Manchester Airport Financial Performance

University Degree Business and Administrative studies

INTRODUCTION

It is of utmost importance to know how well a business is performing at some point for several reasons, especially if the business is hedging towards privatization or danger zones. It helps the management to be informed of the changing trends in the business. Analysing the financial performance of a business enables the management of a business to be aware of the financial structure of the company, as well as alerting the management of danger signals that requires the management to inject some additional finance. A business might find it self in the following situations:

Low cash reserves
Borrowing why sales is increasing
Increase in expenses
Debt accumulation

However the use of financial ratios can help measure and compare the financial performance of the business. The main reasons for using these ratios are:

To identify areas which further studies
To identify areas at which a firm can have a competitive advantage over competitors by increasing its performance.
To pose questions about the firms operations

Since we are trying to recommend the best airport that represent the best investment for a client out of the following airports:

Amsterdam Schiphol Airport Group

Manchester Airport Group

Dublin Airport Authority

Oslo Gardermoen Airport

Munich Airport

We are going to be focusing on the ratios below:

Profitability Ratios – These ratios evaluates if the firm is getting a good/satisfactory return on all the invested capital in the business. It is essential in comparing businesses in the industry. Profitability ratios consist of Gross profit to sales, Return on assets and Return on Equity ratios.

Liquidity Ratios – These ratios is concerned with the firms ability to meet up with its financial obligations (debts). It gives indication of the financial health of the company. If the firm cannot meet up with its debt repayment, then it is no use investing in such business because of the level of debt. Liquidity ratios mainly consist of Current ratio (current asset divided by current liabilities) and Quick ratio (Liquid asset divided by current liabilities)

Gearing Ratios – These ratios is concerned with the relationship between equity and other forms of long-term financing (debt). Consist of Debt-to-equity ratio and Debt –to-asset ratio. Debt-to-equity ratio looks in to the reliance of the management on creditor financing compared to the amount invested by its owners. While Debt-to-asset ratio looks into how much of the creditors equity as been used for acquisition of assets.

“Companies with high gearing – more long-term liabilities than shareholder equity – are considered speculative”. quote

Investment Ratios- This ratios looks in to the financial performance of the company relating to the ordinary shares. It looks in to the dividend policy of the company and the prospect of future growth. Dividend yield and Payout ratio would be used in this analysis.

Other financial ratio that are available includes Employee and Efficiency ratios.

Manchester Airport Financial Performance Indicators for year 2006

Profitability Ratio (millions)

Gross profit = Sales – Cost of Goods Sold x 100 = 793.1 – 385.2 x 100 = 51.4%

Sales 793.1

Net Margin = Net profit before tax x 100 = 147 x 100 = 18.5%

Sales 793.1

Return on Assets = Net Income x 100 = 385.2 x 100 = 48.6%