cash reserves fell by 545.60m, however the
company earned 1.69bn from it's operations for a cash flow margin of 29.88%.(Ryanair
Holdings, 2015)
Loss and profit balance sheet
The working capital for 2015 was 12.185.14 based on the following formula: £12 185
(current assets)-£3346(current liabilities)=£8839.14
The profit for 2015 year was £1042.9 based on the following formula: £5654(sales)-
£4611.1 (costs) =£1042.9
Ratio analysis:
The current ratio for 2015 year was 1.7, which can be calculated based on the following
formula: current asset/current liability=£5742/3346=1.71. According to the current benchmark
of 1:2 it is evident that the company does well because the ratio is above the benchmark.
The acid test ratio for 2015 was 1.7, the calculation based on the following formula:
£5742(current assets -2.1( stock)/£3346(current liability). The current benchmark for acid test
ratio is 1:5, the acid test ratio for 2015 was above that hence it shows that company did very
well.
EXAMINATION OF HISTORICAL DATA USING RATIO ANALYSIS
TOOLS
Table 1: Ratio calculation
Ratios Formula 2015 (£m) 2014 (£m) 2013
Profitability ratios
Gross Profit Ratio
(Gross Profit/ Net
Sales) *100 40.09 35.11 34.42
Operating Profit Ratio
(Operating Profit/ Net
Sales) *100 18.45 13.08 14.71
Liquidity ratios
Current Ratio
Current Assets /
current Liabilities 1.72 1.51 1.97
Quick ratio (Cu. Assets - Cl. 1.45 1.45 1.88
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Stock)/Cu. Liabilities
Performance Ratios
Total Assets turnover ratio
Net Sales/ Total
Assets 0.54 0.57 0.54
Inventory Turnover ratio COGS/Inventory 1472.70 1257.08 1164.62
Interpretation: The above table presents the calculation of ratio of Ryanair. It includes
profitability, liquidity as well as performance ratio. From the evaluation of the ratios it has been
been examined that in the year 2015 the financial position of the company is strongest. From the
profitability ratio it can be examined that gross profit and net profit of the firm is increasing
significantly (Ryanair, 2016). This implies that it sales is increasing to a greater extent. Further
liquidity ratio of the Ryanair is sound in 2015 which presents that the company possess the
ability to fulfill its debts and financial obligations in an effective manner. The performance ratio
presents increase in asset turnover and inventory turnover ratio. This implies that firm is able to
make effective utilization of its resources in order to meet its desired targets.
PERFORMANCE:CURRENT COMMERCIAL ISSUES FACING RYANAIR
Ryanair company plans to continue to develop the ultra low fares airlines business by
growing its successful low fares formula on new and existing routes. Commitment to air safety is
a priority of the Company. Additionally, Ryanair promotes the use of CHIRP, a confidential
reporting system that is endorsed by the UK CAA as an alternative confidential reporting
channel”(investor.ryanair.com). Ryanair offers already planes for charter but not currently due to
busy summer period.(Chris Kitching, 2016)
IDENTIFY BOTH THE SHORT AND LONG RUN FACTORS THAT
AFFECT THE COST STRUCTURE OF RYANAIR
Changes in Fuel Cost as a long run factor: It is regarded as a risk, because it is difficult
to control the changes in Fuel Costs due to political and economical factors. Currency
Fluctuations Affect the Company’s Results as a short term and long run factor: Some of the
operating expenses, revenues assets and liabilities as well are bought in USA dollars, therefore
the financial performance and financial statements can be affected by the fluctuations in the
value of the UK currency as reported by Ryanair annual report 2015. High cost and competitors:
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government owed airlaintes such as BBA may have better resources for covering up the costs.
Cost structure can be termed as the method in regard to determine the cost to be implemented
within firm so that goods or services can be manufactured and also assess the profits that will be
recognized from producing the product.
The long run risks can be assessed that the risk which is associated with the business for
long term while the short run risk can be linked to the risk that is linked to the firm for short term
so that cost structure can be maintained effectively.
SUMMARY
Ryan air has done his business well, low fares and extra costs helping to survive. The
risks such as high fixed cost, seasonal demand, and a need for effective revenue management are
the common major financial issues in the travel and tourism business to overcome.
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REFERENCES
Journals and Books
Schroeder, R. G., Clark, M. W. and Cathey, J. M., 2013. Financial accounting theory and
analysis: text and cases. Wiley Global Education.
Scott, W. R., 2014. Financial accounting theory. Pearson Education Canada.
Online
Ryanair. 2016. [Online]. Available through:
<http://financials.morningstar.com/ratios/r.html?t=RYAAY&region=usa&culture=en-
US>. [Accessed on 25th April 2016].
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