Financial Ratios for British Airways - Essay Example

Financial Ratios       British Airways (Financial Ratios for the year 2005 & 2006)           Current Ratio 1.0 times 1.1 times Quick Ratio 0.9 times 1.0 times       Debt to Total Assets 76.3% 84.7% Times Interest Earned 4.3 times 8.3 times       Inventory Turnover * 82.79 times 209.9 times Ave. Collection Period * 51.5 days 14.4 days Fixed Assets Turnover * 0.9 times 2.0 times Total Assets Turnover * 0.7 times 1.4 times       Profit Margin on Sales 3.4% 5.5% Return on Total Assets * 2.3% 7.8% Return on Net Worth * 9.7% 51.3% Easy Jets ( Financial Ratios for the year 2005 & 2006)       Current Ratio 2.1 times 2.1 times Quick Ratio 2.1 times 2.1 times       Debt to Total Assets 47.0% 53.7% Times Interest Earned 8.5 times 6.4 times       Inventory Turnover * 0 0 Ave. Collection Period * 57.3 days 24.0 days Fixed Assets Turnover * 1.8 times 3.1 times Total Assets Turnover * 0.8 times 1.5 times       Profit Margin on Sales 4.4% 5.8% Return on Total Assets * 3.6% 8.9% Return on Net Worth * 6.8% 19.1% COMAPRISION AND CONTRAST Liquidity Position of Easy Jet seems to be better than that of the British Airways as its current as well as quick ratios are both better than that of BA. Easy Jet has the advantage over the BA because of the fact it is not carrying any inventories at its balance sheet dates. Due to this reason, its quick as well as current ratios are same. Besides the working capital management seems to be good at EJ as it has been able to curtail its costs which BA has not been able to cut down. I.e. costs of storing and holding inventory. The management efficiency in managing the assets of the company is excellent at EJ as it has been able to able to finance its assets largely through equity and has less relied on external debt. It is because of this reason that that the total assets financed through debt is just 47% and 53% in 2005 & 2006 as compared to BA whose ratio of debt to assets have shown an increase i.e. from 76% to 83%. This not only impairs the management’s ability to effectively manage the assets but also significantly reduce the profits since higher proportion of returns goes to debt servicing. In 2006, BA has been able to greatly able to lessen its cost of goods sold. This also seems to be the reason behind recording higher interest covered ratio in 2006 as compared to EJ- a move showing BA’s management attitude to concentrate on cost cutting. In 2006 BA somewhat seems to be in driving seat as for as controlling and efficient management of the assets. Inventory turnover has greatly increased showing efficient management of inventories. EJ due to enjoying no inventory, do not have any inventory turnover ratio. Collection efforts of both the companies seem to be inline with each other. As for as the profit margins are concerned, BA still is enjoying higher margins despite the claims made by EJ that it enjoys low cost. Overall, Shareholders of BA are better off than the shareholders of EJ since they enjoyed higher returns on their investments during the period. APPENDIX British Airways   BA-5 BA-6             CASH 147 1,591 MARKETABLE SECURITIES 0 0 INVENTORY 159 146 ACCOUNTS RECEIVABLE 2,034 1,202 OTHER, MISCELLANEOUS 3,026 3,493 CURRENT ASSETS 5,366 6,432 FIXED ASSETS (NET) 16,023 14,926 TOTAL ASSETS 21,389 21,358             CURRENT LIABILITIES 5,623 6,021 LONG-TERM LIAB. 10,702 12,072 TOTAL LIABILITIES 16,325 18,093 SHs EQUITY (NET WORTH) 5,064 3,265 TOTAL EQUITIES 21,389 21,358                   Statement, no. of months: 12 6 NET SALES 14,411 15,283 COST OF GOODS SOLD 13,163 2,929 GROSS PROFIT 1,249 12,354 OPERATING EXPENSES 252 11,089 GROSS OPERATING INCOME 997 1,265 DEPRECIATION 0 0 NET OPERATING INCOME 997 1,265 OTHER INCOME 0 0 GROSS INCOME 997 1,265 OTHER EXPENSES 0 0 INTEREST EXPENSES 232 153 NET INCOME BEFORE TAXES 765 1,113 INCOME TAX 275 275 NET INC. BEFORE DIVIDENDS 490 838                           Current Ratio 1.0 times 1.1 times Quick Ratio 0.9 times 1.0 times       Debt to Total Assets 76.3% 84.7% Times Interest Earned 4.3 times 8.3 times       Inventory Turnover * 90.9 times 209.9 times Ave. Collection Period * 51.5 days 14.4 days Fixed Assets Turnover * 0.9 times 2.0 times Total Assets Turnover * 0.7 times 1.4 times       Profit Margin on Sales 3.4% 5.5% Return on Total Assets * 2.3% 7.8% Return on Net Worth * 9.7% 51.3%             EJ-5 EJ-6             CASH 667 861 MARKETABLE SECURITIES 6 13 INVENTORY 0 0 ACCOUNTS RECEIVABLE 211 213 OTHER, MISCELLANEOUS 7 0 CURRENT ASSETS 891 1,087 FIXED ASSETS (NET) 739 1,036 TOTAL ASSETS 1,630 2,124             CURRENT LIABILITIES 415 509 LONG-TERM LIAB. 352 632 TOTAL LIABILITIES 766 1,141 SHs EQUITY (NET WORTH) 863 983 TOTAL EQUITIES 1,630 2,124                   2005 2006 NET SALES 1,341 1,620 COST OF GOODS SOLD 1,135 1,341 GROSS PROFIT 206 279 OPERATING EXPENSES 0 0 GROSS OPERATING INCOME 206 279 DEPRECIATION 140 161 NET OPERATING INCOME 66 118 OTHER INCOME 27 35 GROSS INCOME 93 153 OTHER EXPENSES 0 0 INTEREST EXPENSES 11 24 NET INCOME BEFORE TAXES 82 129 INCOME TAX 24 35 NET INC. BEFORE DIVIDENDS 58 94                             Current Ratio 2.1 times 2.1 times Quick Ratio 2.1 times 2.1 times       Debt to Total Assets 47.0% 53.7% Times Interest Earned 8.5 times 6.4 times       Inventory Turnover * #DIV/0! #DIV/0! Ave. Collection Period * 57.3 days 24.0 days Fixed Assets Turnover * 1.8 times 3.1 times Total Assets Turnover * 0.8 times 1.5 times       Profit Margin on Sales 4.4% 5.8% Return on Total Assets * 3.6% 8.9% Return on Net Worth * 6.8% 19.1%     British Airways Ratios for 2005 In Million Ratio Formulae Amount Amount Ratio Current ratio Current Asset/Current Liabilities 5366 5623 0.95 Quick Ratio (Current Assets-Inventory)/Current Liabilities 5207 5623 0.93 Debt to total assets Total Debt/Total Assets 16325 21389 76.32% Times Interest Earned Operating Profit/Interest 997 232 4.30 Inventory Turnover COGS/Inventory 13163 159 82.79 Av.Collection Period (Recievables/sales/365) 2034 14411 51.52 Fixed Asset Turnover Sales/Fixed Assets 14411 16023 0.90 Total Asset Turnover Sales/Total Assets 14411 21389 0.67 Profit Margin on sales Net Income/Sales 490 14411 3.40% Return on total assets Net Income/Total Assets 490 21389 2.29% Return on Networth Net Income/Equity 490 5064 9.68% Ratios for 2006 In Million Ratio Formulae Amount Amount Ratio Current ratio Current Asset/Current Liabilities 6432 6021 1.07 Quick Ratio (Current Assets-Inventory)/Current Liabilities 6286 6021 1.04 Debt to total assets Total Debt/Total Assets 18093 21358 84.71% Times Interest Earned Operating Profit/Interest 1265 153 8.27 Inventory Turnover COGS/Inventory 2929 146 20.06 Av.Collection Period (Recievables/sales/365) 1202 15283 28.71 Fixed Asset Turnover Sales/Fixed Assets 15283 14926 1.02 Total Asset Turnover Sales/Total Assets 15283 21358 0.72 Profit Margin on sales Net Income/Sales 838 15283 5.48% Return on total assets Net Income/Total Assets 838 21358 3.92% Return on Networth Net Income/Equity 838 5064 16.55% EASY JET Ratios for 2005 In Million Ratio Formulae Amount Amount Ratio Current ratio Current Asset/Current Liabilities 891 415 2.15 Quick Ratio (Current Assets-Inventory)/Current Liabilities 891 415 2.15 Debt to total assets Total Debt/Total Assets 766 1630 46.99% Times Interest Earned Operating Profit/Interest 66 11 6.00 Inventory Turnover COGS/Inventory 1135 0 0.00 Av.Collection Period (Recievables/sales/365) 211 1341 57.43 Fixed Asset Turnover Sales/Fixed Assets 1341 739 1.81 Total Asset Turnover Sales/Total Assets 1341 1630 0.82 Profit Margin on sales Net Income/Sales 58 1341 4.33% Return on total assets Net Income/Total Assets 58 1630 3.56% Return on Networth Net Income/Equity 58 863 6.72% Ratios for 2006 In Million Ratio Formulae Amount Amount Ratio Current ratio Current Asset/Current Liabilities 1087 509 2.14 Quick Ratio (Current Assets-Inventory)/Current Liabilities 1087 509 2.14 Debt to total assets Total Debt/Total Assets 1141 2124 53.72% Times Interest Earned Operating Profit/Interest 118 24 4.92 Inventory Turnover COGS/Inventory 1341 0 0.00 Av.Collection Period (Recievables/sales/365) 213 1620 47.99 Fixed Asset Turnover Sales/Fixed Assets 1620 1036 1.56 Total Asset Turnover Sales/Total Assets 1620 2124 0.76 Profit Margin on sales Net Income/Sales 94 1620 5.80% Return on total assets Net Income/Total Assets 94 2124 4.43% Return on Networth Net Income/Equity 94 983 9.56% Read More