Free Accounting Dissertations - Although The Earning Efficiency (as Highlight From The Profitability Ratios)
Although the earning efficiency (as highlight from the profitability ratios) provide investors with positive signals about the company already, EPS shows an increase on last year from 8.24p to 10.34p. The price-earning ratio also indicates that the company is a viable investment choice, the ratio of 18.22 means that if £187.70 is paid for shares, then 18.22 years of current earnings of 10.34 pence per share are being bought. This shows that the stock market has confidence in the company. The dividend yield for Easyjet is zero, this shows the return currently earned in the form of dividends from an investment in shares. EasyJet has never declared or paid any cash dividends on Ordinary Shares and does not anticipate paying cash dividends in the foreseeable future. Currently it is the Directors' intention to retain earnings for use in EasyJet’s business for the foreseeable future.
Limitations of Financial Ratio Analysis
Financial ratio offers a useful means of highlighting the strengths and weaknesses of a business. As a result they provide useful signposts for further analysis. Although the calculation of financial ratios is fairly straightforward, skill and judgement are required in interpreting the results. Therefore, in considering the performance of EasyJet through ratio analysis alone any without any trend analysis is somewhat limited. For a more in-depth analysis of performance we need to consider trend analysis.
Conclusion
The report on the overall performance and prospects of EasyJet shows that it is a highly successful company, which is expanding rapidly. The gearing ratio showed that the company is taking on more debt to finance expands in terms of acquiring more aircrafts and also to finance expansionsin terms of launching new routes. This ensures that management of EasyJet are fully utilising the available debt capacity available to them. Liquidity ratio analysis shows that the company has significant current assets in terms of cash and debtors to cover its obligations to creditors.
None-financial indicators specific to the airline industry also indicate that EasyJet is operationally efficient in its utilisation of aircrafts and use of airports. Key performance indictors of on time flight arrival, cost per available seat kilometres etc all shows positive indication of successful operational undertaking.
Profitability ratios both in terms of gross and net profit margin show positive indication of success, however, the gross margin has declined on previous year. This is principally due to the intense price competition within the industry. However, due to cost efficiencies and control net profit margin has increase on previous years figures. This indicates successful cost leadership strategies being implemented by EasyJet.
Dissertations - Free Accounting Dissertations
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