FINANCIAL ANALYSIS

DeHavilland Aircraft Services: Financial Analysis



Executive Summary

The importance of air transportation in supporting the nation's economic and cultural growth has been long recognized. According to the latest statistics, about 735 million passengers travelled by air in the U.S. during the period from March 2007 to February 2008 (BTS 2008). In addition, the total value of domestic airfreight doubled from 1993 to 2002 with an estimated value of $2.7 billion a day in 2004; a growth that was faster than that of any other transportation mode. This growth in air transportation demand reflects the evolution of the commercial airlines industry over the last century. This report would focus on the different aspects of airline operation of European airlines, with the case study of British Airways. Furthermore, this report would compare the operations of British Airways with Emirates, which is a Middle East airline Giant. The below paper discusses the financial position of the company and after this analysis it will recommend the investors to either sell the DAS shares or to hold it or to even buy the 25% of the shareholding rights (which is a huge investment) (Jackson, 2007, pp. 43).

DeHavilland Aircraft Services: Financial Analysis

Introduction

DAS plc provides aircraft maintenance services. About 50% of its turnover and 60% of its operating profit are generated from its contract with a large national carrier, English Airways. This contract expires on 30 June 2012 and the companies are negotiating a renewal for a further five years. Very recently DAS has revealed that during September 2011 parts valued at cost at £800,000 were stolen from a warehouse. Initial police investigations suggest that a senior employee of the company was probably involved in the theft and for this reason the insurance company are refusing to cover the loss. The parts stolen were technologically advanced and if they were acquired by competitors would damage the future profitability of DAS. Inventory of DAS includes stocks of parts and work-in-progress not yet invoiced to customers. The additional debentures were issued on 1 July 2010. The current share price of DAS plc is 792p.

Profitability Analysis

Profitability relates to a firm's ability to produce a reasonable profit so that the shareholders and investors will keep providing capital to it for its operations. A firm's profitability is connected to its liquidity, for the reason that earnings eventually produce cash flow. For these rationales, profitability ratios are imperative to both potential investors and shareholders. The profitability of the company has shown significant improvements till 2010. During the year 2007-08, the figures have shown some contrary figures to trend mainly attributed to the worldwide recession affecting the whole industry and the company. In 2007, ROA was 7.5% which fell by almost 12% to 6.62% in 2008. Subsequently it restored to rising trend and marked an improvement of 22% and 5% in 2009 and 2010 and reached 8.49%. In 2007, ROE was 23.13% which also fell by almost 12% to 20.38% in 2008. Subsequently it also restored to rising trend and marked an improvement ...