A Project Report On

‘Managerial Accountings’
Submitted in partial fulfilment of the requirement for the award of

MASTER OF BUSINESS ADMINISTRATION

From
NARAYANA BUSINESS SCHOOL, AHMEDABAD

Subject : Managerial Accounting

Submitted By
NAME : Shashank Pandey
BATCH : MBA 2022-24
ROLL NO : 46
SECTION : (Omega)
DATE OF SUBMISSION: 15/12/2022

1
 INDEX

Sr. No. Topics Page No

1 About Industry 3

2 Market Size 5

3 Aviation Sector Analysis 6

4 PESTEL 7

5 Indigo 9

6 SpiceJet 10

7 Financial Statement Analysis 11

8 Comparative Analysis 19

9 Common-Size Analysis 22

10 5 Years Trend Analysis 25

11 Ratios Analysis 26

12 Conclusion 26

2
History of Aviation Industry

An overview of the Aerospace Industry. A brief account of how modern aerospace began
way back with Sir George Cayley in 1799 and the success story of the Wright Brothers to
today's massive international airspace developments.

No video selected.
Modern aerospace began way back with Sir George Cayley in 1799 when he proposed an
aircraft with a fixed-wing and a horizontal and vertical tail, defining characteristics of the
modern airplanes. The 19th century saw the creation of the Aeronautical Society of Great
Britain, the American Rocketry Society, and the Institute of Aeronautical Sciences, all of
which made aeronautics a more serious scientific discipline. Airmen like Otto Lilienthal, who
introduced cambered airfoils in 1891, used gliders to analyse aerodynamic forces. The Wright
brothers brought about the first powered sustained flight at Kitty Hawk, North Carolina on
December 17, 1903. The launch of Sputnik 1 in 1957 started the Space Age, and on July
20th, 1969 Apollo 11 achieved the first manned moon landing. In 1981, the space shuttle
"Columbia" launched the start of regular manned access to orbital space. A sustained human
presence in orbital space started with "Mir" in 1986 and is continued by the "International
Space Station". Space commercialization and space tourism are more recent focuses on
aerospace.

Early Years:

Aircraft remained experimental apparatus for five years even after the Wright brother's first
flight in December 1903. In 1908 the Wrights secured a contract to make a single aircraft
from the U.S. Army, and also licensed their patents to allow the Astra Company to
manufacture aircraft in France. Glenn Curtiss of New York began selling his own aircraft in
1909, prompting many American aircraft hobbyists to turn entrepreneurial.

Manufacturing:

Europeans took a clear early lead in aircraft manufacture. By the outbreak of the Great War
in August 1914, French firms had built more than 2,000 aircraft; German firms had built
about 1,000, and Britain slightly fewer. American firms had built less than a hundred, most of
this one of a kind. Seven firms built more than 22,500 of the 400-horsepower Liberty
engines, and their efforts laid the foundation for an efficient and well-concentrated aircraft
engine industry -- led by Wright Aeronautical Company and Curtiss Aeroplane and Motor.

National Advisory Committee for Aeronautics established was in May 1915 in the United
States that spread the scientific information for explicit use to industry. Universities began to
offer engineering degrees specific to aircraft. American aircraft designers formed a patent
pool in July 1917, whereby all aircraft firms cross-licensed key patents and paid into the pool
without fear of infringement suits. The post-war glut of light aircraft allowed anyone who
dreamed of flying to become a pilot.

During the 1920s, aircraft assumed their modern shape. By the mid-1930s, metal replaced
wood as the material of choice in aircraft construction so new types of component suppliers

3
fed the aircraft manufacturers. Customers of aircraft grew more sophisticated in matching
designs to their needs and militaries formed air arms specifically to exploit this new
technology. Air transport companies began flying passengers in the 1920s. European nations
developed airmail routes around their colonies.

International Industry:

International politics has always played a role in aviation. Aircraft in flight easily transcended
national borders, so governments jointly developed navigation systems and airspace
protocols. Spacecraft overflew national borders within seconds so nations set up international
bodies to allocate portions of near-earth space. INTELSAT, an international consortium
modelled on COMSAT (the American consortium that governed operations of commercial
satellites) standardized the operation of geosynchronous satellites to start the
commercialization of space.

International travel grew rapidly, and airlines became some of the world's largest employers.
By the late 1950s, the major airlines had transitioned to Boeing or Douglas-built jet airliners -
- which carried twice as many passengers at twice the speed in greater comfort. The Boeing
747 took international air travel to a new level after its introduction in January 1970. Each
nation had at least one airline, and each airline had slightly different requirements for the
aircraft they used. By the 1990s more than thirty nations had some capacity to manufacture
complete aircraft. Some made only small, general-purpose aircraft.

Introduction
What is the Aviation Industry?
The term ‘aviation’ is most commonly used to describe mechanical air transportation, which
is carried out using an aircraft. The two main types of aircraft are aeroplanes and helicopters,
but most modern definitions of the word ‘aviation’ extend beyond this to include the use of
unmanned aircraft, such as drones.

With this in mind, the aviation industry can be described as all industry that surrounds these
activities.

The Difference Between the Aviation Industry and the Airline Industry
The terms ‘aviation industry’ and ‘airline industry’ are sometimes thought of as being
interchangeable, but they do actually describe different things. An airline is a business
offering air transportation services for people or cargo, with the airline industry being the
collective term used to describe these companies.

However, the airline industry forms just one part of the wider aviation industry. In addition to
airlines, the aviation industry also includes aircraft manufacturers, researchers, air safety
specialists, businesses involved with military aviation and, increasingly, companies that
design, produce and/or make use of drones.

Why is the Aviation Industry Important?

The importance of the modern aviation industry is difficult to overstate, but one of the main
reasons for this importance is the globalised nature of the industry, helping to connect

4
different continents, countries and cultures. As a result, global aviation has been key in
facilitating efficient travel to distant places, enriching many lives in the process.

The aviation industry has also been a key contributor to global economic prosperity, not only
as a result of the tourism industry boosting local economies, but also because it has allowed
for improvements to global trade.

Meanwhile, the aviation industry also directly provides millions of jobs for people around the
world, with examples including everything from pilots and cabin crew, through to air traffic
controllers and aerospace engineers. On top of this, the aviation industry has helped to create
many jobs in the wider travel and tourism industry too.

Market size

The global aviation analytics market is projected to grow from $2.02 billion in 2021 to $4.36
billion in 2028 at a CAGR of 11.58% in forecast period, 2021-2028.

Indian Aviation, flying high

A rising proportion of middle-income households, healthy competition amongst Low-Cost
Carriers, infrastructure build-up at leading airports and supportive policy framework has
given a positive push to the aviation sector
In 2010, 79 Mn people travelled to/from/or within India. By 2017 that doubled to 158 mn,
and this number is expected to reach 520 mn by 2037. With the air passenger traffic projected
to increase, the Indian aviation industry is on a high-growth path. To satisfy the current and
projected rise in demand for commercial air travel, Indian airlines have placed large orders
for aircraft. The nation’s airplane fleet is projected to quadruple in size to approximately
2500 airplanes by 2038.
Currently, the country has 131 operational airports including 29 international, 92 domestic,
and 10 custom airports. To meet the growing demand for air travel in India, it has become
imperative to increase the capacity of airport infrastructure. To augment the airport
infrastructure the government aims to develop 100 airports by 2024 (under the UDAN
Scheme) and expects to invest $1.83 bn in the development of airport infrastructure by
2026. The sector has huge impact with economic multiplier of 3.1 and employment multiplier
of 6.
The Indian Civil Aviation MRO market, at present, stands at around $900 mn and is
anticipated to grow to $4.33 bn by 2025 increasing at a CAGR of about 14-15%. The Indian
drone industry will have a total turnover of up to $1.8 bn by 2026.
Up to 100% FDI is permitted in Non-scheduled air transport services, Helicopter services and
seaplanes under the automatic route.
Up to 100% FDI is permitted in MRO for maintenance and repair organizations; flying
training institutes; and technical training institutes under the automatic route.
Up to 100% FDI is permitted in Ground Handling Services subject to sectoral regulations &
security clearance under the automatic route.

5
100% FDI under automatic route has been allowed in Brownfield Airport projects.

Industry Scenario
The rise in demand for air travel in India has necessitated the development of a robust
ecosystem and supportive government policies.

Through the National Civil Aviation Policy 2016 (NCAP) the government plans to take
flying to the masses by enhancing affordability and connectivity. It promotes ease of doing
business, deregulation, simplified procedures, and e-governance. In April 2020, the Goods
and Services Tax for MRO services rendered locally was reduced from 18% to 5%. The
‘place of supply’ for B2B MRO services was changed to the ‘location of recipient’, enabling
Indian MRO facilities to claim zero-rating (i.e., export status) under GST laws on MRO
services rendered to prime contractor/OEM located outside India. This has been an extremely
crucial policy amendment as it will encourage global participation in the Indian aviation
sector by allowing foreign MRO operators to subcontract MRO work to Indian entities
without any extra tax liability.
The Regional Connectivity Scheme or UDAN (‘Ude Desh ka Aam Nagrik’) is a vital
component of NCAP 2016. The scheme plans to enhance connectivity to India's unserved and
under-served airports and envisages to make air travel affordable and widespread. Over 92
lakh people have benefited from it and more than 1 lakh 79 thousand flights have flown under
this scheme.
The aircraft leasing and financing businesses are operated from the International Financial
Services Centre (IFSC) and GIFT City provides the off-shore status for financial
services. Read More
MOCA released Krishi UDAN 2.0. The Scheme lays out the vision of improving value
realization through better integration and optimization of Agri-harvesting and air
transportation and contributing to Agri-value chain sustainability and resilience under
different and dynamic conditions. After a 6-month successful pilot of Krishi Udan 2.0 it was
decided to add 5 new airports namely Belagavi, Jharsuguda, Jabalpur, Darbhanga and Bhopal
to the existing list of 53 airports, taking the number of airports actively participating in Krishi
Udan to 58.
Monetising Assets: AAI has formed joint ventures in seven airports. Recently, it awarded six
airports — Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram, Mangaluru — for
operations, management and development under PPP for a period of 50 years. As per
National Monetisation Pipeline (NMP), 25 AAI airports have been earmarked for asset
monetisation between 2022 and 2025.

Investment

The Central Government under the leadership of Hon’ble Prime Minister Shri Narendra
Modi, has approved the Production-Linked Incentive (PLI) scheme for dronesand drone
components. The PLI scheme comes as a follow-through of the liberalised Drone Rules, 2021
released by the Central Government on 25 August 2021. The PLI scheme and new drone
rules are intended to catalyse super-normal growth in the upcoming drone sector. Last date
for submitting the application form is 20th May 2022

6
Aviation Industry PESTEL airlines analysis
Political Factors:

Like most other businesses, the airline industry is also affected by the nation's unstable
political condition. The airline companies, which operate in countries with political turmoil,
may see a sharp decline in revenue. Here are some issues which can directly impact the
business of airline companies:

 Internal emergency, war, or political instability can hinder the business of any airline
company. Most of the tourists are not interested in visiting countries that have threats
due to political conditions. The airline may lose customers for the lack of security to
those parts.
 The government has set up some strict rules and guidelines for the operation of an
airline which can ensure the utmost security of the passengers. For international
flights, the regulations are strict, and this situation may lead an airline to push for
more amenities to keep up with the competitors.
 As the aviation business can be profitable in the long term, the government may want
to invest. If a company can secure a tie-up with the government, that can be highly
beneficial for them.

Economic Factors:

A country's economic condition is directly related to the business operating within the
country. The airline industry is not an exception. PESTEL analysis airline industry can show
how the financial situation of a nation can impact the airline industry:

 Recession and unstable economic conditions can severely affect the airline industry.
The number of passengers may decrease while the cost of raw materials may increase.
It may lead the companies to lower their prices, and as a result, thousands can lose
their job.
 Due to the pandemic, many countries have temporarily suspended flights from other
countries. It has affected the airline industry to a certain level. At the same time, the
economic condition of all the countries has experienced some depression which can
affect the airline industry as well.
 The rising cost of oil and other necessary machines can impact the airline industry.
However, at the same time, the number of passengers is declining, which can show a
negative result in the long run.

Social Factors:

The sociological conditions of any state gravely impact the airline industry. In the case of
companies running international flights, the impact can be deeper and more long-lasting.
Here are some sociological conditions which can impact the airline industry:

 The industry, like airlines, needs to maintain a clear image. Otherwise, they may see a
sharp decline in passenger numbers. If there are airline accidents, and if that is related
to the company’s carelessness, their business may get severely affected.

7
  The airline companies are all about hospitality and services. Hence, an airline must
have a good reputation. For example, if there are cases of employee harassment or
passenger mistreatment, those events can create a deep impact on their business.
 The airlines also need to keep an eye on the comfort of the passengers. It can add to
the clear image of any aviation company.

Technological Factors:

The airline industry’s technology is intricately related to its growth. The companies must take
advantage of technological innovations to offer a satisfactory service to their passengers.
PESTEL analysis airline industry can show how technical issues can work upon the growth
of the airline industry:

 The companies need to invest in technology and bring in continuous changes to

ensure the security and safety of the passengers.
 As a service-providing industry, the airlines can incorporate constant technological
changes to improve their services.
 The airline industry needs to do regular technical up-gradation of their system and
work on the communication with the air traffic. It can help them to stay away from
crashes or technical faults.

Ecological Factors:

The significant environmental factor that has been a concern for environmentalists is its CFC
emission. It has been a worry for the airline companies and the government at the same time.
Here are a few ecological issues that can potentially affect the airline industry:

 The airlines need to improve their systems and flights to decrease harmful emissions.
Otherwise, this can be a massive concern in the future. They can calculate the carbon
footprint for being responsible to the environment.
 The company needs to set a research team that can work on creating a more
environment-friendly aircraft. It will help them to improve the service and can make
an impression. It will also give them an opportunity of getting investors.
 The companies can take on some corporate responsibilities and include environment-
conscious messages in their campaigns. It can also be a responsible step to protect the
environment.

Legal Factors:

Though the legal issues may not have much to do directly with the growth of airline
companies, indirectly, it can severely impact their business. PESTEL analysis airline industry
can show how legal issues can impact their business:

 Most countries have some rules concerning the service. The rules help to protect the
environment and to ensure the safety of the passengers. The airline companies must
be well aware of them and abide by those rules to avoid legal proceedings.
 There are some conditions with the employee conditions and flight times of which the
airlines should be careful. It can help them to offer a safe and comfortable service.

8
  As for the disasters and accidents, on most occasions, Airlines are held responsible.
They may get stuck in legal proceedings. It can harm their image and have some
negative impact on their business.

INDIGO
InterGlobe Aviation Ltd., doing business as IndiGo, is an Indian low-cost
airline headquartered in Gurgaon, Haryana, India. It is the largest airline in India by
passengers carried and fleet size, with a 57.7% domestic market share as of August 2022. It is
also the largest individual Asian low-cost carrier in terms of jet fleet size and passengers
carried, and the fourth largest carrier in Asia with over 64 million (6.4 crore) passengers
carried in financial year 2018–19. The airline operated 1,500 daily flights as of 2019 to 96
destinations – 71 domestic and 25 international. It has its primary hub at Indira Gandhi
International Airport, Delhi.
The airline was founded as a private company by Rahul Bhatia of Interglobal Enterprises
and Rakesh Gangwal in 2006. It took delivery of its first aircraft in July 2006 and
commenced operations a month later. The airline became the largest Indian carrier by
passenger market share in 2012. The company went public in November 2015.

History
IndiGo was founded in 2006 as a private company by Rahul Bhatia of InterGlobe Enterprises
and Rakesh Gangwal, a United States-based NRI. InterGlobe had a 51.12% stake in IndiGo
and 47.88% was held by Gangwal's Virginia based company Caelum Investments. IndiGo
placed a firm order for 100 Airbus A320-200 aircraft in June 2005 with plans to commence
operations in mid-2006. IndiGo took delivery of its first Airbus aircraft on 28 July 2006,
nearly one year after placing the order. It commenced operations on 4 August 2006 with a
service from New Delhi to Imphal via Guwahati. By the end of 2006 the airline had six
aircraft and nine more aircraft were acquired in 2007.

In December 2010, IndiGo replaced state-run carrier Air India as the third largest airline in
India, behind Kingfisher Airlines and Jet Airways with a passenger market share of 17.3%.In
2011, IndiGo placed an order for 180 Airbus A320 aircraft in a deal worth US$15 billion. In
January 2011, after completing five years of operations, the airline got permission to launch
international flights. The airline launched international services in September 2011. In
December 2011, the DGCA expressed reservations that the rapid expansion could impact
passenger safety. In February 2012, IndiGo took delivery of its 50th aircraft, less than six
years after it began operations in 2006.

For the quarter ending March 2012, IndiGo was the most profitable airline in India and
became the second largest airline in India in terms of passenger market share. On 17 August
2012, IndiGo became the largest airline in India in terms of market share surpassing Jet
Airways, six years after commencing operations. In January 2013, IndiGo was the second
fastest growing low-cost carrier in Asia behind Indonesian airline Lion Air. In February
2013, following the announcement of civil aviation ministry that it would be allow IndiGo to
take delivery of only five aircraft that year, the airline planned to introduce low-cost regional

9
flights by setting up a subsidiary. Later, IndiGo announced that it plans to seek permission
from the ministry to acquire four more aircraft, therefore taking delivery of nine aircraft in
2013.

As of March 2014, IndiGo is the second largest low-cost carrier in Asia in terms of seats
flown. In August 2015, IndiGo placed an order of 250 Airbus A320neo aircraft worth $27
billion, making it the largest single order ever in Airbus history.

IndiGo announced a ₹3,200 crore (US$480 million) initial public offering on 19 October
2015 which opened on 27 October 2015. As of October 2016, it is the largest airline in India
in terms of passengers carried with a 42.6% market share.

Spice Jet

INTRODUCTION

Spicejet is a low-cost airline headquartered in Gurgaon, India. It is the third largest airline in
the country by number of domestic passengers carried, with a market share of 13.3% as of
October 2017. The airline operates 312 daily flights to 55 destinations, including 45 Indian
and 10 international destinations from its hubs at Delhi, Kolkata, Mumbai and Hyderabad.

Established as air taxi provider ModiLuft in 1994, the company was acquired by Indian
entrepreneur Ajay Singh in 2004 and re-christened as SpiceJet. The airline operated its first
flight in May 2005. Indian media baron Kalanidhi Maran acquired a controlling stake in
SpiceJet in June 2010 through Sun Group which was sold back to Ajay Singh in January
2015. The airline operates a fleet of Boeing 737 and Bombardier Dash aircraft.

History

1984-1996: ModiLuft Era

The origins of Spicejet can be tracked back to March 1984 when the company was
established by Indian industrialist S. K. Modi to provide private air taxi services. On 17
February 1993, the company was named as MG Express and entered into technical
partnership with the German flag carrier Lufthansa. The airline provided passenger and cargo
services under the name of Modiluftbefore ceasing operations in 1996.

2005-2013: Inception and expansion

In 2004, the company was acquired by Ajay Singh and the airline planned to restart
operationsas SpiceJet following the low-cost model. Spicejet leased two Boeing 737-800
aircraft in 2005 and planned to order 10 new aircraft for expansion. SpiceJet opened bookings
on 18 May 2005 and the first flight was operated between Delhi and Mumbai on 24 May
2005. By July 2008, it was India's third-largest low-cost carrier in terms of market share after

10
Air Deccan and IndiGo. Indian media baron Kalanidhi Maran acquired 37.7% stake in
SpiceJet in June 2010 through Sun Group. The airline ordered 30 Boeing 737-8 aircraft worth
US$2.7 billion July 2010 and a further 15 Bombardier Q4 Dash short haul aircraft worth
US$446 million in December 2010.

In 2012, SpiceJet suffered a loss of over 390 million (US$6.1 million) owing to increase in
global crude prices. On 9 January 2012, the Directorate General of Civil Aviation, reported
that several airlines in India, including SpiceJet, have not maintained crucial data for the
flight operations quality assurance. The Bombay Stock Exchange announced that ever since
June 2011, Spicejet had been suffering losses. In 2012, Kalanidhi Maran increased his stake
in the airline by investing 1 billion (US$16 million) in the airline. The airline returned to
profits at the end of the same year.

INTRODUCTION OF FINANCIAL STATEMENT ANALSIS

Financial analysis is the process of examining a company’s performance in the context of its
industry and economic environment in order to arrive at a decision or recommendation.
Often, the decisions and recommendations addressed by financial analysts pertain to
providing capital to companies-specifically, whether to invest in the company’s debt or
equity securities and at what price. An investor in debt securities is concerned about the
company’s ability to pay interest and to repay the principal lent. An investor in equity
securities is an owner with a residual interest in the company and is concerned about the
company’s ability to pay dividends and the likelihood that its share price will increase.
Overall, a central focus of financial analysis is evaluating the company’s ability to earn a
return on its capital that is at least equal to the cost of that capital, to profitably grow its
operations, and to generate enough cash to meet obligations and pursue opportunities.
Fundamental financial analysis starts with the information found in a company’s financial
reports. These financial reports include audited financial statements, additional disclosures
required by regulatory authorities, and any accompanying (unaudited) commentary by
management. Basic financial statement analysis—as presented in this reading—provides a
foundation that enables the analyst to better understand other information gathered from
research beyond the financial reports.
NATURE OF FINANCIAL ANALYSIS:
The financial statements are prepared on the basis of recorded facts. The recorded facts are
these that can be expressed in monitory terms. The accounting records and financial
statements are from those records are based on historical costs.
The financial statements are prepared periodically for the accounting period.
 Financial statements as composed of data, which are the results.
 Recorded facts concerning business transaction.
 Convention adopted to facilitate the accounting technique.
 Postulates or assumptions made to personal judgment.
 Application of correction and postulates.

11
DEFINATION AND MEANNING OF FINANCAL ANALYSIS
"Financial statements should be understandable, relevant, reliable and comparable. Reported
assets, liabilities, equity, income and expenses are directly related to an organization's
financial position. Financial statements are intended to be understandable by readers who
have "a reasonable knowledge of business and economic activities and accounting and who
are willing to study the information diligently."
According to Lev- “financial statement analysis is an information processing system design
to provide data for decision making models, such as the portfolio selection model, bank
lending decision models and corporate financial models “.
According to john Myer, “financial statement analysis is largely a study of relationship
among the various financial factors in a business as disclosed by single set of statements and
a study of the trend of these factors as shown in a series of statements.
According to Kennedy and Muller, “the analysis and interpretation of financial statements
reveal each and every aspect regarding the well-being financial soundness, operational
efficiency and credit worthiness of the concern concerned”.
Financial statement analysis embraces the methods used in assessing and interpreting the
result of past performance and current financial position as they relate to particular factors of
interest in investment decisions. It is an important means of assessing past performance and
in forecasting and planning future performance.

OBJECTIVES OF FINANCIAL ANALYSIS

The major objectives of financial statement analysis are to provide decision makers
information about a business enterprise for use in decision making. Uses of financial
statement information are management for evaluating the operational and financial efficiency
of the enterprise as a whole or of sub units; investors for making investment decisions and
portfolio decisions, lenders and creditors for determining the credit worthiness and solvency
position; employee and labour unions for deciding economic status of the enterprise and
making sound decisions in wage and salaries negotiations.
However, the following are generally considered to be the objectives of financial Analysis:
 To find out the financial stability and soundness of the business enterprise.
 To assess and evaluate the earning capacity of the business.
 To estimate and evaluate the fixed assets, stock, etc of the concern.
 To estimate and determine the possibilities of future growth of business.
 To assess and evaluate the firm’s capacity and ability to repay short-term and long-
term loans.
 To evaluate the administrative efficiency of the business enterprise.

12
Methods of financial statement analysis
There are several techniques used by analysts to develop a fair understanding of a company’s
financial performance over a period. The three most commonly practised methods of
financial analysis are – horizontal analysis, vertical analysis, and ratio and trend analysis.

13
Horizontal Analysis

Performances of two or more periods are compared to understand company’s progress over a
period. Each component of a ledger is compared with the previous period to gather a general
understanding of trends.

For example, if the cost of final goods rises by 20 percent in a year, but it is not reflected in
the revenue earned, then there may be some components which are costing the company
more.

Vertical Analysis

Vertical analysis helps to establish a correlation between different line items in a ledger. It
gives analysts an understanding of overall performance in terms of revenue and expenses.
The results are reviewed as a ratio.

Trend analysis

It helps to analyse trends over three or more periods. It takes into account incremental change
patterns, considering the earliest year as the base period. A change in a financial statement
will either reveal a positive or negative trend.

Ratio analysis

Ratio methods of financial analysis are used to compare one financial component against
another and reveal a general upward or downward trend. Once the ratio is calculated, it can
be compared against the previous period to analyse if the company’s performance is in accord
with set expectations. It helps management highlight any deviation from set expectations and
take corrective measures.

CLASSIFICATION OF RATIOS OR TYPES OF RATIOS

Ratios may be classified as:
 Liquidity Ratios (Short-term solvency)
 Solvency Ratios
 Profitability Ratios
 Activity Ratios

14
LIQUIDITY RATIOS
These ratios measure the short-term solvency of a concern. These ratios measure the firm’s
ability to pay off current dues (i.e., repayable in a year). In other words, liquidity means the
ability to meet short-term obligations. (A liquid asset is one that can very easily be converted
in to assets.)
Liquidity Ratios may further be classified as:
 Current Ratio
 Quick Ratio
 Absolute Liquid Ratio

Current Ratio
The current ratio of a firm measures the ability to pay its current or short term liabilities with
its current or short term assets. It is also known as ‘working capital ratio.
If current liabilities exceed current assets the current ratio will be less than 1. A current ratio
of less than 1 indicates that the company may have problems meeting its short-term
obligations.
Current Ratio = Current Asset / Current Liabilities
Quick Ratio
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. It is defined as the ratio between quickly available or liquid assets
and current liabilities. Quick assets are current assets that can presumably be quickly
converted to cash at close to their book values.
A normal liquid ratio is considered to be 1:1. A company with a quick ratio of less than 1
cannot currently fully pay back its current liabilities.
Quick Ratio = Current Assets - Inventory - Prepaid Expenses/ Current Liabilities
Absolute Liquid Ratio
In addition to computing current and quick ratio, some analysts also compute absolute liquid
ratio to test the liquidity of the business. Absolute liquid ratio is computed by dividing the
absolute liquid assets by current liabilities.
Absolute liquid assets are equal to liquid assets minus accounts receivable and bills
receivable. These assets usually include cash, cash equivalents, bank balances and marketable
securities etc.
Absolute Liquid Ratio = Cash + Marketable securities + Bank balance / Current Liabilities

SOLVENCY RATIO
A solvency ratio is a key metric used to measure an enterprise’s ability to meet its long-term
debt obligations and is used often by prospective business lenders. A solvency ratio indicates
whether a company’s cash flow is sufficient to meet its long-term liabilities and thus is a
measure of its financial health.

15
The higher the Shareholder’s Funds compared to other liabilities of the Organization, the
greater the Solvency business enjoys and vice versa.

Solvency Ratios may further be classified as:

 Debt- to- Equity Ratio

 Debt-to-Total Assets Ratio
 Proprietary Ratio

Debt- to- Equity Ratio

The Debt-to-Equity ratio is similar to the debt-to-assets ratio, in that it indicates how a
company is funded, in this case, by debt. The higher the ratio, the more debt a company has
on its books, meaning the likelihood of default is higher. The ratio looks at how much of the
debt can be covered by equity if the company needed to liquidate.

Debt to Equity Ratio= Total Debt/ Total Equity

Debt-to-Total Assets Ratio

The debt-to-assets ratio measures a company's total debt to its total assets. It measures a
company's leverage and indicates how much of the company is funded by debt versus assets,
and therefore, its ability to pay off its debt with its available assets. A higher ratio, especially
above 1.0, indicates that a company is significantly funded by debt and may have difficulty
meetings its obligations.

Debt-to-Total Assets Ratio = Total Debt/ Total Assets

Proprietary Ratio

This ratio establishes the relationship between Shareholders’ funds and the business’s total
assets. It indicates how much shareholder funds have been invested in the business’s assets.
The higher the ratio, the lesser the leverage, and comparatively less is the financial risk on the
part of the business

Proprietary Ratio= Total Equity/ Total Assets

PROFITABLITY RATIO
Profitability ratios are a class of financial metrics that are used to assess a business's ability
to generate earnings relative to its revenue, operating costs, balance sheet assets,
or shareholders' equity over time, using data from a specific point in time.
Profitability ratios can be compared with efficiency ratios, which consider how well a
company uses its assets internally to generate income (as opposed to after-cost profits).

Profitability Ratios may further be classified as:

 Gross Profit Ratio.

 Operating Ratio.
 Operating Profit Ratio.
 Net Profit Ratio.

16
Gross Profit Ratio

Gross Profit Ratio is a profitability ratio that measures the relationship between the gross
profit and net sales revenue. When it is expressed as a percentage, it is also known as the
Gross Profit Margin.
Gross Profit Ratio = Gross Profit/Net Revenue of Operations × 100
Operating Ratio
Operating ratio is calculated to determine the cost of operation in relation to the revenue
earned from the operations.
The formula for operating ratio is as follows
Operating Ratio = Cost of Revenue from Operations + Operating Expenses /
Net Revenue from Operations ×100
Operating Profit Ratio
Operating profit ratio is a type of profitability ratio that is used for determining the operating
profit and net revenue generated from the operations. It is expressed as a percentage.
The formula for calculating operating profit ratio is:
Operating Profit Ratio = Operating Profit/ Revenue from Operations × 100
Net Profit Ratio
Net profit ratio is an important profitability ratio that shows the relationship between net sales
and net profit after tax. When expressed as percentage, it is known as net profit margin.
Formula for net profit ratio is
Net Profit Ratio = Net Profit after tax ÷ Net sales
ACTIVITY RATIO
Activity ratios are used to determine the efficiency of the organisation in utilising its assets
for generating cash and revenue. It is used to check the level of investment made on an asset
and the revenue that it is generating. For this reason, the activity ratio is also known as the
efficiency ratio or the more popular turnover ratio.
Activity Ratios may further be classified as:

 Capital Turnover Ratio

 Fixed Assets Turnover Ratio
 Inventory (Stock) Turnover Ratio
 Debtors Turnover Ratio (Receivables)
 Creditors Turnover Ratio
 Working Capital Turnover Ratio

17
Inventory (Stock) Turnover Ratio
This is one of the most important turnover ratios which highlights the relationship between
the inventory or stock in the business and cost of the goods sold. It shows how fast the
inventory gets cleared in an accounting period or in other words, the number of times the
inventory or the stock gets sold or consumed. For this reason, it is also known as
the inventory turnover ratio.
Stock Turnover Ratio = Cost of Goods Sold / Average Inventory
Debtors Turnover Ratio (Receivables)
This ratio is an important indicator of a company which shows how well a company is able to
provide credit facilities to its customers and at the same time is also able to recover the due
amount within the payment period.
It is also known as accounts receivable turnover ratio as the payments for credit sales that will
be received in the future are known as accounts receivables.
Debtor Turnover Ratio = Credit Sales / Average Debtors
Creditors turnover Ratio
Creditor’s turnover ratio is a measure of the capability of the company to pay off the amount
for credit purchases successfully in an accounting period.
It shows the number of times the account payables are cleared by the company in an
accounting period. For this reason, it is also known as the Accounts payable turnover ratio.
Creditors Turnover ratio = Net Credit Purchases / Average Creditors
Capital Turnover ratio
This ratio is helpful in determining the effectiveness with which a company is able to utilise
its working capital for generating sales of its goods.
Working capital turnover ratio = Sale or Costs of Goods Sold / Working Capital

Investment Turnover Ratio or Net Asset Turnover Ratio

Investment Turnover Ratio is related to the sales taking place in the business and the net
assets or the capital employed. It determines the ability of the business to generate sales
revenue by the use of net assets of the business.
Investment Turnover Ratio = Net Sales/ Capital Employed

18
Comparative analysis
Indigo

Balance Sheet of Interglobe Aviation (in Rs. Cr.) Mar-22 Mar 21 Amount %

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 385.26 384.91 0.35 0.09%
Total Share Capital 385.26 384.91 0.35 0.09%
Reserves and Surplus -6,427.75 -314.95 -6112.8 1940.88%
Total Reserves and Surplus -6,427.75 -314.95 -6112.8 1940.88%
Total Shareholders Funds -5,993.94 104.98 -6098.92 -5809.60%
Minority Interest 0.00 0.00 0 #DIV/0!
NON-CURRENT LIABILITIES
Long Term Borrowings 416.17 381.63 34.54 9.05%
Deferred Tax Liabilities [Net] 0.00 0.00 0 #DIV/0!
Other Long Term Liabilities 28,527.66 23,082.68 5444.98 23.59%
Long Term Provisions 589.69 552.29 37.4 6.77%
Total Non-Current Liabilities 29,533.52 24,016.60 5516.92 22.97%
CURRENT LIABILITIES
Short Term Borrowings 3,480.57 2,124.00 1356.57 63.87%
Trade Payables 3,151.82 1,551.33 1600.49 103.17%
Other Current Liabilities 15,024.48 13,640.01 1384.47 10.15%
Short Term Provisions 760.28 1,608.36 -848.08 -52.73%
Total Current Liabilities 22,417.14 18,923.69 3493.45 18.46%
Total Capital And Liabilities 45,962.60 43,051.15 2911.45 6.76%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 21,262.10 18,783.14 2478.96 13.20%
Intangible Assets 21.56 33.50 -11.94 -35.64%
Capital Work-In-Progress 119.32 66.35 52.97 79.83%
Fixed Assets 21,409.02 18,888.40 2520.62 13.34%
Non-Current Investments 0.01 0.08 -0.07 -87.50%
Deferred Tax Assets [Net] 294.94 302.69 -7.75 -2.56%
Long Term Loans And Advances 0.00 1,580.66 -1580.66 -100.00%
Other Non-Current Assets 4,029.74 1,465.40 2564.34 174.99%
Total Non-Current Assets 25,733.72 22,237.24 3496.48 15.72%
CURRENT ASSETS
Current Investments 8,106.47 7,339.41 767.06 10.45%
Inventories 408.06 316.42 91.64 28.96%
Trade Receivables 332.92 218.98 113.94 52.03%
Cash And Cash Equivalents 10,120.14 11,227.67 -1107.53 -9.86%
Short Term Loans And Advances 0.00 128.60 -128.6 -100.00%
OtherCurrentAssets 1,261.28 1,582.85 -321.57 -20.32%
Total Current Assets 20,228.88 20,813.92 -585.04 -2.81%
Total Assets 45,962.60 43,051.15 2911.45 6.76%

19
Spice jet

Balance Sheet of SpiceJet (in

Rs. Cr.) Mar 22 Mar 21 Amount %
12 mths 12 mths
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 601.80 600.94 0.86 0.14%
Total Share Capital 601.80 600.94 0.86 0.14%
Reserves and Surplus -4,941.87 -3,213.01 -1728.86 34.98%
Total Reserves and Surplus -4,941.87 -3,213.01 -1728.86 34.98%
Total Shareholders Funds -4,340.07 -2,604.25 -1735.82 40.00%
Minority Interest -0.19 0.00 -0.19 100.00%
NON-CURRENT LIABILITIES
Long Term Borrowings 312.88 302.67 10.21 3.26%
Deferred Tax Liabilities [Net]
Other Long Term Liabilities 4,691.75 5,377.15 -685.4 -14.61%
Long Term Provisions 277.56 505.53 -227.97 -82.13%
Total Non-Current Liabilities 5,282.19 6,185.36 -903.17 -17.10%
CURRENT LIABILITIES
Short Term Borrowings 766.50 404.48 362.02 47.23%
Trade Payables 2,612.94 1,728.55 884.39 33.85%
Other Current Liabilities 4,836.92 5,115.71 -278.79 -5.76%
Short Term Provisions 396.27 537.76 -141.49 -35.71%
Total Current Liabilities 8,612.63 7,786.50 826.13 9.59%
Total Capital And Liabilities 9,554.56 11,367.62 -1813.06 -18.98%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 5,575.57 7,020.41 -1444.84 -25.91%
Intangible Assets 0.00 12.32 -12.32 0.00%
Capital Work-In-Progress 0.00 5.84 -5.84 0.00%
Fixed Assets 5,575.57 7,038.56 -1462.99 -26.24%
Non-Current Investments 0.02 0.06 -0.04 -200.00%
Deferred Tax Assets [Net] 0.00 0.00 0 0.00%
Long Term Loans And Advances 0.00 485.83 -485.83 0.00%
Other Non-Current Assets 1,812.84 1,240.92 571.92 31.55%
Total Non-Current Assets 7,388.43 8,765.37 -1376.94 -18.64%
CURRENT ASSETS
Current Investments 0.43 0.42 0.01 2.33%
Inventories 150.87 167.29 -16.42 -10.88%
Trade Receivables 1,242.16 2,014.50 -772.34 -62.18%
Cash And Cash Equivalents 62.68 35.52 27.16 43.33%
Short Term Loans And Advances 0.00 35.62 -35.62 0.00%
OtherCurrentAssets 709.98 348.89 361.09 50.86%
Total Current Assets 2,166.13 2,602.25 -436.12 -20.13%
Total Assets 9,554.56 11,367.62 -1813.06 -18.98%

20
Comparative Income Statement

Income Statement of Indigo Mar-22 Mar-21 Amount PERCENTAGE

SALES 44646 37855 6791 17.94

OTHER INCOME 1112 787 325 41.3

TOTAL EXPENDITURE 38146 32516 5630 17.31

EBIT 7611 6125 1486 24.26

INTEREST 162 174 -12 -6.9
TAX 1822 1599 223 13.95
NET PROFIT 5627 4351 1276 29.33

Income Statement of SpiceJet Mar-22 Mar-21 Amount PERCENTAGE

SALES 15668 12369 3299 26.67
OTHER INCOME 466 274 192 70.07

TOTAL EXPENDITURE 12965 9977 2988 29.95

EBIT 3170 2667 503 18.86

INTEREST 72 78 -6 -7.69
TAX 798 650 148 22.77
NET PROFIT 2298 1938 360 18.58

21
Common size analysis
Indigo

Balance Sheet of Interglobe Aviation (in Rs. Cr.) Mar 22 Mar 21 % %

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 385.26 384.91 0.84% 0.89%
Total Share Capital 385.26 384.91 0.84% 0.89%
Reserves and Surplus -6,427.75 -314.95 -13.98% -0.73%
Total Reserves and Surplus -6,427.75 -314.95 -13.98% -0.73%
Total Shareholders Funds -5,993.94 104.98 -13.04% 0.24%
Minority Interest 0.00 0.00 0.00% 0.00%
NON-CURRENT LIABILITIES
Long Term Borrowings 416.17 381.63 0.91% 0.89%
Deferred Tax Liabilities [Net] 0.00 0.00 0.00% 0.00%
Other Long Term Liabilities 28,527.66 23,082.68 62.07% 53.62%
Long Term Provisions 589.69 552.29 1.28% 1.28%
Total Non-Current Liabilities 29,533.52 24,016.60 64.26% 55.79%
CURRENT LIABILITIES
Short Term Borrowings 3,480.57 2,124.00 7.57% 4.93%
Trade Payables 3,151.82 1,551.33 6.86% 3.60%
Other Current Liabilities 15,024.48 13,640.01 32.69% 31.68%
Short Term Provisions 760.28 1,608.36 1.65% 3.74%
Total Current Liabilities 22,417.14 18,923.69 48.77% 43.96%
Total Capital And Liabilities 45,962.60 43,051.15 100.00% 100.00%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 21,262.10 18,783.14 46.26% 43.63%
Intangible Assets 21.56 33.50 0.05% 0.08%
Capital Work-In-Progress 119.32 66.35 0.26% 0.15%
Fixed Assets 21,409.02 18,888.40 46.58% 43.87%
Non-Current Investments 0.01 0.08 0.00% 0.00%
Deferred Tax Assets [Net] 294.94 302.69 0.64% 0.70%
Long Term Loans And Advances 0.00 1,580.66 0.00% 3.67%
Other Non-Current Assets 4,029.74 1,465.40 8.77% 3.40%
Total Non-Current Assets 25,733.72 22,237.24 55.99% 51.65%
CURRENT ASSETS
Current Investments 8,106.47 7,339.41 17.64% 17.05%
Inventories 408.06 316.42 0.89% 0.73%
Trade Receivables 332.92 218.98 0.72% 0.51%
Cash And Cash Equivalents 10,120.14 11,227.67 22.02% 26.08%
Short Term Loans And Advances 0.00 128.60 0.00% 0.30%
OtherCurrentAssets 1,261.28 1,582.85 2.74% 3.68%
Total Current Assets 20,228.88 20,813.92 44.01% 48.35%
Total Assets 45,962.60 43,051.15 100.00% 100.00%

22
SpiceJet

Balance Sheet of SpiceJet (in

Rs. Cr.) Mar 22 Mar 21 % %
12 mths 12 mths Mar-22 Mar-21
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 601.80 600.94 6.30% 5.29%
Total Share Capital 601.80 600.94 6.30% 5.29%
Reserves and Surplus -4,941.87 -3,213.01 -51.72% -28.26%
Total Reserves and Surplus -4,941.87 -3,213.01 -51.72% -28.26%
Total Shareholders Funds -4,340.07 -2,604.25 -45.42% -22.91%
Minority Interest -0.19 0.00 0.00% 0.00%
NON-CURRENT LIABILITIES
Long Term Borrowings 312.88 302.67 3.27% 2.66%
Deferred Tax Liabilities [Net] 0.00% 0.00%
Other Long Term Liabilities 4,691.75 5,377.15 49.10% 47.30%
Long Term Provisions 277.56 505.53 2.91% 4.45%
Total Non-Current Liabilities 5,282.19 6,185.36 55.28% 54.41%
CURRENT LIABILITIES 0.00% 0.00%
Short Term Borrowings 766.50 404.48 8.02% 3.56%
Trade Payables 2,612.94 1,728.55 27.35% 15.21%
Other Current Liabilities 4,836.92 5,115.71 50.62% 45.00%
Short Term Provisions 396.27 537.76 4.15% 4.73%
Total Current Liabilities 8,612.63 7,786.50 90.14% 68.50%
Total Capital And Liabilities 9,554.56 11,367.62 100.00% 100.00%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 5,575.57 7,020.41 58.36% 61.76%
Intangible Assets 0.00 12.32 0.00% 0.11%
Capital Work-In-Progress 0.00 5.84 0.00% 0.05%
Fixed Assets 5,575.57 7,038.56 58.36% 61.92%
Non-Current Investments 0.02 0.06 0.00% 0.00%
Deferred Tax Assets [Net] 0.00 0.00 0.00% 0.00%
Long Term Loans And Advances 0.00 485.83 0.00% 4.27%
Other Non-Current Assets 1,812.84 1,240.92 18.97% 10.92%
Total Non-Current Assets 7,388.43 8,765.37 77.33% 77.11%
CURRENT ASSETS
Current Investments 0.43 0.42 0.00% 0.00%
Inventories 150.87 167.29 1.58% 1.47%
Trade Receivables 1,242.16 2,014.50 13.00% 17.72%
Cash And Cash Equivalents 62.68 35.52 0.66% 0.31%
Short Term Loans And Advances 0.00 35.62 0.00% 0.31%
OtherCurrentAssets 709.98 348.89 7.43% 3.07%
Total Current Assets 2,166.13 2,602.25 22.67% 22.89%
Total Assets 9,554.56 11,367.62 100.00% 100.00%

23
Common size Income Statement

Income
Statement of
Indigo Mar-22 Mar-21 Mar 22 % Mar 21 %
SALES 44646 37855 100 100
OTHER INCOME 1112 787 2.49 2.08

TOTAL
EXPENDITURE 38146 32516 85.44 85.9

EBIT 7611 6125 17.05 16.18

INTEREST 162 174 0.36 0.46
TAX 1822 1599 4.08 4.22
NET PROFIT 5627 4351 12.6 11.49

Income
Mar
Statement Mar-22 Mar-21
22 (%)
of SpiceJet
Mar 21 (%)
SALES 15668 12369 100 100
OTHER
466 274 2.97 2.22
INCOME

TOTAL
12965 9977 82.75 80.66
EXPENDITURE

EBIT 3170 2667 20.23 21.56

INTEREST 72 78 0.46 0.63
TAX 798 650 5.09 5.26
NET PROFIT 2298 1938 14.67 15.67

24
5-year Trend analysis

Analysis of Indigo Airlines

(Base Year 2017-2018=100%)
Sales Inventory Interest PBIT PAT
Year
RS. Trend % RS. Trend % RS. Trend % RS. Trend % RS. Trend %
Mar-18 23020.00 100.00 183.23 100.00 339.00 100.00 3466.00 100.00 2242.00 100.00
Mar-19 28496.00 123.79 211.44 115.40 508.00 149.85 361.00 10.42 157.00 7.00
Mar-20 35756.00 155.33 286.13 156.16 1875.00 553.10 1620.00 46.74 -233.00 -10.39
Mar-21 14640.00 63.60 316.42 172.69 2141.00 631.56 -3676.00 -106.06 -5806.00 -258.97
Mar-22 25930.00 112.64 408.06 222.70 2358.00 695.58 -3795.00 -109.49 -6161.00 -274.80

Analysis of SpiceJet Airlines

(Base Year 2017-2018=100%)
Sales Inventory Interest PBIT PAT
Year
RS. Trend % RS. Trend % RS. Trend % RS. Trend % RS. Trend %
Mar-18 7760.00 100.00 141.87 100.00 42 100.00 599.00 100.00 557.00 100.00
Mar-19 9121.00 117.54 141.32 99.61 44 104.76 -257.00 -42.90 -302.00 -54.22
Mar-20 12374.00 159.46 181.59 128.00 545 1297.62 -391.00 -65.28 -936.00 -168.04
Mar-21 5171.00 66.64 167.29 117.92 602 1433.33 -427.00 -71.29 -1029.00 -184.74
Mar-22 6603.00 85.09 150.87 106.34 482 1147.62 -1261.00 -210.52 -1744.00 -313.11

25
 Ratio analysis

Indigo SpiceJet
Ratios
2022 2021 2022 2021
Profitability Ratios:
Gross profit margin 5.15 6.14 20.24 22.26
Net profit margin 0.20 1.20 14.52 15.60
Operating Margin 1.30 1.48 18.53 20.41
Earnings per share 1.24 6.04 17.44 16.83
Dividend per share 0.50 0.50 - -
ROCE 2.55 2.31 18.70 22.18
ROE 0.46 2.27 15.43 18.23
Return on Asset 0.32 1.59 11.05 12.04
P/E Ratio 556.45 97.58 42.85 43.35

Activity / Turnover ratios:

Asset turnover ratio 1.39 1.15 0.60 0.55
Inventory turnover ratio 6.79 5.58 2.44 1.99

Solvency / Leverage Ratios:

Debt-Equity Ratio 0.05 0.02 0.14 0.08
Interest Coverage Ratio 10.72 11.47 22.56 19.39

Liquidity Ratio:
Current Ratio 1.36 1.77 1.43 1.08
Quick Ratio / Acid Test Ratio. 0.60 0.80 0.90 0.67

EV/EBITDA 22.46 18.59 30.95 30.38

Conclusion

Although both airlines showed impressive growth in 2019, a lot will depend on how they can
handle the current crisis. Since both the carriers are LCCs, there is little difference in terms of
airfare. As far as the rivalry is concerned, IndiGo surely is ahead in terms of size and
network. In terms of passenger experience, a lot depends on personal preference. There is no
clear winner.

26