Report: Financial Analysis of British Airways & KLM Royal Dutch

This report provides a comprehensive financial analysis of British Airways and KLM Royal Dutch Airways, focusing on their financial performance between 2013 and 2017. It examines desirable characteristics of financial assessments and how these are adapted by the companies. Strategic planning and competition within the airline industry are discussed, followed by a comparative analysis using profitability, liquidity, gearing, and efficiency ratios. The report delves into specific metrics such as Return on Equity (ROE), Return on Assets (ROA), Net Profit Margin, P/E ratio, PCF ratio, Current Ratio, Quick Ratio, Debt to Equity Ratio, Leverage Ratio, Fixed Assets Turnover, Cash Flow Margin for Operation, and Creditors Payment Period. The analysis aims to provide insights into the companies' financial health, strategic decisions, and overall performance in the competitive airline market.

Running head: REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
Report on Analysis of the Financial Reports
Name of the Student
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Author Note

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
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 listedcompany. 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’stimes 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.

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
Table of Contents
Introduction......................................................................................................................................3
Desirable Characteristics of financial assessment.......................................................................5
Company Analysis to under the adaptation of the Desirable characteristic.............................7
Strategic Planning and Competition:.........................................................................................10
Comparative Analysis of British Airways and KLM Royal Dutch Airways................................12
Profitability Ratios.....................................................................................................................12
Return on Equity Ratio (ROE) ............................................................................................12
Return of Assets (ROA) ........................................................................................................13
Net Profit Margin ..................................................................................................................14
P/E..........................................................................................................................................15
PCF ratio.................................................................................................................................16
Liquidity Ratio:..........................................................................................................................17
Current Ratio .........................................................................................................................17
Quick / Acid Test Ratio..........................................................................................................18
Gearing Ratios............................................................................................................................19
Debt to Equity Ratio...............................................................................................................19
Leverage Ratio ......................................................................................................................20
Efficiency Ratios........................................................................................................................21
Fixed Assets Turnover ...........................................................................................................21

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
Cash Flow Margin for Operation...............................................................................................22
Cash flows Margin for operating ...........................................................................................22
Activity Ratio.............................................................................................................................22
Creditors Payment Period.......................................................................................................22
Conclusion.....................................................................................................................................24
Reference.......................................................................................................................................25
Appendix 1.....................................................................................................................................27
Appendix 2.....................................................................................................................................31

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
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 allover 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 makingthem
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

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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 positionand 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
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.

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
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.
 Understandability: 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 datas 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.
 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.

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 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
AllListed 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

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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.
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
mnrespectively.
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’sengineering 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.

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
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
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

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
Airlines and China eastern airlinessigned 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.

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REPORT ON ANALYSIS OF THE FINANCIAL REPORTS
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.