Ryanair and Easyjet Financial Ratio Analysis



Ryanair and Easyjet Financial Ratio Analysis

Introduction

This report outlines the analysis of two low-cost airlines performance in Europe, namely Easyjet PLC and Ryanair Hldgs during their financial year between 2006 and 2008. It examines the companies' portfolio, future prospects and competitors to analyze the threats and opportunities facing their business. In conclusion, there is a recommendation whether to invest on Easyjet and Ryanair's shares.

Financial Ratio Analysis

In terms of the completed financial analysis, there are several findings as follows:

Operating Profit Margins (%)

Easyjet's operating profit margins declined sharply, reaching only 3.85% from 10.16% and this is moderately low, compared to the three-year average of 7.09%. Unlike Easyjet, Ryanair has more stable profit margins, 21.01% on average. According to the figures, Ryanair seems more vigorous in generating higher profit from its sales, which was partially due to hotels, car rentals and other non-flight products selling. On the other hand, Easyjet seems had been negatively affected by intense competition among its rivals as well as the price pressures.

Return on Capital Employed (%)

The ROCE shows the performance of business in generating profit to its long-term capital suppliers. (Atrill & McLaney, 2008) The highest ROCE ratio, 10.41% in 2007 specifies that Easyjet had a better performance by fully using its assets in generating revenues. However, the ROCE slid dramatically to only 4.46%, which indicates a weak performance because its return on assets was probably below its cost of capital. In terms of overall ROCE, Ryanair had a higher margin, 11.19%, than Easyjet, 7.73%. From this figure, it is suggested that Easyjet should operate at Ryanair's significant discount.

Return on Shareholders' Fund

In terms of the overall ROSF, the shareholders' in Ryanair were more beneficial than those in Easyjet as they gained higher return. This is showed by the average ROSF of 17.06% compared to only 10.43% from Easyjet, meaning the investment made by shareholders in Ryanair was more profitable than in Easyjet.

Gross Profit Margin (%)

There was an insignificant decline in GPM for both companies. It is presumably owing to the increased operating expenses as a result of the rise in fuel costs and extensive price competition.

Asset Turnover (point)

The rate of asset turnover for Easyjet and Ryanair increased gradually for the last three years. This, in essence, means that they had a better return corresponding to their net assets. However, Easyjet's asset turnover dropped slightly from 1.14 to 1.02, but recovered to 1.16 point in 2008. On the other hand, Ryanair showed a consistent asset turnover even though its points were lower than Easyjet's. It is clearly seen that Ryanair was capable of translating its assets into constant increased sales revenue over the last three years.

Ryanair and Easyjet Liquidity Ratios

The liquidity ratios for Ryanair and Easyjet were relatively the same as their stocks play an insignificant role. Current and quick ratios tended to stay at the same level as both companies do not hold any psychical production stocks. An average current and quick ratio of 2.02 for the last three years indicates that Ryanair ...