Financial Analysis of Ryanair and Easyjet: A Comparative Study

This report provides a comprehensive financial analysis and management evaluation of Ryanair and Easyjet, two major players in the aviation sector. The study begins with an introduction to the importance of financial analysis in enhancing organizational efficiency and market positioning. It then summarizes the competitive environment, highlighting economic, political, and technological factors that influence the airlines' performance. A detailed analysis of financial performance is conducted using various ratios, including profitability, liquidity, efficiency, and gearing ratios, comparing the financial health and operational effectiveness of both companies. The report further critically evaluates the corporate strategies of Ryanair and Easyjet, focusing on their low-cost models and competitive advantages. The analysis reveals Ryanair's stronger financial position and efficient use of resources compared to Easyjet. The report concludes by emphasizing the importance of strategic financial management for sustained success in the competitive aviation market. The report uses financial data from 2014 and provides a basis for understanding the airlines' strategic approaches and financial outcomes.

FINANCIAL ANALYSIS AND
MANAGEMENT
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Table of Contents
INTRODUCTION................................................................................................................................3
SUMMARIZING COMPETITIVE ENVIRONMENT.......................................................................3
ANALYSING FINANCIAL PERFORMANCE OF BOTH COMPANIES........................................4
CRITICAL EVALUATION OF THE CORPORATE STRATEGY ..................................................5
CONCLUSION....................................................................................................................................7
REFERENCES.....................................................................................................................................8
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INTRODUCTION
Finance plays most important role in organization as it is required to carry out day to day
activities and in turn enhances overall efficiency of the enterprise. Further, financial management
directly supports in increasing productivity of the firm and in turn cost associated with the business
can be easily saved through effective management of financial resources (Lemieux., 2012).
Moreover, concept of financial analysis is also different where main motive of organization is to
know its present position in the market and it can be easily compared with those of competitors. For
conducting the present study two organizations have been chosen namely Ryanair and Eayjet where
both firms operates in aviation sector and well appraised in the market for range of services it offers
to its target market. Various tasks have been covered in the study which involves analysing
competitive environment in which firm operates, evaluation of corporate strategy of enterprise etc.
SUMMARIZING COMPETITIVE ENVIRONMENT
Ryanair and Easyjet carries out operation in the market where competition level is quite high
and this acts as hurdle in accomplishing the desired aims along with objectives (Simkins and
Simkins, 2013). Further, different drivers of change are present in the environment which firm has
to consider as it affects present performance and is likely to influence performance in near future
also. Major drivers of change affecting performance of Easyjet and Ryanair are as follows: Economic factors: Economic condition of the market where both the companies are
operating is changing rapidly. Further, due to inflation purchasing power of customers has
been affected and due to this reason they does not prefer to purchase services which are
costly. This has directly affected profitability level along with sales volume of the entity
(Joseph, 2013). Further, in near future also this driver can affect overall operations of
Ryanair and Easyjet. Political factors: It involves government rules and regulations which affects overall
operations of aviation companies. Government has introduced laws in relation with safety of
passengers, reducing burden on environment, payment of taxes and other duties etc.
Therefore, Ryanair and Easyjet has to comply with legal guidelines so that operations can be
carried out in effective manner. Further, political laws may also change in near future due to
which management has to change its overall practices (Birchall, 2014).
 Technology: This driver is also changing at faster pace as at present Ryanair and Easyjet
works with advanced technology as it saves overall cost associated with business and
increases profit margin. On the other hand, it is expected that technology will change in near
future due to which companies have to adopt latest tools for their benefit (Ahmed, 2010).
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Therefore, in this way these are some of the major drivers of change which affects overall
operations carried out by Ryanair and Eayjet. Apart from this, it is required for management to
focus on key drivers so that its overall operations may not be influenced due to this.
ANALYSING FINANCIAL PERFORMANCE OF BOTH COMPANIES
Ratios Formula
Easyjet
2014
Rynair
2014
Profitability ratios
Gross profit 1690 1884
Operating profit 581 658.6
Net profit 450 522.8
Net Sales 4527 5037
Gross Profit Ratio (Gross Profit/ Net Sales) *100 37.33 37.40
Operating Profit
Ratio (Operating Profit/ Net Sales) *100 12.83 13.08
Net Profit Ratio (Net Profit/ Net Sales) *100 9.94 10.38
Liquidity ratios
Current Assets 1261 3444
Current Liabilities 1420 2275
Closing Stock
Current Ratio Current Assets / current Liabilities 0.89 1.51
Quick Ratio (Cu. Assets - Cl. Stock)/Cu. Liabilities 0.89 1.51
Efficiency Ratios
Net Sales 4527 5037
Total Assets 8812.1 4482
Total Assets
Turnover Ratio Net Sales/ Total Assets 0.51 1.12
Fixed Asset
Fixed Asset
turnover ratio Net Sales/ Fixed Assets
Cost of goods sold
Inventory 0 0
Inventory
Turnover ratio COGS/Inventory #DIV/0! #DIV/0!
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Gearing ratios
Debt 299 2706
Equity 2172 3286
Debt Equity Ratio Debt/ Equity 0.14 0.82
Analysis: In order to analyse the financial performance of the enterprise various ratios have been
calculated of Ryanair and Easyjet. Gross profit ratio of Ryanair is more as compared with Easyjet
and this highlights higher profitability of company. Further, management of Ryanair is efficient
enough in carrying out business operations and this has supported in accomplishing overall aims
and objectives of the business. Operating profit ratio of Ryanair is 13.08 and of Easyjet is 12.83
which represents higher profits are left with Ryanair after deducting all the expenses as compared
with Easyjet (Gustafson, 2004). Moreover, this represents effectiveness of organization in carrying
out overall operations and in turn is acting as development tool. Net profit ratio of Easyjet is 9.94
and of Ryanair is 10.38 and this highlights that Ryanair is efficient enough in utilizing its resources
and all the major expenses have been controlled by enterprise. Firm is converting its revenue into
actual profit in short period of time and is allowing management to perform better as compared with
key competitors. So these are some of the profitability ratios calculated for both the organizations
named Easyjet and Ryanair. Higher profits are earned by Ryanair as compared with Easyjet and it is
supporting firm in every possible manner.
Current ratio of Easyjet is 0.89 and of Ryanair is 1.51 which shows that Ryanair is having
good liquidity position and operating cycle of firm is highly efficient. Further, current ratio of
Easyjet is low as compared with Ryanair which indicates that organization is not able to meet its
current obligations whenever they will become due (Zhu, Dou and Sarkis, 2010). Quick ratio of
Easyjet is 0.89 and of Ryanair is 1.51 which highlights that Ryanair is efficient enough in paying its
debts by using its cash. On the other hand quick ratio of Easyjet highlights that firm is not capable
enough in meeting with its debts. Further, efficiency ratios have been calculated for knowing overall
performance of enterprise where total asset turnover ratio of Easyjet is 0.51 and of Ryanair is 1.12.
This shows that Ryanair is efficient enough in utilizing its assets so as to generate sales.
Further, low asset turnover ratio of Easyjet represents that organization is not capable in utilizing its
assets and due to this reason sales volume is low. Further, gearing ratios are measure of financial
leverage and helps in knowing the degree to which activities of enterprise are funded by owner's
fund versus creditors one (Kopparthi and Kagabo, 2012). On calculating the debt equity ratio of the
organization it has been found that ratio of Ryanair is 0.82 and of Easyjet is 0.14 which shows that
Ryanair is having high debt to equity ratio which indicates that it is risky and investors have not
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funded the operations as much as creditors have. Moreover, low debt equity ratio of Easyjet shows
that firm is financially stable and is efficient enough in utilizing its financial resources.
Therefore, the entire financial analysis undertaken shows that company like Ryanair is
efficient enough in satisfying need of its target market. Further, enterprise is financially strong and
is earning higher profits by carrying out its overall operations. Apart from this, it provides idea
regarding strategic analysis of the organization as effective strategies have been developed by
management of Ryanair as compared with Easyjet (Haigh, 2006). This is effective for firm in every
possible manner and in short is providing competitive advantage to the organization. On the other
hand, it is necessary for company like Easyjet to focus on its financial performance so that
enterprise can easily deal with the challenge of rising competition level in the market.
CRITICAL EVALUATION OF THE CORPORATE STRATEGY
Companies like Easyjet and Ryanair have developed effective corporate strategies which
provides base to enterprise in carrying out operations in effective manner. Due to high level of
competition in the market main focus of management is on building corporate strategy rather than
on other areas so that business entity can gain competitive advantage with the help of this. Ryanair
has developed corporate strategy where main focus is on cost as company is regarded as low cost
airline and low fares are charged from customers for the services rendered to them (Harris, Craig
and Egan, 2010). This allows business to respond to the need and requirement of target market in
quick manner and enhances overall performance in the market. In short one of the best way to deal
with rise in competition level the market and in turn allow business to be leader in the market.
Effective corporate strategy is allowing Ryanair to grab large number of challenges present in the
business environment and in turn is acting as an development tool. Ryanair is able to attract large
number of customers due to its effective corporate strategy which is different as compared with its
major competitors in the market. On the other hand corporate strategy of Easyjet is different from
Ryanair where organization has considered strategy of low cost (Coombs, 2014). All the services
are rendered to target market at very low cost and in short it can be said that both companies named
Easyjet and Ryanair are offering services at very low cost and this allows firm to gain competitive
advantage.
On comparison of corporate strategy it has been found that Ryanair is more efficiently
operating in the market and is well known for its low cost services. Further, it is providing base to
enterprise in dealing with long term challenges. Selling services at very low cost is increasing
profitability level of the organization. Moreover, due to high level of competition it becomes
difficult for enterprise to operate efficiently as every organization in the aviation sector is offering
same type of service to its target market (Ahmed, 2010). This is allowing both the companies to
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gain competitive advantage and in turn is acting as an development tool. Company like Ryanair is
financially strong and is the real outcome of effective corporate strategy which business enterprise
has built so as to sustain in market for longer period of time. Apart from this, both the companies
focuses on cost of delivering service and it is expected that maximum profit can be easily earned by
delivering service to large number of customers in the market. Corporate strategy is developed by
top level management by considering the market condition and it allows business to easily respond
towards the need and requirement of target market. On the other hand, Easyjet is a low cost airline
due to which its sales revenue is increasing at faster pace and business enterprise is efficient enough
to understand changing need and requirement of target market (Easy-Jet pricing strategy:
determinants and developments, 2015).
Further, for performance evaluation balance score card is an effective tool through which
organizations such as Easyjet and Ryanair measures its overall performance and corrective actions
are taken if performance of enterprise is not up to the mark. This tool not only consider financial
measures but also business processes, customers and learning measures. From financial perspective
Ryanair is much more efficient such as its return on capital employed, economic value added and
operating income is more as compared with Easyjet. In short, due to strong financial position firm is
operating efficiently in the market and it is having positive impact on the brand image of firm
(Kopparthi and Kagabo, 2012). From customers perspective Ryanair is well appraised in the market
as its level of customer satisfaction, retention and overall market share is high as compared with the
major competitor named Easyjet in the market. From point view of business process perspective the
overall cost and quality of services being rendered by both the companies are of high level and this
in turn attract target market which is beneficial for firm in every possible manner. At last the
learning and growth perspective is also effective which involves employee retention, satisfaction
etc. In case of Ryanair its workforce is highly satisfied and this has lead to accomplishment of long
term objectives of the organization.
CONCLUSION
From the entire report it has been analysed that financial analysis along with management is
necessary for every organization and through proper financial planning it is possible for business to
operate efficiently in the market. Both Ryanair and Easyjet carries out its operations in the market
where competition level is quite high. Further, companies are operating on very low cost where
range of services are offered at very low price. So, this allows company to perform better and leads
to accomplishment of desired objectives.
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REFERENCES
Books
Birchall, A., 2014. Financial Analysis and Control: Financial Awareness for Students and
Managers. Butterworth-Heinemann.
Joseph, C., 2013. Advanced Credit Risk Analysis and Management. John Wiley & Sons.
Lemieux., 2012. Financial Analysis and Risk Management: Data Governance, Analytics and Life
Cycle Management. Springer Science & Business Media.
Simkins, B. and Simkins, R., 2013. Energy Finance and Economics: Analysis and Valuation, Risk
Management, and the Future of Energy. John Wiley & Sons.
Journals
Ahmed, A., 2010. Global financial crisis: an Islamic finance perspective. International Journal of
Islamic and Middle Eastern Finance and Management. 3(4) .pp.306 – 320.
Gustafson, R. C., 2004. Rural small business finance: evidence from the 1998 survey of small
business finances. Agricultural Finance Review. 64(1) .pp.33 – 43.
Haigh, M., 2006. Managed investments, managed disclosures: financial services reform in practice.
Accounting, Auditing & Accountability Journal. 19(2) .pp.186 – 204.
Harris, J. Craig, E. and Egan, H., 2010. How successful organizations strategically manage their
analytic talent. Strategy & Leadership. 38(3) .pp.15 – 22.
Kopparthi, S. M. and Kagabo, N., 2012. Is value chain financing a solution to the problems and
challenges of access to finance of small‐scale farmers in Rwanda? Managerial Finance.
38(10) .pp.993 – 1004.
Zhu, Q., Dou, Y. and Sarkis, J., 2010. A portfolio‐based analysis for green supplier management
using the analytical network process. Supply Chain Management: An International Journal.
15(4) .pp.306 – 319.
Online
Coombs, T., 2014. Will Ryanair's change of strategy pay dividends? [Accessed through
<http://www.aviationeconomics.com/NewsItem.aspx?title=Will-Ryanair%27s-change-of-
strategy-pay-dividends?>. [Accessed on 5th October 2015].
Easy-Jet pricing strategy: determinants and developments. 2015. [Online]. Available through:
<http://www.tandfonline.com/doi/abs/10.1080/23249935.2015.1063021?
journalCode=ttra21>. [Accessed on 5th October 2015].
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