Using an AIRLINE for T8

Hi guys, I have question. Just doing financial analysis. Looking for reasons why ratios changed, what is the cause. I found many information in director / ceo report. But the problem is that I need other sources to support financial ratio movement. I want to avoid examiner comment that too much is based on annual report. The problem is when I am searching information in the internet (I am comparing Ryanair to Flybe) there are only most recent news. I am analysing statements 31March2014 to 31March2016. Can't find historical news relevant to my period. When I searching website like reuters, financial times, the oldest one are usually from the middle of 2016. So my question is where you guys find commentaries to historical Financial Statements and articles. I would highly appreciate advice.

Is'nt topic 8 just An Evaluation of Business and Financial Performance of any Airlines? Do we need to make an entire comparasion of the airlines we are making our project on with any. I have just compared the financial statements not the entire business and environment. I am making my project on Emirates Airlines and have comapred the financials statements with Qatar airways. Do i need to further talk about Qatar airways beyond its figures? I have used SWOT, PESTEL and Porters 5 forces but I have only talked about Emirates Airlines. Do i need to research on Qatar Airways too?

Hi Trephena I have been struggling with balance sheet ratios. Especially receivables/payables days etc. There just doesn't seem to be any specific reasons for increase/decrease in receivables. What should we do?

@bik123 - in the business analysis there is more scope usually to use non-annual report sources than in the financial analysis. However as long as there are a few articles from trade journals or the business press in the financial analysis that will be fine. What really gets the markers going off on one is when the 'analysis' reads like the notes to the accounts -mentioning derivative instruments when talking about current assets and loans and 'explaining' things with reference to figures from the accounts and not researched reasons. Use the CEO reports to trace trends and follow those trends through the 3 year period. As I have mentioned previously it is more useful to see the 3years as one long period rather than try to analyse most of it year by year individual figures. This is because management decisions cover more than one year and things don't just stop each year end.

@Saheraden -that is about right regarding the models in theory. However remember that the PEST factors will normally often be cmmon to both companies e.g. if fuel prices are low all airlines will normally benefit. Yes you do need to go beyond just stating figures the markers want to know how one company out performed the other not just by how much i.e. the reasons why / how they achieved this

@bal7722 - yes you have got it in one! (there often aren't sensible reasons behind some of the ratios that make up liquidity). Remember the balance sheet is just a point in time and in addition airlines use very complex statistical models to manage cash flow often employing currency hedging and forward buying contracts (one of the reasons I think airlines are unsuitable for T15). So focus on the other aspects, ratios and KPIs I have mentioned earlier in this thread

thanks trephena for answer. Can someone explain me what below paragraph from Flybe 2015 FS means? This 10.2 worsened net margin position of company and I want to elaborate on that. Why such loan is retranslated, what is purpose?Thanks Net finance costs Net finance costs worsened by £(10.2)m due to a non-cash, non-underlying movement on the retranslation of US Dollar denominated debt used to fund the acquisition of aircraft, particularly the newer E175 regional jets, compared to a gain of £8.3m in 2013/14.

my main company is emirates... But is cathay pacific an apt competitor for emirates?? i have almost completed part 3 but it would be better to know now than later. It might be possible that i would fail for not choosing an appropriate competitor. most of my friends compare emirates with singapore... but i want to choose something different to avoid the possibility that our projects might turn similar or even plagiarised

also the financial statements are presented differently. Emirates use total assets basis for presenting Statement of Financial Position and Cathay use net assets basis.

I would like to know if the following ratios/trends are enough to use for an airline and is there any possible addition to these. Revenue growth and trend analysis Operating profit margin ROCE Quick ratio Accounts rec and payb days Financial gearing Interest cover Total asset turnover And I would like to know what to do if the company I am using has become unlisted since 2011 and now the group's shares (i.e. those of a merged two airlines) trade on stock exchange. So now I can certainly not use the group's share prices. So will it okay to skip investor ratios or use those which dont involve use of share price ( and if so which ones do u recommend) @trephena

and @hammadahmedqureshi

@trephena I have a question, could you recommend me some website where I will find average ratio for aviation industry. I am analysing interest cover of ryanair ad want to make some comparison. I would appreciate your help, can't find anything in the web.

@abdulbasit16 said: I would like to know if the following ratios/trends are enough to use for an airline and is there any possible addition to these. Revenue growth and trend analysis Operating profit margin ROCE Quick ratio Accounts rec and payb days Financial gearing Interest cover Total asset turnover And I would like to know what to do if the company I am using has become unlisted since 2011 and now the group's shares (i.e. those of a merged two airlines) trade on stock exchange. So now I can certainly not use the group's share prices. So will it okay to skip investor ratios or use those which dont involve use of share price ( and if so which ones do u recommend) @trephena

If you had read above posts in this thread, then you would know that acc payable and acc receivable days aren't appropriate for a service industry - even marker laughs at this. You don't get credit period from airline, do you? For Quick ratio - replace it with Current ratio. You can skip investor ratio - I did in my report, but make sure that you cover atleast 4 areas out of 5. 1) Profitability analysis 2) Liquidity 3) Gearing 4) Efficiency 5) Investor Regards

Indeed it is service industry but my primary company's 'trade payables' are very high like around 4billion pounds so I thought it would be good to comment on those. Anyways I will think over this. But if I skip investor ratios and efficiency as well coz efficiency ratios that can be used are the rec and payable days only for service industries, I will only be left with 3 types of ratios i.e. profitability, liquidity and gearing

Any reason for using current instead of quick ratio? @ehsan Coz service industries dont sell inventory and even if there is some inventory it is very immaterial...having almost no effect on the ratios.

@abdulbasit16 Exactly -airline inventory is immaterial as it is not part of the normal trading activities e.g. there is no real added value attached to it (as in retail). It has to be borne in mind that most elements of the current ratio are not as straightforward for an airline as in most industries which we try to get across. Trends in free cash flow are more appropriate really, if available. So both Ehsan and I advise that no attention is paid to calculating the Quck ratio (acid test) SEPARATELY as it is a waste of time (and words). Whilst technically you are right the quick ratio probably is more appropriate than the current ratio however most students I suspect would not feel comfortable with being told to do it in place of the current ratio. I feel they see it as logically coming after the current ratio so they would still want to do both! (As the the difference between the current and quick ratios is fairly negligible for a service industry the net result is not significant) But an interesting point you have raised -so perhaps we can now convince them that technically the quick ratio is more relevant than the current but NOT to present both! :-)

Alright. Any comments regarding rest of my ratios. Are they enough? @trephena

@trephena Can you please advise whether to use Restated figures from annual reports or use original ones? e.g. 2015 annual report consists 2014's restated figures so when doing financial analysis is it better to use restated figures of year 2014 from 2015 annual report or use original figures from 2014 annual report? Thanks

@trephena, also for ROCE Can we use Total equity + "Total" debt (both long and short term) as Capital Employed? When I use long term debt + total equity then ROCE is very different to airline's own computation.

@hassansualeh said: @trephena Can you please advise whether to use Restated figures from annual reports or use original ones? e.g. 2015 annual report consists 2014's restated figures so when doing financial analysis is it better to use restated figures of year 2014 from 2015 annual report or use original figures from 2014 annual report? Thanks

It depends, whether restated figures are material and the reason. I didn't use restated figures in my analysis as it made very difficult to align my analysis with external sources as they depend on non-stated figures. Nevertheless, my restatement was very immaterial - affected profit by 1 million and the reasons were changes in IAS/IFRS which I discarded. Changes in IAS/IFRS can have material affect, so I would recommend if the changes are made due to this reason then don't discard like me - I was lazy, and might have gotten lucky that marker didn't give it consideration. But, I believe that it all comes to materiality Regards, Ehsan

@abdulbasit16 said: Alright. Any comments regarding rest of my ratios. Are they enough? @trephena

Use ASK, RPK, Yield and Load factor for revenue and profit analysis.

@hassansualeh said: @trephena, also for ROCE Can we use Total equity + "Total" debt (both long and short term) as Capital Employed? When I use long term debt + total equity then ROCE is very different to airline's own computation.

Any widely accepted version of a ratio is accepted - Just make sure that u state the formula in your work.

@ch305 said: I am also confused about which years to compare. The year ends which are to be taken for May 17 submission are y.e. 2014,2015 and 2016. So the growth comparisions should be only between 2014 and 2015, 2015 and 2016? Or do I need to consider growth from y.e. 2013 to y.e. 2014 as well?

I did 2014 vs 2015 and 2015 vs 2016.

can someone please advice appropriate comparator for Emirates Airlines. is cathay pacific apt for it

@Ehsan, Thank you very much, The thing is if i use restated figures it will change YOY fall in operating profits into increase. With respect to Interest bearing debt in capital employed, does it has to include short term borrowings and an overdraft? On your reply to Chandon, you said you compared 2016 to 2015 and 2015 to 2014, not like FY-14, FY-15 and FY-16?

Capital employed only includes long-term debt usually. I dont think u need to worry abt including short-term debt and overdrafts, unless the same debts are being used in the organisation for a long-time which is quite unlikely as in these situations banks will.then try to convert there debts into long-term loans/bonds or require repayment.

Obviously when comparing trends u usually compare previous years figures and analysis. Quite less often do u compare figures to those of 2 years back. So although its three year analysis like 14, 15 and 16 it will comparing 14 to 15 and 15 to 16 and also 14 to 13 to analyse the first year of analysis figures

One drawback of not using restated figures wud be that u r not comparing like with like. As you said in will turn into an increase wud mean that ure not comparing the figures that are according to the new IFRS and currently used practices of the company. The latest year wud be incorporating the new ways of stating amts while the un-restated figures different

@ehsan Yes i have already used all of those.

I think you can just try to focus on other categories of ratios. What matters is the variety of information available and how good is ur analysis on other ratios. It wont be a good decision to change ur company at this point in time @chandan And u have perfectly understandable reason of not being able to calculate investor ratios. U can state this in ur sls actually