• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10

ratio analysis

Extracts from this document...

Introduction

Findings Table of Contents Table of Contents * 1.0 Introduction ......................................................1 * 2.0 Findings .........................................................2-6 ? 2.1 Profitability Ratios.......................................2 ? 2.2 Activity Ratios.............................................3 ? 2.3 Liquidity Ratios.............................................4 ? 2.4 Gearing Ratios.............................................4 ? 2.5 Shareholder Ratios.......................................5 * 3.0 Conclusion.........................................................6 * 4.0 Bibliography ......................................................8 * 5.0 Appendix ......................................................9-13 ? 5.1 Easyjet and British Airways ratio calculation.............................................9 ? 5.2 Profit & Loss Account and Balance Sheet for Easyjet.............................................10-11 ? 5.3 Profit & Loss Account and Balance Sheet for British Airways.................................12-13 * 1.0 Introduction British Airways (BA) and Easyjet are two British airline companies. They are competitors in many aspects with different operational techniques. Easyjet is Europe's leading low-cost airline, which targets at both leisure and business markets on a range of European routes. It is one of Europe's largest Internet retailers with ticketless travel service. In addition, it offers a simple, 'no frills' service. On the other hand, British Airways is the world's biggest international airline whose worldwide route network covers 150 countries. Its customers can get the world's best personalized service. The purpose of this report is to compare and contract the financial performance by analyzing ratios. * 2.0 Findings ? 2.1 Profitability Ratios Return on capital employed (ROCE), gross profit margin and net profit margin ratios are used to tell owners, managers, employees and potential investors the profitability of the two companies. ...read more.

Middle

They would be better to shorten the time within 30 days. ? 2.3 Liquidity Ratios Liquidity is a very important ratio for money lenders, suppliers and potential investors to access. It is defined as business has enough liquidity to pay any immediate bills that arise (Business Studies, 2004). It can be analyzed by looking at the current ratio and the acid test ratio. The current ratio for BA and Easyjet is 0.77 and 2.57.The ratio for Easyjet is a higher, which means that too much money is tied up inefficiently, while that of BA is not healthy, which are much below the generally safe level that is between 1.5 and 2. This suggests that it does not have enough working capital. The acid test ratio for BA is 0.72, which could indicate a potential problem that its current assets less stocks do not cover its current liability. However, BA is a service-base airline business, whose stocks are aerial consumption parts, expendable supplies, supplies on board, etc. The stock is likely to be sold quickly. So the lower acid test ratio is acceptable ( (current Assets - stocks)/current liabilities). ? 2.4 Gearing Ratios BA and Easyjet are quite different from each other at gearing ratio. The former is at 81.38% and the latter is at 42.62%. It shows that BA is high geared, which is more than 50%. ...read more.

Conclusion

* 3.0 Conclusion As a whole, Easyjet is a preferable financial performer than British Airways, while the latter may have some potential financial problems. Analyzing the profitability, Easyjet has a better performance. It focuses on the low price tickets in the European routes. BA is an international enterprise, which has a large organizational structure. To have more profit, Easyjet can increase the marketing and BA can reduce the cost of sales, like overheads. Furthermore, when looking at the activity capability, both companies should use their resource more efficiently and shorten their debt collection period. Additionally, as for the liquidity capability, BA is lack of working capital and may meet debt problems in the short run, while Easyjet is in a good operating condition, whose liquid assets can be quickly switched into cash. Moreover, with regard to the gearing, Easyjet has a safer capital structure than BA. To both creditor and shareholders, it has a strong debt paying ability and low debt risk in the long run. BA can improve its ratio by reducing its long term borrowing relatively to its capital. According to the shareholder ratios, it is hard to compare and contract because of lack of some data from Easyjet. However, we should also be aware of the limitations of the ratio, such as price changing, Window dressing, lack of qualitative information, etc. and make adjustments as necessary. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. A2 Business CourseWork

    'Grow sales': Growing sales directly influences profit margins. Having a higher volume of sales will lead to greater profits. Tesco will make sure that they are selling the right products at the right times. They will also need to make sure that people are away of the products, so they will invest in advertising and product placement.

  2. Accounting case study. I am writing this report to explain the contents thats on ...

    DPP = £150/£63,600*365 = 0.86 days Creditors' payment period. The calculation for this is: creditors divided by credit purchases for year x 365 = creditor payment period in days. This ratio shows how long the business is taking to pay for good that they have brought. If this period is rising then it shows that the business is negotiating

  1. P1- The role of internet marketing

    In other word, it shows if the customers are satisfied with the products provided or not. Economics: this is linked to people's earning. Whether they are in, say low income or high income positions. Usage based: this data notifies the business owners about how the internet is used in different countries all around the world.

  2. Accounting Ratios. By using ratios Hills System ltd can monitor their businesss performance. ...

    Bank/cash This is the business's money which is in the bank or the cash box. In 2007 they had £373,000 and £40,000. Creditors This the money the business owes. In 2007 the owed £225,000 and £325,000 in 2008. It is separated from the current assets and put under as less

  1. The maintenance of accurate records supplies the company with the financial data that assists ...

    a sole trader or a partnership, where third parties may seek recovery of debts due from individuals not protected by limited liability companies. Budgets and forecasts: Budgeting is a detailed plan that allows the management to make confident financial decisions and meet the business objectives.

  2. Financial Ratio Analysis.

    * The ratios of different companies cannot be properly compared where each company employs different accounting policies. Strengths Despite of the limitations, it provides a useful tool for management, shareholders and any interested parties to assess the performance of the business.

  1. Introducing Accounting - Purpose, Information, Statements and Ledgers

    The purpose of using this concept is to measure the net income by comparing the assets of the business existing at that time of its commencements with those existing at the time of its liquidation. Mega Trax Plastic (Seremban) Sdn.Bhd and Lucky S.W Trading use monthly basis as accounting period.

  2. ASSIGNMENT P5, M2 & D2- RATIO ANALYSIS

    Usually, if the value of the ratio is higher, then the company will be in the larger margin of safety which means the company will possesses to cover short-term debts. Calculation: The calculation shows a healthy result which signifies SIGNature to able to pay off their short term liabilities using their assets.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work