Financial Analysis Report for the ArenaRyanair Airline Company

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All The Recommendations in this report are personal opinion.

The research and financial analysis of this report are based on the information provided by the Ryanair Financial Report, relevant internet and library.

Introduction

The purpose of this report is using financial management techniques to provide an overview of Ryanair Holding Plc.'s good financial situation in order to promote other companies to invest. After analyzing the information from different resources, this report will supply other companies with a guide to make many decisions required to effectively manage of their business and to develop their future financial plans for the future requires reliable and pertinent information on the financial performance and financial position of the firm although if the analysis forecasts serious financial problems.

Financial management techniques in today's business

The main objective of financial management is maximizing shareholders' wealth. Company needs money to acquire resources to operate. Money for investment is referred to as finance, financial management is concerned with managing a company's finances. When company decides to use their expertise, time and money in a particular way, they have an objective in mind. The objective governs the decisions to be made. A company's major objective is maximizing the wealth of its shareholders, but other objectives should be satisfied at the same time, like managerial objective, short-term objective, other parties' objective, non-financial objective. The company needs machine, staff, and working capital to exist and grow in the market, which is the reason why we have to invest. First, we should have strategic management and analysis. Like current environment, capacity for change. Where are we now? Where are we going? P.E.S.T and SWOT analysis can help you analysis the company's situations. The rule of thumb is that ¡°long-term assets should be financed by long-term funds and short-tem assets by short-term funds¡±. Short-term finance is usually cheaper than long-term finance. This is largely due to the risks taken by creditors.

There are some financial management techniques that we could apply in the chosen company¡ªRyanair Holding PLC.

About Ryanair

The Irish company Ryanair is the famous low-fares airline company in Europe. It started in 185 and had IPO in 17 when it floated Ryanair Holdings plc on Dublin and New York (NASDAQ) Stock exchanges. Company goal is to be the Europes largest airline in the next 8 years. Ryanair operates 45 routes across 11 European countries. They have daily services from most of these routes. In 15, Ryanair had become the biggest passenger carrier on the Dublin-London route. But compare with other large airlines, Ryanair only operates European continental routes. It lacks the link with other continents. However, in addition to route availability, the actual flight schedule is also important to maximize the available flying time of the airline's most significant tangible asset, its aircraft. Ryanair has a fleet of 1 Boeing 77's, orders for up to a further 5 new 77-800's which will be delivered over the next years. Over the past ten years it has increased its annual traffic from under 700,000 to over 15 million passengers. Along the way it changed the face of air travel, broke hire fare cartels, rocked airport monopolies and made it possible for millions to travel.

Ryanair provide unique services with low price. If their seats are not booked, customers can seat wherever they like. However, their in-flight services are limited. For example, customers have to pay if they want any drinks or food. There are always some complains about seats overbooking from customers.

Ryanair has committed itself to safe operations and has put in place extensive safety training programs to ensure the recruitment of suitably qualified pilots and maintenance personnel. In addition, the company is also committed to the operation and maintenance of its aircraft in accordance with the highest European Aviation Industry Standards, which are closely monitored by the Irish Aviation Authority.

In year 000, Ryanair launched Europe's largest travel website at WWW.RYANAIR.COM, which within three months of its launch was taking over 50,000 bookings per week, by offering unbelievably low airfares. The passenger acceptance of this website enabled Ryanair to reduce travel agent commission.

Ryanair is well positioned in European market to implement its low cost strategy. After the full EU air transport deregulation in 17, Ryanair was free to set up new routes to Continental Europe. The airline entering these market offered air fares which were more than 50% lower than the cheapest fares then provided by the flag carrier airlines. The European airline sector is dominated by high cost; long haul national carriers like British Airway, Lufthansa and KLM. These airlines control 50-60% of market share, but are beginning to lose the bottom end of the market to low cost carrier like Ryanair.

Financial Situation

The major revenues of Ryanair gain from the tickets that they sold during the year. Therefore, we can regard the tickets as a kind of the stock of the airlines' company. But they don't have any value before they are sold. That is the only different with the tangible stock value. Once the tickets are sold, the company gets the revenues from the operation. They have amount of cash and debt. The company uses cash to pay the relevant cost, like staff wages, fuel and oil cost, marketing and distribution cost and so on. The rest of the revenues are kept in retained profit as the capital of company. If the profit grows, the company share price will increase accordingly. Once the share price increased, the shareholders will enjoy the prior return on their investment, more and more investors will have more interest in the company. Therefore, the company achieves the source of finance. After that, they should consider about where they should invest to growth in the market and expand their company.

Last year, Ryanair company's operation revenues are € 814 in 00 (Increase € 6441 than 001). It includes net cash inflow from operating activities € 15417. This should thank for the contribution of the sales team. Ryanair insists to offer lower airfares in European countries and try to increase sales continuously. Increased revenue is one of the major sources of finance.

The strength of the performance is highlighted by the fact that the groups' cash on hand is equivalent to 5.6% of annual turnover. This figure is a little bit high according to their sale growth. They should invest the cash flow to generate more return. But there is a special reason that they have to maintain a deposit US$500,000 with the guarantor bank for as long as the bank gave its guarantee.

The operating expenses during the year are € 740; Net cash inflow from operating activities is € 104; profit and loss account is € 11758. As the growth of the profit during the year, EPS increased by 17% to € 5.16 and is based on 164,75,808 shares which represent the weighted average number of ordinary shares outstanding during the year. We can see the profit is increasing; the capital of the company is increasing. Because the market is growing, Ryanair should think about where they should invest and how. i.e. Invest new aircraft, improve quality of service or setup new routes.

Ryanair announced a new investment program with a US$billion order for up to 45 new Boeing 77-800 series aircraft. Continued strong cash flows generated from trading operations combined with the proceeds of the London offering and the receipt of debt financing for the first of the Boeing 77-800 next generation aircraft, has allowed the group to increase its cash on hand by € 74m. Before Ryanair makes decision about buying what type of aircraft, the two alternatives would be mutually exclusive, in that the choice of one will exclude the other. The company may use NPV and IRR to calculate which one may give more return.

Appendices

Net Profit Ratio

In 001,

548/76100%=%

In 00,

11758/814100%=8%

Return On capital Employed

In 001,

5676/1485100%=8%

In 00,

68410/8775100%`=8%

Asset Turnover

In 001,

76/1485=1.56

In 00,

814/8775=1.04

Current Assets Ratio

In 001,

887/71877=11

In 00,

1787/1151=1

Acid-Test Ratio

In 001,

(887-668)/71877=11

In 00,

(1787-101)/1151=11

Total Gearing

In 001,

1484/(14551+1484)100%=10%

In 00,

4760/(5+4760)100%=1%

Equity Gearing

In 001,

1484/14551100%=11%

In 00,

4760/5100% =1%

Interest Cover

In 001,

6017/(1087+188)=4.4times

In 00,

7666/(+1168)=6.6times

Ratio Analysis

Ratios are quiet common method of analyzing financial management. It refers to the use of simple ratios which are calculated from the figures of financial statements in order to measure certain aspects of a firm's financial condition. Ratios make comparisons with

The performance of the business in previous years

The budgeted or planned performance in the current years

The performance of similar business

The ratios make easier to make better decision. However, there are some limitations in ratio analysis. For instance, since ratios are constructed from accounting data, if we do comparison within two different firms, their accounting policies (i.e. depreciation charge, the accounting years) could lead to the inaccurate illustration.

Ratios00100

Profitability

1) Net profit ratio

%8%

) Return on capital employed8%8%

) Asset Turnover

1.561.04

Liquidity

Current Asset ratio

111

Acid ¨CTest ratio

1111

Gearing

Total Gearing

10%1%

Equity Gearing

11%1%

) Interest Cover

4.4 times6.6times

Earning Per Share

.567.47

The Net Profit Ratio was dramatically increased by 15% during the year 001 and 00. Even though their expenses cost had increased by a certain percentages in different items and because of their low fares system. They still gained a high return in net profit when compared to 001. The reason of this was because the rise of sales and the interest received. These revenues gave the company a good return that could cover the expenses and other additional costs. The increase in profitability reflects the positive impact of the growth in passenger's volume because of the increase in seat capacity on exiting routes and the launch of new 7 European routes during the year.

In the Return On Capital Employed Ratio the amount of money that the investors can get back after investing in the company, the ratio decreased to 8% in that year. The explanation of this figure was because their company needed to consider the contract that with Boeing worth US$ billion by ordering for up to 45 aircraft in the coming years, in order to succeed the expansion of our company.

Asset Turnover Ratio is a measure of productivity as much as profitability. Within 001 and 00, the ratio dropped from 1.56 to 1.04, it meant that more assets were to be used to generate every unit of sales .The reason was because their introduction on new fleet of aircraft on our network of 7 routes in request to increase the level of passengers and the low fares system.

According to the Current Asset Ratio, The company had a well cover of their current liabilities under current assets. Even though in Acid ¨C Test Ratio, which we examined that by excluding the inventories, their current assets also covered the liabilities by 1.14 in 001, and 1.60 in 00. It increased by 46%. From the current assets, cash was the major inflows to their company in the past two years. Especially in 00, there was an increase in cash from €8160 TO €174400.

Move to the cash flows statement. Cash is King. Company fail, not because of their insufficient profits, but because they have run out of cash to pay their liabilities. Cash and bank balances should be kept to a minimum, as they earn nothing for the company, but make sure you have enough cash to pay employees and creditors. Cash generated from operating activities grew up for 5.6 million. This increase was due to the increase of sales and profits and the add back of the non-cash items primarily depreciation charge since they had a new aircraft during the year. The cash flows was from trading operations combined with the proceeds of the London offering and the receipt of debt financing for the first Boeing 77-800 next generation aircraft, has allowed the group to increase the cash on hands despite having to pay advance deposits to Boeing. The performance is highlighted by the fact that the cash on hand is equivalent to 5.6%of annual turnover.

The next ratio is Gearing which means how reliable of the company on the financial institutions when raising the finance. Even though their ratio was slightly increased by%, they were still in a low-geared situation in these two years. The interest cover were good since Ryanair only needs to pay interest once a year and they could pay 4.4 times in 001 and 6.6times in 00.

The Earning Per Share considers the profits that could be paid to each ordinary shareholder. The increase in profit resulted in the increase in EPS. This also stated that the increase in the value of shareholders as the company's profit and traffic has grown.

After finishing the ratio analysis, we can see that Ryanair is healthy. Here is the comparison ratio with other major airline companies and industrial average. After seeing this you will more agree that Ryanair's performance is good.

Asset TurnoverReturn on InvestmentNet Profit MarginInterest CoverageTotal Debt to EquityCurrent RatioQuick Ratio

Ryanair0.51.61.181.80.5.00.81

British Airway0.680.40.81.1.80.840.8

KLM0.000.00NMNM1.881.0.4

Industrial Average0.8.56.5.01.150.80.67

Other non-financial consideration

Ryanair has a bad reputation for over booking and early check-in time. On the other way, every company has limitation. For airline companies, these problems are normal. Ryanair changed their booking system last Christmas and the new system is more accurate and working well. Company said that they will not only improve the hardware but also the staff. There are a group of new staffs now is trained by American Airline.

Conclusion

After reading the report, hopefully you have an understanding of airline finance. Ryanair is a new member of airline companies (started from 185). It is young and healthy. Based on Europe and has a strong relationship with America, there are lots of areas that it can improve and expand to. Ryanair's developing speed like a flying superman, going up and away. It is the kind of company we should put money in.

Bibliography

Annual Report from Company Registration Office

Corporate Finance and Investment, rd edition, Richard Pike and Bill Neale

Financial Management, rd Edition, Geoffrey Knott

Essentials of Managerial Finance, 11th Edition, Weston, Besley, Brigham, The Dryden Press

www.ryanair.com

www.fpe.com.sg

www.hkpost.com.hk

www.bizplus.ie

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