Financial Analysis Report: British Airways and KLM Comparison

This report provides a comprehensive comparative analysis of the financial performance of British Airways (BA) and KLM Royal Dutch Airlines. It examines their financial statements, including profit and loss statements, balance sheets, and cash flow statements, from 2013 to 2017. The analysis utilizes various financial ratios, such as profitability ratios (Return on Equity, Return on Assets, Net Profit Margin), liquidity ratios (Current Ratio, Quick Ratio), gearing ratios (Debt to Equity Ratio, Leverage Ratio), and efficiency ratios (Fixed Assets Turnover, Cash Flow Margin). The report also explores the companies' strategic planning, desirable financial characteristics, and competitive positioning within the airline industry, particularly in response to the 2008 financial crisis and subsequent market changes. The conclusion summarizes the key findings and provides an overview of the companies' financial health and strategic approaches.

Running head: REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
Report on Analysis of the Financial Reports British Airways vs. KLM | Executive
Summary 0
REPORT ON ANALYSIS OF
THE FINANCIAL REPORTS
BRITISH AIRWAYS vs. KLM
FINANCIAL REPORTING &
MANAGEMENT ACCOUNTING
Author: EX18084

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
Executive Summary
The company analysis is an old method of valuing a company’s worth and assessing its cash
flow, profit and assets. The valuation also helps in comparison to the competitors. All listed
company follows the accounting principles and it is very important that the worldwide accepted
accounting principles are only followed in case of any listed company. British Airways and
KLM royal Dutch’s are the two major airline companies that industry that got affected in the
time of financial crisis of 2008 and in today’s times stands as the most strongest company. In the
project the valuation and its accounting standard’s shall be studied along with the ratio analysis.
The ratio Analysis is a method to understand the company position easily. The acid test ratio,
profitability ratio, debt to equity test helps the investors to understand where does the industry
stands in the market. Does the company is holds huge Debt or it holds more asset in comparison
to other industries in the same industry.
In the time of crisis the company forms strategic plans that keeps the crisis free. The asset, cash
and other factors are before-hand planned to be prepared in the time of crisis. In this project the
important factors of strategic planning will be discussed.
Period between 2013- 2017 is considered and the analysis is done on that basis. All the financial
reports are taken into the consideration. The company’s desirable principal follow strategies are
also highlighted. The strategic planning and how the company is working now is studied.

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
Table of Contents
Executive Summary.......................................................................................................................1
Introduction....................................................................................................................................4
Desirable Characteristics of financial assessment....................................................................5
Company Analysis to under the adaptation of the Desirable characteristic.............................6
The desirable Characteristic of British Airways:.....................................................................7
Strategic Planning of British Airways:.....................................................................................8
The Desirable Characteristic of KLM Royal Dutch:................................................................8
..................................................................................................................................................8
Strategic Planning and Competition:........................................................................................9
Comparative Analysis of British Airways and KLM Royal Dutch Airways.........................10
Profitability Ratios.................................................................................................................11
Return on Equity Ratio (ROE) =............................................................................................11
Return of Assets (ROA) ........................................................................................................12
Net Profit Margin ..................................................................................................................13
P/E = Stock Price Per Share / Earnings Per Share.................................................................14
PCF ratio = market price per share / cash flow per share.......................................................14
Liquidity Ratio:......................................................................................................................15
Current Ratio .........................................................................................................................16
Quick / Acid Test Ratio..........................................................................................................16
Gearing Ratios........................................................................................................................17

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
Debt to Equity Ratio...............................................................................................................17
Leverage Ratio ......................................................................................................................18
Efficiency Ratios....................................................................................................................20
Fixed Assets Turnover ...........................................................................................................20
Cash Flow Margin for Operation...........................................................................................20
Cash flows Margin for operating =Cash Flow from Operations / Net Sales.........................20
Activity Ratio.........................................................................................................................21
Creditors Payment Period = Trade creditors / credit purchases Number of days).................21
Price to cash flow ratio:..........................................................................................................22
Conclusion....................................................................................................................................23
Reference......................................................................................................................................24
Appendix 1....................................................................................................................................26
1.1 Ratio analysis...................................................................................................................26
1.2 PNL statement of British Airways...................................................................................32
1.2 Balance sheet Of British airways.....................................................................................33
1.3 Cash Flow statement of British Airways..........................................................................34
Appendix 2....................................................................................................................................35
2.1 PNL statement of KLM Royal Dutch...............................................................................35
2.2Balance statement of KLM Royal Dutch..........................................................................36
2.3Cash flow statement of KLM Royal Dutch.......................................................................37

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
Introduction
Airline industry is an ever changing industry in the world. Market change, Globalization, new
technology has given wings to this industry. The airline industry is protected by many national
and international agreement and policies. The airline industry is a very competitive market where
cost and comfort are always balanced for higher revenue and customer satisfaction. The market
is also very cost sensitive due to the surge in Fuel rates, competitors and customer demands.
British Airways Plc is among the most sought after airways in Britain and Europe. British
Airways Plc is the UK’s one of the largest airways and also the world’s leading luxury airways.
The major business is in London, Heathrow and Gatwick. BA operates the most international
schedule airline in the world. It serves more than 1000 destination in over 500 countries. BA is
the member of world Alliance which serves a network of 600 airports all over the world. It was
founded in year 1974. It spends millions of dollar to launch new plan and strategies to delight the
customer.
The second most sought after airlines in Europe is KLM Royal Dutch’s. It the oldest schedule
airline in the world operating today. KLM also holds subsidiaries ‘Transavia and Martinair’.
Transaviar is the one of the leading cost effective airlines .In 2004 the KLM merged with Air
France both company became the biggest air companies serving more than 1 million passenger in
a year. The company lead the motto to keep the customers happy and making them their brand
for the company. KLM works towards sustainable growth.
The financial analysis is used by the investors, creditors and stakeholder to evaluate the company
before making any decision. Thus there is a major need to investigate the financial statements of
the company. There are several methods to do the analysis and the most commonly used are the
ratio analysis and the common size analysis. These analysis gives a clear picture of company’s
position and what is its performance after 1 year of operation. Financial analysis states the health
and stability of the company in that particular industry. The only limitation in these analysis is
that the information used is totally based on the external information provided by the company.
The data is publically available and is secondary data form.
Desirable Characteristics of financial assessment
Financial assessment is done to understand the position and value of the company. The
assessment is done based on the data in the balance sheet, financial statement and cash flow
statement. The asset and liability is assessed by the financial assessment. It is the responsibility

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
of the company to follow the GAAP system so that nothing remains hidden which might give
false representation of the company to the stakeholders.
The management assessment is the second most important factor to assess the strength of the
company. The leadership quality that the management of the company is efficient and how the
company takes into the account all cost efficiency. The skills include the decision making of the
company. Motivation factors of the employees and the customer satisfaction level that the
company can give to its customer at any period of the time.
The financial data issued by the company needs some of the key points to include in it.
Fundamental objective of the corporate report is to communicate the economic measurements
taken by company. It gives a clear picture of the resources and performance of the company.
The characteristics are:
 Relevance: the financial report should not put information’s which are irrelevant to the
investors and the stakeholders. This helps the stakeholders, bankers and investors to
understand the accountability of the organization. This is why it is important to follow the
GAAP and IFRS guideline so that the details are properly utilized and summarized.
 Understand ability: This characteristic is to make the financial report easy to be
interpreted. It should be understandable and comprehensible for the readers. It should
have adequate amount of information about the business and the economic information.
The complex items are also included and this can’t be eliminated just to me it simple for
the lay man.
 Timeliness: The information should be made available to the user in time. The
information presented should up to date and fresh. Old data should not insert in the report
unless it is required to be done. The information should be accurate and true about any
decision made by the management.
 Comparability: This helps to do the comparison between companies in same industry
and also across the years. This helps the users to identify the similarity and differences
between two sets of financial and economic phenomena’s. The information of any one
time should be present for the analysis for anyone to make decision about the progress or
stagnancy of the business.

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
 Verifiability: It tell the user that the information used are well supported by the true
evidences and anyone willing to check the faithfulness of the information can be done.
This is used for the audit purpose. The information’s should be reliable so that the
investors can depend on it to analysis the economic condition.
 Neutrality: the information should not be influenced by any pre-determined results . The
preparer of the report should not be biased towards anyone. All figures included in the
report should be based on some basic measurement and should be followed year on year.
The information represented in the report should be unbiased no false information to be
provided just to influence the investors.
 Consistency: The company needs to present the information in constancy. So that the
results can be compared or tallied from period to period. This is required for the updated
if any change is done. This is required as the comparison between period to period.
Company Analysis to under the adaptation of the Desirable characteristic
All Listed companies has to issue their annual report every year to the investors. The report
consists of the Directors mission vision, year-end performance figure and the risk position of the
company. The report is the primary source for the investor to understand the performance and
earning of the company.
The desirable Characteristic of British Airways:
Annual report gives true facts and
figure that can be analyzed by the audited report of the company. British Airways director Alex
Cruz sent message through its annual report the year ended in 31 Dec, 2017. The company
delivered excellent operating profit of £1774 mn even when the environment was not favorable.
The marked revenue for 2017 was noted to be £12226 mn almost 7.3% high from the last years.
Company has announced a 5 year plan for 2017 of investing 4.5 billion pounds in customer
experience programme. The company wants to launch 70 new aircraft well equipped with Wifi,
inset power, new entertainment systems and also a new club world seat on long-haul flights. The
use of the advance aircraft shall reduce the carbon emission safe the environment. Amount shall
also be invested in the old aircrafts for safety and co2 less emission purpose. The company wants
to do partnership with renewal fuels company “Velocys” to develop a system which will convert
the household waste into the jet fuel. It shall be environment favorable.

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
Company paid a dividend of460mn. First interim dividend paid was of £ 100mn in April, 2017.
Second interim was also 100mn and 3rd and 4th dividend paid was £ 200 and £ 60 mn
respectively.
Over all the company releases its annual report every year end. The Auditor for British Airways
is Ernst & Young LLP. The facts are not oversized or fake representation it can be stated by
looking at the 10k form on Sec. There is no misrepresentation of any facts. The company
follows the to section 489 of the companies act 2006, and GAAP, IFRS standards and is very
easy for anyone to understand the report. Thus the company follows the desirable characteristic
of the accountings.
Strategic Planning of British Airways:
The company has made the strategic plans to promote customer satisfaction, safe operation,
reliable outcome to the customer, and maintain a capital efficiency. The investment shall be done
towards increasing the customer satisfaction and decreasing the boarding time and enable touch
screen system to be updated and fast. The company claims to be the most punctual and customer
centric airlines in comparison to it’s competitors. The company increased it’s engineering
reliability by 99%. It has implemented a new technology of the “Mototok” which is a high-tech
electrical aircraft pushback that uses radio remote control. BA is the first European airlines to
trail biometric boarding for international departures.
In 2017 the first wing was opened at Heathrow terminal 5 and new-York JFK. Investments have
been done in opening new lounges and restaurants across the major airports for customer delight.
The company is working on the data utilization enhancement programme to better utilize it for
high sales. The company is moving towards the digital empowerment to the cabin crew and the
data collected shall be used by the company to increase the sales.
The Desirable Characteristic of KLM Royal Dutch:
The message from the director of the
company Pieter Elberstells about the
mission and the vision of the company.
The company is focusing on keeping the

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
marginal profit high and to maintain a positive free cash flow and also lower unit cost. Today
KLM is maintaining a number one position in the airline market. They are moving towards the
digital solution to the customers. KLM is going to be century old in 2019 and the company is
preparing high to mark the 100th years of the company to be successful.
The company’s revenue reached to 10.3 billion Euros and the operating income rose to Euro 910
mn. KLM has worked towards upgrading the product. It has invested around EUR 925mn in
ability to keep the customers happy. The company added two new Boeing aircrafts. This has
increased the confidence of the investors as Boeing is most expensive plans. To make the
company more assessable for the employee they have removed most of the management layers
and empowered their staff with the digital services. To be ahead in operation and profit revenue
the Air France and KLM along with India based Jet airways and along with Delta Airlines and
China eastern airlines signed a corporation agreement and all acquiring 10% stake in the Air
France KLM.
The company is fully prepared for any risk positions. It has started to work for enhancing its
cargo service and focusing on small and medium loads for increased profitability. The company
is investing on the ecommerce platform for easy and increased sell and purchase. Ultimately
KLM has a policy to protect the rights of the passengers. As Customer is GOD for KLM.
Strategic Planning and Competition:
Strategic planning and analysis is a process by which the company make plans to safe guard any
precarious situation or to eliminate loopholes. It helps the company to stand strong in any crisis
situation and live a high profit and happy customer company.
An effective analysis of the present and future scenario of any firm list downs the main risk and
opportunities their firm has ever taken into the account or are prepared to take into the future.
Airline industry has a huge demand and thus has a huge amount of players in to it. The industry
is full of demand and supplies. The airways carrier divide into the high class and low class
carrier.

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
The figure1.shows the Average Fuel Efficiency
BA as well as KML royal are a strong brands and has always benefited from their high standards
services. The companies have more than 2/3 of its revenue generated from the UK, America and
Europe. The companies faces the threat from low cost carrier in their areas every year. The
excessive capacity of the US market sometime make the competitors to tap the new markets of
Europe.
Both the companies has a work force as large as 3500 employees all over the world. Whereas
KLM has slight high Employees around 5000. Both the company being a customer oriented
service sector makes it their major priority to keep the customer satisfied and happy. New
investments in purchasing new units of space for lounge or adhering to new technology or
investing in human resource is their investment for the customer interface.
Comparative Analysis of British Airways and KLM Royal
Dutch Airways
To analysis the financial position of the any company one needs to understand the sales, revenue
and the cash in hand of the company. The values directly sometimes not very clear so to

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
understand the position of the company we use ratio analysis. There are many ratios which
compares the value of the financial data given to conclude the position of the company at the end
of the year. Generally 5 years of gap is considered to understand the comparison. The analysis is
limited to the financial data available in the annual report.
Profitability Ratios
This data helps the investor to understand the profitability and liquidity of the company. It
evaluates the profitability of the company how good it is in converting the sales in to the income.
Ratios used are return on equity, return on assets, gross profit margin, net profit margin.
Return on Equity Ratio (ROE)
The ratio computes the profitability of the company how much a company is going to return to
the investors.
2017 2016 2015 2014 2013
-500.0%
0.0%
500.0%
1000.0%
1500.0%
2000.0%
2500.0%
3000.0%
3500.0%
4000.0%
4500.0%
12.2% 11.5% 26.9% 9.2% 3.9%
-75.8% 52.5% 13.6%
3788.9%
8.3%
Retrun on Equity (ROE)
British Airways KLM Royal Dutch
The British airways has decreased its return in the year 2017 although the revenue has increased
by 7%. Even the operating profit of British airways has increased by 19% recorded at 1,680 £
million as compared to 1,413 £ million in previous year. There was an increase of 1% in the
return ratio.
During the year 2017, the KLM royal Dutch’s Company registered total revenue of EUR 10,340
million as compared to EUR 9,800 million in previous year. The total revenue increased by 5 %
in 2017. Earning Before Interest Depreciation and Taxes (EBITDA) of the Company has
increased by 25% and was recorded at EUR 1,496 million as compared to EUR 1,189 million in

Page 2
Report on Analysis of the Financial Reports British Airways vs. KLM
previous year. Income from operating activities has however, reduced drastically to (-) EUR 939
as compared to that of last year EUR 684 million. This has impacted the ratio to fall from 54% to
-75.84%. But in 3014 the shareholder equity was so low that the ROE shows to be very high.
Return of Assets (ROA)
It shows how profitable is the company in comparison to the asset. It explains how well the
company is going to be using the asset in comparison the sales the company is generating.
2017 2016 2015 2014 2013
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
10.2% 9.2%
16.1%
18.2%
2.1%
16.8%
13.2%
10.4%
8.6%
3.1%
Return of Asset {ROA)
British Airways KLM Royal Dutch
The graph here represents ROA for both the company. British Airways has shown a decrease of
the ROA chart from the past performance. The 2017 ROA is 10.17% and 2016 it was 9.17% but
if seen for 2015 it is noted that the company was doing well. Operating profit is constantly
increasing which is 14%, 12% and 11% in 2017, 2016 and 2015 respectively. The Company
managed to reduce its Finance cost which is 106 £ million as compared to 145 £ million in the
previous year. Also the Finance income of 35 £ million has been achieved which was (-) 147 £
million in 2015.
For KLM Royal Dutch Operating profit stood at (-) 9.80 % which does not provide a healthy
sign for the Company’s operation. The Company has been constantly managed to reduce its