FINANCIAL ANALYSIS AND MANAGEMENT

Table of Contents
1.

Introduction:............................................................................................................ 3

2.

Analysis:................................................................................................................. 3
2.1.

Liquidity Ratio:.................................................................................................. 3

2.2.

Profitability Ratio:............................................................................................... 4

2.3.

Gearing Ratio..................................................................................................... 6

2.4.

Investment Ratios................................................................................................ 7

3.

Recommendations:..................................................................................................... 9

4.

Weakness associated with the analysis:..........................................................................10

5.

Conclusion:............................................................................................................ 11

References:.................................................................................................................. 12

1. Introduction:
The following makes the financial statement analysis of two companies in the airline sector.
The analysis of the companies in the same sector is vital to compare their performance and
understand who is better compared to the other. For the analysis the Ryan Air and Easy Jet is
taken into consideration. They both are competitors and this will give the better understanding
of the performance of the company.
2. Analysis:
2.1.
Liquidity Ratio:

Year
Current Ratio
Quick Ratio
Current Ratio
Quick Ratio

Ryanair
2010
2.24
1.90
Easy Jet
1.36
1.42
1.27
1.33
2009
2.28
2.12

2011
2.11
1.68

2012
2.07
2.00

2013
1.97
1.93

1.48
1.36

1.05
0.88

1.05
1.00

The liquidity ratio puts forward the liquidity position of the company and their ability to meet
their short term cash payments. The comparative analysis of the liquidity ratio of the Ryan Air
and Easy Jet shows that Ryan Air has more liquidity than eh Easy Jet. The analysis of the
performance of the companies over the years shows that their liquidity position is becoming
more vulnerable over the periods and these needs to be improved. (Droms, 2010)
The analysis shows that the companies are more vulnerable to the external changes in the
environment. The analysis shows that the company need to make proper utilization of their
assets and also their liabilities so that they never results in the shortage at the same time they are
also never left unutilized. (Bloomberg, 2013)

2.50
2.00
Ryanair Current Ratio

1.50

Ryanair Quick Ratio

Easy Jet Current Ratio

1.00

Easy Jet Quick Ratio

0.50
0.00
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2.2.

Profitability Ratio:

Year
Gross profit Margin

Ryan air
2009 2010
24.3 26.1

2011
25.8

2012
26.7

2013
25.50

1
12.7

11.66

Net profit margin

5
10.3

6
10.2

3
10.3

Operating profit margin

2
8.41

2
12.7

2
6
11.91 11.14 10.80

Gross profit Margin

Net profit margin
Operating profit margin

2
Easy Jet
17.3 18.5
4
4.15
8.89

18.3

19.2

21.98

0
1
4.07 6.52
11.50 10.5

0
6.62
10.5

9.35
10.31

The profitability ratios analyses the profitability of the companies. The gross profit margin will
analyze how the gross profit is obtained with the sales. The net operating margin shows how
well the revenue that they have obtained is utilized and what is the profit margin of the company.

The operating margin shows the utilization of the operation expenses. The better management of
the expenses will give the company more benefits. (Khan, 2012)
The analysis of Ryanair shows that the Gross profit margin for the company is stable and they
are maintained at almost same levels thorough out the five years and they are not subjected to
any vulnerability. The net profit margin of the Ryan air is also increasing they had a hike in the
year 2012 but in the year 2013 it has reduced. The operating profit margin for the Ryan air has
increased in the 2010 but they show a decrease in the forthcoming years. (Bloomberg, 2013)
The Easy jet analysis shows that there is an increase in their gross profit margin over the years
and this is a good sign. The net profit margin shows a remarkable increase over the years and
this shows the better position of the company and their improvement over the years. The
operating profit margin also increased and in this company also the 2012 has an increase in the
operating profit margin similar to Ryanair compared with other years. (Bloomberg, 2013)
On the overall assessment its is found that the Ryan Air performs better than the Easy Jet. The
performance of the Ryan air is more and they experience a more profit and better operating profit
margin compared with the Easy Jet.
30.00
25.00
20.00
15.00
10.00
5.00
0.00

2.3.

Gearing Ratio

Year

Ryanair
200

2010

2011

2012

9
8.85

10.5

10.5

11.05 10.0

0
1.11
0.76

3
1.29
0.85

1.17
0.76

1
1.15
0.75

8.67

10.7

13.2

31.0

0.96
0.62

6
0.93
0.55

8
0.69
0.35

6
0.50
0.20

Times Interest Earned

Debt to Equity
1.08
Long term debt to total capitalization 0.74
Easy Jet
Times Interest Earned
8.61
Debt to Equity
Long term debt to total capitalization

0.94
0.59

2013

The gearing ratio is the financial ratio which will measure the owners equity to the borrowed
funds. The gearing is the financial term which will compare the activities of the firm with the
funds that are borrowed for their owners funds. This is the ration which measures the financial
leverage risk and an indirect measure for the business risk of the company. (San, 2012)
The percentage of the interest which is earned in the Ryan Air is increasing over the years and in
the year 2012 there is a huge increase. The Debt to the equity ratio is less which shows that the
company relies more on the equity than the debt. The long term debt and their capitalization is
also very less. This shows that the long term debt to the total capitalization is very less in this
company. The Ryan Air Company relies more on the capitalization from the equity rather than
from the debts and shows that the risks that the company has is less since there is no huge debts.
(Bloomberg, 2013)
The analysis of the Easy Jet shows that the times the interest that they earn is more and there is a
huge increase in this in the 2013. The higher the number of the times shows the better position
of the company and the number of the times they are able to pay back their debts which shows
more liquidity position of the company. This shows that the position of the company must be
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analyzed and what makes this increase. The debt to the equity is also less since the debt ratio
that the company has is less compared to the equity. The long term debt to the capitalization is
also very less for the company.
The comparative analysis shows that the position of the Ryan air is better than the Easy jet since
the Ryan air has better position than the easy jet and they perform well compared with the easy
Jet. The ability of the company to repay their debts is also more with the Ryan air.
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00

2.4.

Investment Ratios:

Year
Price to earnings
Price to sales
Price to earnings
Price to sales

Ryan air
2009
2010
3.09
7.57
3.26
3.07
Easy Jet
1.05
1.06
0.38
0.36

2011
5.09
2.25

2012
3.96
1.92

2013
3.64
2.97

1.73
0.31

2.06
0.28

3.80
0.25

The investment ratios will help in understanding the position of the company and ability for
investment in that company. These are the ratios which can be made use by the investors to

analyze which is the best company for them to invest. This will help them to determine the best
ratios which give them the better returns.
The analysis of the Ryan air shows that Price to earnings ratio has been almost stable for the
Ryan air company. The price to the sales is also stable for the company and they offer the better
price in the company. (Droms, 2010)
The analysis of the Easy jet shows that Price to earnings ratio has been increasing for the Easy
Jet Company. The price to the sales is also stable for the company and they offer the better price
in the company. This ration has a decline in the last two years.
On the analysis of both the company Ryan Air and the Easy jet company show that the Ryan air
has the better position and the investment in the Ryan air will be better compared with the Easy
jet and the investors can better invest in the Ryan Air than the easy jet. (Bloomberg, 2013)

35.00
30.00
25.00

Ryanair Price to
earnings

20.00

Ryanair Price to sales

15.00

Easy Jet Price to

earnings

10.00

Easy Jet Price to sales

5.00
0.00
1

3. Recommendations:
The analysis shows that the investment in the Ryan air is more better than the Easy jet since
the comparison of the ratios of both the companies shows that the Ryan air has the better
position compared with the Easy Jet. The subsequent table shows the comparison of the
ratios of the company and their ranking is given.

Ratios
Liquidity Ratio
Current Ratio
Quick Ratio
Profitability Ratio
Gross profit Margin
Net profit margin
Operating profit margin
Gearing Ratio
Times Interest Earned
Debt to Equity
Long term debt to total capitalization
Investment Ratio
Price to earnings
Price to sales

Ryan Air

Easy Jet

1
1

2
2

1
1
1

2
2
2

1
1
1

2
2
2

1
1

2
2

The analysis of the ratios shows that almost all the ratios the Ryan Air is performing well
compared with the Easy jet and this proves that the Ryan air is performing well. But before
making the decision the external analysis also need to be done so that they give the correct
decisions regarding the company and the financial performance measures shows that the Ryan
Air is doing the best.
The Liquidity ratio shows that the Ryan air has more liquidity and they better meet the needs of
the short term payments which makes the Ryan air to be best in the category of the liquidity
ratio. The profitability ratio shows that the performance of the Ryan air is more and they

experience a more profit and better operating profit margin compared with the Easy Jet. The
Gearing ratio comparative analysis shows that the position of the Ryan air is better than the Easy
jet since the Ryan air has better position than the easy jet and they perform well compared with
the easy Jet. The ability of the company to repay their debts is also more with the Ryan air. The
investment ratio analysis of both the company Ryan Air and the Easy jet company show that the
Ryan air has the better position. The investment in the Ryan air will be better compared with the
Easy jet and the investors can better invest in the Ryan Air than the easy jet.
On the above findings and the analysis it is wise to invest in the Ryan air than the easy jet.
4. Weakness associated with the analysis:

The ratio analysis is one of the very popular methods of the analysis they do have certain
limitations in their analysis and they are listed. (Droms, 2010)
The different companies will have the different environmental condition and the regulation while
certain business will be seasonal, their market structure will be different. Thus these factors will
make the comparison between the companies of different industries to be inaccurate. Thus this
can be misleading. The financial accounting information is also guided by the estimation and the
assumptions. Thus the accounting standards will allow for the different accounting policies so
that they will impair the comparability and in this situation the ratio analysis will not be much
useful. The ratio analysis will help in better understanding of the relationships between the past
information while the users will be more worried about the future information. (Khan, 2012)
The comparison of the ratios over the past years will let the analyst know the company but their
position among their competitors cant be predicted with this. For this the analysis of their
competitor company is also the must. At the same time there is no single correct value for the
ratio, the value can be either too high or too low with the reference value that they have given.
This can sometimes mislead the position of the company among their competitors and in the
industry.
5. Conclusion:
The analysis of the company from the airline industry gives an insight into the different ratios
and the application of the ratios in the real time and how they act as information about the
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company and their financial position in the industry. The comparison of two companies in the
same industry will give the good insight and the better understanding. On the basis of the
analysis the recommendation for the investment in the best company is also provide. The
possible drawbacks in the study associated are also enlisted.

References:

11

Bloomberg. (2013, December 3). Easy Jet. Retrieved January 3, 2014, from Bloomberg
financials:

http://investing.businessweek.com/research/stocks/financials/financials.asp?

ticker=EZJ:LN&dataset=balanceSheet&period=A&currency=native

Bloomberg. (2013, December 3). Ryan Air. Retrieved 1 10, 2014, from Bloomberg
Financials:

http://investing.businessweek.com/research/stocks/financials/financials.asp?

ticker=RYAAY

Droms, W. G. (2010). Finance and Accounting for Nonfinancial Managers. London:

Basic Books.

Khan, M. Y. (2012). Financial Management: Text, Problems And Cases. New Delhi: Tata
McGraw-Hill Education.

San, O. T. (2012). The Impact of Changes in Financial and Macroeconomic Variables on

Term Structure . International Journal of Academic Research in Business and Social
Sciences , 112 - 120.

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