Term of Reference Background Objective Executive Summary Financial Ratios Formula Financial Ratios Analysis of BA and Ryanair Horizontal Analysis of Income Statement Vertical Common Size Analysis of Balance Sheet Comparison of the two companies Strength and Weaknesses Conclusions/recommendations --- Terms of Reference a) Background A success degree of one company can be measured by comparing its financial performance to its competitor. By assessing two companies, this will enable to adequately evaluate their current positions in the market, and to eventually learn as to which one of the two truly applies the better or most successful business model. British Airways Plc (‘BA’) is the national carrier of the United Kingdom, …show more content…
The following example will provide further explanation: some entities, for instance a supermarket, may have a lot of cash trade. Due to this reason, it is a possibility that their current assets ratio of less than 2 : 1. This is not likely to be an issue for them because sufficient amounts of cash is probably collected daily through the checkouts. On the other hand, the airline industry, a low current ratio may not necessarily mean that a company is in peril. Reason being is that a large portion of the high current liabilities may relate to the pre-purchased tickets, which the airline can honour for a relatively low marginal cost. b) Profitability Profitability ratios are used in an effort to evaluate management’s ability to monitor and control expenses, and to earn a profit on resources committed to the business. These particular ratios assess a company’s strengths and weakness, operating results and growth potential. Moreover, they measure on the efficiency of assets being used to generate net income and sales. The higher the ratio, the more effectively a company is using their assets. Profitability ratios which will be used on this paper …show more content…
So basically, the lower the interest coverage ratio, the higher the company’s debt burden and the greater the possibility of bankruptcy or default. "interest coverage ratio = " "profit before interest " /"interest paid" --- Financial Ratios Analysis of BA and Ryanair Using the formula ratios as laid out on the previous chapter, following are their result of calculations: a) Liquidity BA Ryanair No. Ratio 2011 2012 2013 2011 2012 2013 1. Current 0.75 0.60 0.63 1.89 2.14 1.97 2. Acid 0.72 0.57 0.61 1.89 2.13 1.97 The above figures show that Ryanair as a company is far more liquid than BA. Ryanair was considerably higher than BA due to its small amount of liability, thereby meaning a low obligation to lenders. Indeed, this may reflect good liquidity in terms of liability management. However, the excessively high ratio as shown by Ryanair in 2012 at ratio of 2.14 (which conversely, BA was at their lowest), may also imply that the company possess too much of a certain type of asset, rather than maximizing its profitability through diversification. Regretfully, the result cannot be fully identified with current or acid ratio, and further analysis in the asset management or other liquid ratios is