Finance & Funding In The Travel & Tourism Sector Essay

Question:

Give the summary of financial performance?

Answer:

Introduction:

According to Collier (2009)the profit and account loss defines the transactions of the whole year primarily for a business. Therefore the profit and loss account is a review of the business transactions and expenditures for the 12 months. Collier (2009) illustrates that by deducting total expenditure from the overall total income, it will demonstrate on the bottom line whether the business has made a profit or loss at the end of the period. Consequently, the tour operator called Tara Travel would need to follow these producers in order to manage their accounts.

Emirates

Emirates

Ryan air

Ryan air

2013

2014

2013

2014

Balance sheet

(Statement of financial position)

Current ratio

Acid test ratio

Capital gearing

1,335

1,568

611.6

617.2

Debtors collection period

5,136

6,421

329.6

351.8

Stock turnover ratio

Profit and loss account

(Income statement)

5,270

5,421

197.9

192.8

Ratio of administrative costs to sales

1,649

1,878

98.2

101.5

Ratio of fuel costs to sales

27,855

30,685

1,885.6

2,013.1

Net profit %

2.9%

6.9%

10%

2%

Gross profit %

10.2%

39.2%

3%

4%

Return on capital employed

1,042

1,190

435.6

463.6

Return on net assets employed

9,029

10,230

486.6

522.0


This report will summarize the overall financial performance of emirates and Ryan air airlines; this will include the financial performance with considering the size in term of turnover and net asset value, profitability, efficiency and the potential weaknesses and strength of each airline.

Emirates Airlines;

Emirates airlines are a major competitor for many global companies, the

Company is based inDubai and founded by the United ArabEmirates government in 1985. Its main activity is the provision of commercial air

transportation services. “Emirates” is thelargest airline in the Middle East andoperating nearly 3,400 flights per week. It isthe world’s fastest growing internationalairline and its growth has never fallen below20% a year. The percentage of passengersincrease is 13.8% in 2014 comparing by2013(Annual report, 2014)

Strength:

This section of analysis is now aimed at performing an analysis of the strength points of both these companies by way of considering an analysis of their liquidity and profitability performances as calculated above. The ratios as calculated are aimed at evaluating the profitability and liquidity performances of both these companies. Initially there has been the calculation of liquidity performance being performed in respect to both of them. An analysis of the capital gearing ratio of both these companies indicate that the performance of Ryanair has been efficient in this regard. This is mainly because the company has lower capital gearing ratio which suggests that Ryanair makes use of lower debt in financing its assets. The usage of lower debt is an important indicator of sound organizational performance because the implication of lower debt implies lower financial risks to the company. Contrary to this, it has been significantly higher in respect to Emirates, as its gearing ratio is almost double than that of Ryanair. In terms of entire liquidity performance, the performance of Ryanair has been better as compared to the performance of Emirates (Marsden, 2010).

Apart from liquidity performance, the profitability performance has also been analyzed in respect to both these companies through calculating a range of profitability ratios. The strength point as identified is mainly in respect to Ryanair especially in the areas of operational efficiency. This is mainly because the administrative cost and the fuel cost to sales have been significantly lower in respect to Ryanair as compared to Emirates. This is again a positive performance indicator in respect to Ryanair as compared to Emirates. But the other major indicators of profitability performance of Emirates such as gross profit margin, net profit margin, return on capital employed and return on net assets have been highly efficient. This has been identified from the ratios as calculated above. A stronger profitability performance shows that the performance of Emirates has been efficient as against Ryanair. Further an important indication being noted in respect to the Ryanair and Emirates from the ratios above is that Emirates is operating at a larger scale as compared to Ryanair. Looking at the scale of operations, the performance of Ryanair is considered as highly efficient (Jones, 2007).

Weaknesses:

The financial statement analysis indicates the weakness of both these companies, and there are a range of areas whereby weakness has been identified. In respect to Emirates, it has been assessed that the gearing ratio is significantly higher and it is an indicator of the fact that the company has higher level of financial risks in its operations. Another major weakness is noted especially in respect to Emirates in terms of its liquidity performance whereby it has been evaluated that the time taken by the company in collecting from debtors is significantly higher as compared to Ryanair. The performance of a company is highly efficient when the time taken to collect from debtors is lower, and in respect to Emirates, it has been assessed that the time taken by debtors is significantly higher. The limitation has been noted in respect to the operational efficiency of Emirates because there has been increasing level of costs being suffered by the company in managing its administration. This is regarded as a major limiting factor affecting the overall performance conditions of Emirates in particular (Rao, 2011).

Comparison of Financial Performance: The comparison of financial performance of both these companies is performed as follows:

Size of Companies: The size of companies is an important indicator factor in respect to analyzing their performance in a positive way. The evaluation of size of companies can be possible by looking at the figures such as turnover as achieved by these companies. An analysis indicates about the sales revenue of both these companies in 2013 whereby the revenue from sales in respect to Ryanair was noted at 4884 million whereas the revenue of Emirates in 2012 was identified as 77536 million. This shows that in terms of turnover, Emirates is operating at a significantly larger level as compared to Ryanair. This larger level of operations of Emirates is an indicating factor for its better performance because a lower rate of profitability means that the company has earned huge profits. However, the ratio analysis indicated sound profitability performance of Emirates as compared to Ryanair despite having huge fleet size of Emirates (Shim and Siegel, 2009).

Profitability: The profitability performance of Emirates seems higher as compared to Ryanair in the above calculation of different ratios. This has been evident in respect to gross profit and net profit performance, as both these aspects are significantly higher in respect to Emirates. It is not only the profitability margins, but the return on capital employed and return on net assets are also higher in respect to Emirates which indicates a positive profitability performance of the company. However, an important factor behind such efficient profitability performance is the size of Emirates which has been significantly higher. The larger size of Emirates is a positive factor to the company’s overall performance. Thus, the profitability ratio suggests that Emirates has been excellent in its performance (Brigham and Ehrhardt, 2010).

Efficiency: The efficiency analysis of both these airlines indicates that the major efficiency is noted in respect to Ryanair because the cost of administration has been significant lower. However, it could be viewed from different angle whereby the larger size of Emirates contributes in a positive manner towards higher fuel cost and administration costs. The turnover in respect to Emirates is significantly higher which contributes positively towards higher administration cost and the cost in relation to turnover. Overall in terms of efficiency performance, there has been efficiency being noted in respect to both of them and the larger administrative costs is mainly because of larger size of operation of Emirates (Bazley, Bazley and Hancock, 2009).

References

Brigham, E.F. and Ehrhardt, M.C. 2010, Financial Management Theory and Practice, 13th ed., Cengage Learning.

Bazley, M.E., Bazley, M. and Hancock, P. (2009), ‘Contemporary Accounting’, 7th ed., Cengage Learning Australia.

Jones, C.P. 2007, Investments: Analysis and Management, 9Th Ed, Wiley-India.

Marsden, S.J. 2010, Australian Master Bookkeepers Guide, 3rd ed., CCH Australia Limited.

Rao, R.M. 2011, Financial Statement Analysis and Reporting, PHI Learning Pvt. Ltd.

Shim, J.K. and Siegel, J.G. 2009, Schaum's Outline of Financial Management, 3rd ed., McGraw-Hill Professional.

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