Accounting and Finance for Managers: Aviation Case Study

This case study analyzes the financial performance of three aviation companies: EasyJet, Flybe, and Ryan Air. The assignment begins with a detailed analysis of various financial ratios, including current ratio, market cap/cash flow from operations, receivables turnover ratio, return on shareholders’ equity, return on assets, operating expense ratio, profit margin ratio, times interest earned ratio, debt to total assets ratio, shareholders liquidity ratio, and non-financial ratios such as profit per employee and shareholders' equity per employee. The analysis is used to assess the investment viability of each company, with a focus on Ryan Air. Furthermore, the case study provides recommendations for improving the business operations of Flybe. The second part of the assignment covers capital investment techniques, including methods of evaluating investments and the steps involved in the process. The case study is based on the ACC3015 module at the University of Northampton.

ACCOUNTING AND FINANCE FOR MANAGERS
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ACCOUNTING AND FINANCE FOR MANAGERS

ACCOUNTING AND FINANCE FOR MANAGERS
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Contents
Section A:.............................................................................................................................................3
Part a:...............................................................................................................................................3
Debt to total assets ratio:.............................................................................................................10
Part b:.............................................................................................................................................13
Part c:.............................................................................................................................................14
Section B:...........................................................................................................................................15
References........................................................................................................................................20
Appendix:...........................................................................................................................................22

ACCOUNTING AND FINANCE FOR MANAGERS
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Section A:
Part a:
Financial ratios:
Current ratio:
This is the ratio which throws light on the working capital of the company and it also
helps in the measurement off the capability if the company to meet its obligations
that are of short term in nature. This the ratio which helps in the consideration of the
weight of the current assets with the weight of the current liabilities (Corporate
finance institute, 2019).
The higher this ratio, the better it is an indication of the liquidity position of the
company.
In the given case of the 3 companies, the ratio of the company Ryan Air is the best
and of Flybe, the same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:

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Easy Jet Flybe Ryan Air
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
Current ratio
Market cap / Cash flow from operations
This is the ratio which indicates the relationship between the market value off the
company and of the operating cash flow (Corporate finance institute, 2019).
A higher ratio would mean that the company is able to earn more market value for its
shares through an increase in the generation of revenue for the company.
In the given case of the 3 companies, the ratio of the company Ryan Air is the best
and of Flybe, the same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:

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Easy Jet Flybe Ryan Air
0.0000
2.0000
4.0000
6.0000
8.0000
10.0000
12.0000
Market cap/cash flow from
operations
Receivables turnover ratio:
This is an efficiency ratio which helps in the measurement of the number of times the
business is able to convert the accounts receivables into cash. Each company
requires cash so as to meet its day to day business operations. This merely means
that more cash the company has, the better is its liquidity position (My accounting
course, 2019).
Hence a higher ratio would mean better liquidity or cash position for the company.
In the given case of the 3 companies, the ratio of the company Ryan Air is the best
and of Easy Jet, the same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:

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Easy Jet Flybe Ryan Air
0.0000
20.0000
40.0000
60.0000
80.0000
100.0000
120.0000
140.0000
Receivables turnover
Return on shareholders’ equity:
This is the ratio that indicates the money or the return which is being earned by the
company on the money that has been invested into the company by the
shareholders of the company. They would expect some return on their investment
into the company, so this ratio helps in the measurement of that (BDC, 2019).
A higher ratio would indicate that the management of the company has been working
tirelessly towards earnings the desired amount of return.
In the given case of the 3 companies, the ratio of the company Ryan Air is the best
and of Easy Jet, the same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:

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Easy Jet Flybe Ryan Air
-0.1000
-0.0500
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
0.3000
0.3500
Return on ordinary shareholders'
equity
Return on assets:
This is the ratio which helps in the measurement of the net profit that has been
earned by the way of employing the net assets of the company. This ratio shows the
efficiency on the part of the management as it seeks to produce the profits that have
been earned by the company (My accounting course, 2019).
A higher ratio shows the efficiency on the part of the management when it comes to
the generation of profits. In the given case of the 3 companies, the ratio of the
company Easy Jet is the best and of Fly Be, the same is the worst due to its lower
calculation.
The following is the chart showing the comparison of the 3 companies:

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Easy Jet Flybe Ryan Air
-70.0000
-60.0000
-50.0000
-40.0000
-30.0000
-20.0000
-10.0000
0.0000
10.0000
20.0000
Return on assets
Operating expense ratio:
This is the ratio which expresses the amount of the expense incurred as the % of
operating revenue for the company and hence, the lower this ratio, the more would
be the profit for the company (Accounting for management, 2019).
In the given case of the 3 companies, the ratio of the company Flybe is the best and
of Easy Jet, the same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:
Easy Jet Flybe Ryan Air
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
Operating expense ratio

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Profit margin ratio:
It this is the ratio which shows the amount of the net profit that the company has
earned over its sales. This ratio seeks to compare the amount of the net income that
has been earned and the net sales that have been generated by the company. It
shows the percentage of the profit as being the proportion of the net sales (My
accounting course, 2019).
A higher ratio shows efficiency on the part if the management. In the given case of
the 3 companies, the ratio of the company Ryan Air is the best and of Fly Be, the
same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:
Easy Jet Flybe Ryan Air
-0.0500
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
Profit margin
Times interest earned ratio:
The times interest earned ratio shows the ability of the company to meet or to pay its
interest on the debt that it has taken. This ratio shows the calculation of the income
before the interest and the taxation expense of the company (Accounting coach,
2019).

ACCOUNTING AND FINANCE FOR MANAGERS
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A higher ratio of the company shows better stability of the company in terms of
paying fixed expenses of the company. In the given case of the 3 companies, the
ratio of the company Ryan Air is the best and of Flybe, the same is the worst due to
its lower calculation.
The following is the chart showing the comparison of the 3 companies:
Easy Jet Flybe Ryan Air
-5.0000
0.0000
5.0000
10.0000
15.0000
20.0000
25.0000
30.0000
Times interest earned
Debt to total assets ratio:
This is the ratio that indicates the financial leverage of the company. This ratio shows
the percentage of the total assets if the company that have been financed in by the
amount which was to be given to the creditors (Accounting coach, 2019).
A higher ratio for the company shows riskiness for it. So, lower ratio should be good
for the company. In the given case of the 3 companies, the ratio of the company
Easy Jet is the best and of Fly be, the same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:

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Easy Jet Flybe Ryan Air
0.0000
0.1000
0.2000
0.3000
0.4000
0.5000
0.6000
0.7000
0.8000
0.9000
Debt to total assets
Shareholders liquidity ratio:
This ratio is the ratio which helps in the assessment of the assets of the company
being financed by the funds contributed by the equity shareholders. When the
company has a lower ratio, then it merely means an increased amount of debt will
have to be paid by the company from its assets.
In the given case of the 3 companies, the ratio of the company Fly be is the best and
of Easy Jet, the same is the worst due to its lower calculation.
The following is the chart showing the comparison of the 3 companies:

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Easy Jet Flybe Ryan Air
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
0.3000
0.3500
0.4000
0.4500
0.5000
Shareholders liquidity ratio
Non-financial ratios:
The following 2 have been calculated:
Profit per employee which shows the amount of the profit that the company has been
earning from the employment of each employee.
Sharehodlers equity per employee which shows the equity invetsment on eahc
employee of the company.
In the given case of the 3 companies, the ratio of the company Fly be is the best and
of Flybe, the same is the worst due to its lower calculation, for profit per employee
and Easy Jet and Fly be for shareholders equity per employee.