Financial Analysis for Ryanair and Easyjet - Part 12

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Chapter 4. Comparative Analysis

Comparative analysis of ratio is the main feature of the ratios analysis. Comparative analysis accounts developing comparison of ratios of firm across years, entitled as the horizontal analysis, whereas comparison within the components of the main financial statements is entitled as the vertical analysis.
Another, measure of comparative analysis is developing comparison of the company across competitors. This methodology provides insight about the position of the firm within industry. Further, such comparison also provides information pertaining to the chances improvement in various operational constituents.

By analyzing the financial statements of the two airlines, it has been identified that the revenues of the airlines have been increasing. Moreover, the report identified increasing profits of the two airlines. However by analyzing the two companies in detail, it has been identified that the increase in the revenue of Ryanair is a lot more than the increase in the revenue of the easyJet. Moreover, with the passage of time, Ryanair and its traffic has been increasing at a higher pace than easyJet.

Ryanair reported a loss in 2009, however from then on and with the increase in demand of the airlines particularly low cost airline, Ryanair has been able to enhance its profits. The company has been able to increase its profits from a net loss of €169 million in 2009 to a profit of €560 million in the year 2012. Thus a constant increase in the profits has been identified in the financial performance of the firm. However comparing Ryanair with easyJet the profits have not increased with the same pace, though the profits have increased. The profitability of the airline in the year 2009 was €71 million which has increased to €255 million.

The other important difference identified with the two companies is how the management has approach the liquidity of the airline. Ryanair is happy to keep sufficient level of current assets in comparison to the current liabilities whereas easyJet is not so interested in keeping too many current assets and thus the liquidity position of Ryanair is more stable or it can be said that it has more current assets to current liabilities than the current assets and current liabilities of easyJet. In addition to this, Ryanair has too much cash on hand and it could be to meet the operating expenses and ensure that the operations of the airlines are maintained and completed appropriately however easyJet is not slanted to keep too much cash on hand.

Gearing ratio also shows the differences between the two companies. Ryanair has been constantly increasing the ratio of debt in the capital structure and this would result in further increasing the earnings of the shareholders as the management is trying to take advantage of the leverage concept. However easyJet on the other hand has been trying to reduce the ratio of debt in the capital structure. Reduction in the debt would result in reducing the risk of the airline; however this would mean lower earnings to the shareholders.

Besides financial assessment, other important aspects that differentiate Ryanair is the customer satisfaction level. In the airline industry, managing time and being on time is important and it has an important role in the customer satisfaction level. Ryanair is 95% of the times on time whereas easyJet has increased this aspect and it has increased being on time from 66% in 2010 to 88% in the year 2012 and the impact of being on time, has further helped easyJet to increase its revenues and increase the customer satisfaction level. Moreover, the feature that differentiates easyJet in comparison to Ryanair is that easyJet is that it is ranked as number 1 or 2 on 49 of the top 100 routes of the world. Thus this has helped in improving the revenues of the airline.

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Conclusion and Recommendations

The report has presented the financial analysis of two of the leading international airlines; Ryanair and easyJet. Both the airlines have been operating in the low cost airline sector. In addition to this, both the airlines have been showing growth over the past three to four years and as a result of the growing trend of the companies, the sales and revenues of the companies have been increasing and so is the profits. Moreover, with the quality service and meeting the customer expectations and ensuring customer satisfaction Ryanair has become the leader in the market as it carries the highest number of passengers in a year. Though, easyJet is not far behind as it is ranked as the third largest airline in terms of number of passengers travelling through airline.

There are several recommendations and strategies that could help both the airlines to further improve their financial performances. One of the most important aspects is to make sure that the flights are on time as this is one of the most important elements in the airline industry in satisfying the customers. As the customers would be more satisfied, it would result in increasing revenues and thus increasing profits. Moreover, both the airlines need to further focus on better managing their human resource and particularly the cabin crew staff as they are directly interacting with the customers. The more training employees would be given, the better they would be able to manage and tackle the situations and thus it would further result in increasing customer satisfaction. It is important for the airlines to not only focus on the financial aspect or financial figures but focus on satisfying the customers and other important elements such as satisfying employees, managing operations adequately as if all these aspects are managed properly then it will ultimately result in increasing the sales and profits of the airlines.

References

Arnold, R. (2008). Economics. Mason, South-Western Cengage Learning.

Besley, S., & Brigham, E. (2007). Essentials of Managerial Finance, 14 edn. USA: Thomson Higher Education.

Bevan, A.A. and Danbolt, J. (2002). ‘Capital structure and its determinants in the United Kingdom – A de-compositional analysis.’ Applied Financial Economics, vol. 12, no. 3, pp. 159-170.

Bodie, Z., Kane, A., and Marcus, A. (2004). Essentials of Investments, 5th ed. London, McGraw-Hill Irwin.

Brealey, R., Myers, S., Allen, F., & Mohanty, P. (2007). Principles of corporate finance. New York: McGraw-Hill.

easyJet. (2009). Annual Report. Available from http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/result-center-investor/easyJet_AR09_180109.pdf [Accessed 8 March, 2013]

easyJet. (2010). Annual Report. Available from http://2010annualreport.easyjet.com/files/pdf/Full_Report_easyJet_AR10.pdf [Accessed 8 March, 2013]

easyJet. (2011). Annual Report. Available from http://2011annualreport.easyjet.com/downloads/PDFs/Full_Annual_Report_2011.pdf [Accessed 8 March, 2013]

easyJet. (2012). Annual Report. Available from http://2012annualreport.easyjet.com/downloads/PDFs/Full_Annual_Report_2012.pdf [Accessed 8 March, 2013]

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Gitman, L. (2003). Principles of Managerial Finance. Boston: Addison-Wesley Publishing. pp. 121.

Hilton, R.W. (2010). Managerial Accounting – Creating Value in a dynamic business environment. (9th ed.). McGraw – Hill, New York.

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Khan, M. (1993). Theory & Problems in Financial Management. Boston: McGraw Hill Higher Education. pp. 73.

McLaney, E. (2009). Business Finance: Theory and Practice. Pearson Education: New Jersey.

Ross, S., Westerfield, R., and Jordan, B. (2009). Fundamentals Of Corporate Finance Standard Edition. New York, McGraw-Hill. pp. 19-21.

Ryanair. (2009). Annual Report. Available from http://www.ryanair.com/doc/investor/2009/Annual_report_2009_web.pdf [Accessed 8 March, 2013]

Ryanair. (2010). Annual Report. Available from http://www.ryanair.com/doc/investor/2010/Annual_report_2010_web.pdf [Accessed 8 March, 2013]

Ryanair. (2011). Annual Report. Available from http://www.boeing.com/companyoffices/financial/finreports/annual/2011/annual_report.pdf [Accessed 8 March, 2013]

Ryanair. (2012a). Annual Report. Available from http://www.ryanair.com/doc/investor/2012/final_annual_report_2012_310712.pdf [Accessed 8 March, 2013]

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Appendix

Income statement of Ryanair

Operating revenues 2012 2011 2010 2009
Scheduled revenues 3,504.00 2,827.90 2,324.50 2,343.87
Ancillary revenues 886.2 801.6 663.6 598.10
Total operating revenues – continuing operations 4,390.20 3,629.50 2,988.10 2,941.97
Operating expenses        
Staff costs -415 -376.1 -335 -309.30
Depreciation -309.2 -277.7 -235.4 -256.12
Fuel and oil -1,593.60 -1,227.00 -893.9 -1,257.06
Maintenance, materials and repairs -104 -93.9   -66.81
Aircraft rentals -90.7 -97.2 -95.5 -12.75
Route charges -460.5 -410.6 -336.3 -286.56
Airport and handling charges -554 -491.8 -459.1 -443.39
Marketing, distribution and other -180 -154.6 -144.8 -12.75
Icelandic volcanic ash related cost 0 -12.4 0  
Total operating expenses -3,707.00 -3,141.30 -2,586.00 -2,849.33
         
Operating profit – continuing operations 683.2 488.2 402.1 92.63
         
Other income/(expense)        
Finance income 44.3 27.2 23.5 75.52
Finance expense -109.2 -93.9 -72.1 -130.54
Foreign exchange gain/(loss) 4.3 -0.6 -1 4.44
Loss on impairment of available-for-sale financial asset 0 0 -13.5 -222.54
Gain on disposal of property, plant and equipment 10.4 0 2 0.00
Total other expense -50.2 -67.3 -61.1 -273.12
Profit before tax 633 420.9 341 -180.49
Tax expense on profit on ordinary activities -72.6 -46.3 -35.7 11.31
Profit for the year – all attributable to equity holders of parent 560.4 374.6 305.3 -169.17
         
         
Basic earnings per ordinary share (euro cent) 38.03 25.21 20.68 -0.01
Diluted earnings per ordinary share (euro cent) 37.94 25.14 20.6 -0.01
Number of ordinary shares (in Ms) 1,473.70 1,485.70 1,476.40 1,478.47
Number of diluted shares (in Ms) 1,477.00 1,490.10 1,481.70 1,478.47

Balance sheet of Ryanair

Non-current assets 2012 2011 2010 2009
Property, plant and equipment 4,925.20 4,933.70 4,314.20 3644.824
Intangible assets 46.8 46.8 46.8 46.841
Available for sale financial assets 149.7 114 116.2 93.15
Derivative financial instruments 3.3 23.9 22.8 59.97
Total non-current assets 5,125.00 5,118.40 4,500.00 3844.785
         
Current assets        
         
Inventories 2.8 2.7 2.5 2.075
Other assets 64.9 99.4 80.6 91.053
Current tax 9.3 0.5 0 0
Trade receivables 51.5 50.6 44.3 41.791
Derivative financial instruments 231.9 383.8 122.6 129.962
Restricted cash 35.1 42.9 67.8 291.601
Financial assets: cash > 3 months 772.2 869.4 1,267.70 403.401
Cash and cash equivalents 2,708.30 2,028.30 1,477.90 1583.194
Total current assets 3,876.00 3,477.60 3,063.40 2543.077
Total assets 9,001.00 8,596.00 7,563.40 2543.077
         
         
Current liabilities        
         
Trade payables 181.2 150.8 154 132.671
Accrued expenses and other liabilities 1,237.20 1,224.30 1,088.20 905.715
Current maturities of debt 368.4 336.7 265.5 202.941
Current tax     0.9 0.425
Derivative financial instruments 28.2 125.4 41 137.439
Total current liabilities 1,815.00 1,837.20 1,549.60 1379.191
         
Non-current liabilities        
         
Provisions 103.2 89.6 102.9 71.964
Derivative financial instruments 53.6 8.3 35.4 54.074
Deferred tax 319.4 267.7 199.6 155.524
Other creditors 146.3 126.6 136.6 106.549
Non-current maturities of debt 3,256.80 3,312.70 2,690.70 2195.499
Total non-current liabilities 3,879.30 3,804.90 3,165.20 2583.61
Shareholders’ equity        
Issued share capital 9.3 9.5 9.4 9.354
Share premium account 666.4 659.3 631.9 617.426
Capital redemption reserve 0.7 0.5 0.5 0.493
Retained earnings 2,400.10 1,967.60 2,083.50 1777.727
Other reserves 230.2 317 123.3 20.061
Shareholders’ equity 3,306.70 2,953.90 2,848.60 2425.061
Total liabilities and shareholders’ equity 9,001.00 8,596.00 7,563.40 6387.862

Income statement of easyJet

  2012 2011 2010 2009
Seat Revenue 3794 3389 2401.7 2150.5
Non-seat revenue 60 63 571.4 516.3
Total revenue 3854 3452 2973.1 2666.8
         
Fuel -1149 -917 -733.4 -481.5
Ground operations -955 -923 -274.4 -255.9
Crew -432 -407 -336 -306.6
Navigation -280 -285 -256 -232.3
Maintenance -203 -179 -176.8 -161.6
Selling and marketing -104 -102    
         
Other costs -200 -171    
EBITDAR 531 468 361.3 225.1
      -  
Aircraft dry leasing -95 -109 -102 -116.2
Depreciation -97 -83 -72.5 -55.4
Amortization of intangible assets  -8 -7 -6.2 -4.4
Operating profit 331 269 173.6 60.1
         
Interest receivable and other financing income 11 9 7.1 22.5
Interest payable and other financing charges -25 -30 -26.7 -27.9
Net finance charges -14 -21 -19.6 -5.4
         
Profit before tax 317 248 154 54.7
         
Tax charge -62 -23 -32.7 16.5
         
Profit for the year 255 225 121.3 71.2
         
Earnings per share        
Basic 62.5 52.5 28.4 16.9
Diluted 61.7 52 28 16.6

Balance sheet of easyJet

  2012 2011 2010 2009
Non-current assets        
Goodwill 365 365 365.4 365.4
Other intangible assets 91 86 86.8 81.7
Property, plant and equipment 2395 2149 1,928.10 1,612.20
Derivative financial instruments 21 24 8.2 7.8
Loan notes 10 11 13.1 12.6
Restricted cash 29 33 32.5 48
Other non-current assets 57 63 53.5 62.7
Deferred tax assets 0 0 0 0.4
Total Non-current assets 2968 2731 2,487.60 2,190.80
         
Current assets        
Assets held for sale     73.2 73.2
Trade and other receivables 241 165 194.1 241.8
Derivative financial instruments 73 83 52.6 68
Restricted cash 130 90 23.1 24.3
Money market deposits 238 300 260 286.3
Cash and cash equivalents 645 1100 911.9 788.6
Total Current assets 1327 1738 1,514.90 1,482.20
         
Total Assets 4,295.00 4,469.00 4,002.50 3,673.00
         
Current liabilities        
Trade and other payables -1021 -916 -828.7 -750.7
Borrowings -129 -155 -127.4 -117.6
Derivative financial instruments -26 -52 -9.6 -91.1
Current tax liabilities -29 -9 -27.5 -57.7
Maintenance provisions -59 -45 -71.4 -45.1
Total Current liabilities -1264 -1177 -1,064.60 -1,062.20
Net current assets     450.3 420
Non-current liabilities        
Borrowings -828 -1145 -1,084.60 -1,003.00
Derivative financial instruments -24 -27 -4 -2.6
Non-current deferred income -46 -59 -56.6 -52.6
Maintenance provisions -141 -177 -144.1 -168.6
Deferred tax liabilities -198 -179 -147.9 -76.7
  -1237 -1587 -1,437.20 -1,303.50
Net Assets 1794 1705 1,500.70 1,307.30
         
Shareholders’ equity        
Share capital 108 108 107.3 106
Share premium 656 654 651.6 642.5
Hedging reserve 42 14 34.8 -23.9
Translation reserve 1 1 0.8 -0.4
Retained earnings 987 928 706.2 583.1
Total Shareholders’ equity 1794 1705 1,500.70 1,307.30
         
Total Shareholders’ equity + liabilities 3,031.00 3,292.00 2,937.90 2,610.80

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