A brief Financial analysis of Ryanair Plc
...nair to increase sales, while at the same time reducing costs on a per unit basis. 2.1 Explanation to Financial Statements In order to assess a companies value, a report is constructed which quantitatively describes the financial health of a company. This includes written reports known as a balance sheet, Profit and Loss statement and a cash flow statement. 2.1.1 The Balance Sheet The Balance sheet is an obligatory statement which shows the financial position of a company at a given moment in time. Traditionally the Balance sheet is in two halves showing Assets (fixed and net-current assets, investments; 'where the money has gone') at the top (see green arrow Appendix 3.1). Liabilities(equity/shares, long term debt, and reserves; 'where the money came from') at the bottom (see red arrow Appendix 3.1). The purpose of the Balance sheet is to provide useful insights to the financial and investing activities of a business. It particularly identifies key aspects such as the liquidity of a business, the mix of assets by the business and the financial structure of a business. The liquidity of a business is the ability of the business to meet its current assets (short term obligations) from its cash or near cash assets (liquid assets). The main reasons why many businesses fail shortly after opening is due to the fact that they are not able to convert there current assets into cash in order to meet there long term obligations. It is important for a business to have a mix of assets since it is vital to a business to establish a balance between fixed and current assets since having too much of one thing can cause problems in the short or long term (this can also be related to liquidity of a business). So in the case of Ryanair PLC it could mean selling off planes in order to pay suppliers, although which would then cause the company a substantial loss in the future. The Financial Structure of a business is used to measure the ownership of a business; it estimates how much of a business is owned by the investors compared to the actual owners. This helps in determining whether the company is too over reliant on outside investors, since this could mean that the business is over committed in paying interest charges, which is irrespective of how the business may be performing. 2.1.2 The Profit and Loss Statement The Profit & Loss statement contains a listing of income, expenses, and thus resulting in either a net profit or loss; this is also known as an income statement and is obligatory for UK companies to produce every year. The first item to appear on the profit and loss statement is turnover (also known as sales). This shows the trading revenue resulting from selling goods in the marketplace. We can then see various ‘layers’ of profit: gross profit, operating profit, profit on ordinary activities before tax, profit for the financial year and retained profit. The Gross profit is the first stage in constructing the trading of a companies profit and loss account and it just shows the sales revenue minus the cost of...