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Understanding of Financial Information - EasyJet plc

University : UNIVERSITY COLLEGE BIRMINGHAM

  • Unit No : 1
  • Level : Undergraduate/College
  • Pages 11 / Words 824
  • Paper Type : Assignment
  • Course Code : JNB518
  • Downloads : 1596
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 airline industry. The present report is giving brief discussion about significance of management of working capital of EasyJet plc. In the same series it had evaluated a depth analysis of its financial performance and stability for achieving good return and future strategies. Further, it had provided recommendation for its shareholde

Overall financial stability of EasyJet Plc for generic stakeholders

EasyJet Plc is a British low-cost airline whose headquarter is situated at London Luton Airport. It has operated on 862 routes and along with this fleet of 279 aircrafts. Its applicability is providing cost advantage and to deliver 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 very strong capital base as it has market capitalisation of £4 billion. The credit rating of specific organization is strongest in world for airline industry.

Shareholders perspective

It has huge interactions with various stakeholders in 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 is replicating liquidity aspect which is increasing from year to year as in 2017. It created ability to fulfil its liability but it’s ideal ratio is 2: 1 so as per current ratio it is not perfect but it is improving in 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 above graph it had achieved sudden increment because of ability to repaying its liability from its quick assets in 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 is depicting 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 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 is depicting amount of debt which EasyJet plc. Is using 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 is depicting gross margin, in 2014 it was not able to get satisfied margin but from year 2015. It is capable to earn 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: Operating margin ratio is one of the essential indicator for measuring profitability. As per analysing Operating profitability of EasyJet Plc it can be said that is decreasing from year to year due to its competitors which had grabbed 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 is replicating return on asset as it is an airline company which is included in service industry so it is not able to achieve good return on assets but simultaneously it had earned good return in 2014.  It also reflects 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 is representing turnover on its receivables or in simple words it can be elaborated that use of its organization's asset in efficient aspect or not. There is decrement in turnover from 2016 to 2017 because of fluctuation of interest rate and 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 is presenting turnover on its asset as it is measuring efficiency of organization from year 2014 to 2017 which had huge change. In year 2014, EasyJet plc was able to generate sales and revenue which is directly related to its valuation of assets. But in year 2016 and 2017 its efficiency has been decreased of 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 basis of its solvency ratio, but it is not able to give sufficient return in context of efficiency ratio. While observing its profit from operations, it is not giving sufficient margin because of huge fluctuation in cost of fuel and variations in foreign exchange. As fuel is considered as biggest cost in airline industry, market capacity had achieved continued growth but it had make airline weaker (Financial ratio for measuring company's performance, 2018). In this financial year Brent price had also increased by 13%.

CONCLUSION

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

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