Financial Analysis On Easyjet and Iag 15 17

Financial Analysis and Decision Making
Interpretation of Published Accounts

M05EFA
Submitted By
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Abarna Rajan Jayashree-8879802
Swapna Shah-8855024
Ashok Sriramoju-8887117
ABSTRACT
As a team of investment analysis from World Wealth Management, we will

investigate the current and past performance of two companies within the
Airlines industry, EasyJet and IAG. We will apply appropriate financial ratios
to the annual figures of both companies, to determine trends and evaluate
current and past performance.
We will conduct an industry analysis to gain further knowledge of the industry
within which these companies compete. The annual reports will be researched
to determine further information that the companies have published.
We will then use the research and analysis to determine which company would
be the better option for Investment. We have a client, Dave jones, who is
looking for a new area for long term investment, to add to his current portfolio
of investments. Dave is interested in low risk, long term investments. We will
summarise our findings to present a recommendation for investment to Dave.
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Contents
Contents
1.0 Introduction......................................................................................................................4
2.0 Financial Analysis and Interpretation..............................................................................5
2.1 Profitability......................................................................................................................5
2.1.2 GROSS MARGIN.........................................................................................................7
2.1.3 MARK UP.....................................................................................................................8
2.1.4 NET PROFIT MARGIN...............................................................................................9
2.1.5 RETURN ON SALES.................................................................................................11
2.2 EFFICIENCY RATIOS.................................................................................................12
2.3 LIQUIDITY RATIOS....................................................................................................14
2.4 SOLVENCY RATIOS...................................................................................................16
2.5 INVESTMENT RATIOS...............................................................................................17
3.0 Industry analysis.............................................................................................................20
3.2.4 STRATERGIES EASYJET........................................................................................26
3.2.5 GROWTH OF EASYJET..........................................................................................27
3.2.6 CUSTOMERS SUPPORT OF EASYJET..................................................................27
3.2.7 PERFORMANCE.......................................................................................................28
4.0 References.............................................................................................................................51
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1.0 Introduction
We have obtained the annual reports for both EasyJet and IAG and
will perform analysis on the published accounts from 2015, 2016, and
2017, by applying appropriate ratios. We are mostly interested in
profitability and investment ratios, but will investigate some areas of
liquidity, efficiency, and gearing, to assist with gaining an overview
of how each company is performing.
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2.0 Financial Analysis and Interpretation
2.1 Profitability
Our first investigations into both companies are to determine whether profit is
satisfactory. Profitability ratio helps in measuring companies profit after all the
taxes, interests and operating profit. Profitability ratios contain various other
ratios like ROCE, net profit margin, gross profit margin and mark-up, which
helps analysing the profits made by the company.
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2.1.1RETURN ON CAPITAL EMPLOYED
Return on capital employed in short know as (ROCE) is one of the most

important profitability ratios used by the investors to know the company’s
profitability and efficient use of its capital employed. The Return of capital
employed must always be higher than the capital cost.
ROCE = _____Operating Profit before interest and tax_______

Capital employed
ROCE
25
20
15
10
0
IAG EASYJET
According to the figures we can see significant difference in IAG and EasyJet.
ROCE value of EasyJet has reduced significantly from 22.48% in 2015 to
9.39% in 2017, which is drop of 13.09% in two years. The major reason behind
this drop is due to their operating profits. EasyJet has a record of low operating
profits in 2017 compared to their operating profits in 2015. EasyJet can improve
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its ROCE percentage by increasing its operating profit without any kind of
increase in its capital employed and can also reduce their costs.
On the other hand, IAG has showed significant improvement in terms of their
ROCE year on year. In the year 2015 and 2016, IAG has ROCE values recorded
as 13.74% and 13.77% and 15.52% in 2017. according to the figures there has
not been any significant drop or increase in IAG.
2.1.2 GROSS MARGIN
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Gross profit margin is one of the profitability ratios which helps in determining
the financial health of a company and depicts how the industry efficiently
manages its labour and supplies in the process of production. Gross margin also
shows the profit made by the company in terms of cost of goods or cost of sales.
Gross Margin = Gross Profit

Revenue
GPM
98
97.5
97
Axis Title
96.5
96
95.5
95
IAG EASYJET
From the above figure, we can clearly state that the gross profit margin for IAG
has been constant from 2015 to 2017 which is 96%. This shows that IAG has
been efficient towards the cost of sales.
Similarly, in EasyJet there has been a consistency in gross profit margin and no
significant changes are observed. Hence, both the firms are generating healthy
sales and maintaining lower costs.
2.1.3 MARK UP
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Mark-up is the ratio between the cost of a good or service and its selling price.
It is expressed as a percentage over the cost (En.wikipedia.org, 2018)
Mark-up = gross profit

Revenue
MARK-UP
1600
1400
1200
1000
800
600
400
200
0
IAG EASYJET
We can see significant changes in mark-up values in IAG and EasyJet. In financial
analysis, if a company’s mark up value is higher it is making profit, but in
customers view they are spending huge amount of money which can lead loss to
the company.
As per the figures EasyJet is making money and has more chances to lose its
customer in future, if their mark up percentages are not maintained constant.
Whereas, IAG has less chances of losing its customer since their mark up
percentage is maintained up to a certain level.
2.1.4 NET PROFIT MARGIN
Net profit margin is one of the profitability ratios used to calculate the percentage
of revenue left after all taxes, operating profit and interest deducted.
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Net Margin = Operating Profit before interest and tax
Revenue
NPM
16
14
12
10
Axis Title
0
IAG EASYJEY
From the above figures it is significant that Net profit margin for IAG has been
constant with a value of 11.87% in 2017, 11.00% in 2016 and 10% in 2015.This
shows that the company is able to maintain its revenue after all the costs being
deducted.
However, on the other hand, EasyJet was unsuccessful in maintaining its net profit
margin, but had constant gross profit margin. This is due to the increment of tax
imposed by the government in 2017
2.1.5 RETURN ON SALES
ROS also known as return on sales, is considered to be as profitability ratio and

efficiency ratio, used to calculate net profit as a percentage of sales revenue. ROS
is calculated as follows:
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ROS = Operating profit
Net sales
ROS
16
14
12
10
Axis Title
0
IAG EASYJET
As per the figures the return on sales for IAG is 10.14% in 2015, 11.01% in 2016
and 11.875 in 2017, this indicates that IAG is using approximately 91% of its
profit to run the business, where the remaining 10.155 is their return on sales there
are both advantage and disadvantage in IAG . The disadvantage is its spending lot
of money on expenses, so the net operating profit is not up to the mark. If IAG
wants to maintain stable financial ratios, it must increase its revenue and maintain
its cost simultaneously. On the other hand, EasyJet ROS value is high for ROS
value.
2.2 EFFICIENCY RATIOS
2.2.1 Fixed Assets turnover rati o
Fixed assets ratio is one the efficiency ratio used by the analysts to measure the
operating profit of a company. The higher the ratio, more efficient is the company.
Fixed assets turnover ratio is usually compared between two firms in the same
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industry. This ratio helps in measuring the sales generated by the company using
its fixed assets.
Fixed assets turnover= Revenue .
Non-current assets(Tangible) at net book value
Year 2017 2016 2015
IAG 1.94times 1.85times 1.66times
EASYJET 1.43times 1.43times 1.62times
Table (2.2.1.2) shows the fixed assets turnover ratio for two airlines company.
From table we can clearly state that IAG and EasyJet are in good position to
perform efficiently.
Fixed assets ratios for EasyJet in the year 1.62 times in 2015, 1.43times in 2016
and 1.43times in 2017, which shows there has not been any significant down fall in
this firm and it has been performing well for three consecutive years.
On the other hand, for IAG the ratios are 1.94 times in 2017 ,1.85 times in 2016
and 1.66 times in 2015.We can observe that IAG is also showing strong financial
growth and has not faced any kind of downfall.
We can hence conclude that both the companies are generating sales using fixed
assets.
2.2.2 STOCK TURNOVER
Stock turnover is also known as inventory turnover ratio. This ratio shows how
many times the company has sold and replaced inventory over a period (Staff, 2018).
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As per the analysis there were no inventory found for easy jet because it is a low-
cost carrier and emphasizes on reducing the cost and offer competitive prices to the
customer. In contrast to easy jet, IAG has inventories as follows 161 days in 2017,
187 days in 2016 and 208 days in 2015.
2.3 LIQUIDITY RATIOS
2.3.1 CURRENT RATIO
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The current ratio is a liquidity ratio that measures whether a firm has enough
resources to meet its short-term obligations. It compares a firm's current
assets to its current liabilities((Momoh, 2018)).
CURRENT RATIOS
1.2
0.8
Axis Title
0.6
0.4
0.2
0
IAG EASYJET
As per the figures IAG ratio less than 1, i.e. 0.79 in the year 2015 but has
increased its ratio equal to 1 in the year 2016 and 2017. Whereas EasyJet has
very less ratio in the year 2015 and 2016 which is less than 1 but has also
showed some increment in the year 2017 like IAG. Current ratio is also known
as working capital ratio. Low current ratio in EasyJet indicates that the company
is facing difficulties to meet its short-term debts, even though EasyJet showed
some increment in the year 2017, its operating cash flow is low compared to
IAG, which has good amount of operating cash flow in all the three years.
Hence, we can conclude that both companies are not in bad financial condition
in paying their short-term debts.
2.3.2 ACID TEST Rati o
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In finance, the quick ratio, also known as the acid-test ratio is a type of liquidity
ratio which measures the ability of a company to use its near cash or quick
assets to extinguish or retire its current liabilities immediately.
Acid test = Current assests - inventory

Current Liabilities
Acid test ratio
EASYJET
IAG
0 0.2 0.4 0.6 0.8 1 1.2
2015 2016 2017
As per the figures the acid ratio is maintained constant which is equal to one for
the all the three years in IAG, whereas EasyJet shows slight modification in
terms on decimals. According to the data’s provided we can draw a conclusion
that EasyJet is facing more problems in terms of paying its short-term debts
compared to IAG which could affect the liquidity of cash flow for EasyJet.
2.4 SOLVENCY RATIOS
2.4.1 GEARING
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The gearing ratio measures the proportion of a company's borrowed funds to
its equity. The ratio indicates the financial risk to which a business is subjected, since
excessive debt can lead to financial difficulties.
Gearing rati o
30
25
20
15
10
0
IAG EASYJET
2017 2016 2015
IAG is having gearing ratios less than 25% in all the three years ,which can lead to
less potential for growth in investment and less scope to expand , where as in EasyJet
there has been a rise in the gearing ratio for the year 2017 ,which is considered to be
normal but also in comparison with IAG it can be said that EasyJet is highly levered
or geared , which might lead to financial risk ,especially when the there is a variable
interest rates and when the company is with too much of debts it might lead the
company to bankruptcy.
2.5 INVESTMENT RATIOS
2.5.1 EARNINGS PER SHARE
Earning per share is also known as net income per share. It is the amount of
share allocated to each share of common stock.
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eps
2017 2016 2015
139.1
73.5
110.9
93
2015
95.83
77.4
2016
2017
IAG EASYJET
As per the figures given above IAG has value of 95.83 per share in 2017 and 93
per share in 2016. there has been significant difference in earning per share
from 2015 to 2017. Higher EPS value indicates potential worthwhile
investment, From the figure IAG is a suitable firm to invest as their EPS value
is higher than EasyJet.
EasyJet has decreased its share from 2015 to 2017, this can be a sign to the
investors that the company might be trouble. Since EasyJet had good eps ratio
139.1p in 2015 and had a huge drop of 61.7p in two years and resulted in 77.4p
in 2017
2.5.2 DIVIDEND COVER
Dividend cover is one of the investments ratios. It measures the number of times
that a company could pay dividends to its shareholders. The Dividend Cover
Ratio will provide the investor with an indication of the expectations to
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maintain the current dividend pay-out. The greater the cover, the greater the
dividend's security.
YEAR 2017 2016 2015
IAG 3.9times 4.4times 7.5times
EASYJET 1.4times 1.99times 3times
As per the tables IAG dividend cover values are 3.9 times in 2017, 4.4 times,
7.5 times in 2015. Dividend cover value consistently above 1.5 times is said to
be healthy and able to maintain dividend in case of adverse variation in profit in
the future and below 1.5 is unhealthy for a company. IAG and EASYJET both
can maintain dividend in the case of adverse variation in profit.
2.5.3 DIVIDEND YIELD

It is measured as “interest rate” earned during an investment. It is normally expressed as a
percentage. The formula for computing the dividend yield is
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DIVIDEND YIELD
60
50
40
30
20
10
0
IAG EASYJET
From the above figures its significant that easy jet dividend percentage is much higher than
IAG. the dividend percentage for EasyJet is as follows 52.48% in the year 2017, 48.51% in
2016 , 3968% in the year 2015. Hence, it is evident from the values that EasyJet are good
investment options during volatile times as they offer good payoff options. On the other hand,
IAG’s dividend value is not as high a EasyJet since they keep substantial amount of profits as
retained earnings.
3.0 Industry analysis
FERGAL MCGIVNEY, Senior Technology & Travel Analyst quoted that
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“Airlines face some challenging times over the next few years as Brexit approaches and fuel
costs rise. While businesses are cutting back on travel, consumers are still hungry for
holidays. However, they will be keeping an eye on spending as the Pound remains weak.
Airlines that help consumers manage their spending will stand out from the crowd.”
(Academic.mintel.com, 2018)
The UK market in aviation covers airports and airlines. This market includes airlines like
British Airways and easyJet, as well as airports like London Heathrow Airport and London
Gatwick Airport. The United Kingdom aviation industry are facing uncertainties in terms of
Brexit. Since Brexit is on the horizon, the fuels costs are consequently rising. However, the
number of passengers has grown steadily–in 2017, international passenger elevations
increased by 6.7 percent to 241.7 million, while domestic passenger elevations increased by
1.8 percent to 22.9 billion. After Brexit, the international passengers are said to be reduced
whereas the domestic passengers are believed to be in good numbers. (Academic.mintel.com,
2018)
3.1 IAG
The International Airlines Group is one of the largest airline groups in the world, with 546
aircraft flying to 279 destinations and carrying approximately 105 million passengers. It is
Europe's third largest group and the sixth largest group in the world with revenue.
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IAG was established in January 2011 by Aer Lingus, British Airways, Iberia and Vue ling. It
is a registered Spanish company with shares traded on the London and Spanish stock
exchanges. The IAG's Head Office is in London, UK.
3.1.2GROWTH IAG
In this competitive business, it is very important for the company to bring new technologies
for safe travel, as IAG have carried more than hundred million people over the last few years
and are increasing constantly. Although they were hit by brexit voting and falling into pound,
but they continued as a team. As they believed that investors had to trust them in long - term
goals and make a better investment in our company for a better return on the share. In 2017,
they repurchased 500 million shares for 500 million pounds. They take care of the
environment for better growth, as they contribute co2 globally and they want to bring it
down,although it is a challenge for them, but they have succeeded in doing so.
3.1.3 PERFORMANCE
" Plan de futuro " means planning for the future, after three consecutive years of
struggle between 2014 and 2016, the company's performance is quite good at
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improving operating profits. But only half of the part is completed for the
complete transformation of the company.
They are constantly performing in every segemnt where labor cost expansion is
concerned, meeting employee cost or perhaps flexibility requirements.
Punctuality is 88.7 percent overall and fuel efficiency co2 per kilometer is 86.5
3.1.4 Products
IAG offers products as follows
Freight needs :
 unaccompanied bags
 courier
 secure
 dangerous goods
 human remains
 constant climate
 general cargo
 airmail
(Iagcargo.com, 2018)
IAG have 546 aircrafts and 279 destinations around the world.
IAG wholly-owned airlines include:
British Airways, Aer Lingus, Iberia, BA City Flyer, Sun Air of Scandinavia and Vueling
Airlines (IAG,2016)
3.1.5 STRATERGIES
To meet the demands and softening the oral growth of the industry they wanteed to
capture the market in the easy way ,by accelerating the cost reduction program and
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improve the technology overall . IAG has been a leader from many years in major
cities like london , madrid and rome etc and its constently expanding in different
cities .
With the following six strategic pillars,IAG delivers its strategy:
1. Leadership in IAG’S main cities

2. Leadership across the atlantic
3. Stronger europe to asia position in critical markets
4. Grow share of europe to africa routes
5. Stronger intra europe profitability
6. Competetive cost psotions across our business
3.1.6 CONSUMER SUPPORT
It has developed mobile applications that enable customers to navigate to airports to

chat boxes that can be tested and speed-adjusted. This will meet the needs and future
expectations of customers. To be more efficient in providing customer data, IAG have
online customer support and customer call centre 24/7 so that the right data can be
provided in the right time. At its highest capacity, more than artificial intelligence can
be used.
3.1.7 CONSUMERS
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In order to meet consumer demand, IAG carries out 100 million plus passengers to
279 destinations through 548 aircraft. They were very specific about on-board
security for some corporate consumers where they travel regularly, as they must be on
time, they have improved air traffic control in the right place at the right time and
satisfy the consumer. In this way the consumers replay on airlines with the help of
brand positioning and awareness, for better consumer experience they have been
promoting A340,300s with 8 new arrivals of airbus where it is now fitted with new
cabins and upgraded entertainment system, and this has improved their review by
consumers.
3.1.8 COMPETITORS OF IAG
The top 10 competitors in IAG's competitive set are Centurion Air Cargo, EasyJet,
Lufthansa, Ryanair, Cathay Pacific Cargo, Etihad Airways, Lan Cargo, British
Airways, Air France-KLM and Emirates. (IAG,2016)
3.1.9 FUTURE
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“Plan de future phase 2 “ , ‘the future is ahead of us’ is their motto. As discussed
earlier, they are still halfway where nearly 200 projects have been launched to deal
with the best future operators in the sector. The second part of their plan is to generate
an additional 400 million operating profit where four areas are about to change, the
first is stronger customer service revenue and the second is best practice costs in the
industry. Complementary business sustainable profitability and improved capital
efficiency and flexibility to adapt changes in the market. They make airlines
considerably more convenient in terms of customer comfort in terms of services.
3.2 EASYJET
EasyJet plc is a UK airline holding company and as pan - European easyJet

LCC parent. Originally established in 1995 in the conglomerate of EasyGroup,
The two subsidiaries of EasyJet operate an extensive network of low-cost
services from their largest hub at London Gatwick Airport throughout Europe.It
is also called as british low-cost carrier airline company.(easyjet,2016)
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3.2.2 GROWTH EASYJET
“EasyJet is well positioned to take advantage of the opportunities that are available in the
current market,” the airline said, looking ahead to 2018. (Hugh Morris, 2018).
EasyJet has 132 destinations in 31 countries throughout Europe, with the exception of some
in Morocco, a service to Tel Aviv, Israel and a suspended route to Sharm el - Sheik in Egypt.
Passenger numbers for the six months to 31 March 2018 increased by 3.0 million to 36.8
million, including 0.7 million from easyJet’s new Berlin Tegel operations launched in
January. (Corporate.easyjet.com, 2018).
3.2.3 FUTURE
Carolyn McCall, easyJet’s chief executive, said: “20 years ago easyJet changed
the way Europe travelled. We challenged the high price monopolies of the
legacy airlines and enabled a new generation of people of all ages, incomes and
interests to enjoy Europe. Since then we’ve carried over 600m passengers and
flown over 4.7m flights but that challenger spirit is stronger than ever in the
easyJet of 2015.” (The Telegraph, 2018). (easyjet,2017)
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3.2.4 STRATERGIES EASYJET
EasyJet focuses on developing strong positions at Europe's leading airports –people want to
travel with optimized frequency to fly between airports. The legacy airlines and charter
carriers are its main competitors in these leading airports.
With the following six strategic pillars, easyJet delivers its strategy:
1. Grow revenue
2. Data and digital
3. The best people
4. A lean cost advantage
5. Customer and operational excellence
6. Build strong number one and two network postions .(easyjet,2017)
3.2.5 GROWTH OF EASYJET
For EasyJet, 2016 was a robust financial performance. It has shown a high
demand for services with a record number of 73,1 million passengers by the end
of 30 September. For EasyJet, 2017 was a fall in operating profit.
2016 has been a resilient financial performance for EasyJet. It has showed
strong demand for services having a record of 73.1mill passengers by the end of
30th Sep. 2017 has been a fall for EasyJet in terms of operating profit. 2017
EasyJet delivered robust financial performance with a record number of
passengers and more than 5 bills of revenue.(easyjet,2017)
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3.2.6 CUSTOMERS SUPPORT OF EASYJET
EasyJet has introduced self service management tools for passengers to use during any time
of disruption. this allows the passengers who flights are cancelled and directly transfer them
to other flights and EasyJet provides passengers facilities like to request refund for their
cancelled flights and arrange them over night accommodation. It covers all reasonable out of
packet expense’s for extended delay situation. EasyJet has also introduced disrupted
passengers survey to better understand experience of the passengers. An apology e mail and
the survey are sent to every passenger who has been affected by a delay of over 3 hours of
cancellation. EasyJet has established (ESAAG) EasyJet special assistance advisory group, to
help passengers irrespective of any disability or other constraints they may have.
(easyjet,2017)
3.2.7 PERFORMANCE
EasyJet measures its performance in difference bases such as safety, market share at airport,
data and digital and revenue. Its major priority is based on safety where it has shown
significant performance in decreasing the risk factor year on year. Market share is where
EasyJet is the number 1 or number 2 carrier based on short haul capacity from 25.6% in 2015
to 26.5% in 2016. In terms of data and digital EasyJet has award winning digital platform
with an increasing number of visits to all digital platform from 4.95 million in 2015 to 507
million in 2016 financial years. (easyjet,2017)
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CONCLUSIONS
From the analysis we can conclude that ROCE value for EasyJet has dropped drastically
where as IAG has very good ROCE.
Whereas both companies have indicated reasonable liquidity, EasyJet have fluctuations in
their current and liquid ratios which suggest some instability.
In the year 2017, IAG has performed extremely well individually in financial results and
commitment to customer service and also overcoming the challenges of 2016. (IAG,2017)
IAG’s passenger unit revenue grew by 1.5%. They even performed well in customer
satisfaction and commitment to deliver unrivalled customer proposition. IAG also achieved
Cardon disclosure project and they are awarded as UK’s most improved company. They have
also returned one billion pounds to their shareholders. (IAG,2016)
According to the statistics it was recorded that IAG increasing number of passengers
travelling from 100,675 in 2016 to 104,829 in 2017(thousands).
“2016 was a challenging year but we’ve delivered a good result. There is still more that we
can do, quiet honestly, the best is yet to come. There are still improvements that we can make
and efficiencies that can be delivered”-willie walsh (CEO,2016).(IAG,2016)
“2017 has been a year of purposeful and disciplined growth to develop our market position at
slot-constrained airports.”(easjet,2017).
EasyJet delivered robust financial performance in 2017 ,with record passenger numbers and
revenues growing to more than 5 billion pounds .EasyJet is investing for the future for
sustainable long -term value for their shareholders.(easy,2017)
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RECOMMENDTIONS FOR INVESTMENT .
The financial analysis indicated that currently IAG is currently providing a far
better return for a potential investor.IAG has greater profitability ratios than
EasyJet for the past three years ,this indicates that the company generate more
profit .one the key ratio Mr Jones should note is the liquidity ratios , both the
companies have ratios greater than one ,which determines the companies has
good liquidity and their ability to pay the short term debts. The analysis also
indicates that IAG may possibly be hitting the peak of growth, and this is
reinforced by the Chairman.
Finally, under investment ratios we can observe lot of difference in

price/earnings and earnings per share. P/E ratio for EasyJet shows that the stock
is valued reasonably where as in IAG is less. This ratio also indicates that
investors pays more for their share.
Dividend yield is high for EasyJet; Hence, it is evident from the values that
EasyJet are good investment options during volatile times as they offer good
payoff options.
Although IAG EPS value in the year 2017 was high, EasyJet has scope of
significant growth in future seeing its Earning per share in the past years.
Therefore, it is our recommendation that Mr jones, who is looking to broaden
his shares, should opt to invest in Hornby.
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APPENDIX
INTERNATIONAL AIRLINES GROUP
FORMULAS 2017 2016 2015
ROCE 15.52% 13.77 13.74
GROSS PROFIT MARGIN 96% 96% 96%
MARK UP 11.28% 12.37% 13.47%
NET PROFIT MARGIN 11.87% 11.00% 10%
FIXED ASSESR TURNOVER 1.94times 1.85times 1.66times
STOCK TURN OVER 161 days 187 days 208 days
TRADE DEBTORS 23.73days 22.72 days 19.09days
TRADE CREDITORS 68 days 60.06 days 67.58 days
CURRENT RATIOS 1.054:1 1.048:1 0.799:1
ACID TEST RATIO 1.01:1 0.999:1 0.75:1
GEARING RATIO 11.169% 14.05% 17.1%
EARNINGS PER SHARE 95.83 per share 93 per share 73.5 per share
Price per earnings 6.79 4.74 8.29
DIVIDEND COVER 3.9times 4.4 times 7.5 times
DIVIDEND YIELD 13.04% 13.44% 13.06%
FORMULAS 2017 2016 2015

ROCE 9.39% 13.03% 22.48%
GROSS PROFIT MARGIN 97.58% 97.71% 97.82%
MARK UP 4036.88% 4263.55% 4494.11%
NET PROFIT MARGIN 8.00% 10.9% 14.68%
FIXED ASSESR TURNOVER 1.4317times 1.4357times 1.6277times
STOCK TURN OVER NIL NIL NIL
TRADE DEBTORS 19.888days 16.025 days 16.045days
TRADE CREDITORS 68 days 267.82 days 192.20days
CURRENT RATIOS 1.038:1 0.919:1 0.723:1
31
ACID TEST RATIO 1.01:1 .999:1 0.75:1
GEARING RATIO 25.577% 19.773% 12.524%
EARNINGS PER SHARE 77.4 per share 110.9 per sahre 139.1 per share
DIVIDEND COVER 1.42times 1.99 times 3 times
Price per earnings 15.72 5.27 12.78
DIVIDEND YIELD 52.84% 48.51% 39.68%
EASYJET
Recommendtions for investment .
The financial analysis indicated that currently IAG is currently providing a far
better return for a potential investor.IAG has greater profitability ratios than
EasyJet for the past three years ,this indicates that the company generate more
profit .one the key ratio mr dave jones should note is the liquidity ratios , both
the companies have ratios greater than one ,which determines the companies
has good liquidity and their ability to pay the short term debts. The analysis also
32
indicates that IAG may possibly be hitting the peak of growth, and this is
reinforced by the Chairman.
Finally, under investment ratios we can observe lot of difference in

price/earnings and earnings per share . P/E ratio for EasyJet shows that the stock
is valued reasonably where as in IAG is less. This ratio also indicates that
investors pays more for their share .
Dividend yield is high for EasyJet, Hence, it is evident from the values that
EasyJet are good investment options during volatile times as they offer good
payoff options.
Although IAG EPS value in the year 2017 was high, EasyJet has scope of
significant growth in future seeing its Earning per share in the past years .
Therefore, it is our recommendation that Mr jones, who is looking to broaden
his shares , should opt to invest in Hornby.
Profitability Ratios Of IAG-2015
Return On Capital employed (ROCE) = Operating Profit before interest and tax
Capital employed
= 2318 × 100
16870
= 13.74 %

Revenue
22858 – 912 × 100
33
22858
= 96.01 %
Mark-up = Gross profit

Cost of goods sold
21946 × 100
912
=13.47%

Revenue
2318 × 100
22858
= 10.14 %
Efficiency Ratios
Fixed assets turnover = Revenue .

= 22858
13730
= 1.66 times
Stock turn = Closing inventory × 365

Cost of goods sold
= 520 × 365
912
= 208 days
Trade debtor’s collection period = Trade receivables × 365

Credit sales
= 1196 × 365
22858
34
= 19.09 days
Trade creditors payment period = Trade payables × 365

Credit purchases
= 3803 × 365
20540
= 67.58 days
Liquidity Ratios :-
Current Ratio = Current assets

Current Liabilities
= 9089
11366
= 0.8 : 1

Current Liabilities
= 9089 - 520
11366
= 8569
11366
= 0.75 : 1
Solvency Ratio :-
Gearing = Long Term Borrowing × 100

Capital Employed
=17.1%
35
Investment Ratio :-
Dividend Cover = EPS

DPS
= 1516
163
= 7.5times
Dividend yield = DPS

Share price
= 203 × 100
73.5
= 13.06%
Return On Capital employed(ROCE) = Opetating Profit before interest and tax

Capital employed
= 2484 × 100
27373-9336
= 2484 × 100
36
18037
= 13.77 %

Revenue
= 22567 – 896 × 100

22567
= 96.03 %

Cost of goods sold
= 21671 × 100
896
= 12.37%

Revenue
= 2484 × 100
22567
= 11.01 %
Efficiency Ratios :-

= 22567
12227
= 1.85 times
37
Cost of goods sold
= 458 × 365
896
= 186.57 days
Trade debtor’s collection period = Trade receivables × 365

Credit sales
= 1405 × 365
22567
= 22.72 days

Credit purchases
= 3305 × 365
28023
= 60.07 days
Liquidity Ratios :-

Current Liabilities
= 9785
9336
= 1.05 : 1
38
Current Liabilities
= 9785 - 458
9336
= 0.99 : 1
Solvency Ratio :-

Capital Employed
=14.05%
Investment Ratio :-

DPS
= 1952
442
= 4.42 times

Share price
= 233 × 100
93.0
= 13.44 %
Return On Capital employed (ROCE) = Operating Profit before interest and tax
Capital employed
39
= 2727 × 100
27261 – 9692
= 2727 × 100
17569
= 15.52 %

Revenue
= 22972 – 982 × 100

22972
= 21990 × 100 = 95.73 %

22972

Cost of goods sold
= 21990 ×100
982
= 11.28 %

Revenue
= 2727 × 100
22972
= 11.87 %

= 22972
11846
40
= 1.94 times

Cost of goods sold
= 432 × 365
982
= 160.57 days
Trade debtors collection period = Trade receivables × 365

Credit sales
= 1494 × 365
22972
= 23.74 days

Credit purchases
=68 days
Liquidity Ratios :-

Current Liabilities
= 10223
9692
= 1.05 : 1

Current Liabilities
= 9791
9692
= 1.01 : 1
Slovency Ratio :-

Capital Employed
= 930 × 100
41
930+7089
= 930 × 100 = 11.169 %

8019
Investment Ratio :-

DPS
= 2021
512
= 3.95 times

Share price
= 262 × 100
95.8
= 13.04 %
EASY JET -2015
Profitability Ratios
Capital employed
= 6 88 × 100
4828 – 1768
= 688 × 100
3060
= 22.48 %
42
Cost of goods sold
= 4686 -102 × 100

102
= 4584 × 100
102
= 4494.12 %

Revenue
= 4584 × 100
4686
= 97.82 %

Revenue
= 688 × 100
4686
= 14.68 %

= 4686
2877
= 1.62times
Stock turn = no inventory
trade debtors collection period = Trade receivables × 365
43
Credit sales
= 206 × 365
4686
= 16.05 day

Credit purchases
= 495 × 100
940
= 192.2 days
Liquidity Ratios :-

Current Liabilities
= 1279 = 0.72 : 1
1768
= 0.72 : 1

Current Liabilities
=0.75:1
Solvency Ratio :-

Capital Employed
=12.524%
44
DPS
= 3times

Share price
=39.68%
EASY JET -2016
Profitability Ratios
Return On Capital employed(ROCE) = Operating Profit before interest and tax

Capital employed
= 510
(4042 +1442)- 1569
= 510 × 100
3915
= 13.03 %

Cost of goods sold
= 4669 – 107 × 100

107
= 97.71 %

Revenue
= 4062 × 100
4669
= 4263.55 %
45
Revenue
= 498 × 100
4669
= 10.67 %

= 4669
3252
= 1.4357 times
Stock turn = no inventory

Credit sales
= 205 × 365
4669
= 16.03 days

Credit purchases
= 565 × 365
770
= 267.82 days
Liquidity Ratios :-

Current Liabilities
= 1442
1569
= 0.919 : 1
46
Current Liabilities
= 0.999:1
Slovency Ratio :-

Capital Employed
=19.773 %

DPS
= 437
219
= 1.99 times

Share price
=48.51%
EASY JET -2017

Capital employed
= 404
(4237+1734)-1670
= 404
4301
= 9.39 %
47
Revenue
= 5047 – 122
1047
= 4925
1047
= 97.58 %

Cost of goods sold
= 4925 × 100
122
= 4036.89 %

Revenue
= 404 × 100
5047
= 8 %

= 5047
3525
= 1.43 times
Stock turn = no stock
48
Credit sales
= 275 × 365
547
= 19.89 days

Credit purchases
= 714 × 365
709
= 68 days
Liquidity Ratios :-

Current Liabilities
= 1734 = 1.04 : 1
1670

Current Liabilities
=1.01:1
Solvency Ratio :-

Capital Employed
= 963 × 100
963+2802
= 963 × 100
3765
= 25.58 %
Investment Ratio
49
DPS
= 305 = 1.43 times

214

Share price
=52.84%
4.0 References
 Corporate.easyjet.com. (2018). [online] Available at:

https://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/investors/results-centre/2018/easyjet-h1-
2018-results.pdf [Accessed 28 Nov. 2018].
 easyjet (2018). easyJet plc - AnnualReports.co.uk. [online] Annualreports.co.uk. Available at:

http://www.annualreports.co.uk/Company/easyjet-plc [Accessed 29 Nov. 2018].
 http://academic.mintel.com/sinatra/oxygen/search_results/display/
__cc=1&no_redirect&id=545152&&list=wh_items/display/id=859381 [Accessed 28 Nov.
2018].uk/business/sme-management/future-of-easyjet/ [Accessed 28 Nov. 2018].
50
 Hugh Morris (2018). How easyJet is quietly looking to rise above its rivals. [online] The Telegraph.
Available at: https://www.telegraph.co.uk/travel/travel-truths/easyjet-quiet-rise-growth-ryanair/
[Accessed 28 Nov. 2018].
 IAG (2018). IAG - International Airlines Group - Annual Reports. [online] Iairgroup.com.
Available at: http://www.iairgroup.com/phoenix.zhtml?c=240949&p=irol-reportsannual
[Accessed 29 Nov. 2018].
 Iagcargo.com. (2018). Products | IAG Cargo. [online] Available at:
https://www.iagcargo.com/en/page/product-overview [Accessed 27 Nov. 2018].
 Staff, I. (2018). Inventory Turnover. [online] Investopedia. Available at:
https://www.investopedia.com/terms/i/inventoryturnover.asp [Accessed 28 Nov. 2018].
 The Telegraph. (2018). After 20 years, what’s next for easyJet?. [online] Available at:
https://www.telegraph.co. Academic.mintel.com. (2018). Airlines - UK - August 2018 - Market
Research Report. [online] Available at:
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Financial Analysis and Decision Making

Interpretation of Published Accounts

As a team of investment analysis from World Wealth Management, we will

Return on capital employed in short know as (ROCE) is one of the most

ROCE = _____Operating Profit before interest and tax_______

2.1.2 GROSS MARGIN

Gross Margin = Gross Profit

Mark-up = gross profit

2.1.4 NET PROFIT MARGIN

2.1.5 RETURN ON SALES

ROS also known as return on sales, is considered to be as profitability ratio and

2.2 EFFICIENCY RATIOS

2.2.1 Fixed Assets turnover rati o

Fixed assets turnover= Revenue .

Non-current assets(Tangible) at net book value

Year 2017 2016 2015

IAG 1.94times 1.85times 1.66times

EASYJET 1.43times 1.43times 1.62times

2.2.2 STOCK TURNOVER

2.3 LIQUIDITY RATIOS

2.3.1 CURRENT RATIO

2.3.2 ACID TEST Rati o

Acid test = Current assests - inventory

Acid test ratio

0 0.2 0.4 0.6 0.8 1 1.2

2015 2016 2017

2.4 SOLVENCY RATIOS

2017 2016 2015

2.5 INVESTMENT RATIOS

2.5.1 EARNINGS PER SHARE

2.5.2 DIVIDEND COVER

YEAR 2017 2016 2015

IAG 3.9times 4.4times 7.5times

EASYJET 1.4times 1.99times 3times

2.5.3 DIVIDEND YIELD

3.0 Industry analysis

FERGAL MCGIVNEY, Senior Technology & Travel Analyst quoted that

IAG offers products as follows

With the following six strategic pillars,IAG delivers its strategy:

1. Leadership in IAG’S main cities

3.1.6 CONSUMER SUPPORT

It has developed mobile applications that enable customers to navigate to airports to

3.1.8 COMPETITORS OF IAG

EasyJet plc is a UK airline holding company and as pan - European easyJet

3.2.5 GROWTH OF EASYJET

Finally, under investment ratios we can observe lot of difference in

FORMULAS 2017 2016 2015

Recommendtions for investment .

Finally, under investment ratios we can observe lot of difference in

Profitability Ratios Of IAG-2015

Gross Margin = Gross Profit

22858 – 912 × 100

Mark-up = Gross profit

Net Margin = Operating Profit before interest and tax

Fixed assets turnover = Revenue .

Stock turn = Closing inventory × 365

Trade debtor’s collection period = Trade receivables × 365

Trade creditors payment period = Trade payables × 365

Current Ratio = Current assets

Acid test = Current assests - inventory

Gearing = Long Term Borrowing × 100

Dividend Cover = EPS

Dividend yield = DPS

ROCE = _Operating Profit before interest and tax___