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Understanding of Financial Information - EasyJet plc

University: UNIVERSITY COLLEGE BIRMINGHAM

  • Unit No: 1
  • Level: Undergraduate/College
  • Pages: 13 / Words 3155
  • Paper Type: Assignment
  • Course Code: JNB518
  • Downloads: 4055
Question :

Every organisations desires to achieve strong financial position into market for which management is required to frame an effective strategy for further investment that brings profitable return. This assessment improves basic understanding of financial information by using performance measurement ratios. For this, following learning outcomes must be addressed:

  • Analyse the importance of working capital management for an organisation.

Analyse published financial statements and determine the presentation skills that highly concerning current performance and future strategies.

Answer :
Organization Selected : EasyJet plc

INTRODUCTION

Financial strategy is very essential for every organization, especially for the airline industry. The present report gives giving brief discussion about the significance of the management of the working capital of EasyJet plc. In the same series, it evaluated an depth analysis of its financial performance and stability for achieving good returns and future strategies. Further, it had provided recommendations for its shareholders about its performance.

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Overall Financial Stability of EasyJet Plc for Generic Stakeholders

EasyJet Plc is a British low-cost airline whose headquarters is situated at London Luton Airport. It has operated on 862 routes and along with this fleet of 279 aircraft. Its applicability is providing cost advantage and delivering operational efficiency and low fares and simultaneously friendly service to their customers (Bourjade, Huc, and Muller-Vibes, 2017).

Strategy

 

Share price

1615

 

Capital

It consists of a very strong capital base as it has a market capitalisation of £4 billion. The credit rating of specific organizations is the strongest in the world for the airline industry.

Shareholders perspective

It has huge interactions with various stakeholders in the context of its operations, customers, regulators, suppliers, and national government.

Expansion

Performance Measurement Ratio

Liquidity ratio

Year

2014

2015

2016

2017

Current assets 

1261

1279

1454

1734

Current liabilities

1420

1768

1573

1670

Current ratio

0.89

0.72

0.92

1.04

Interpretation: The above graph replicates the liquidity aspect which is increasing from year to year as in 2017. It created the ability to fulfill its liability but its ideal ratio is 2: 1 so as per the current ratio it is not perfect but it is improving in a very efficient manner (EasyJet PLC ADR, 2018).

Acid test ratio

Year

2014

2015

2016

2017

Current assets 

1261

1279

1454

1734

Current liabilities

1420

1768

1573

1670

Prepaid expenses

10

7

97

118

Quick ratio

0.88

0.72

0.86

0.97

Interpretation: While observing its quick ratio in the above graph it had achieved a sudden increment because of its ability to repay its liability from its quick assets in the short term of EasyJet plc.

Solvency ratio

Debt Equity ratio:

Year

2014

2015

2016

2017

Shareholder's equity

2172

2249

2712

2802

Debt

299

228

561

870

Debt equity ratio

0.14

0.10

0.21

0.31

Interpretation: The above graph depicts the solvency of EasyJet plc by debt equity aspect, it is operating its operations from debt by 0.34 which is near to ideal ratio that is 0.40 so it reflects a good position in its industry.

Financial Leverage

Year

2014

2015

2016

2017

Financial leverage

2.06

2.15

2.03

2.13

Interpretation: The above graph depicts the amount of debt that EasyJet plc. Is used for buying its assets which had sudden growth in 2017

Profitability Ratio

Gross margin ratio

Year

2014

2015

2016

2017

Gross profit

684

790

1746

1875

Net sales

4527

4686

4669

5047

Gross margin

15.11%

16.86%

37.40%

37.15%

Interpretation: The above graph depicts the gross margin, in 2014 it was not able to get a satisfactory margin but from the year 2015. It is capable of earning from its sales revenue and it is giving good profit in year 2017.

Operating margin

Year

2014

2015

2016

2017

operating  profit

581

688

498

404

Net sales

4527

4686

4669

5047

Operating margin

12.83%

14.68%

10.67%

8.00%

Interpretation: The operating margin ratio is one of the essential indicators for measuring profitability. As per analysing the Operating profitability of EasyJet Plc, it can be said that is decreasing from year to year due to its competitors which had grabbed the market. So, from operations, it is not able to achieve good earning

Return on asset

Year

2014

2015

2016

2017

Net income

450

548

427

305

Average Total assets

4447

4655

5166.5

5738

ROA

10.12%

11.77%

8.26%

5.32%

Interpretation: The above graph replicates return on assets as it is an airline company that is included in the service industry so it is not able to achieve a good return on assets but simultaneously it earned a good return in 2014.  It also reflects the capability of earning return but because of improper utilisation of its assets, it is in this position.

Efficiency ratio

Receivables Turnover ratio

Year

2014

2015

2016

2017

Receivables turnover ratio

60.36

80.79

81.2

68.2

Interpretation: The above graph represents turnover on its receivables or in simple words it can be elaborated on whether to use its organization's assets in an efficient aspect or not. There was a decrease in turnover from 2016 to 2017 because of fluctuations in interest rates and the cost of EasyJet plc.

Asset turnover ratio

Year

2014

2015

2016

2017

Net sales

4527

4686

4669

5047

Total assets

4482

4828

5505

5971

Asset turnover ratio

1.01

0.97

0.85

0.85

Interpretation: The above graph presents turnover on its assets as it measures the efficiency of organization from the year 2014 to 2017 which had a huge change. In the year 2014, EasyJet plc was able to generate sales and revenue which is directly related to its valuation of assets. But in the years 2016 and 2017, its efficiency has decreased in specific organization.

Critically Analysing Financial Information

On the basis of financial information, it has been analysed that EasyJet plc is having good financial position and stability on the basis of its solvency ratio, but it is not able to give a sufficient return in the context of the efficiency ratio. While observing its profit from operations, it is not giving sufficient margin because of huge fluctuations in the cost of fuel and variations in foreign exchange. As fuel is considered as biggest cost in the airline industry, market capacity has achieved continued growth but it has made airlines weaker (Financial Ratio for Measuring Company's Performance, 2018). In this financial year, Brent price had also increased by 13%.

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CONCLUSION

From the above report, it can be concluded that EasyJet Plc is giving good returns in the aspect of profitability. As there are huge fluctuations in fuel cost and foreign exchange it is affecting finances, but from the perspective of shareholders it is recommended to buy shares of EasyJet plc. As it is included in an emerging industry.

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