Easyjet Plc Financial Report - Essay Example

Company Analysis of the affiliation Company Analysis Introduction Many companies publish their financial ments as required by the law and their analysis is done to determine the performance as well as profitability of the company. In this light, EasyJet PLC prepares its accounts regularly and their analysis gives an idea of the company’s operations. Further, the company’s prudence administration as well as good decision making have contributed to its success in the recent years. The corporate governance, legal and regulatory requirements The C.E.O, who is in charge of the daily operations and running of the organization, heads the company’s management. The current CEO is Carolyn McCall, who is in her fourth year in the organization. As the head of the organization, her term has experienced tremendous growth and expansion of services. Under the chief executive officer is a team of ten directors, charged with the responsibility of ensuring the continuity as well as the performance of the company in light of its goals in the corporate scene. Indeed, the good performance of the group points to the good collaboration, as well as the organization structure, which facilitates easy delegation of duties, understanding and accountability in the top management. The company has strict legal boundaries that cover the operations of the business and regulates how the company deals with its environment. Company law outlines the provisions under which the company operates, and in particular, the company is obliged to disclose its financial statements in accordance with the International Financial Reporting Standards (IFRS) and has an obligation to present the true status of the company at the given time. Further, the Company Act of 2006 details the roles of the directors, as well as the legal requirements that are put in place pertaining how the company presents its financial documents. Modern Airlines companies operate under strict regulatory measures and Easyjet PLC that ensures efficiency in delivery of services as well as reducing unstructured processes that have continued to hinder the full development of modern airports. Indeed, the company continues to advocate for legal reforms that will introduce more slots in the handling of airport ground operations, a move that will increase competition and increase efficiency. The company continues to operate under the European Union regulatory guidelines, and the subsequent improvement in the infrastructure in the region has benefited EasyJet PLC’s operations. Accountability for and roles of managers in making business decisions Contemporary organizations thrive or fail depending on the capabilities of its management team to steer the organization in the right direction (Morck, 2000, p. 45). Given the case, there is great need for the managers to account for the decisions, policies as well as the performance of the organization. Indeed, most companies and EasyJet PLC in particular, point the accountability of the management to the board of directors. On these grounds, the board requires that the manager is responsible with the operations of the corporation, and ensures that all the stakeholders in the business are treated fairly including clients and employees. It is of paramount importance to most organizations and helps companies hit targets by being responsible for its core duties (Harrington, 2003, p. 34). Accountability in decision-making is crucial for managers, as the process requires discipline and ethics in coming up with sound decisions. The ability to make good decisions determines the success of modern companies and the management is accountable for any decisions that it makes (Morck, 2000, p. 113). Indeed, EasyJet PLC’s critical decisions have first to be verified by the company’s board of directors. The results of such decisions are further tabled before them to determine the effectiveness of the decisions and to what extent they give the company a competitive advantage when implemented. How the Published Financial Statement is structured The company’s accounts, income statement details the organization’s income generating activities first. This includes items such as the revenues from operations, the profits for the period and any other interests that are earned by the company. Further, the appropriations of the revenues are done in terms of operating expenses, where various items such as tax payable are included. The items above are used to get the amounts of profit that are appropriated to the shareholders, which are indicated in the statement. The last part gives the performance of the company’s shares in terms of ratios for the three years. The balance sheet is logically structured, with the assets section being organized in terms of long-term and current assets. This section is arranged in order of the liquidity status of the assets, with the most liquid being placed in the current assets section. The liabilities section details the money owed to other people or enterprises, and is shown in the next section on the balance sheet. To determine how profitable the company performs, the assets on the balance sheet are compared with the liabilities. The last part of the balance sheet shows the capital invested in the company as well as the reserves of the company. The main stakeholders who would use the published information and their purpose The investors need the information in the public accounts. These are the prospective business partners in the company, and they need to determine the profitability of the company (Blake, 1999, p. 52). Indeed, the performance of the company outlined in the accounts is crucial, and may make the investors put their money in the company or terminate existing deals when they are not very profitable. The employees use the statements to benchmark their performance. The information shows the contribution of the employees, as well as the areas that may need improvement in the future (Hawkins & Hawkins, 2006, p. 15). Such information is a basis for appraisal as well as justification for higher increases in salaries, to the extent that they pay equals the contribution they give to the company. The government also needs to review the published accounts. Being the regulating body for all transactions in a given country, the performance of the company is important for the company’s formulation of economic policies. On the other hand, the published accounts are a basis upon which corporate taxes are determined, and the government may need to review the statements in a bid to determine the most appropriate tax as a percentage of the profits the company makes. The creditors are an important group to any company, mainly involved in the provision of funds and financial leverage (Blake, 1999, p. 69). The statements are an important part to determine the credit worthiness of the organization. Indeed, the performance of the company may determine the ability of the company’s activities to regain the amount of a loan issued by a given business partner (Warren, & Reeve, 2010, p. 24). Generally, the creditors will prefer to lend to companies with sound financial basis, valuable assets and plausible performance that will regain the amount of cash given. The trade unions also use the published statements to establish the aptness of the amount of costs that the company gives to its workers. If the compensation is below the value offered by the employees, the trade unions come up to rally for the rights of the workers in the company. Finally, the published statements are important to the shareholders. These are the owners of the company, and its performance is an integral part of their analysis (Norton, & Diamond, 2010, p. 86). The performance of the company justifies the existence of the management in place. Indeed, any deviation from the shareholders’ interests is restructured in the Annual General Meetings. Long-term and short-term finance The company’s main source of long-term financing is the long-term loans that the company acquires from financial institutions. In this perspective, the borrowings section of the balance sheet gives the greatest contribution to the finances acquired by the company. The loans have been used to expand operations, improve the equipment as well as to improve technology that is vital in offering the best customer service. In addition, the company uses imitative financial instruments as a long-term source of financing, which have been spent to cover the improvement and maintenance costs that are expensed to the company as it globalizes its operations. In terms of short term financing, the company obtains loans from various organizations and uses short-term derivative instruments to fund operations. In addition, the company uses various investments in the money market to add to its financial base. Indeed, short-term financing has been used to finance the day-to-day cash operations of the company, as well as the company’s urgent financial needs that need quick finances. Key financial ratios and analysis In retrospect, the Debt to equity ratio is one of the most frequently used and vital benchmark of performance in any given company. In addition, the current ratio, the return on equity and the return on capital employed are important in the company’s performance in terms of ratio analysis. The debt to equity ratio= Total Liabilities / Shareholders Equity =2365.7/1307 = 1.8: 1 . The current ratio = Current Assets / Current Liabilities =1482.2/ 1062.2 = 1.4: 1 Return on equity = Net Income/Shareholders Equity =71.2/ 106= 0.67 Return on capital employed= Earnings Before Interest and Tax (EBIT) / Capital Employed 39.326/ 106=37.1% The ratios indicate that the company is indeed profitable owing to the fact that it has sound backing of assets over its liabilities. Indeed the company is evidently able to finance its operations in the short term based on its appreciable current ratio. On the other hand, the investors in the company are able to reap a good share of their funds as indicated by the return on capital-employed ratio. Overall, EasyJet PLC’s performance is commendable and its future promising. Methods for appraising capital projects and their strengths The Net Present Value (NPV) is an evaluation technique that presents an estimated future gain based on the expected future cash flows on a scale that discounts such benefits to the present time (Helfert, 2001, p. 41). In the technique, the projects that give higher values are accepted and implemented, while those with negative values represent losses in the future and are therefore rejected. The main advantage of the technique is the fact that it incorporates the time value of money and gives the amounts in present values (Norton, & Diamond, 2010, p. 52). The payback period on the other hand is used in evaluating a project, based on its effectiveness to deliver the invested money within the shortest period (Muro, 2005, p. 31). In perspective, the projects with the shortest payback period are preferred. This method is very simple and convenient as compared to the others, making it advantageous for organizations pursuing various mutually exclusive projects (Oksanen, 2009, p. 29). The Internal Rate of Return alternatively, gives the rate that equates the present cost with the expected future benefits of certain projects. It is widely used because it gives a merit on which the company can evaluate its estimated rate of return on the project and determine whether the project is worth pursuing or not (Rodgers, 2007, p. 53) On the other hand, the costs and benefit ratio measures the proportions of the benefits expected, out of the money incurred to finance such a project (Oksanen, 2009, p. 70). Values greater than one is preferred, and the method is mostly employed because of its simplicity to use. Indication of the weaknesses of published financial information. The published information is undoubtedly important to many stakeholders of the company, but an analysis of the statements cannot give a clear prediction of the future (Rodgers, 2007, p. 49). On this platform, the business scene is volatile and the presentation of good statements may not necessarily indicate good future performance. On the other hand, the statements only reveal the cash operations of any business. Other important contributions are omitted such as customer satisfaction and environmental preservation, which may determine the future of the company more than those figures published (Rodgers, 2007, p. 52). Further, the incorporation of historical costs of items as well as their performance limits the use of financial statements for future prediction. On this platform, the company’s operations are affected by factors such as price changes, rates of inflation and currency fluctuation that may affect future performance (Warren, & Reeve, 2010, p. 102). Finally, the main items are reflected in terms of personal valuation (Hawkins & Hawkins, 2006, p. 23). These include the provisions for depreciation and bad debts and the methods of stock valuation. This leads to subjective financial reports whose accuracy is highly doubtful (Muro, 2005, p. 51). Conclusion In this light, it would be plausible to state that the company is performing well and the trend of performance will see to its success in the future. The published financial statements have shed light on this fact, and the ratios prove the profitability of this company. However, the drawbacks associated with the financial statements may limit the extent to which they can be used for future predictions. References Blake, D. (1999). Financial analysis. London: McGraw-Hill Book Company. Easyjet Case Study: a Low Cost Approach to Customer Service. (2004). Flushing: Datamonitor Plc. Harrington, D. R. (2003). Corporate financial analysis: Decisions in a global environment. Homewood, IL: Business One Irwin. Hawkins, D. F., & Hawkins, D. F. (2006). Corporate financial reporting and analysis. Homewood, Ill: D. Jones-Irwin. Helfert, E. A. (2001). Techniques of financial analysis. Homewood, Ill: Irwin. Morck, R. (2000). Management ownership and corporate performance: An empirical analysis. Cambridge (1050 Massachusetts Avenue, Cambridge: National Bureau of Economic Research. Muro, V. (2005). Handbook of financial analysis for corporate managers. New York: AMACOM. Norton, C. L., & Diamond, M. A. (2010). Intermediate accounting: Financial reporting and analysis. Boston: Houghton Mufflin. Oksanen, H. (2009). Pension reforms: an illustrated basic analysis. Brussels: European commission. Rodgers, P. (2007). Financial analysis handbook. Oxford: Elsevier. Warren, C. S., & Reeve, J. M. (2010). Corporate financial accounting. Cincinnati, Ohio: South-Western. Read More