Flybe Group Plc In Comparison With Ryanair: Company Review

Flybe Group Plc In Comparison With Ryanair
Flybe Group Plc In Comparison With Ryanair

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Flybe Group Plc In Comparison With Ryanair

Company Review

Introduction

Flybe Group Plc is a company that is in the airline business. This organization came to existence in the year 1979. Flybe Group Plc was initiated when two companies, Intra Airways and Express Air Services came together for business (Flybe, 2015). It is worth noting that this company operates in many places and has a number of subsidiaries. This company has its domicile in Exeter and is known to be quite affordable since its cost is set at the lowest levels possible.

Interestingly, Flybe Group Plc has been able to make its name as the regional airline to go for despite the presence of many others. The company has been able to trade in the London Stock Exchange with other listed companies (London Stock Exchange, 2015).

Current performance

Currently, the performance of the company is worse than that of the previous year. From the income statement, it is quite clear that the group’s revenue dipped from 620.5 million pounds to 574.1 million pounds. This means that the group has not been able to generate as much revenue as it did in the year that ended in March 2014.

Compared to another player in the same industry revenue wise; Ryanair, the performance of Flybe Group Plc is bad. This is because from the income statement of Ryanair, the total revenue is seen to have increased from 5.036.7 million pounds for the year ended 31st March 2014 to 5,654.0 million pounds attained in the year ended 31st March 2015. This shows that Ryanair was able to generate more revenue than Flybe Group Plc.

Looking at the income results of the company in the year ended 31st March 2015, an operating loss of 12.7 million pounds was realized (Flybe, 2015). This is a very bad situation for the company bearing in mind that a profit was realized in the year that was closed on the 31st day of March 2014. It is worth noting that Flybe Group Plc realized 1.3 million pounds in terms of profit in the year that was closed on 31st March, 2016. This shows a very worrying movement in the profitability of this company.

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In terms of profitability, Ryanair seems to have recorded a very high increase in its operating profit in the year that ended on 31st March 2015. In this year, Ryanair managed to realize an operating profit of 1,042.9 million pounds against 658.6 million pounds recorded in the year closed on 31st March 2014. This shows a very significant increase in the level of operating profitability unlike the case of Flybe Group Plc where a loss was recorded. Under this circumstance, it is reasonable to point out that the Ryanair has a bigger capacity of growth than Flybe Group Plc.

Liquidity

Liquidity of an organization refers to the ability to translate the available assets into cash. The liquidity of a company is always determined by looking at the ease with which a company is able or has been able to avail cash from most of its assets. To determine the liquidity of Flybe Group Plc, it is necessary to come up with the liquidity ratios of the company. The calculation of the liquidity ratios for Flybe Group Plc will focus on the year closed on 31st March, 2014 compared to the year ended 31st March 2015. Some of the liquidity ratios include current ratio, cash ratio, working capital and quick ratio.

Current Ratio

The current ratio of an organization is obtained by getting a division of the current assets by the current liabilities (Robert, 2010). For Flybe Group Plc, the current ratio for the years ended on the 31st day of 2015 and 2014 are as follows.

YearRatioCurrent AssetsCurrent Liabilities Ratio 
2015Current308.3257.2      1.20
2014Current304.8216.4      1.41

From the above schedule, it is evident that the liquidity of Flybe Group Plc in the year ended on 31st March 2015 is lower than the previous year. This is because the liquidity dropped from 1.41 to 1.20.

The current ratio for Ryanair, a competitor in the industry is as follows;

YearRatioCurrent AssetsCurrent Liabilities Ratio 
2015Current5,742.003,346.00           1.72
2014Current3,444.302,274.50           1.51

From this calculation, it is evident that Ryanair was able to have a higher current ratio in the year ended 2015 than the previous year. This is not the case with the current ratio obtained by Flybe Group Plc. From the calculation of current ratio of Flybe Group Plc, it is seen that there is a decrease in the current ratio obtained in the year ended 2014 from 1.41 to 1.2 calculated for the year ended 31st March 2015.

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Net Working capital ratio

This liquidity ratio is used in measuring by what level the current assets are when compared to the current liabilities, in the absence of cash. This means that the net working capital ratio is used in measuring the excess of current assets as compared to the current liabilities. It is obtained by dividing the current assets less cash by the current liabilities of an organization. The current ratios of Flybe Group Plc for the years ending 31st March of 2014 and 2015 respectively are as follows.

YearRatioCurrent Assets-cashCurrent Liabilities Ratio 
2015Working capital130.4257.2       0.51
2014Working capital126.9216.4       0.59

Compared to the year ended 31st March 2014, the networking capital is seen to have gone down showing negative movement of the company’s ability to take care of current liabilities.

For the net working capital ratio for Ryanair, the calculation is as below;

YearRatioCurrent Assets-cashCurrent Liabilities Ratio 
2015Working capital4557.4257.2         17.72
2014Working capital1714.2216.4           7.92

These calculations for Ryanair show that there is a very significant increase in the net working capital obtained in the year 2014 compared to that obtained in the year ended 31st March 2015. In the year ended 2014, Ryanair had a net working capital ratio of 7.92, while in the year ended 2015 it increased upto 17.72.

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Liquidity comparison with competitor (Ryanair) based on current ratio and networking capital

Quick ratio

This is a liquidity ratio that is used to derive an organizations muscle towards taking care of its short-term liabilities through the utilization of the current assets that can be converted into cash quickly (Aalst & Wil 2011). Therefore, stock is reduced from the current assets amount that is used in dividing by the current liabilities. Therefore, the formulae for quick ratio is (current assets-stock)/current liabilities. The quick ratio for Flybe Group Plc is as follows

YearRatioCurrent Assets-stockCurrent Liabilities Ratio 
2015Quick ratio301.2257.2       1.17
2014Quick ratio298216.4       1.38

From the above calculation, it is clear that the quick ratio in the year ended 31st March 2014 is higher than that of the year ended 31st March 2015. This shows that Flybe Group Plc’s capability in the previous year was better, a situation that reflects poor ability of the company.

For Ryanair, the quick ratios for the two years ended 31st March 2014 and 2015 respectively are as follows;

YearRatioCurrent Assets-stockCurrent Liabilities Ratio 
2015Quick ratio5739.93346           1.72
2014Quick ratio3441.82274.5           1.51

From the schedule above, Ryanair is seen to have made an increase in its quick ratio from 1.51 in the year ended 2014 to 1.72 in the year closed in 2015 (Ryanair, 2015). This is not the case with the quick ratio of Flybe Group Plc where the quick ratio dropped from 1.38 to 1.17.

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Profitability Ratio analysis

Profitability ratios are usually used in finding out how the assets of an organization have been employed in the process of generating profit (Papadopoulos, 2011). This is a very good ratio in the analysis of an organization financially. This is because all businesses are set up for the purpose of generating some considerable gain after a given period of time.

Gross profit margin

This is a ratio calculated through the division of the gross profit of an organization with the net sales recorded. For Flybe Group plc, the gross profit margin ratios for the years ended 31st March 2014 and 2015 respectively are as follows;

YearRatioGross profitNet Sales Ratio 
2015Gross profit Margin-12.7574.1       (0.022)
2014Gross profit Margin-1.5620.5       (0.002)

From the above calculation of gross profit margin, it is evident that it is negative for both years. However, the gross profit margin for the year ended march 2015 is poor than that of the previous year.

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For Ryanair, the gross profit margin is as follows

YearRatioGross profitNet Sales Ratio 
2015Gross profit Margin982.46073.00.2
2014Gross profit Margin591.45654.00.1

Comparatively, Flybe Public Plc is seen to have posted poor results in terms of profitability compared to Ryanair. In the year ended 31st March 2015, Flybe Group Plc had a gross profit margin of (0.022) while Ryan air had 0.2. This shows that in terms of gross profit in relation to sales, Ryan air had a good level of gain.

Company Review Findings and conclusions

From the ratio analysis for Flybe Group Plc, several findings come up. Firstly, the decrease In the current ratio of Flybe Group Plc in the year ended March 2015 shows that the company’s ability to take care of the current liabilities decreased. This means that Flybe Group Plc has to look for alternative ways of raising funds in case there is need to pay for current liabilities. With current ratio, the higher the ratio the better for a company since it means that the ability to take care of its current liabilities is stronger (Rajasekeran, 2012).

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With net working capital ratio, the higher the ratio, the better for a company. A higher ratio means that a company is able to convert its current assets into cash and finance its current liabilities in the absence of ready cash (Kaplan, 2011). In the case of Flybe Group Plc, the net working ratio is seen to have dropped from 0.59 to 0.51 in the year ended 31st March 2015.

This means that the company’s ability to finance its current liabilities from other current assets in exclusion of cash got weaker. According to Tracy (2012), a good performing company is able to handle current liabilities even without using its cash.

In the year ended 31st March 2015, the gross profit Margin for Flybe Group Plc went down compared to what was realized in the year ended 31st March 2014. This means that the company’s use of its assets for profit generation went down. With poor profitability, it means that a company cannot grow properly.

After the analysis and findings, it is reasonable to state the position of Flybe Group Plc in the industry. Firstly, its performance is poor compared to previous year. Secondly, the company’s performance compared to that of a competitor in the industry is very poor. Therefore, the management of Flybe Group Plc should come up with strategies of improving the performance of the company.

One of the things that the management should look for is the use of information technology. According to Proctor (2011), information technology is one tool that is capable of bringing improvement in performance of an organization. This is supported by Pathak (2014) who says that the information technology is important in many areas of a business including auditing. Additionally, coming up with strategies that support improvement is always an important aspect in business (Thompson, 2014).

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Conclusion

According to Gray et al. (2011), a company review is a very important activity for organizations. This is because it gives an organization an opportunity of looking at the way its performance is moving. For example, the analysis of the financial performance of Flybe Group Plc has shown how poor the performance is compared with the previous year and Ryanair which is a competitor in the industry.

From the analysis, Flybe Group Plc has been able to post poor results in the year ended 31st March 2015 compared to what was attained in the year ended 31st March 2014. Additionally, compared with Ryanair, the performance of the company is also poor. Ryanair is seen to be posting financial results which are likely to catapult the company to great heights. For better analysis of a company, financial ratios are very useful (Debarrshi, 2012).

This is because the financial ratios bring about various aspects of a business as reflected in their different levels. When carrying out a company review, it is important to carry out comparisons for different years of operations. Additionally, it is good to understand the position of a company within a particular industry.

Comparison with other players in the industry is necessary since it ensures that a company understands how the performance is compared to that of other players. Keller and Price (2013) point out that industry comparison enables a company carry out improvements and corrections so that there may be creation of competitive edge in the industry or market.

References

Aalst, V.& Wil M.P., (2011), Process Mining: Discovery, Conformance and Enhancement of Business Processes, Springer

Debarrshi, B. (2012), Management Accounting, Pearson Education India

Flybe (2015), Annual report-Flybe, Retrieved from https://www.flybe.com/corporate/investors/2014/annual-results-2014/Flybe-Group-plc-Annual-Report-2013-14.pdf, (Last accessed 15th March 2016)

Gray, S., Salter, S., & Radebaugh, L. (2011). Global accounting and control: A managerial emphasis. New York: Wiley.

Kaplan, Robert S. and Bruns, W. (2011), Accounting and Management: A Field Study Perspective, Harvard Business School Press.

Keller, S. & Price, C. (2013), Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage, John Wiley & Sons.

London Stock Exchange (2015) Listed Companies, Retrieved from https://www.google.com/?gws_rd=ssl#q=london+stock+exchange+listed+companies+flybe+group+plc, Last accessed (Last accessed 15th March 2016)

Papadopoulos, P. (2011), Investment Report – Fundamental Analysis/ Ratio Analysis, Grin Verlag

Pathak, J. (2014), Information Technology Auditing:An evolving agenda, Willey Publishers, Springer

Proctor, K (2011), Optimizing and Assessing Information Technology: Improving Business Project Execution, John Wiley & Sons

Rajasekeran, P. (2012), Financial Accounting, Pearson Education India

Robert, L. (2010), Ratios Made Simple: A beginner’s guide to the key financial ratios, Harriman House Ltd.

Ryanair (2015) Retrieved from https://investor.ryanair.com/wp-content/uploads/2015/07/Annual-Report-2015.pdf, last accessed (Last accessed 15th March 2016)

Thompson,JL. (2014). Understanding Corporate Strategy. Cengage Learning Chew, L. & Parkinson, A. (2013), Making Sense of Accounting for Business, Harlow: Pearson

Tracy, A. (2012), Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyze Any Business In The World, Ratioanalysis.net

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