Financial Analysis Report: British Airways and Accounting Systems

This report provides a comprehensive financial analysis of British Airways, examining the role of accounting and finance within the organization. It begins with an overview of British Airways, highlighting its position as a leading international airline and its operational scale. The report then delves into the importance of financial decision-making and the application of various management accounting techniques. These techniques include financial planning, analysis of financial statements, historical cost accounting, standard costing, and cash flow statements. The report discusses how these techniques are crucial for planning, controlling, and making informed decisions within British Airways. It emphasizes their roles in managing costs, facilitating decision-making processes, and supporting resource allocation. The conclusion underscores the significance of financial decision-making in achieving organizational goals and summarizes the functions of various accounting methods in planning, control, and decision-making. The report includes references to relevant books, journals, and online resources.

Financial analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
Role of the accounting / finance or management accounting system.........................................1
CONCLUSION ...............................................................................................................................4
REFERENCES ...............................................................................................................................5

INTRODUCTION
In accounting term, the process of analysing of financial information into a meaningful
sense which support in making various financial decision is known as financial analysis. In
present business world, companies need to make several financial decision that are related with
financing, investment, working capital and dividends ( Financial Decision Making, 2019).
Therefore, such decisions should always be made wisely by organizations since every wrong
decision could result in losses and reduce profitability. To better understand the importance of
financial decision making British airways have been selected in this report.
Overview of business
British Airways is one of the second leading international premium airline and in recent
time it has also gain popularity and become the largest global carrier company in the UK. There
are about 145000 customer travelling every day around 45 million clients a year and supply
those consumers 25 million coffee cups, 9.9 million liquor bottles to 1.25 million Shot glasses. In
current year company celebrate its 100th anniversary on 25th Aug, offering number of low fares
flight with around 183 destinations (About British Airways, 2019). The best part about British
Airways is punctuality of flights because they wants to give best experience to their customer
like fast track security, priority boarding and giving every information with digital technology. In
1974, British airways was created by government to manage and control two nationalised airline
British European and Airways British Overseas Airways Corporation. It also manage two
regional airlines, North east Airlines and Cambrian Airways from Cardiff. Moreover, in Feb
1987 BA privatised its operation and expand carrier in respective year and merge with British
Caledonian, Dan Air in 1992 and British Midland in 2012. Some of the management accounting
techniques that are included by BA is activity-based costing, sensitivity analysis. With the
support of Activity-based costing manager can track how services are used and control expense
within company (Opstrup and Villadsen, 2015). The approach is successful in evaluating the
value elements of goods, products and activities. On the other side sensitive analysis is another
method used for risk assessment and decision-making and strategy facilitation. The method is
used to integrate complexity into the decision-making process by considering the unknown
variable and assessing the necessary adjustments until the initial decisions are modified
(Feuerriegel, Ratku and Neumann, 2016).
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In this report, the role of accounting and finance within any organisation are discussed in
the context of British airways.
TASK
Role of the accounting / finance or management accounting system
There are different types of management accounting systems, and each one plays an
important role in handling financial or non-financial output of businesses. It is up to companies
to effectively implement all management accounting methods, as they are useful for proper
planning, monitoring and making decision in order to reach the desired results. There are some
major management accounting techniques that are discussed below in the context of British
Airways:
 Financial planning: It is a process related with predicting the actual capital needed to
run business operation and identifying company competitors. This process is related with
formulation of financial policies and plans which support in proper investment,
administration and procurement of resources. In respective company, this techniques is
helpful in determining the actual capital required to run different operations (Govindan,
Rajendran and Murugesan, 2015).
 Analysis of financial statement: In almost every company there is a need to analyse the
annual prepared financial statements which support in determining the actual and current
financial strength in accounting year (Feuerriegel, Ratku and Neumann, 2016). By
examining cash flow statements knowledge of outflows and inflows can be gained,
income statements shows the total income within year and balance sheet define the
financial status of company. In British Airways this management accounting technique
helpful in defining the net revenue from different business operation, it support to
calculate the total expenses and cash flows in different activities like investing, financing
and operating. The yearly balance sheet helps the management to identify the total
liabilities and shareholder equity so that profitability of British airways can be
determined.
 Historical cost accounting: This management accounting technique is related with
valuation of assets that must be done on the purchase price or at actual money paid to
these assets. This method is helpful for company to check the title of assets and determine
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the actual price paid at that time. In respective company, this techniques is used to
measure the assets cost from its replacement cost, current and adjusted cost (Samonas,
2015).
 Standard costing: This is characterized as a type of costing approach which is connected
to the estimation of all possible future costs relevant to different operations that will
become a norm or standard for businesses (Vittorini and Cipollone, 2016). It help entity
to compare the current level of cost spend on business activity with those standard cost
for a particular year. This method of standard costing is consider to be one of the
beneficial as it makes easier for the management to determine the area of improvement
and reduce the expenses. In British airways this management accounting technique is
used to assess the expenses incurred on direct material, direct labour for a year. That
further support to calculate the variation between the actual amount spend and estimated
cost related to labour and material.
 Cash flow statement: It is a type of financial statements that demonstrate the actual flow
of cash within and outside a company form number of operation in a certain accounting
year. It mainly record the movement of cash inwards and outward from operating,
investing and financing activity so that actual position of cash can be calculated. In
British Airways, this statements is helpful in evaluation the cash and cash equivalent hold
at the end of year, it also support to manage remaining cash and determine the way how
well cash is generated to pay its outstanding debts (Coluzzi, Ferrando and Martinez-
Carrascal, 2015).
Critical thinking about management accounting techniques used in planning, controlling
and decision making.
Depending from the above definition of accounting strategies, such techniques could be
considered to be effective for preparing and decision-making of businesses. All these techniques
are related with company operation that results in making better policies and plans which support
to take more cosine decision. In context of British airways there are number of management
accounting techniques that are important in different ways that is discussed below:
 Role for controlling: Management accounting techniques and their different purposes
are helpful for managing corporate operations as they control spending for a specific time
period. In case if these techniques are really useful as they have a structured process for
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the efficient distribution of all financial resources (Coluzzi, Ferrando and Martinez-
Carrascal, 2015). For instance, in British Airways accounting techniques are used to
control additional expenses incurred on various operation such as flight arrangement,
promotion activities etc. This is only done when accounting methods like cost control
practices are applied, which aim to reduce costs as much as possible. At the other side,
businesses can face several problems like loss of control regarding higher costs and
several in the absence of such management accounting techniques.
 Importance for decision-making: Decision-making in organizations is among the key
procedures that needed to be done in a greater sense and is conducted by business
executives (Zeng, Chen and Li, 2016). Manager needs qualitative and quantitative data
that helps in better decision making so that goals can be accomplished on specific time
period. It is also observed that throughout the lack of full information, companies
administrators can find it hard to make the correct decisions according to the
organization's needs. In the respective company, manager make various internal and
external decision regarding increasing sales, promoting new services, employee
engagement with the support of different management accounting techniques. In fact,
manager take decisions in context of many more activities with the aid of some financial
documents such as inventory market statement so that proper ways can be developed in
order to meet the organisational gaols (Opstrup and Villadsen, 2015).
 Role in planning: Companies need to prepare their operations and activities throughout
the future in order to control all resources. It is regarded among the most important steps
of organizations since it relies on the foundations of performance. The accounting
strategies and tasks of administration play an important role in this sense. Because all
kinds of data should be included in these methods: economic and non-monetary, that
results in better business planning (Aprea and Wuttke, 2016). Sometime, planning can
also lead in any single mistake as a waste of resources and loss. In the context of
organization selected above, British Airways use management accounting methods to
prepare its financial and non-financial resources. The manager can contrast and compare
their actual outcomes to estimated or planned outcomes, like using the conventional
costing process as well as on the grounds of this company can allow scheduling the
distribution of funds into various types of activities.
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CONCLUSION
From the above report, it has been founded that financial decision-making is consider to
be significant process which help in allocating financial resources so that companies goals can be
accomplished. Significance for different types of financial management techniques like generic
spending, expenditure monitoring, cash flow reports, etc. It also concludes the function of such
accounting methods in planning, handling and decision-making.
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REFERENCES
Books and Journals:
Aprea, C. and Wuttke, E., 2016. Financial literacy of adolescents and young adults: Setting the
course for a competence-oriented assessment instrument. In International handbook of
financial literacy. (pp. 397-414). Springer, Singapore.
Coluzzi, C., Ferrando, A. and Martinez-Carrascal, C., 2015. Financing obstacles and growth: an
analysis for euro area non-financial firms. The European Journal of Finance. 21(10-11).
pp.773-790.
Feuerriegel, S., Ratku, A. and Neumann, D., 2016, January. Analysis of how underlying topics in
financial news affect stock prices using latent dirichlet allocation. In 2016 49th Hawaii
International Conference on System Sciences (HICSS) (pp. 1072-1081). IEEE.
Govindan, K., Rajendran, S. and Murugesan, P., 2015. Multi criteria decision making approaches
for green supplier evaluation and selection: a literature review. Journal of Cleaner
Production. 98. pp.66-83.
Opstrup, N. and Villadsen, A .R., 2015. The right mix? Gender diversity in top management
teams and financial performance. Public Administration Review. 75(2). pp.291-301.
Samonas, M., 2015. Financial forecasting, analysis, and modelling: a framework for long-term
forecasting. John Wiley & Sons.
Vittorini, D. and Cipollone, R., 2016. Financial analysis of energy saving via compressor
replacement in industry. Energy. 113. pp.809-820.
Zeng, S., Chen, J. and Li, X., 2016. A hybrid method for Pythagorean fuzzy multiple-criteria
decision making. International Journal of Information Technology & Decision Making.
15(02). pp.403-422.
Online
About British Airways. 2019. [Online] Available Through:
<https://mediacentre.britishairways.com/factsheets/details/86/Factsheets-3/33>.
Financial Decision Making. 2019. [Online] Available Through:
<https://www.skillmaker.edu.au/financial-decision-making-for-small-businesses/>.
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