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British Airways' Perspectives to Get Investments - Research Proposal Example

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The paper “British Airways’ Perspectives to Get Investments” makes a conclusion about the BA's good financial results, but considers it appropriate for Tabatha Trotter not to rush to invest in the airline company due to the instability of the stock market, but to follow the price dynamics in BA…
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British Airways Perspectives to Get Investments
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Download file to see previous pages An analytical study has been carried out in this report with regard to the financial performance of British Airways over previous three years and financial and also of impacts of recent happenings on the present and potential market of stock of British Airways. The recommendations made in this report to Tabatha Trotter are based on results of the analysis carried on in this write-up.
The performance for the previous three years of BA has been analyzed using ratio analysis method. The requisite ratios have been calculated in the analysis form. The financial statements of BA for 2008, 2007, and 2006 have been used to calculate the ratios. The analysis has been made under the categories of profitability, liquidity, efficiency, and capital structure.
Profitability has been assessed using gross profit margin, net profit margin, and return on capital employed. ‘The Gross Profit Margin indicates the percentage of each sales dollar remaining after a business has paid for its goods. The higher the gross profit margin, the better. The normal rate is dependent upon the business you are in. The Gross profit margin is the actual mark up you has on goods sold.’ BA has improved tremendously on its gross margins. Gross margin has increased from 8.5% in 2006 to7.1% in 2007, and then to 10% in 2008.
Net Profit Margin is the profit remaining after meeting all finance and tax expenses from earnings before interest and taxes (EBIT). “Net profit margin tells a company how much out of every sales dollar it gets to keep after everything else has been paid off- people, vendors, lenders, the government and so on. Net profit is the proverbial bottom line, so the net margin is a bottom line ratio. But it is highly variable from one industry to another.”   BA’s net profit margins have been fluctuating over the last three years. In 2006 it was 5.7%, and that came down to 3.6% in 2007 despite the fact that total revenue increased from £8213m in 2006 to £8492m in 2007. It appears that certain non- recurring expenditure like ‘provision for settlement of competition investigations’ has caused the downfall of net margin in 2007. However, in the year 2008, its net margins gain rose to 7.9%.
Return on capital employed is another ratio that has been used to analyze the profitability performance of BA. “This is a very common measure of profitability both for external assessment of the company’s performance and for the internal assessment of the efficiency of management. It measures the return on the total capital of the business regardless of how it is financed.” ROCE of BA was 8.5% in 2006, 8.3% in 2007, and 12% in 2008. The performance of ROCE reflects the at the company has very well managed its capital resources into its business. ...Download file to see next pagesRead More
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