Annual Reports for Two British-Based essay

Download this essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from essay:

6%, versus 6.1% in 2008. The return on equity was -6.1% in 2009 and was 15.5% in 2008. The asset and equity levels were relatively stable for the two years, so most of the changes can be attributed to changes in the net income. To investigate those net income changes, the margins can be analyzed. The gross margin for 2009 was 3.14%; for 2008 it was 19.8% and for 2007 it was 21.1%. The net margin for 2009 was -5.7%; for 2008 it was 14.3% and for 2007 the net margin was 19.4%. What this indicates is that the decline in the profits and therefore in the ROE and ROA stems from a decline in operating profit.

For Ryanair, the operating revenues increased 8.4%, but the operating expenses increased 30.9%, leading to the sharp decline in operating profit. This focuses attention on the key cost drivers that contributed to this unusually large increase in operating costs. In this situation, the primary culprit is the fuel charge, which increased 58.9%. The dollar value increase of the fuel and oil expense was around two-thirds of the total increase in operating expenses. The managerial report to shareholders explains this increase. Fuel costs increased for all airlines but unlike other airlines Ryanair does not pass along such increases in the form of a fuel surcharge. This is a strategic decision that the company uses to maintain its position as the lowest-cost carrier in all of its markets. Not imposing a fuel surcharge, however, means that the company must absorb all of the increase in fuel prices. As a result, the profitability margins suffered in 2009. The company attempted to mitigate the impact of high fuel costs through hedging, but lost that gamble in late 2008 (part of fiscal 2009) when fuel prices crashed after management had locked in a price of $124 per barrel (Robertson, 2009).

The debt ratios are an indicator of the company's long-term financial position. This information is crucial both to potential shareholders and to lenders (and potential lenders). The debt ratio, debt-to-equity ratio and the interest coverage ratio are all used as indicators of the firm's long-term financial position. For Ryanair, the debt ratio in 2009 was 34.3% and in 2008 was 30.0%. The debt-to-equity ratio in 2009 was 90.5% and in 2008 it was 75.9%. These figures indicate that Ryanair has increased its gearing in the past year. The gearing ratio is not abnormal for an airline, nor is it cause for concern among shareholders or bondholders either. However, if a long-term trend emerges that the company is steadily increasing its gearing without having sufficient strategic motivation to do so, that could be an indicator of financial distress. Of more concern, however, is the decline in the interest coverage. As the operating profit has declined, so too has the value of this ratio. Interest coverage in 2008 was 5.5 times, while in 2009 it was .70 times. This indicates that the company is barely making enough money at present to cover its interest obligations, whereas in 2008 it was easily making enough money.

Of particular interest to the present and future shareholders are the investment valuation ratios. The latest Ryanair annual report was as of March 31, 2009. At that time, the company's share price was worth €2.8975 (Yahoo Finance UK, 2010). The earnings per share reported in the annual report was a loss of €0.1144. This compares with earnings per share of €0.2584 and €0.282 in 2008 and 2007 respectively. The share price on March 31, 2008 was €2.755. This indicates a return to the shareholders of 5.17% for the year as Ryanair does not pay any dividends at present. Using these figures, we can determine the price/earnings valuation for Ryanair at the end of each fiscal year. At the end of the 2009 fiscal year the P/E ratio was -25.3; at the end of the 2008 fiscal year it was 10.66. A negative price/earnings ratio typically indicates a firm that lost money the previous year. The price reflects the expectation of future profits, however. For 2008, the expectation of future profits priced the company as a multiple of 10.66, which is a relatively conservative valuation suitable for a mature business. Given the slight bump in Ryanair's stock price despite the fuel price troubles, the market clearly has not changed its view of the company as a relatively stable long-term play.

Ryanair's financial health is generally in good shape. The company lost money in fiscal 2009 largely because it did made a strategic decision not to charge a fuel surcharge and then subsequently botched its hedging attempts. Despite this, the company remains liquid and has a relatively low debt ratio, particularly for an airline. Although the fuel strategy has resulted in short-term damage to the company's margins, profits and returns, the market still holds a lofty view of Ryanair, its stock price having increased even when profits plummeted. This is a point of encouragement for shareholders, who seem to take the same long-term view of the company's business that management does.

Works Cited:

Ryanair 2009 Annual Report. Retrieved March 21, 2010 from

British Airways 2008/09 Annual Report. Retrieved March 21, 2010 from

Pethokoukis, J. (2008). Annual report RIP: Remember the glossy, informative annual report? The American. Retrieved March 21, 2010 from

Yahoo Finance UK. (2010). Ryanair. Yahoo Finance UK. Retrieved March 21, 2010 from;range=1y;indicator=sma%2850,200%29+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Robertson, D. (2009). Fuel hedging screw up…[continue]

Some Sources Used in Document:


Cite This Essay:

"Annual Reports For Two British-Based " (2010, March 21) Retrieved December 8, 2016, from

"Annual Reports For Two British-Based " 21 March 2010. Web.8 December. 2016. <>

"Annual Reports For Two British-Based ", 21 March 2010, Accessed.8 December. 2016,

Other Documents Pertaining To This Topic

  • British Airways Is the Largest International Scheduled

    British Airways is the largest international scheduled airline in the United Kingdom. It was founded in 1974 through the nationalization of four UK carriers. The company is strictly focused on the airline business, with different segments being domestic, shorthaul and longhaul, the latter two reflecting international routes. In these businesses, BA competes against a wide range of carriers. EasyJet, Ryanair, Virgin and bmi compete for a large share of the

  • British Law the United Kingdom

    So, while the EU may currently model "ideal" law for Parliament, it is Parliament who has the ultimate power to legislate. The second external restriction on Parliament is the European Convention on Human Rights (ECHR). The ECHR was enacted in 1953 and meant to protect the basic human rights of all citizens of European nations. This act permits the citizen of any country to bring a case before the ECHR

  • Corporate Strategy for British Airways Airlines Compete

    Corporate Strategy for British Airways Airlines compete for a finite amount of passengers worldwide with a growing number of local, national and international carriers. Some airlines are specifically termed discount because they cut their costs in extreme ways to allow passengers to fly at much reduced rates. It is difficult for a full service international airline to compete and turn a profit in the environment that has grown up in the

  • Enterprise Systems Development Strategy British American Tobacco

    Enterprise systems development strategy BRITISH AMERICAN TOBACCO British American Tobacco (BAT) is a leading tobacco company globally producing 200 brands of cigarettes. The company global drive brands are Dunhill, Pall Mall, Kent, and Lucky Strike, and these brands provide 35% of the company revenue. Other international brands manufactured by the company are Benson & Hedges, Rothmans, Viceroy, Vogue, Kool, Gold leaf, John player, Express 555 etc. British American Tobacco operates under

  • BP Caucasus Region British Petroleum Caucasus Region

    BP Caucasus Region British Petroleum Caucasus Region BP or British Petroleum is a multinational Oil and Gas firm that carries out exploration missions, refinement and supply of fuels to the world. BP is the third largest company in the energy sector and fourth largest among all multinationals. These titles were awarded to the firm on the basis of the sales or revenue amounts of the multinational energy companies in 2011. Other than

  • Iag s Proposed Acquisition of BMI Report on

    IAG's Proposed Acquisition of BMI Report on proposed takeover of Deutsche Lufthansa AG's (Lufthansa) loss making British Midland International airline (BMI) by International Airlines Group Plc. (IAG) Rationale for Acquisition Regulatory Clearances Appendix 3 IAG Financial Results Consolidated This report will attempt to uncover understanding of this proposed acquisition, recognizing and critically discussing the business justification for the acquisition and the likely long-term motivation (success or failure) of the proposed takeover. Research findings within the

  • Promoting ESL in Work Based Learning

    Learning that is imparted through an educational institution or training company within the workplace setting in known as Work-based learning (WBL). WBL is administered by an external teacher in professional capacity and supervised by an employee of the company where WBL is imparted. An exhaustive literature review indicates that it was only after Moser report's shocking revelations, regarding lack of literacy, language, and numeracy skills in one out every five

Read Full Essay
Copyright 2016 . All Rights Reserved