Financial Analysis, Performance, and Risk Factors: British Airways

This report provides a comprehensive financial analysis of British Airways, examining its performance through key metrics such as Return on Capital Employed, Return on Equity, and Current Ratio. It delves into the concepts of data quality, differentiating between qualitative and quantitative data, and horizontal and vertical analysis. The report also assesses the risk factors impacting British Airways' market position, including competitive and regulatory environments. Furthermore, it includes a detailed analysis of the airline's aircraft fleet composition, revenue trends, and liquidity position. The analysis covers financial data from 2013-2017, providing insights into the airline's operational efficiency and financial health, with recommendations for improvements in areas such as liquidity and operational strategies. This report is designed to help students understand the complexities of financial analysis within the airline industry.

USING INFORMATION

TABLE OF CONTENTS
INTRODUCTION:..........................................................................................................................3
ASSESSMENT - PART 1...............................................................................................................3
Difference between:.....................................................................................................................3
Data quality and its importance:..................................................................................................4
ASSESSMENT - PART 2...............................................................................................................5
1 Answer the following questions ...............................................................................................5
2 Performance of British Airways...............................................................................................6
3 Risk Factors affecting British Airways Group's market position ............................................9
4 Comments on revenues of British Airways over period between 2013 and 2017. ................11
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION:
Information technology refers to the proper uses of the computers in the business
operation or in any field to store transit the data or information. It manages, develops and
implements the data and information from the hardware and software of computers and
applications. Various Information can be uses with the help of the technology in the business or
in any other field. Information processing tasks, decision-making, decentralized computing helps
to share the information and by different innovations techniques. Using of the information in the
effective and efficient way results in the success of the any business of the company. There are
different ways to investigates the data and information which gives success to any organization.
For constructing the principles of the financial statements there need to understand the principles
of information. In the decision of marketing the published information and data is used. There
are different ways to the information and data for improving the quality.
ASSESSMENT - PART 1
Difference between:
a. Qualitative and Quantitative data:
Qualitative data refers to the proper understanding of the behaviours and attitudes of the
peoples through the information and it is expressed by the quality like name, symbol but
quantitative data focuses to identify the facts and thoughts of the phenomena f the social.
Collection of the data is can be possible with the interviews and observations while on the other
in the quantitative it can be collect by measurement of the facts (Sampson Jr and Osborn, 2015).
Data of the qualitative information it can be reported in the information language on the other
side statistical analysis is needed for reporting the data in quantitative. Words are the key
elements for expressing the qualitative while in the quantitative data numbers have the main role.
Qualitative data refers to what type and quantitative data is about how much and how many.
b. Horizontal and Vertical analysis:
Horizontal analysis refers to the process of the analysis of financial which includes the
line to line comparison of the amounts for effective decision-making. Vertical analysis refers to
the methods of the analysis of the financial where all the items of the lines are listed like the
percentage of the different item. Percentage of the horizontal is changes according to the period
of the items while on the other hand when the analysis is competed then the results is given by
the percentage of the total assets (Park and Choi, 2015). The purpose of the horizontal analysis is

check the changes in lots of balance sheet over the given period while on the other hand vertical
analysis used for the comparison between the one company to other and on the average of the
industry. There are two calculations in the horizontal analysis like change in dollar =in the
comparison year amount of item should be minus with the amount t of the item in the base year
other side calculations of the vertical analysis is from the items of the balance sheet and with the
total assets.
c. Statistical and big data:
Big data refers to the greater amount of the information and data which is structured and
structured that helps to run the day to day activities of the business. Statistics is a kind of
mathematical analysis which includes the representation, models through the study of real life
and experimental data. The size of the statistics is the small while on the other hand big data
have very large size. Statistics focuses on the planned generation on the other side big data
required behavioural generation for the calculations. There are huge issue o9f privacy in the big
data but in the statistics there is no need of privacy. The statistics requires the concepts and
theory for the calculations but big data requires the effective technology and tools for the
measuring the information (Nojavan, Majidi and Zare, 2017). The marketing policy from the
statistics is very bad as compared to the big data because marketing from the big dart is
successful by the effective uses of technology and tools.
Data quality and its importance:
Information which is qualitative and quantitative explains the quality of the data. With
the effective and proper use of the panning, operations and decision-making there is high quality
of data considered. Quality of the data is measured by accurate, complete, reliable and relevant
factors. In the business operations are related with data and from this there is the higher quality
in the data. There are lots of importance of data quality in the financial statements of the
organization are it helps to reduce the cost of the mails in the company and helps in the
statements of the financial. Financial statement of the company perfect by the accurate complete
and relevant quality of the data (Hollifield, Hand Held Products Inc, 2017). Data quality helps to
give accurate and compete transactions which is recorded ion the books of the company. From
this the company make sure that all the transaction of the financial statement recorded or not.
With the help of the data quality the assets and liabilities valuation should be appropriate on the
reporting date. With the accurate and complete data any organization have the rights on their

assets and the liabilities to express their obligations. Effective data quality helps to reduce the
confidence of the investors in the market and helps the company to reach their success and
growth. In the company there is need to fulfils the wants and demands of the customer's data
quality helps in the financial statement which gives accuracy helps to cover the needs of the
customers. Accurate and complete data help to build the structure of the financial statements
(Palangi, and et.al., 2016). In the evaluation of the income statements their need is to assess the
earning quality which shows the full and accurate earning which results in performance of the
company. The data quality is very important for understanding the source of funds from where
how the funds came in the company for financial statements.
ASSESSMENT - PART 2
British Airways
1 Answer the following questions
a) Airbus 320 is having highest number of fleet as at December 2017.
b) Airbus is the aircraft manufacturer with highest representation of 142 aircrafts in British
Airways fleet as at December 2017.
c) Airbus represents 48.46% of the total aircrafts as at December 2017
d) Fully Labelled Pie Chart showing 3 manufacturers
142
130
21
Airbus
Boeing
Embraer

e) Total number of aircrafts presented using graph
2 Performance of British Airways
Return on Capital Employed
Return on capital employed is calculated through division of net operating profit with employed
capital. It is used for measuring the efficiency and profitability of company.
Return on Capital Employed Formula Amount
Net operating Profit 1774
Capital employed Total assets – current liabilities 16678-5468= 11210
Net operating profit / Capital
employed
1774/ 11210* 100
Return on Capital employed = 15.82%
Airbus A318
Airbus A319
Airbus A320
Airbus A321
Airbus A350
Airbus A380
Boeing 747-400
Boeing 757-200
Boeing 767-300
Boeing 777-200
Boeing 777-300
Boeing 787-8
Boeing 787-9
Boeing 787-10
Embraer E170
Embraer E190
0
10
20
30
40
50
60
70
80
1
44
67
18
12
36
3
8
46
12 9
16
6
15
Total fleet

Interpretation
By calculating the return on capital employed of the company it is measured that British
airways is getting return of 15.82% over its capital employed. Return gained by the company
over its capital is not much high (Annual Report, 2017). Airways are operating through years is
having expertise in running its operations. The return of company shows that airways need yo
still enhance it operations for increasing the efficiency so that it can increase it return on the
capital employed. Operation of the airways are maintained using various strategic tools so that
they can increase the efficiency. Efficiency is required to be increased if airways wants to
increase it return. This can be increased by implementing new policies and procedure that will
help the airways in managing its operation more effectively (Henderson and et.al., 2015). When
return on capital employed is high investors tend to invest more in such companies as large
number of investors wants to increase the value of their investments.
Return on Equity
It is used for measuring the profitability of business against it equity. Return on equity also
measures the effectiveness of company in using its investment for generating the earnings
growth.
Return on Equity Formula Amount
Net Income 1744
Shareholder Equity 5774
Net Income / Shareholder's
equity
1744/5774*100
ROE 30.00%
Interpretation
Return of Equity is calculated for measuring the return the investor will be getting over
their investments. Company has generated return of 30% over its equity for year ending 2017.
Return over equity of company is high over the past years (Annual Report, 2017). High returns
over equity shows that company is able to mange its operations. Return over equity gives a
positive impact over the market that company has used its resources very effectively therefore it
is able to generate high returns. Investors tend to increase their investment in the company and

new investors are attracted to invest in company for gaining high returns. Return of 30% over the
equity means increase in the value of shareholdings or their investments (Schroeder and et.al,
2019). Company is managing its business operations or the projects undertaken very effectively
which in cost effective manner. Revenues of company are high and the profit that is left with the
company is either used for new projects or distributed in form of dividends.
Current Ratio
Current ratio is part of liquidity ratio which is used for measuring the ability of company
to pay it short term liabilities that are due within 1 year. Analysts and investors use this ratio for
analysing how current assets of company can be maximised in balance sheet for satisfying its
current debts and payables. It is very common metric used by investor for analysing the financial
health of any organisation.
Current Ratio Formula Amount
Current Assets 4518
Current Liabilities 5468
Current asset / current
liabilities
4518/5468
Current Ratio 0.82
Interpretation
Current ratio of British Airways is 0.82 that is very low. Higher the current ratio good for
the company. Higher current ratio that company is able to meet its short term liabilities
effectively against its current assets . Current asset of airways are GBP 4518 million where
current liabilities are GBP 5468 million. Standard current ration is 2:1 where the airways is
having ratio of 0.82 that is low. It shows that airways is having very low liquidity position. It
shows that airways is not having enough current assets for meeting its current liabilities(Annual
Report, 2017). Liquidity position of company should be strong so that it can meet it short term
obligation on time. Current ratio of company can be increased managing its current assets and
taking steps to decrease the current liabilities of company. Company can reduce the collection
period of trade receivables and increase the period of trade payables. The liquidity position
should be improved otherwise it may affect the position of company. Airways would not be left
with enough funds for meeting its daily operations and it may increase the risk of debt for

meeting the need of business. Steps should be taken by company for improving the liquidity
position of company.
3 Risk Factors affecting British Airways Group's market position
Environment that is commercially competitive and highly regulated along wit complexity
in operations are expose to various risks that may affect business of airways. Group has paid ton
mitigate the risks that are within control but external risks are out of control like political,
economic environment, foreign exchange and fuel prices. Risks factors
Brand Reputation
British Airways is having high commercial value. If the brand image is eroded because of any of
the event or events it will adversely affect the leadership position of company in market that may
ultimately impact revenues and profitability. If needs of customers are not met and company is
not engaged in maintaining the emotional attachment of customers to brand than airways will
face market share losses due to brand erosion (Annual Report, 2017). For mitigating this risk
company is planning to enhance on board products, lounges, ancillaries and providing better
customer experience.
Competition
Airways is working in a high competitive market having direct competition in over all its
routes, also over its indirect flights, charters and through other transport modes. If company is
not able to run its operation in cost effective manner or face competitive capacity growth in
excess over demand growth and this will materially impact margins of the company. Market
positioning of airways , diversified customer base and alliance help in addressing the these risks
properly. Product offerings are continuously improved by responding to the initiatives for
improving customer experiences. New product are introduced by group over poast years like buy
on board catering services over short-haul flights. If group does not pay attention towrds the new
market demands as per the needs and requirement of customers it will significantly impact
revenues and market share of group.
Consolidation and deregulations
Revenues and market position of group van be adversely affected by the acquisitions and
mergers between competitors. Acquisition and merger are to be done very effectively and
properly else it may drive revenues and share of group to low. Group has to rigorously maintain
cost controls and target product investments for remaining competitive in market. Group bis

having the flexibility of reacting over market opportunities that arise from weak competitors.
This creates opportunities for group for capturing market share and expansion of the group.
Group is having confident over members of oneworld alliance for helping it to safeguard its
network (Annual Report, 2017). Group is maintaining top presence within oneworld alliance for
ensuring that alliance is attracting and retaining right members, that is key for continuous
development of network.
Digital Disruption
New entrants and competitors in travelling market may be capable of using the digital
technologies more efficiently and effectively that may disrupt the business model. Tools may be
used by technology disruptors for positioning themselves among brand and customer of the
airways group. For reducing the impact of digital disruptors airways focuses on customers along
with exploitation of the digital technologies. It is essential for the group to mitigate the risk that
may arise from technologies for gaining the market share as this may significantly drag the
customers of group to other competitors.
Government Intervention
Regulation of airline industry cover various activities of the group inclusive of route
flying rights, departure taxes, landing right of airport , environmental controls and security.
Increase in tax rate or excessive regulation will impact financial and operational performance of
the group. Ability of group of complying with and influencing the changes in regulations is key
factors to maintain financial and operational performance of the airways . Group is continuously
monitoring and having discussions on negative impact of government policies like imposing Air
Passenger Duty (Annual Report, 2017). Government policies can significantly impact the
revenues and growth prospects of group and for that monitoring is essential to identify changes
that may be brought by the company impacting the company.
Infrastructure Constraints
Group is dependent over and infrastructure decisions and changes in government policies,
or policies of regulators or different entities may affect its business. Policy changes can affect the
operations of group but are beyond the control. As Heathrow is not having any runway capacity
in spare. In 2016 October 3rd runway expansion was confirmed by government of UK at
Heathrow. IAG is actively involve for ensuring that cost effective plan is developed solution is
made by company. Transit, airport and security and landing charges are representing operating

cost that are significant to the business certain charges of the airport and security are transferred
to passengers as surcharges but other charge are not transferred to passengers that are to be born
by airways (Pratt, 2016). Group is specifically sensitive over Gatwick and Heathrow charges
and identifying how development of infrastructure over these airports are prioritised (Annual
Report, 2017). Assurance is provided by regulations that these costs will not be increased in
uncontrolled manner.
Joint Businesses
Group is having agreement with different airlines for partnering in provisions of flight
and for sharing revenues with on specified routes for example Europe to America. Arrangements
of joint businesses includes delivery risks like realising planned synergies, agreeing to deploy
additional capacity & performance of partners with one another in join businesses. Strong
financial control and governance exists for every joint businesses. Group has to ensure that these
controls and governance are working effectively in group.
4 Comments on revenues of British Airways over period between 2013 and 2017.
Year Revenues
2010 8537
2011 9987
2012 10827
2013 11421
2014 11719
2015 11333
2016 11398
2017 12226
Interpretation
From the above chart it could be analysed that British airways is having an increasing
trend in its revenues over the past five years. Group was having revenues of 8537 million in year
2010 for which the revenues have increased every year. Slight decrease in its revenues is seen in
year 2015 however group controlled the downfall and maintained the revenue level for two years
2015 and 2016. After reconsidering the operation of business company managed the growth rate
and increased the revenues to 12226 million in 2017. On the overall basis it is seen that revenues

are showing an increasing trend over the past 5 years. Company has implementing new strategies
that have helped the business to operate in cost effective manner.
Company has increased it revenues by constantly enhancing the business strategies.
Company has made new plans and offerings considering the needs and requirements of
customers by responding to initiatives taken for retaining the customers of airlines. Also over the
past five years company has expanded it existence over multiple new routes. Expansion over
new routed have helped the company to gain new customers that have trust over the airlines.
Mean of airline group for the pat five years is 10931 where the standard deviation is 1168.08.
Mean show that average profit of company was 10931 million overt the past five years. Where
the standard deviation shows that there is not much deviation in profits over the five years.
Company has efficiently managed its operations which helped group to maintaining the profit
levels with increasing trend.
CONCLUSION
It can be concluded from the above study that the information and the data uses must be
effective and efficient for the success and growth of the business. The quantitative and
qualitative aspects which provides the information in the numerical and language forms. It is
analysed by carrying out the research about the British airways that ratios are important for
analysing the business performance.