Financial Analysis for Ryanair and Easyjet - Part 11

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19th May 2017

3.9 Vertical Analysis Of Income Statement of easyJet

Seat revenues have been contributing almost 80% of the total revenues of easyJet in 2009 and 2010 however the situation changed and with more focus from the management, the seat revenues have been able to improve and their contribution in the total revenues are now almost 98%. Among different operating costs, the fuel is one of the major expenses of the airline. The fuel expense is almost 25 to 30% of the sales. The ratio of fuel costs to sales was around 25% in 2010 and then it increased to 26.5% in 2011 and in 2012, this costs further increased to around 30%. Therefore the increasing fuel cost is one of the major factors that the company needs to look at particularly in a situation where Ryanair is able to reduce its ratio of fuel expense to sales.

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The other important cost is the ground operations of the airline. The ground operations have been fluctuating. In 2009 and 2010 ground operations used to be 9% of the sales however this has increased and it is now almost 25% of the sales. Thus the management needs to analyze and identify why the cost has increased over the last two years and identify whether this costs can be reduced to improve profitability.

The ratio of operating profit has been improving since 2009. In the year 2009, it was 2.25 which increased to 5.84% in 2010 and the same pattern has been continued as the operating profit has increased by 7.8% in 2011. The operating profit to sales of easyJet has further enhanced and thus showing that the company has been consistently able to reduce its overall operating cost and this has helped in increasing the operating profit. The operating profit then increased to 8.6% in the year 2012. Similar trend has been found in the profit before tax of the income statement using vertical analysis. However the net profit has shown a similar trend except in the year 2012 as the net profit to sales ratio was almost same as the year 2011 i.e. close to 6.5%. Other than that, the profit to sales ratio has been increasing since 2009 when it was as low as 2.67% and then jumped to 4% in the next year and then further increased to 6.52% in 2011.

	2012	2011	2010	2009
Seat Revenue	98.44%	98.17%	80.78%	80.64%
Non-seat revenue	1.56%	1.83%	19.22%	19.36%
Total revenue	100.00%	100.00%	100.00%	100.00%

Fuel	-29.81%	-26.56%	-24.67%	-18.06%
Ground operations	-24.78%	-26.74%	-9.23%	-9.60%
Crew	-11.21%	-11.79%	-11.30%	-11.50%
Navigation	-7.27%	-8.26%	-8.61%	-8.71%
Maintenance	-5.27%	-5.19%	-5.95%	-6.06%
Selling and marketing	-2.70%	-2.95%	0.00%	0.00%

Other costs	-5.19%	-4.95%	0.00%	0.00%
EBITDAR	13.78%	13.56%	12.15%	8.44%

Aircraft dry leasing	-2.46%	-3.16%	-3.43%	-4.36%
Depreciation	-2.52%	-2.40%	-2.44%	-2.08%
Amortization of intangible assets	-0.21%	-0.20%	-0.21%	-0.16%
Operating profit	8.59%	7.79%	5.84%	2.25%

Interest receivable and other financing income	0.29%	0.26%	0.24%	0.84%
Interest payable and other financing charges	-0.65%	-0.87%	-0.90%	-1.05%
Net finance charges	-0.36%	-0.61%	-0.66%	-0.20%

Profit before tax	8.23%	7.18%	5.18%	2.05%

Tax charge	-1.61%	-0.67%	-1.10%	0.62%

Profit for the year	6.62%	6.52%	4.08%	2.67%

3.10 Vertical analysis of Balance sheet of Ryanair

Noncurrent assets is an important component of the total assets and noncurrent assets of Ryanair compromise around 57% to 60% of the total assets of the airline. Among all the non-current assets of Ryanair, PPE is the most important one as it is almost 55 to 57% of the total assets. The total current assets of Ryanair comprise of around 40% to 43% of the total assets. Among all the components of current assets of Ryanair, cash and cash equivalent is the most important one. The ratio of cash to total assets is almost 30% and thus it is indicating the strategy of the airline to have sufficient funds on hand in order to meet their routine needs.

On the liabilities section of the balance sheet of Ryanair, the noncurrent liabilities almost comprise of 43% of the total assets. Thus it is indicating the fact that the company has a good portion of assets raised through debt. Among all the non-current liabilities, the debt is the most important one which is around 36% to 38% of the total assets. The current liabilities of the airline is almost 20% of the total assets. among this category of the balance sheet, Accrued expenses and other liabilities is the most important one with around 14% of the total assets.

The last section of the balance sheet that has the shareholders equity is almost 37% of the total assets. moreover, the main component among these is the retained earnings which is almost 27% of the total assets value.

The trend in the balance sheet has remained more or less the same and there has been slight changes and no drastic changes in the balance sheet of Ryanair since 2009. Moreover, the management has kept a specific level of debt in their capital structure in order to capitalize and further enhance the earnings through leverage.

Non-current assets	2012	% to assets	2011	% to assets	2010	% to assets	2009	% to assets
Property, plant and equipment	4,925.20	54.72%	4,933.70	57.40%	4,314.20	57.04%	3644.824	57.06%
Intangible assets	46.8	0.52%	46.8	0.54%	46.8	0.62%	46.841	0.73%
Available for sale financial assets	149.7	1.66%	114	1.33%	116.2	1.54%	93.15	1.46%
Derivative financial instruments	3.3	0.04%	23.9	0.28%	22.8	0.30%	59.97	0.94%
Total non-current assets	5,125.00	56.94%	5,118.40	59.54%	4,500.00	59.50%	3844.785	60.19%

Current assets

Inventories	2.8	0.03%	2.7	0.03%	2.5	0.03%	2.075	0.03%
Other assets	64.9	0.72%	99.4	1.16%	80.6	1.07%	91.053	1.43%
Current tax	9.3	0.10%	0.5	0.01%	0	0.00%	0	0.00%
Trade receivables	51.5	0.57%	50.6	0.59%	44.3	0.59%	41.791	0.65%
Derivative financial instruments	231.9	2.58%	383.8	4.46%	122.6	1.62%	129.962	2.03%
Restricted cash	35.1	0.39%	42.9	0.50%	67.8	0.90%	291.601	4.56%
Financial assets: cash > 3 months	772.2	8.58%	869.4	10.11%	1,267.70	16.76%	403.401	6.32%
Cash and cash equivalents	2,708.30	30.09%	2,028.30	23.60%	1,477.90	19.54%	1583.194	24.78%
Total current assets	3,876.00	43.06%	3,477.60	40.46%	3,063.40	40.50%	2543.077	39.81%
Total assets	9,001.00	100.00%	8,596.00	100.00%	7,563.40	100.00%	6387.862	100.00%


Current liabilities

Trade payables	181.2	2.01%	150.8	1.75%	154	2.04%	132.671	2.08%
Accrued expenses and other liabilities	1,237.20	13.75%	1,224.30	14.24%	1,088.20	14.39%	905.715	14.18%
Current maturities of debt	368.4	4.09%	336.7	3.92%	265.5	3.51%	202.941	3.18%
Current tax		0.00%		0.00%	0.9	0.01%	0.425	0.01%
Derivative financial instruments	28.2	0.31%	125.4	1.46%	41	0.54%	137.439	2.15%
Total current liabilities	1,815.00	20.16%	1,837.20	21.37%	1,549.60	20.49%	1379.191	21.59%

Non-current liabilities

Provisions	103.2	1.15%	89.6	1.04%	102.9	1.36%	71.964	1.13%
Derivative financial instruments	53.6	0.60%	8.3	0.10%	35.4	0.47%	54.074	0.85%
Deferred tax	319.4	3.55%	267.7	3.11%	199.6	2.64%	155.524	2.43%
Other creditors	146.3	1.63%	126.6	1.47%	136.6	1.81%	106.549	1.67%
Non-current maturities of debt	3,256.80	36.18%	3,312.70	38.54%	2,690.70	35.58%	2195.499	34.37%
Total non-current liabilities	3,879.30	43.10%	3,804.90	44.26%	3,165.20	41.85%	2583.61	40.45%
Shareholders’ equity
Issued share capital	9.3	0.10%	9.5	0.11%	9.4	0.12%	9.354	0.15%
Share premium account	666.4	7.40%	659.3	7.67%	631.9	8.35%	617.426	9.67%
Capital redemption reserve	0.7	0.01%	0.5	0.01%	0.5	0.01%	0.493	0.01%
Retained earnings	2,400.10	26.66%	1,967.60	22.89%	2,083.50	27.55%	1777.727	27.83%
Other reserves	230.2	2.56%	317	3.69%	123.3	1.63%	20.061	0.31%
Shareholders’ equity	3,306.70	36.74%	2,953.90	34.36%	2,848.60	37.66%	2425.061	37.96%
Total liabilities and shareholders‟ equity	9,001.00	100.00%	8,596.00	100.00%	7,563.40	100.00%	6387.862	100.00%

3.11 Vertical analysis of balance sheet of easyJet

The ratio of non-current assets to the total assets of easyJet has been increasing. The ratio was previously 60% in 2009 and gradually it has moved up to almost 70% of the total assets. Thus it is showing that the airline is focusing on having more fixed assets and fewer current assets. Property, plant and equipment is the major component in this category just like Ryanair. However Ryanair was more focused on keeping the same ratio of PPE to total assets however the trend is different as the ratio of PPE to total assets have been increasing. It was previously 44% but gradually it has increased to almost 56% and this is the main reasons why the fixed assets of easyJet have increased.

The current assets to total assets have a value of around 40% however this was decreased to almost 31%. Cash has been the most important current asset of the company; however the management has decided to keep low cash in comparison to previous years. Moreover, the strategy is opposite of what Ryanair has adapted as it kept almost 30% cash of the total assets whereas easyJet has reduced this to only 15% in the year 2012.

On the other hand, the ratio of non-current liabilities has also decreased. It was 35% in the year 2009 and it remained the same in 2010 and 2011 however in 2012, this ratio was decreased to 29%. The major component in the non-current liabilities is the debt or long term borrowings which decreased as well. The long term debt was almost 27% in 2009 and it has decreased to 19% in 2012. Thus showing that the management is more concerned to reduce its risk and have less debt in their capital structure in comparison to take advantage of leverage.

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Shareholders equity has been around 36% to 42% to the total assets. Retained earnings is the most important component in the shareholders equity which has been increasing since 2009. It was almost 16% in 2009 but then increased to 17.6% in 2010 and then to 21% and 23% in 2011 and 2012 respectively.

	2012	% to assets	2011	% to assets	2010	% to assets	2009	% to assets
Non-current assets
Goodwill	365	8.50%	365	8.17%	365.4	9.13%	365.4	9.95%
Other intangible assets	91	2.12%	86	1.92%	86.8	2.17%	81.7	2.22%
Property, plant and equipment	2395	55.76%	2149	48.09%	1,928.10	48.17%	1,612.20	43.89%
Derivative financial instruments	21	0.49%	24	0.54%	8.2	0.20%	7.8	0.21%
Loan notes	10	0.23%	11	0.25%	13.1	0.33%	12.6	0.34%
Restricted cash	29	0.68%	33	0.74%	32.5	0.81%	48	1.31%
Other non-current assets	57	1.33%	63	1.41%	53.5	1.34%	62.7	1.71%
Deferred tax assets							0.4	0.01%
Total Non-current assets	2968	69.10%	2731	61.11%	2,487.60	62.15%	2,190.80	59.65%

Current assets
Assets held for sale					73.2	1.83%	73.2	1.99%
Trade and other receivables	241	5.61%	165	3.69%	194.1	4.85%	241.8	6.58%
Derivative financial instruments	73	1.70%	83	1.86%	52.6	1.31%	68	1.85%
Restricted cash	130	3.03%	90	2.01%	23.1	0.58%	24.3	0.66%
Money market deposits	238	5.54%	300	6.71%	260	6.50%	286.3	7.79%
Cash and cash equivalents	645	15.02%	1100	24.61%	911.9	22.78%	788.6	21.47%
Total Current assets	1327	30.90%	1738	38.89%	1,514.90	37.85%	1,482.20	40.35%

Total Assets	4,295.00	100.00%	4,469.00	100.00%	4,002.50	100.00%	3,673.00	100.00%

Current liabilities
Trade and other payables	-1021	23.77%	-916	20.50%	-828.7	20.70%	-750.7	20.44%
Borrowings	-129	3.00%	-155	3.47%	-127.4	3.18%	-117.6	3.20%
Derivative financial instruments	-26	0.61%	-52	1.16%	-9.6	0.24%	-91.1	2.48%
Current tax liabilities	-29	0.68%	-9	0.20%	-27.5	0.69%	-57.7	1.57%
Maintenance provisions	-59	1.37%	-45	1.01%	-71.4	1.78%	-45.1	1.23%
Total Current liabilities	-1264	29.43%	-1177	26.34%	-1,064.60	26.60%	-1,062.20	28.92%
Net current assets					450.3		420
Non-current liabilities
Borrowings	-828	19.28%	-1145	25.62%	-1,084.60	27.10%	-1,003.00	27.31%
Derivative financial instruments	-24	0.56%	-27	0.60%	-4	0.10%	-2.6	0.07%
Non-current deferred income	-46	1.07%	-59	1.32%	-56.6	1.41%	-52.6	1.43%
Maintenance provisions	-141	3.28%	-177	3.96%	-144.1	3.60%	-168.6	4.59%
Deferred tax liabilities	-198	4.61%	-179	4.01%	-147.9	3.70%	-76.7	2.09%
Non-current liabilities	-1237	28.80%	-1587	35.51%	-1,437.20	35.91%	-1,303.50	35.49%
Net Assets	1794	41.77%	1705	38.15%	1,500.70	37.49%	1,307.30	35.59%

Shareholders’ equity
Share capital	108	2.51%	108	2.42%	107.3	2.68%	106	2.89%
Share premium	656	15.27%	654	14.63%	651.6	16.28%	642.5	17.49%
Hedging reserve	42	0.98%	14	0.31%	34.8	0.87%	-23.9	-0.65%
Translation reserve	1	0.02%	1	0.02%	0.8	0.02%	-0.4	-0.01%
Retained earnings	987	22.98%	928	20.77%	706.2	17.64%	583.1	15.88%
Total Shareholders’ equity	1794	41.77%	1705	38.15%	1,500.70	37.49%	1,307.30	35.59%

Total Shareholders’ equity + liabilities	4,295.00	100.00%	4,469.00	100.00%	4,002.50	100.00%	3,673.00	100.00%

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