British Airways Plc

Section A

Question 1 (a)

Introduction

Company Backgrounds

British Airways Plc (BA) is the UK’s largest international scheduled airline and its main business is based in London Heathrow airport. (British Airways, 2015) Flybe is one of the largest low-cost carrier in Europe, flying over 180 routes to 65 European airports.  (Skyscanner, 2017) Ryanair is an Irish low-fare airline, it operates short-haul flights over 200 destinations in 33 countries. (Ryanair , 2017)

In order to compare the financial performance of the above companies, ten financial ratios and two non-financial ratios are selected for analysis.

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Financial Ratio

Liquidity Ratios

It analyzes the ability of a company’s current asset to meet its short term liabilities when they become due. It also measures how easy it would be for the company to raise enough cash to settle the short terrm debts. (MyAccountingCourse.com, 2016)

1. Current Ratio

It measures the ability of a company’s liquid assets could cover the short-term debt obligation. (Investopedia.com, 2017) There is no ideal ratio, it depends on the nature of the business operating, but which is danger signal if the current ratio is below 1.

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 The current ratio of Ryanair had increased slightly in 2014/15 and then dropped in 2015/16, this may be affected by the increase of unearned revenue that including flight seats sold but not yet flown and a provision for government tax refund claims attributable to unused tickets. (Ryanair, 2015) Over the past three years, current ratio of Ryanair and Flybe are both above 1, this indicates that two companies are more than enough to fully cover their short-term debt obligations.

BA kept the current ratio at 0.63 in average, it can still maintain enough current assets to meet it current liabilities even which is underperforming.

1. Quick Ratio

It measures how well the company be able to covert its current assets (excluding inventory) into cash to pay off the immediate debts. (Accounting-Simplified.com, 2013)

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Ryanair remains the best performance than the others, it has the same current ratio and quick ratio due to the inventory has a comparatively low proportion of the business. Flybe has continuously declined since 2013/14, but it kept the quick ratio exceed 1. Thus, the overall performance indicates Ryanair and Flybe are easy to convert their current assets into cash. BA has a relatively poor liquidity level, its quick ratio is less than 1, but it still could meet its liability obligations.