Running head: EASYJET ANNUAL REPORT

2016 1

Analysis of EasyJet Annual Report 2016

[Name]
[Supervisor]
[Date]
EASYJET ANNUAL REPORT 2016 2

Section 1: Introduction to Industry

The UK airline industry is highly competitive, and is mainly ruled by some dominant
market players. The latest reports suggest that the industry growth has slowed down over the last
decade despite major improvements introduced during last few years. The industry is mainly ruled
by British Airways, EasyJet Plc and Flybe. The market players have varying strategies and range
from low-cost airlines to giant international airline groups. Meneghetti and Perrotta (2017) contend
that the UK airline industry is considered among the world’s most active airline industries. Over
the years, the British Airways has maintained the market leadership position. The company was
established in 1974 and Heathrow Airport in London is its main hub. The second largest market
player within UK airline industry is EasyJet. The aggressive marketing and business strategies of
EasyJet has considerably decreased the difference between top two market players of British
airline industry.

Source: Date retrieved from CAA as cited in Anna (2016)

EASYJET ANNUAL REPORT 2016 3

The above graph shows the percentage change in the competitive positioning of top market
players. The EasyJet shows considerable improvement in 2015 compared to 2014, followed by
Flybe and British Airways (Anna, 2016). Based on the total number of passengers, the EasyJet
holds the market leadership position. In 2013, the British Airways earned the highest profitability
amounting to 390 million pounds, whereas, Virgin Atlantic had the highest loss amounting to 25
million British-pound (Statista, 2014). In 2016, the EasyJet led the market in terms of total number
of passengers (63 million) (EasyJet, 2016). British Airways followed the EasyJet with total number
of passengers (42 million). Whereas, rest all market players (16 airlines) jointly transported 142
million passengers amounting to 73% of total statistics (CAA, 2016). The statistics further confirm
that the overall industry growth has experienced a visible increase during last three consecutive
years. The growth rate from 2005 to 2012 was marginal. But last three years showed a consistent
increase and in 2015, the industry experienced a surprising growth of 4.6 percent. It is the highest
percentage during whole decade. Analysts have proposed various reasons for the decline, including
global recession, rail services improvement and double rate of air passenger duty. Although, last
three years shown positive growth figures, the industry growth rate stills lag the 2005 historic
growth by 16 percent (CAA, 2016).

Following graph shows the growth pattern of UK airline industry from 2005 to 2015:
EASYJET ANNUAL REPORT 2016 4

Source: Date retrieved from CAA as cited in Anna (2016)

Recent developments and challenges faced by UK airline industry

The last two years have witnessed major developments within the UK aviation industry.
The “Brexit” has far-reaching implications for all major sectors including the airline industry.
Although, the analysists contend that the prevailing uncertainty is short-term, the consequences
still lack certainty. Immediately after the referendum decision, the IATA (International Air
Transport Association) stated:

“[p]reliminary estimates suggest that the number of UK air passengers could be 3–5%
lower by 2020, driven by the expected downturn in economic activity and the fall in the Pound
Sterling exchange rate. The near-term impact on the UK air freight market is less certain, but
freight will be affected by lower international trade in the longer term” (Meneghetti & Perrotta,
2017).
EASYJET ANNUAL REPORT 2016 5

Other than the Brexit decision, the aviation industry has experienced another major
development- a substantial impact of political uncertainty on the inward investment within the
British airline industry. Still this time, a considerable number of transactions are pending ranging
from airline and aircraft to leases through public offerings. It is reported that the prevailing
uncertainty within the financial markets will put a substantial negative effect on the job, prices and
investments within British aviation sector (Meneghetti & Perrotta, 2017).

Theodore (2017) contends that the “Brexit” decision has directly affected the major market
players within UK aviation industry. The impact is most visible on the British Airways and
EasyJet. However, the EasyJet has bravely faced the uncertainty. Although, during referendum,
EasyJet supported “remain decision”. Instantly after the result, the company officials issued
following statement:

“[the Brexit decision] will not have a material impact on its strategy or its ability to deliver
long-term earnings growth and returns to shareholders.” (Theodore, 2017)

This research report has selected the EasyJet to conduct detail analysis. Next section will
briefly present the corporate profile along with thesis statement that will be based to conduct the
analysis.

Corporate profile- EasyJet:

EasyJet is a low-cost carrier model, British airline. Luton Airport, London is its base. The
company was established in 1995 and since its establishment, EasyJet has experienced tremendous
growth due to its aggressive yet strategically wise mergers and acquisitions. Currently, it is
operating in more than 32 countries and has above 820 routes. EasyJet is listed on LSE (London
Stock Exchange). The organization has strong market capitalization of worth £4 billion. Moreover,
the credit rating of EasyJet is also one of the strongest is global airline industry (EasyJet Plc, 2016).
Airline has nineteen bases within the European region. Besides the strong local presence at United
Kingdom, EasyJet has strong foundations in Italy, Netherlands, Spain, Switzerland, Portugal,
Germany and France. According to size, the company’s largest bases within UK are Gatwick,
London, Luton, London and Bristol airport. Currently, EasyJet is offering wide-ranging services
to its customers to preserve their loyalty and expand the customer base including booking, cabin
and onboard services, frequent flyer, business travel and loyalty products, EasyJet hotels and
EASYJET ANNUAL REPORT 2016 6

holidays. Within highly competitive prices, customers find the offered services to be reasonable
and a good value for money (EasyJet Plc, 2016)

Brief description of strategic developments over last ten years

Company’s major acquisition decisions over last decade include the major purchase
decision of GB airways share capital in 2007. The purchase deal was important for expansion to
Gatwick and had a total value of £103.5 million (Guardian, 2007). Another major event was
opening of 11th base in 2011. The London South-end airport offers flights to Lbiza, Majorca,
Jersey, Malaga, Faro, Belfast, Barcelona, Amsterdam and Alicante (David, 2011). In 2013, the
airline started 100th route and was included into FTSE-100. Latest major acquisition decision is
made in October 2017 when company announced the lease decision of 25 A320 Aircraft for
starting operations at berlin Tegel airport (EasyJet Plc, 2016). Currently, EasyJet is facing various
challenges due to political unrest and “Brexit” decision. However, analysts are expecting that
organization will successfully survive the environmental uncertainty and continue pursuing its
growth objectives.

Thesis statement

The underlying report intends to analyze the current performance of EasyJet- a British
airline company. The researcher will analyze the financial performance of firm and will evaluate
the key reasons for the change with respect to previous years. The reason for choosing the EasyJet
is its brave survival through the environmental uncertainty created by the current referendum
decision. The company holds the market leadership position within UK based on the number of
passengers, and hence makes an interesting case for this report. The report will offer useful insights
to the analysts and researchers seeking latest financial information about the EasyJet.

The researcher has firstly provided an overview of British airline industry and brief profile
of EasyJet Next section will analyze the income statement of EasyJet to assess the revenue growth,
and other key financial indicators such as earnings before interest and tax, earning after tax,
revenue across different regions, main expense items and definitions of important terms
constituting the income statement. Third section will analyze the balance sheet and its important
items, followed by cashflow analysis, key financial events and ratio analysis. In last section, the
researcher will propose a comprehensive and concise conclusion.
EASYJET ANNUAL REPORT 2016 7

Section 2: Income Statement Analysis

An income statement, also referred as profit and loss statement, is a summary of company’s
revenues and expenses to show profitability over a specified period. It is significant for financial
users to prepare an income statement as it gathers all the account information on revenues and
expenses over a certain accounting period and show them in standardized format of income
statement (Healy & Palepu, 2012). It is most helpful approach for users to assess company’s past
performance and useful in predicting future performance of the company. It is not only used by
company’s internal management but also by the external parties such as investors or creditors for
the assessment of risk and also for the measurement of financial profitability and performance.
The income statements of sole proprietors and limited companies significantly differ from each
other. There are various points of differentiation (White, Sondh & Fried, 2005).

Firstly, the sole proprietors show the income as a single line item (sales or service).
Whereas, a limited company will normally break out their income/revenue into sections. Also,
corporations will use different types of revenue/income accounts such as deferred or unearned
accounts, whereas, they are usually absent in sole proprietor’s’ income statements. With regards
to expenses, corporations have expenses related to the stockholders which sole proprietorships do
not have. These expenses include, but are limited to, distributions (which are only paid out to
stockholders or shareholders), corporate income tax and additional professional fees not seen in a
sole proprietorship. The expense for the production of shareholder agreements and stock issues are
examples of those additional professional fees (Healy & Palepu, 2012).

The analysis of the EasyJet’s income statement 2016 shows that the company earned
revenue of £4,669 million. From 2012 to 2015, there was an increasing trend of company’s revenue
as in 2012, it was £3,854 million which gradually increased to £4,686 million in 2015. But from
2015 to moving towards 2016, there is decreasing trend as company’s revenue falls to £4,669
million. This decline in revenue occurred due to political unrest caused by the recent referendum
decision as mentioned in the company’s annual report. The geographic revenue analysis suggests
that the company has made higher revenue from its UK based operations (£2,243), followed by
Southern Europe £1,376, Northern Europe £984 and other £66. The comparison with the previous
year shows that company’s revenue from UK and southern Europe has decreased whereas the
revenue from north European regions has increased significantly. It shows that the political
EASYJET ANNUAL REPORT 2016 8

uncertainty and disturbing external environmental factors have more influence on the UK and
eastern Europe and considerably less influence on the northern European region.

The analysis of “operational and non-operational expenses” appearing in the income

statement suggests that there are many cash and non-cash expenses. Cash expense items are fuel,
airports and ground handling, crew, navigation, maintenance, selling and marketing and other
expenses. Non-cash expenses include depreciation and amortization of intangible assets. Other
than these operational expenses, interest payable, tax charges and other financing charges are also
included in company’s expenses. Total operating expenses in 2016 are: £4,171 million. In 2015,
the operating expenses were £3,998. The explanation of this difference is given below:

Fuel expense decreased from £1,199 million in 2015 to £1,114 million in 2016. Whereas
airport and ground handling expenses increased from £1,122 in 2015 to £1,267 in 2016. Moreover,
crew expense also increased from £505 million to £542 million and navigation expense from £313
million to £336 million. Furthermore, maintenance and selling expenses slightly increased in 2016.
Depreciation expense increased whereas amortization expense decreased in 2016. Interest
payables also increased slightly in 2016. Tax charges substantially decreased in 2016 due to
decrease in the net income.

Operating profit indicates the profit attained after deducing cost of production and
operating expenses from the net sales. The objective of calculating operating profit is to know how
well the company is allocating its resources on expenses. It helps to gauge the overall operating
effectiveness and performance of the company, helpful in eliminating unnecessary operating
expenses. In EasyJet case, the firm’s operational efficiency has decreased due to increase in the
operational expenses (airport and ground handling expenses, crew expense, navigation expense,
maintenance and selling expenses, depreciation expense) from £3,998 to £4,171. Pre-tax profit, is
the profit a business makes after it pays its operating costs and interest expense and before paying
taxes. Assessing pre-tax profit is important because "it eliminates any distortion caused by taxes.
Net profit is the total amount of profit that a firm makes after subtracting all operational expenses,
tax and interest. It is analyzed to understand the extent to which company is profitable, and is
considered as one of the most important financial indicator in a given year. In EasyJet case, the
pre-tax profit and after-tax profit both show a decline compared to previous for two explicit
reasons: decline in the seat revenue and increase in the operational expenses. Overall, the analysis
EASYJET ANNUAL REPORT 2016 9

suggests that the company faced a tough year and political unrest has directly affected its seat
revenue, along with high operational expenses, resulting into a visible decline in the profitability.

Section 3: Balance sheet Analysis

The company’s balance sheet presents the information about its assets, capital and
liabilities. It is the most important financial analysis instrument for the investors as it represents
the overall strengths and weaknesses of the organization. Other statements (income statement and
cashflow) only present the current and partial information about the company. It shows the
financial health of the organization. It is an important tool for owners to understand the
improvement seeking areas, and also helps the investors to make wise and informed decisions. The
nature of balance sheets differs as they depend on the business ownership and composition. The
debate about the balance sheet of limited companies and sole traders boils down to the issue of
solvency. Sole-trader balance sheets are riskier as owner is solely liable to payback all debts. Sole-
trader balance sheets are less complex than the limited companies’ balance sheets as equity
accounts of limited companies have different categories such as common stock and preferred stock
(Healy & Palepu, 2012).

The EasyJet’s balance sheet also shows the soundness and financial health of the company.
The company has clearly differentiated between the current and non-current assets. The current
assets show the liquidity position of firm. The EasyJet’s current assets show a visible increase
compared to the last year. The cashflow statement provides a partial explanation of this increase
as cash at hand in 2016 was higher than the previous year. In 2016, the total current assets of
EasyJet were £1,454 and in 2015, total current assets were only £1,279. Company’s current
liabilities are higher than the current assets, showing financial health of EasyJet. The current
liabilities have decreased from the previous year. In 2016, total current liabilities were £1,573,
whereas in 2015, the total current liabilities were only £1, 768. Overall, net current liabilities have
decreased from (489) to (119), showing visible improvement in the liquidity position. The net
assets (current assets – current liabilities) also show a considerable improvement from £2249 to
£2712. As EasyJet is a service firm, hence, there is no concept of inventories. Services cannot be
stocked or stored for future purpose.
EASYJET ANNUAL REPORT 2016 10

In current liabilities section, the balance sheet shows that the EasyJet’s current tax payable
has decreased by half (amounting to £21 million) compared to the last year (£43 million). Total
current liabilities have decreased and influential factors are the decrease in borrowings, unearned
revenue, derivative financial instruments, provisions for liabilities and charges and tax payable.
The current liabilities are the business payable expenses that the due within a year and directly
affect the firm’s liquidity. However, long-term liabilities do not affect the liquidity position.
Interestingly, EasyJet’s account receivables and payables, both show an increase compared to last
year, putting a neutral impact on the EasyJet’s conversion cycle. The EasyJet has aggressively cut
down its short-term borrowings compared to the last year. The overall increase in the short-term
liabilities is mainly due to

In the long-term liabilities section, the balance sheet analysis shows that the total
borrowings were £664, showing a considerable increase compared to previous year when long-
term borrowings were only £322. It means that the firm has cut down the short-term liabilities and
increased dependence on the long-term borrowings in 2016. Non-current deferred income and
deferred tax, both show a visible increase compared to last year. Total long-term liabilities
increased from £811 to £1,220. Despite, the increase in the long-term liabilities, the net assets
[total (current and non-current) assets less total (current and non-current) liabilities] showed a
positive figure, £2,712 compared to last year amounting to £2,249. There was no change in the
shareholders’ capital. However, the retained earnings figure increased from £1,720 to £1,920 in
2016. It means that compared to previous year, in 2016 company withheld more profit. One
possible reason could be the environmental uncertainty prevailing after the Brexit decision. The
analysis of change in the equity statement also confirms that only retained earnings vary from 2016
to 2015 and 2014. The shareholders’ equity, (share capital and share premium) shows no variance
across these years. Overall, the analysis of the company’s balance sheet suggests that the
company’s overall financial health has improved due to a noticeable increase in the net assets
compared to the previous year.

Section 4: Cashflow Analysis

The cashflow statement is an important financial instrument that presents the inflow and
outflow of cash transactions during a specific time-period. It has equal importance as balance sheet
EASYJET ANNUAL REPORT 2016 11

and income statement. Cashflow statements present two-sided flow, where inflows are represented
as payments from accounts receivables, and cash outflows represent the payments for accounts
payables. The cashflow figures at a given point of time represents the current snapshot of the
liquidity position. Cashflow analysis is highly important as it raises red flags when company runs
out of cash (Subramanyam & Wild, 2009). For EasyJet company, its cashflow shows the
company’s liquidity position in 2016.

The 2016 cashflow statement of EasyJet shows that the firm has good liquidity position.
As compared to the last year (2015), the firm’s cash at hand has increased from £650 million in
2015 to £714 million in 2016. Interestingly, the cash generated from firm’s operating activities has
considerably decreased, and net cash incurred at investing activities has increased from the
previous year. Company has considerably decreased the purchase of its own shares. Effect of
exchange rate changes has increased from 33 to 95. In 2016, the company started with considerably
high cash and cash equivalents £650 million, whereas, in 2015, company started with cash and
cash equivalents of £424 million. Overall, the analysis suggests that the company earns higher
cash in the 2016 because the 2016 year started with high cash and cash equivalents. Cashflow
statement further suggests that in 2016, the increase in cash is considerably lower than 2015 and
there are a few apparent reasons for it. Firstly, the company paid higher dividends compared to
previous year. Interest expense also showed a considerable increase. Company spent more money
on purchasing plant and equipment. Total cash earned through operating activities was £387
million compared to last year £609 million. Major reason behind the decrease was increase in the
operating expenses and decrease in the operating income.

In 2015, only £255 million was spent on the investing activities. In 2016, the expenditure
on investing activities increased to £541 million. In investing portion, EasyJet incurred more
expenditure on the purchase on intangible assets. Finally, in the financing part, company got the
proceeds from Eurobond which was not received in last year. Another considerably difference
compared to the previous year was repayment of financial leases. In 2015, the lease repayment
expenditure was only £11 million, whereas, in 2016, the lease expenditure was £98 million.
Finally, in the financing part, the company’s inflow was higher than the outflow and the most
influential reason was the proceeds from euro bond. Overall, the cash generated from financing
activities increased from (161) to £123 million.
EASYJET ANNUAL REPORT 2016 12

Above analysis suggests that the company’s cashflow balance (£714 million) in 2016 has
shown an increase with difference of £64 million. Major reasons contributing this difference is the
high initial cash and cash equivalent balance and sale proceeds of euro bond. Now the comparison
with the income statement suggests that the income statement provides a more comprehensive
view and complete picture of the financial positioning of firm compared to the cashflow. EasyJet’s
income statement shows cash as well as non-cash items, whereas, cashflow only represents the
cash-based items. It makes a major impact. Cashflow suggests that the company has more cash in
hand compared to the previous year. Whereas, income statement shows that the company has been
less profitable in 2016 compared to the last year.

The major differentiating factor is that company recognized all non-cash expenses.
Company made less revenue due to political unrest in 2016. Moreover, many expense shown a
considerable increase such as crew expense (£542 in 2016 and £505 in 2015), maintenance (£229
in 2015 and £237 in 2016), airports and ground handling (£1267 in 2016 and £1122 in 2015) and
other expense category (£276 in 2015 and £296 in 2016). Deprecation impact was also
significantly high and it was not recorded in the cashflow statement. All expenses were not fully
paid, but they were recognized with full amount in income statement, creating difference in “cash
at hand” and “profitability” of EasyJet.

Section 5: Major Events

The analysis of the latest EasyJet annual report suggests that company management has
declared the 2016 as a challenging year due to political tension. In the letter to shareholders, the
organization communicated that:

“2016 has been a year of uncertainty. The aviation industry in particular has faced many
challenges: low oil prices and interest rates; the continuing impact of terrorism; the
decision for the UK to exit the European Union; and increased market capacity sustained
by a low fuel price, have all contributed significantly to the position of our business today.
However, in these unpredictable times easyJet has continued to pursue its strategy for
disciplined growth and long-term shareholder value” (EasyJet Plc, 2016).

The above comment shows that the three main events happened during last three years are:
1) the continuing impact of terrorism; 2) the decision for the UK to exit the European Union; and
EASYJET ANNUAL REPORT 2016 13

3) increased market capacity sustained by a low fuel price. These all events happened in 2015 and
2016. The impact of events happened in 2015 was stretched to the 2016 financial year. However,
despite this uncertainty, the analysts contend that the firm is bravely surviving the uncertainty
(Theodore, 2017). Although, the company’s income statement shows a decrease in the
profitability, the management claims that despite the high volatility in the exchange rates, EasyJet
aims to explore long-term revenue growth opportunities, share-holder return and profitability. The
management holds positive expectations about the growth in market demand due to the unique
model of EasyJet and its well-positioned value capture strategy from business as well as leisure
markets (EasyJet Plc, 2016).

In the annual report, the management has highlighted following key strengths: unparalleled
network, low-cost model, well-known brand, disciplined capital use, driving revenue growth and
strong balance sheet. The analysis of key financial indicators confirms the claim of “strong balance
sheet” as company’s net assets have increased compared to the last year despite all environmental
uncertainty. The disciplined use of capital was explained as the clear capital structure framework
with 50 percent dividend payout ratio. While communicating the financial performance, the
Chairman- John Barton commented that:

“easyJet grew its passenger numbers to a new high of 73.1 million, showing continued
strong demand for its services. This record level of flying generated slightly reduced revenues
of £4,669 million in 2016, as passengers benefitted from low fares, with a reinforced programme
of cost controls, that delivered savings ahead of target of £95 million. easyJet's profit before
tax was £495 million” (EasyJet Plc, 2016).

The statement shows that the company has smartly explained the reason for visible decline
in the revenue and regarded this decline a growth strategy of EasyJet through low-cost prices.
Overall, based on the letter to shareholders and analysis of company’s financial statements, this
report confirms that despite the decrease in the profitability, the EasyJet has strong financial health,
and is successfully pursuing its growth objectives besides a persistent increase in net assets.

Section 6: Ratio Analysis

Financial ratio analysis has its own set of advantages and limitations. It is highly useful
tool to take a quick overview of financial health of a firm. Ratio analysis can be used to understand
EASYJET ANNUAL REPORT 2016 14

the complex financial statements in simplified format. Ratio analysis also helps in making
comparison against industry on other key market players. The tool is highly effective to understand
how the performance has improved or declined over last few years. Analysts use to ratios to
conduct the trend analysis and discuss the reasons for success or failure. Overall, ratio analysis is
useful to highlight the important information quickly in a simplified format. The information could
be used to judge the financial health by analyzing few indicators instead of going through
comprehensive profit and loss account, balance sheet and cashflow statement (Healy & Palepu,
2012).

Besides these advantages, ratio analysis also has its own set of limitations. The financial
ratios offer limited information when used to compare the companies from different industries as
these financial indicators do not communicate the impact of industry specific variables. The
conclusion drawn solely on ratio analysis usually required further support and evidence. The
information is also affected by assumptions and estimates. Moreover, accounting standards result
into varied accounting policies that affects the comparison basis. One major limitation of this
financial analysis tool is that it is only useful for conducting the historical trend analysis and cannot
be used to understand the future information (Subramanyam & Wild, 2009).

In this section, the researcher will present the key financial ratios to assess the improvement
or decline in the financial health of EasyJet and its overall business performance over last two
years. Key financial ratios presented in this section include: gross profit margin, net profit margin,
current ratio, quick ratio, add later. Following table shows the values of all ratios for last two years:

Ratios 2015 2016 Increase/decrease

Gross profit margin 39.69% 37.40% Decrease
Net profit margin 11.69% 9.15% Decrease
Current ratio 0.72 0.92 Increase
Quick ratio 0.66 0.69 Increase
Interest coverage ratio 63.36% 39.08% Decrease
Days payable outstanding 15.18% 14.17% Decrease
Receivable turnover 80.79% 81.20% Increase
Debt/Equity Ratio 0.14 0.24 Increase
EASYJET ANNUAL REPORT 2016 15

The above table shows that the firm’s gross profit margin and net profit margin has
decreased and main reason behind it is the decrease in sales revenue. The 2016 year has been
highly unstable due to political unrest and consequent economic uncertainty. It has put negative
influence on the profitability and sales revenue of EasyJet. However, the liquidity ratios show
positive change, indicting cash and cash equivalents have increased over last year. Same results
have been shown by the cashflow statement. Due to decline in the profitability, the interest
coverage ratio has decreased suggesting the decrease in firm’s ability to pay its interest from earned
profit. A decrease in the days payable outstanding and increase in the receivables turnover show
that the EasyJet cash conversion cycle is efficient, means it takes lesser time to collect the
receivables and more time to pay its bills. Finally, the increase in debt to equity ratio shows that
company’s debt has increased or it is making efficient use of its profitability. Companies operating
in highly competitive industries usually have high debt to equity ratio as they carry high debts to
meet their investment needs.

Conclusion

Summary

The EasyJet’s income statement 2016 shows the total revenue of £4,669 million a visible
decrease from the previous year. The geographic revenue analysis suggests that the company has
made higher revenue from its UK based operations (£2,243), followed by Southern Europe £1,376,
Northern Europe £984 and other £66. Total operating expenses in 2016 are: £4,171 million,
compared to £3,998 in 2015. Overall, the firm’s operational efficiency has decreased due to
increase in the operational expenses (airport and ground handling expenses, crew expense,
navigation expense, maintenance and selling expenses, depreciation expense). The pre-tax profit
and after-tax profit both show a decline compared to previous for two explicit reasons: decline in
the seat revenue and increase in the operational expenses. Based on the balance sheet, EasyJet’s
overall financial health has improved due to a noticeable increase in the net assets compared to the
previous year, due to increase in the net assets. Firm’s current and non-current assets have
increased, whereas, current liabilities have decreased compared to previous year. The ratio analysis
EASYJET ANNUAL REPORT 2016 16

suggests that company’s gross profit margin, net profit margin, interest coverage ratio and days
payable outstanding have decreased, whereas, current ratio, quick ratio, receivable turnover and
debt/equity ratio have increased, showing a visible improve in the liquidity position.

Recommendations and Personal reflection

Based on the above discussion, this report recommends investing in this firm. Although,
the company faced a tough year, the decline in the profitability has been explained as a result of
company’s efforts to pursue growth objectives by lowering the cost. This strategy will help the
company in long-run and management will be able to create more value for shareholders. The
analysis of the company’s balance sheet also suggests that the company’s overall financial health
has improved due to a noticeable increase in the net assets compared to the previous year. Cashflow
analysis suggests that the company has more cash in hand compared to the previous year, indicting
improved liquidity position. A decrease in the days payable outstanding and increase in the
receivables turnover show that the EasyJet cash conversion cycle is efficient. The increase in the
debt to equity ratio shows that company’s debt has increased or it is making efficient use of its
profitability. Despite the economic uncertainty and political unrest, the company has successfully
increased its net assets compared to the previous year, which is a positive sign. The firm’s liquidity
position is also strong. There is one concern that company has increased its long-term liabilities,
resulting into a high debt to equity ratio. However, along with other indicators and growth
opportunities available for low-cost model airlines, the investment in EasyJet could be profitable.

Overall, this group task was a good learning experience for us. The analysis of EasyJet’s
annual report not only refined our analysis skills and refreshed our financial analysis knowledge,
it also taught us how to work in a team and accomplish group objectives within time. We learnt
how to manage time and co-ordinate with each other for accomplishment of group objectives.
Although, we faced different challenges while completing this task, the most difficult challenge
was to ensure an organized flow and represent all required information within specified word limit.
In some parts, it was too difficult to present required information within word count. This task
allowed us to learn the smart use of space and representation of multiple facts within limited space.
The lessons learned from this analysis report will not only help us to conduct in-depth financial
analysis of companies’ annual reports, but it will also help us to manage the time and deliver the
complete required information in a concise manner.
EASYJET ANNUAL REPORT 2016 17

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