CompanyEvery 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.
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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View Samples Order Now Assignment helpOverall 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%.
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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