Easy Jey and Ryan Air Financial Analysis free essay sample

Comparing Gearing of Easy Jet amp; Ryan Air26 Horizontal Analysis27 Easy Jet28 Ryan Air29 Comparing Easy Jet and Ryan Air using Horizontal Analysis30 Balance Sheet30 Income Statement32 Vertical Analysis of the Balance Sheet34 Easy Jet34 Ryan Air35 Comparing Easy Jet and Ryan Air Using Vertical Analysis of the Balance Sheet36 Conclusions amp; Recommendations38 References41 Appendix41 Appendix A: Profitability Ratio Calculations44 Appendix B: Efficiency Ratio Calculations47 Appendix C: Liquidity Ratio Calculations50 Appendix D: Gearing Ratio Calculations51 Appendix E: Horizontal Analysis Calculations53 Appendix F: Vertical Analysis Calculations55 Executive Summary This report provides an analysis and evaluation of the most 3 fiscal years of profitability, efficiency, liquidity and financial gearing of Easy Jet amp; Ryan Air. It also provides a comparison of the financial stability of the two low cost carriers. Methods of analysis include horizontal and vertical analyses as well as ratios analysis for each of the 4 key areas of profitability, liquidity, efficiency and gearing. Ratio’s such and return on shareholders’ funds (ROSF), sales revenue per capital employed (SRCE), current ratio (CR) and gearing ratio (GR) as amongst some of the key ratios used to for analysis. All calculations and assumption made during ratio calculation can be found in the appendix. The analysis conducted in the report has limitations which affect the completeness of it. Some of the limitations include: * The two low cost carriers annul reports deal with two difference currencies and therefore an assumption that 1 GBP = 1 Euro has been made which makes the analysis less accurate. The fiscal years taken into account of the two low cost carriers are not the same, it is possible that Easy Jet’s 2012 annual report has taken into account sales figures of Europe’s summer 2012 whilst Ryan Air’s 2012 annual report hasn’t which makes the analysis less accurate. A similar case is posed for the annual reports of 2010 where Ryan Air includes the 2009 Europe summer sales figures whilst Easy Jet’s 2010 Annual report doesn’t. Whilst analyzing we came across the fact that Ryan Air is more profitable and liquid when compared to Easy Jet. However Easy Jet is more efficient and has better financial gearing. The horizontal and vertical analysis conducted revealed key areas of strength and weaknesses in the income statement and balance sheet that proved the fact that Ryan Air was more profitable yet why Easy Jet more efficient. When analyzed further these were some of the main reason for Ryan Air’s high profitability amp; liquidity: 1) High ancillary revenue 2) Low average fare 3) Larger fleet Size 4) Larger number of sectors flown 5) Larger number of airports served ) Foreign exchange gain due to the weakening of the Euro 7) Decrease in capital expenditure to invest in future opportunities 8) Exit of other low cost competitors in the European industry 9) Operating from bases that have better on time performance Ryan Air do however need to target on improving: 1) Reducing borrowing amp; loans by paying off using access liquidity. 2) Improvement on customer care and efficiency by taking a close look at their routes , bases and flights to maximize the operating profit of each and to make better use of their assets. When we took a look at Easy Jet these were some of the reasons of efficiency and gearing: 1) Better customer care 2) Better utilization of assets through constant evaluation of bases and routes to maximize profits 3) Improvements on their online site 4) Improvements using marketing campaigns to raise brand awareness 5) Payment of loans using access liquidity 6) Investment on operation centers to help increase on time performance However Easy Jet could learn a few tactics by observing their competitor Ryan Air to increase profitability: 1) Methods of increasing their non-seat revenue ) Decreasing average fare price to match with the competitor 3) Increasing fleet size, number of sectors, airports served through careful consideration of new profitable routes and bases 4) Partnering with a legacy carrier to help with acquiring more customers, routes and bases 5) Becoming a major stakeholder for a low cost carrier that is established in another European country’s customer base but one that is struggling to keep up with the pace of the European low cost carrier competitive industry In conclusion Ryan Air clearly can by classified as Europe’s number 1 low cost carrier simply because it’s more profitable. However from an investment perspective one should think twice before investing in Ryan Air just because it’s profitable, because of its financial gearing it is possible that given an unfavorable turn of events in the European economy Ryan Air may not do so well. Introduction The purpose of this report is to compare the financial performance of 2 of Europe’s largest Low Cost Carriers, Easy Jet and Ryan Air. The analysis conducted in this report will lead to show the considerable growth shown by low cost carriers in the European Aviation market in the recent years. Easy Jet was established in 1995 as part of the Easy Group by Stelios Haji-Ioannou a Greek-Cypriot businessman who began the business with 2 wet leased aircrafts operating on two routes, London Luton to Glasgow and Edinburgh (easyJet – Wikipedia. com, 2013). Ryan Air was established in 1985 by Christopher Ryan, Liam Lonergan and Tony Ryan and began business with a 14-seat aircraft, flying between Watford and Gatwick Airport (Ryan air – Wikipedia. com, 2013). This report will be looking at data taken from the annual reports of Easy Jet for the fiscal years ending 30th September 2012, 30th September 2011 and 30th September 2010, and for Ryan Air data taken from the annual reports for the fiscal years ending 31st March 2012, 31st March 2011 and 31st March 2010. The data from the annual reports will be used to conduct a fair analysis of the 2 airlines by looking at the Profitability, Efficiency, Liquidity and Gearing for each airline across the 3 fiscal years. However there are a few factors about the annual reports of the 2 companies to keep in mind that will affect the fairness of the results and analysis conducted in this report. The 2 main factors are: 1) The fiscal years of the 2 airlines are not overlapping, i. e. Easy Jet ends in September and Ryan Air in March, which means Ryan Air, is lacking 3 months of financial data for 2011 2012 and has 3 months of extra data for 2009 – 2010 to compare fairly with Easy Jet. The effect of this can be noted when we look at the balance sheets of the 2 companies and in which year each has considered the Icelandic Volcano expenses, Ryan Air has it accounted for in 2011 and Easy Jet in 2010. 2) Easy Jet is a company based out of UK and their annual reports show all the data in British Pounds. Ryan Air on the other had is based out of Ireland and their annual reports show all the data in Euros. For this report the exchange rate between the two currencies are considered negligible when conducting the analysis. Therefore an assumption has be made that 1 British Pound = 1 Euro. The report will also be looking into external factors that may have impacted the financial performance of the 2 European carriers during these 3 fiscal years by using a PESTLE (Political, Economic, Social, Technological, Legal and Ethical) analysis. The report will conclude with any recommendations that can be made to improve the financial performance of each airline and is intended to give the reader an idea of which carrier can be dubbed as Europe’s Number 1 Low Cost Carrier from a financial standpoint. Profitability The profitability of an organization can be measured using certain ratios which can be calculated by looking at an organization’s Income Statement, Balance Sheet and Cash Flow Statements present in the annual report. Profitability ratios are meant to show how effectively a company is generating profits. The following Profitability Ratios will be used in this report to determine how profitable each of the 2 low cost carriers is: 1) Return on Shareholder’s Funds (ROSF): this ratio shows us how much of the profit is available as a return to the shareholders that have invested in the company (Atrill amp; McLaney 2013:185). The higher the value the better, since it shows us a company is profitable and there is yielding more returns to the shareholders. 2) Return on Capital Employed (ROCE): this ratio shows us how much profit a company is earning based on the capital that in invested in the business (Atrill amp; McLaney 2013:186). The higher the value the better, since this shows us that a business is using the capital invested to generate maximum operating profits. 3) Gross Profit Margin (GPM): this ratio shows us how much is left over after the costs of sales are deducted from the revenue. It’s a key indicator to show how much a company has in excess which it can use to cover its operation costs and other expenses. Gross Profit Margin ideally shouldn’t fluctuate from year to year for a company until and unless the industry is going through drastic changes (Gross Profit Margin – Investopedia. com, 2013). Again the higher the value the better because it shows that the company is making enough of money per sale to cover the overhead costs related to the service. This ratio is a good indicator to show any changes in the company’s pricing strategies, because if sales prices were to increase with the cost of sales relatively remaining the same then gross profit would increase amp; if cost of sales were to increase and sales prices were to remain the same gross profit would decrease. 4) Operating Profit Margin (OPM): this ratio gives us an idea of how much money a company is making per sale, it is an identifier of the true profitability of a company before any interest and taxes are deducted (Atrill amp; McLaney 2013:188). The higher the value the better because it means for each sale the company is generating more profits. 5) Net Profit Margin (NPM): this ratio gives us an idea of the final profitability of the company after deduction of all expenses such as interest, depreciation, taxes, etc. , it’s ideally how much is left over for the company stakeholders per sale generated and also known as the â€Å"bottom-line† (What is net profit margin ratio? – bizfinance. about. com, 2013). The higher the value the better because it means that company is generating enough of revenue to cover the overhead expenses thus resulting in greater overall profitability. ) Return on Assets (ROA): this ratio gives us an idea of how effectively the management of a company is using the assets available to generate net profits. The higher the value the better because it means for a smaller value of assets the company is generating a larger net profit (Return on Assets – Investopedia. com, 2013). 7) Operating Cash Flow Margins (OCFM): this ratio shows how much operating cash is generated per sale (Cash Flow Margin – bizfinance. about. com, 2013). Cash flow is important for a business to function and survive in these trying financial time. The higher the value the better because it means the company is generating a good cash flow to expand, develop new strategies, buy back more shares and reduce debt. For the sections below each of the ratios described above are calculated for each the 3 fiscal years for Easy Jet and Ryan Air. For the assumptions made during calculation and the formulas used to calculate each ratio please refer to Appendix A. Easy Jet Ratio/Year| 2012-2011 Ending September 30th 2012| 2011-2010 Ending September 30th 2011| 2010-2009 Ending September 30th 2010| ROSF (Return on Shareholders’ Funds)| 14. 21405| 13. 19648| 8. 061292| ROCE (Return on Capital Employed)| 10. 92049| 8. 171324| 5. 922396| GPM (Gross Profit Margin)| 19. 20083| 18. 308227| 18. 970737| OPM (Operating Profit Margin)| 8. 58848| 7. 792584| 5. 8526741| NPM (Net Profit Margin)| 6. 6165023| 6. 5179606| 4. 069963| ROA (Return on Assets)| 5. 937136| 5. 034683| 3. 022733| OCFM (Operating Cash Flow Margins)| 6. 772185| 12. 8273| 12. 20989| Table 1 Figure 1 If we look at the profitability ratios for Easy Jet the following can be concluded: 1) ROSF: we can notice that in the past 3 years it has been increasing, which means Easy Jet shareholders are receiving more every year and in the recent 2 years it’s a steady rise. A rather large difference can be noticed between the ROSF values of 2010-2009 and 2011-2010, this can possible be attributed to the fact that Shareholder Equity was about GBP 200 million lesser in that year and profits about GBP 100 million lesser. If we closely look at the Income Statement we will realize that there is a GBP 14 million wet aircraft leasing expense and a GBP 27 million expense for volcanic ash disruption. It’s in this year Easy Jet suffered a lot of disruption and operational issues as stated by the Chairman of Easy Jet Sir Michael Rake in the annual report for 2010-2009 (easyJet plc Annual Report and Accounts 2010: 6). Due to Mount Eyjafjallajokull erupting in April of 2010 in Iceland the ash cloud that was formed caused major disruptions to flights across the entire globe whilst especially effecting Europe due to the proximity of the volcano. There was also heavy disruption of flights due to snowfall in the same year across Europe as well as ATC strikes that effected operations. Add to this the fact that Easy Jet was having issues with staffing â€Å"the right number of crew in the right locations at the right time† as stated by CEO of Easy Jet Carolyn McCall all these factor combined shows the reason as to the 2 extra expenses of Volcanic Ash and Aircraft Wet Leasing in the Income statement that year (easyJet plc Annual Report and Accounts 2010: 10). 2) ROCE: we can notice again it been increasing steadily over the past 3 years. Easy Jet is constantly improving on how to maximize their profit and this is clearly mentioned in the CEO statements in all of 3 annual reports, they close inefficient profit generating bases or reduce flights in costly and more inefficient profit generating bases and increase flights in popular bases that generate more operating profits. 3) GPM: not fluctuating much remaining steady which shows that in-spite of rise in fuel costs and airport taxes in the aviation industry, Easy Jet are maintaining their sales revenue with well thought out sales prices that yield good profits, and this is noted in the 7. % increase in passengers in 2012-2011 (easyJet plc Annual Report and Accounts 2012: 9). 4) OPM: the ratio is at a steady increase with the slight increase in the values for 2010-2009 to 2011-2010, again this can be attributed to higher operation expenses in 2010-2009 because of the volcanic ash cloud, snow disruptions, ATC strikes across Europe and crew staffing issues that were face d by Easy Jet. ) NPM: the ratio is at a steady increase with the slight increase in the values for 2010-2009 to 2011-2010, again this can be attributed to higher operation expenses in 2010-2009 because of the volcanic ash cloud, snow disruptions across Europe and crew staffing issues that were faced by Easy Jet. 6) ROA: as seen this ratio is steadily increasing, which shows Easy Jet is generating more profits per assets that are available to them. The increase in restricted cash due to higher payment card acquiring in 2011-2010 fiscal year as well as the increase in derivate financial nstruments in 2011 – 2010 has increased the total assets for 2011-2010 and this has resulted in an a sharper increase in the ROA value from 2010-2009. 7) OCFM: as see in the graph in figure 1, this is the one ratio that has taken a massive decline in the recent fiscal year of 2012 – 2011. Upon closely looking at the cash flow statement it can be noted that this is due to an ordinary divid end of GBP 46 million being paid and special dividend of GBP 150 million being paid to the shareholders. This decision was taken by the Board of Directors at Easy Jet in the fiscal year of 2010-2009 due to the company being at a strong financial position as mentioned by the CEO in the annual report of 2010-2009, but it was only implemented in the year of 2011 and was paid out by Easy Jet in the fiscal year of 2012 – 2011 (easyJet plc Annual Report and Accounts 2010: 7). As seen from the ratios above overall Easy Jet is performing at a steadily increasing profitable level for the past 3 years despite the increase in fuel prices, airport taxes and a uncertain European economy which lead to people being more cautious in spending. Ryan Air Ratio/Year| 2012-2011 Ending March 31st 2012| 2011-2010 Ending March 31st 2011| 2010-2009 Ending March 31st 2010| ROSF (Return on Shareholders’ Funds)| 16. 94741| 12. 6815397| 10. 71754546| ROCE (Return on Capital Employed)| 9. 50737545| 7. 2231757| 6. 6862882| GPM (Gross Profit Margin)| 26. 7049| 25. 70326| 26. 18052| OPM (Operating Profit Margin)| 15. 5619| 13. 45089| 13. 45671| NPM (Net Profit Margin)| 12. 764794| 10. 320981| 10. 217195| ROA (Return on Assets)| 6. 2259749| 4. 35784086| 4. 036544411| OCFM (Operating Cash Flow Margins)| 23. 403991| 21. 664141| 29. 165691| Table 2 Figure 2 If we look at the profitability ratios for Ryan Air the following can be concluded: 1) ROSF: we can notice that in the past 3 years it has been increasing, which means Ryan Air shareholders are receiving more every year. A sudden increase in the rate can be noticed between the ROSF values of 2012-2011 and 2011-2010, this can possible be attributed to the fact that Shareholder Equity was about Euros 500 million more in that year and profits about Euros 200 million more. If we closely look at the Balance Sheet we will realize that there is a Euros 500 million increase in Retained Earnings in that year. The gain can be clearly noticed in the Income Statement since in the year of 2012 – 2011 there is a significant foreign exchange gain noted of Euros 4. 3 million mainly because of the weakening of the value of the Euro against the U. K pound sterling during this year as noted in the Ryan Air Annual report of 2012 – 2011 (Ryan Air Annual Report 2012: 86). A Euros 20 million increase in finance income can also be noted for the same year and this is due to improved yields on term deposits (Ryan Air Annual Report 2012: 86). 2) ROCE: we can notice again it been increasing steadily over the past 3 years. Ryan Air is constantly looking for new opportunities to maximize profits, especially in the current economy where carriers are exiting the industry, for example in the fiscal year of 2012-2011 the closure of Spanair allowed Ryan Air to expand its operations in Barcelona and Madrid (Ryan Air Annual Report 2012: 4). ) GPM: not fluctuating much remaining steady which shows that in-spite of rise in fuel costs and airport taxes in the aviation industry, Ryan Air are maintaining their sales revenue with well thought out sales prices that yield good profits. And this is noted in the 5% increase in traffic in 2012-2011 (Ryan Air Annual Report 2012: 4). 4) OPM: the ratio is at a steady increase with the slight decrease in the values for 2011-2010, this can be attributed to higher operation expenses in 2011-2010 because of the volcanic ash cloud, snow disruptions and ATC strikes that effected airlines across Europe in 2010. We can see a clear expense of Euros 12. 4 million in the Income statement for the year of 2011-2010 pertaining to Icelandic volcanic ash cloud. 5) NPM: the ratio is at a steady increase with the slight decrease in the values for 2011-2010, this can be attributed to higher operation expenses in 2011-2010 because of the volcanic ash cloud, snow disruptions and ATC strikes that effected airlines across Europe in 2010. 6) ROA: as seen this ratio is steadily increasing, which shows Easy Jet is generating more profits per assets that are available to them. The increase in operating revenue year on year despite of increasing fuel and airport taxes can be accountable for this steady increase. The steady increase in cash and cash equivalents can also be attributed to the increase in this ratio, this is mainly because as mentioned by Ryan Air’s CEO, they are not investing their cash in the recent few years and they are saving for a good opportunity to invest it in (Ryan Air Annual Report 2012: 8). ) OCFM: as seen in the graph in figure 2, this is the one ratio that has taken a slight decline in the fiscal year of 2011 – 2010. Upon closely looking at the cash flow statement it can be noted that this is due to an increase in other current assets, which when closely looked at the notes to the accounts for that year we can see in this year Ryan Air has paid Euros 94. 5 million in prepayments. It is possible that due to the fact that Ryan Air has the cash in hand from the previous fiscal year and because they were generating sufficient profits despite of the difficulties faced they decided to pay in advance for their aircraft leases knowing that the fiscal year of 2011-2010 was a hard one, however there is no detailed mention of why the prepayments were made in the annual report. As seen from the ratios above overall Ryan Air is performing at a steadily increasing profitable level for the past 3 years despite the increase in fuel prices, airport taxes and a uncertain European economy which lead to people being more cautious in spending. Comparing Profitability of Easy Jet amp; Ryan Air For this section data from 5 fiscal years have been used to draw up comparison graphs to compare each of the ratios values plotted to show the differences in the two airlines. Five fiscal years’ worth of data has been taken to plot more accurate graphs, but the performance of only the most recent 3 years will be evaluated. Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Figure 9 As we can see for 6 out of the 7 profitability ratios, Ryan Air is clearly showing up as more profitable when compared to Easy Jet. This is mainly attributable to the fact that Ryan Air has been generating a higher volume of revenue in the recent 3 years when compared to Easy Jet. This can also be shown by the fact that Ryan Air serves at more airports and has a greater number of sectors flown, this will be discussed in detail the section to follow on efficiency. It’s only in 2011-2010 values for ROSF we can see that Easy Jet did better, this is because of the fact that Ryan air took into account the volcanic ash amp; ATC strikes in this year whereas Easy Jet take it into account in 2010-2009. The only ratio in which we can see Easy Jet showing a better performance in is Return on Capital Employed as seen in Figure 4 above. Ryan Air has a lot more borrowings approximately Euros 3,000 million of borrowings on average across each fiscal year compared to the approximately GBP 1,000 million of borrowings on average across each of the 3 fiscal years for Easy Jet, thus Ryan Air has higher Non-Current Liabilities in their balance sheet which results in a lower ROCE. Ryan Air uses most of its borrowings to buy Boeing 737-800 aircrafts as recorded in the annual report for 2012 (Ryan Air Annual Report 2012: 90). Considering the rather large difference in GPM, NPM amp; OPM numbers between the two carriers, we usually would expect a similar gap difference in ROCE, ROSF and ROA values between the two carriers. This is probably because Ryan Air even though profitable may not be as efficient as Easy Jet. In the section preceding this will be looked at in more detail. Efficiency The efficiency of an organization can be measured using certain ratios which can be calculated by looking at an organization’s Income Statement, Balance Sheet and Operational Data present in the annual report. Efficiency ratios are meant to show how efficient a company is at using its assets and resources to generate profits. The following Efficiency Ratios and measures will be used in this report to determine how efficient each of the 2 low cost carriers is: 1) Sales Revenue to Capital Employed (SRCE): this ratio shows us how effectively the capital (equity) of a company is being used to generate revenue (Atrill amp; McLaney 2013:196). The higher this ratio the better because it means the company is using its capital more effectively to generate revenue. ) Sales Revenue per Employees (SRE): this value shows us the productivity of the workforce in a company (Atrill amp; McLaney 2013:197). The higher the value the better because it means the company is using their workforce efficiently. 3) Load Factor (LF): this a significant piece of data included in each of the airline’s annual report which measure the number of passengers travelled as a percentage of the number of seats flown(easy Jet plc Annual Report and Accounts 2012: 104). It shows us the performance of the airline’s use of seats and passenger which gives us an idea about how well they are using their flights. The higher the load factor the better, in fact a 100% load factor would mean that in all flights all the seats had passengers, which means the flight was operating at fully booked capacity throughout the year and therefore can result in a better sales revenue. 4) Sales Revenue per Sector (SRS): this value has been calculated to show how much sales is generated per sector flown by each airline company. A sector is defined as â€Å"a one way revenue flight† as per Easy Jet’s definition in the Annual Report for 2012, therefore we can assume that 1 sector is 1 flight; therefore we can also use the values for this ratio to tell us how much sales revenue the airline is generating per flight (easyJet plc Annual Report and Accounts 2012: 104). The higher the value the better because it means for each sector (flight) flown the sales generated by it is higher. ) Fixed Asset Turnover (FAT): this ratio shows how effectively a company uses its net fixed assets (Non-current assets) such as property amp; equipment to generate sales revenue (Fixed Asset Turnover Ratio – bizfinance. about. com, 2013). The higher the value of the ratio the better because it shows the company is generating more sales revenue per value of the fixed assets. 6) On Time Performance (OTP): this a significant piece of data included in each of the airline’s annual report which measure the on tim e performance percentage performance of the flights flown throughout the year from a particular airline company. It shows us the airline’s efficiency in delivering a good customer service to its customers who use their service. Airlines that have greater OTP percentages are likely to incur less airport charges dues to delays thus increasing operating revenues. The higher the value the better, a 100% OTP means all of the flight flown in that year were on time for that airline company. For the sections below each of the ratios described above are calculated for each the 3 fiscal years for Easy Jet and Ryan Air. For the assumptions made during calculation and the formulas used to calculate each ratio please refer to Appendix B. Easy Jet Ratio/Year| 2012-2011 Ending September 30th 2012| 2011-2010 Ending September 30th 2011| 2010-2009 Ending September 30th 2010| SRCE (Sales Revenue per Capital Employed)| 1. 271528| 1. 048603| 1. 011913| SRE (Sales Revenue per Employee)| 469656. 3| 446918. 7| 431682. 9| LF (Load Factor)| 88. 70%| 87. 30%| 87. 00%| Sales Revenue per Sector (SRS)| 9376. 946| 8780. 431| 8420. 188| Fixed Asset Turnover (FAT)| 1. 342389| 1. 303625| 1. 30546| On Time Performance (OTP)| 88%| 79%| 66%| Table 3 If we look at the efficiency ratios for Easy Jet the following can be concluded: 1) SRCE: this ratio on an increasing trend, so this shows that Easy Jet is using their capital more efficiently in the year 2012-2011. This is again attributed to fact that they closed their base in Madrid in this year due to high airport charges and lowering of revenue per passenger number and incre asing capacity in more profitable based in countries like France, UK, Switzerland and Italy (easyJet plc Annual Report and Accounts 2012: 06). ) SRE: this value on an increasing trend, so this shows that Easy Jet is using their workforce more efficiently in the year 2012-2011. The increase in the average number of employees to meet increasing passenger loads has done well since its increased revenue thus making this ratio higher in the year. 3) LF: as we can see LF are increasing steadily year on year and for the recent year it is attributed to the annualisation of changes to fees and charges made in 2011, improvement in easyjet. om and the success of the ‘europe by easyjet’ campaign as mentioned by the CEO in the Annual report for 2012 (easyJet plc Annual Report and Accounts 2012: 09). 4) SRS: as we can see the value of this has increased as well and is steadily increasing. This is attributed to the fact that there were approximately 20,000 more sectors flown in the re cent year of 2012-2011 that resulted in an increase in revenue thus an increase in the SRS value. This is mainly because Easy Jet increased capacity in most of the countries that Easy Jet serves to because of other carriers reducing capacity (easyJet plc Annual Report and Accounts 2012: 10). ) FAT: as we can see this ratio is increasing steadily as well, mainly due to the increase in Non-Current Assets because of the approximate GBP 200 million increases in plant, property and equipment as seen in the Balance Sheet for 2012-2011. This is probably because of the fact that Easy jet’s fleet was increased by 17 aircrafts (19 A320’s delivered and 2 Boeing 737-700 returned) (easyJet plc Annual Report and Accounts 2012: 15). 6) OTP: as we can see has increased in the recent year and is at a generally increasing trend. This can be attributed to the investment made on easy jet’s operations control center which helped minimize disruptions (easyJet plc Annual Report and Accounts 2012: 10). As seen from the ratios above overall Easy Jet is performing at a steadily increasing efficiency level for the past 3 years despite the increase in fuel prices, airport taxes and a uncertain European economy which lead to people being more cautious in spending. Ryan Air Ratio/Year| 2012-2011 Ending March 31st 2012| 2011-2010 Ending March 31st 2011| 2010-2009 Ending March 31st 2010| SRCE (Sales Revenue per Capital Employed)| 0. 109379| 0. 53700361| 0. 496873857| SRE (Sales Revenue per Employee)| 520289. 168| 450142. 63| 424928. 9| LF (Load Factor)| 82. 00%| 83. 00%| 82. 00%| Sales Revenue per Sector (SRS)| 8964. 0007| 7831. 312| 6983. 1736| Fixed Asset Turnover (FAT)| 0. 9116242| 0. 74978825| 0. 700675327| On Time Performance (OTP)| 91%| 85%| 88%| Table 4 If we look at the efficiency ratios for Ryan Air the fo llowing can be concluded: 1) SRCE: a significant increase can be noted in the fiscal year of 2012-2011 for this ratio. Upon further investigation this is due to the significant increase in shareholders’ equity due to an approximately Euros 400 million increase in retained earnings. They may have been retaining their earnings due to the fact that Ryan Air were bidding to take over Irish rivals Aer Lingus but their 3rd attempt at a bid was rejected by the EU in late February 2013 (Ryanair’s Bid to take over Aer Lingus blocked – bbc. com, 27th February 2013). 2) SRE: a significant increase can be noted in the fiscal year on 2012-2011 for this value. This can be attributed to the increase in profits and the increase in the average number of employees. The increase in profit can most like be accounted for the fact that Ryan Air grounded 80 aircrafts during the winter at certain government owned airports to cut costs due to high oil and airport charges during winter (Ryan Air Annual Report 2012: 4). 3) LF: this percentage has decreased in the recent fiscal year of 2012-2011. This can be attributed to the fact that there was a 16% rise in average fares this year, although this increased profits, it may have resulted in less people using Ryan Air as their first choice in airline for travel when compared to the previous year (Ryan Air Annual Report 2012: 4). ) SRS: a significant increase is noted for this value in the fiscal year of 2012-2011. This is due to the increase in sectors in that year which can be explained by the fact that Ryan Air opened a new base in Budapest and increased operation in Barcelona and Madrid due to the closure of Spanair (Ryan Air Annual Report 2012: 4). 5) FAT: a significant increase in this ratio is noted and this due to the increase in operating revenue mainly resulting from the 16% increase in average fares (Ryan Air Annual Report 2012: 4). 6) OTP: a massive increase in the OTP percentage, this probably because of the 80 flight that were grounded during winter. Airline’s generally face the most delays during winter due to harsh weather condition in Europe, the grounding of these flight increase Ryan Air’s OTP for the fiscal year (Ryan Air Annual Report 2012: 4). Comparing Efficiency of Easy Jet amp; Ryan Air For this section data from 5 fiscal years have been used to draw up comparison graphs to compare each of the ratios values plotted to show the differences in the two airlines. Five fiscal years’ worth of data has been taken to plot more accurate graphs, but the performance of only the most recent 3 years will be evaluated. Figure 10 Figure 11 Figure 12 Figure 13 Figure 14 Figure 15 As we can see for 4 out of the 6 efficiency ratios, Easy Jet is clearly showing up as the more efficient airline. This is attributable for the fact that Easy Jet is a better more customer friendly brand. Despite the claims from Ryan Air about being the most customer service friendly airline when looking at SkyTrax Rankings which measure product and standard quality for airlines, it rates Easy Jet as a 3 star airline whereas Ryan Air is a 2 star airline, out of which Easy jet clearly dominate in Customer Service Support and the Fares amp; Taxes areas amongst others (Ryanair amp; EasyJet – airlinequality. om, 2013). However for On Time Performance and Sales Revenue per Employee Ryan Air seem to be more efficient. This can be explained by the fact that Ryan Air is more profitable that Easy Jet as analyzed in the previous profitability section of this report. Ryan’s Air’s OTP can be explained by the fact that Ryan Air chooses secondary airports as routes an d destinations, and there have better on-time departure rate due to the fact that they are less congested than major airports (Thompson amp; Baden-Fuller 2010:181). Liquidity The liquidity of an organization can be measured using certain ratios which an be calculated by looking at an organization’s Balance Sheet and Cash Flow Statements present in the annual report. Liquidity ratios are meant to show how liquid a company is gives us an idea about the company’s ability to meet short term obligations. The following Liquidity Ratios will be used in this report to determine how liquid each of the 2 low cost carriers is: 1) Current Ratio (CR): a ratio that helps us compares the liquid assets (current assets) of the business with respects to its current liabilities (Atrill amp; McLaney 2013:200). The higher the value the better because it means the company is very cash rich. For low cost carriers in the current economy an ideal ratio value of 1. 5 times is considered a good and safe value. 2) Cash Ratio (Cash R): a ratio that helps us determines by how much (how many times) a company’s cash and cash equivalent can cover its total liabilities. Generally a higher value is better and creditors look at this value to see how easily a company can fulfill its debts; however a value that is too high means that the company may not be utilizing its cash assets wisely on other more profitable investments to advance the company (Cash Ratio – readyratios. om, 2013). For the sections below each of the ratios described above are calculated for each the 3 fiscal years for Easy Jet and Ryan Air. For the assumptions made during calculation and the formulas used to calculate each ratio please refer to Appendix C. Easy Jet Ratio/Year| 2012-2011 Ending September 30th 2012| 2011-2010 Ending September 30th 2011| 2010-2009 Ending September 30th 2010| CR (Current R atio)| 1. 049842| 1. 476636| 1. 422535| Cash R (Cash Ratio)| 0. 510285| 0. 34579| 0. 856338| Table 5 Figure 16 When looking at figure 16 above, we can see that both the Current Ratio and Cash Ratio are decreasing in the recent fiscal year for Easy Jet. A current ratio of 1. 04 can be deemed too low for Easy Jet who is a low cost carrier. When looking at the balance sheet across the 3 fiscal years we can notice this is because a decrease of GBP 400 million approximately is noticed in Easy Jet’s Current Assets, especially their cash and cash equivalents. Upon further investigation of the cash flow statement we can see this is mainly because of the following: 1) In the fiscal year of 2012-2011 and ordinary dividend of GBP 46 million plus a special dividend on GBP 150 million was paid to the shareholders, this is due to the strong profitability in the past 12 months in 2011-2010, the Board had decided to pay this as stated in the annual report of 2011-2010 (easyJet Annual Report 2011: 9). 2) The amount of repayment on bank loans has increase by GBP 200 million, showing us that Easy Jet is paying off their loans in this fiscal year. Therefore we can come to a conclusion that even thou the ratios are low, they are low for a justifiable reason, Easy Jet are paying of their loans which is better for the company on the long run since they will not have to pay interest on the paid loans and this can be noted in the decrease of the interest payables in the income statement for the fiscal year of 2012-2011. This decision should decrease the financial gearing of Easy Jet in the year of 2012-2011 and this will be discussed in the next section. Ryan Air Ratio/Year| 2012-2011 Ending March 31st 2012| 2011-2010 Ending March 31st 2011| 2010-2009 Ending March 31st 2010| CR (Current Ratio)| 2. 13553719| 1. 89288047| 1. 976897264| Cash R (Cash Ratio)| 1. 49217631| 1. 10401698| 0. 953729995| Table 6 Figure 17 When looking at figure 17 above, we can see that both the Current Ratio and Cash Ratio are increasing in the recent fiscal year for Ryan Air. A current ratio of 2. 13 can be deemed reasonably high for a low cost carrier such as Ryan Air. When looking at the balance sheet across the 3 fiscal years we can notice this is because an increase of Euros 400 million approximately is noticed in Ryan Air’s Current Assets, especially the massive increase in their cash and cash equivalents. Upon further investigation of the cash flow statement we can see this is mainly because of the following: 1) In the fiscal year of 2012-2011 there is an approximate increase of Euros 300 million in net cash provided by operating activities, that can be justified by the decrease in accrued expenses and an increase in profit before taxation in this fiscal year. ) The amount of capital expenditure has significantly decreased by about approximately Euros 500 million in this fiscal year. Resulting in a decrease in the amount of net cash used in investing activities. 3) Ryan Air also bought back shares worth approximately Euros 124 million in this fiscal year which resulted in net cash being provided by investing activities. Ryan Air has men tioned that they are saving up capital to invest their cash wisely and that they have no immediate requirement for aircraft orders as stated in the annual report of 2012 (Ryan Air Annual Report 2012: 8). As mentioned in the previous section they may have been holding onto their cash to buy Aer Lingus. Comparing Liquidity of Easy Jet amp; Ryan Air For this section data from 5 fiscal years have been used to draw up comparison graphs to compare each of the ratios values plotted to show the differences in the two airlines. Five fiscal years’ worth of data has been taken to plot more accurate graphs, but the performance of only the most recent 3 years will be evaluated. Figure 18 Figure 19 As we can see for both liquidity ratios, Ryan Air is clearly showing up as the more liquid airline. This is mainly because Ryan Air is more profitable as seen in the previous section and therefore makes more money. It is also attributable to the fact that Ryan Air has been building its cash reserves over the past 3 years to invest in a better opportunity thus naturally making it the more liquid airline when compared to Easy Jet. However as we saw previously Easy Jet’s recent dip is due to them repaying loans, which is a financially sound decision in the current economic situation. In the next section on financial gearing we will see why even though Ryan Air is more iquid, Easy Jet’s recent decision to repay loans was a better option. Gearing The gearing of an organization can be measured using certain ratios which can be calculated by looking at an organization’s Balance Sheet and Income Statements present in the annual report. Gearing ratios are meant to give an idea about a company’s financial structure, which is if it runs mainly on borrowings or on f inance provided by shareholders. This ratio therefore important at assessing how much risk a company is at from a financial perspective. As mentioned by Atrill amp; McLaney, â€Å"For highly geared businesses, a change in operating profit will lead to a proportionately greater change in ROSF ratio (Atrill amp; McLaney 2013:204). † The following Gearing Ratios will be used in this report to determine the financial gearing of each of the 2 low cost carriers is: 1) Gearing Ratio (GR): this ratio measures the how much of the long term capital is based on long term liabilities (borrowings) (Atrill amp; McLaney 2013:206). The lower the value the better because it means that the company’s capital is not mainly financed on borrowings. A gearing ratio of 40% is considered a good gearing ratio which means only 40% of the capital is from borrowings. The gearing value shouldn’t be too low in the ideal world, because that could mean that the company doesn’t have enough equity for capital and isn’t borrowing at all. 2) Interest Cover Ratio (ICR): this ratio measure how many times over a company’s operating profits can cover its interest payable to the lenders (Atrill amp; McLaney 2013:206). The higher the value the better, because it shows that the company’s operating profits are well within the required values to cover the interest a company has to pay on its loans. ) Debit Ratio (DR): this ratio measures how much of a company’s assets are provided by debt (Debit Ratio – Wikipedia. com, 2013). The lower the value the better because it means that most of the assets are provided using equity. It’s a good measure for a firm’s risk assessment. For the sections below each of the ratios described above are calculated for each of the 3 fiscal years for Easy Jet and Ryan Air. For the assumptions made during calculation and the formulas used to calculate each ratio please refer to Appendix D. Easy Jet Ratio/Year| 2012-2011 Ending September 30th 2012| 2011-2010 Ending September 30th 2011| 2010-2009 Ending September 30th 2010| GR (Gearing Ratio)| 40. 811613| 48. 207776| 48. 91082| ICR (Interest Cover Ratio)| 13. 24| 8. 966667| 6. 444444| DR (Debit Ratio)| 58. 230501| 61. 848288| 62. 50312| Table 7 Figure 20 If we look at the gearing ratios for Easy Jet as seen in figure 20 the following can be concluded: 1) GR amp; DR are decreasing, which means that Easy Jet are paying of loans and this is conclusive with the information we discovered as to why they were less liquid in the fiscal year of 2012-2011. Easy Jet’s gearing ratio is at a very good percentage, showing the management managing its financial structure well. 2) ICR is increasing; this is because since they paid of their loans their interest payables have decreased in the fiscal year of 2012-2011. The assessment of the gearing ratios shows us that even though Easy Jet are less liquid their financial decision is a sound one which is helping their financial structure to reduce on their borrowings and interest payables. In the current economic situations with interest rates being high it’s best to pay off a company’s debts as soon as possible if they have the working capital to do so. Ryan Air Ratio/Year| 2012-2011 Ending March 31st 2012| 2011-2010 Ending March 31st 2011| 2010-2009 Ending March 31st 2010| GR (Gearing Ratio)| 53. 98414| 56. 2955| 52. 63228| ICR (Interest Cover Ratio)| 6. 25641| 5. 199148| 5. 576976| DR (Debit Ratio)| 63. 26297| 65. 63634| 62. 33704| Table 8 Figure 21 If we look at the gearing ratios for Ryan Air as seen in figure 20 the following can be concluded: 1) GR amp; DR are slowly decreasing; this is because Ryan Air is acquiring more shareholder equity amp; total assets at larger values in comparison to the increase in their liabilities, thus steadily decreasing these two ratios. However Ryan Air does still have a considerably higher gearing ratio which shows they still need to reduce their percentage of borrowings. 2) ICR is increasing; this is because of the increase in operating profit which is justified by the increase in operating revenue in the fiscal year of 2012-2011. The assessment of the gearing ratios shows us Ryan Air could use some of the liquidity that we saw in the previous section to pay off their debts and decrease their gearing and stabilize their financial structure. Comparing Gearing of Easy Jet amp; Ryan Air For this section data from 5 fiscal years have been used to draw up comparison graphs to compare each of the ratios values plotted to show the differences in the two airlines. Five fiscal years’ worth of data has been taken to plot more accurate graphs, but the performance of only the most recent 3 years will be evaluated. Figure 22 Figure 23 Figure 24 As we can see from the figure above Easy Jet has a better financial structure compared to Ryan Air. This is denoted from the fact that Easy Jet has a better gearing ratio and debt cover ratio that is lower than Ryan Air plus Easy Jet have a higher interest cover ration compared to Ryan Air. We can also clearly see the effect of gearing when comparing the two. If we look at the Operating Profit Margins and the ROSF values of the two airlines which were calculated in profitability section, an approximate 1% increase in OPM resulted in an approximately 1% increase in ROSF for Easy Jet which has a low gearing, however if we look at Ryan Air an approximate 2% increase in OPM r resulted in an approximately 4% increase in ROSF. So Ryan Air is returning more to its shareholders because it’s running on loans, this is because as explained by Atrill amp; McLaney , if we compare the rate of return is generally higher for a typical well profitable business when compare to the interest rates it would need to pay for its borrowings (Atrill amp; McLaney 2013:205). All these prove that Easy Jet is a less financially risky company when compared to Ryan Air simple because Ryan Air even though heavily liquid compared to Easy Jet run their business more on long term liabilities (borrowings). If disaster were to strike it would be much harder for Ryan Air to see financial help by asking for loans because of their already existing amount of borrowings. This can be proven by the fact that according to macroaxis. com Ryan Air has a 43% probability of bankruptcy when compared to easy Jet’s 35% (Compare equities EZJ. L – macroaxis. com, 2013). Figure 25 Horizontal Analysis In this section horizontal analysis is being used to observe significant percentage changes since the fiscal year of 2010-2009 in each airline’s Income Statement and Balance Sheet. This helps us understand the financial performance of the two in recent 2 fiscal years when compared to 2010-2009. In general when conducting a horizontal analysis all the major areas of the balance sheet and income statement should be seeing an increase in the percentage change as this is expected as a company grows along with increase in assets due to more planes being purchased, liabilities are expected to increase since payable, taxes and borrowing usually increase in a company because they will take out loans for those purchases, therefore interest payables would increase. Profit increasing is a good thing because it shows the company is performing well. An increase in areas such as operating profit can be mainly considered due to rising fuel costs in Europe and rising airport charges. An increase in areas such as assets, revenue amp; profits are considered favorable and a decrease in areas such as liabilities and expenses are considered favorable. This shows that assets, revenue and profits are increasing whereas expenses and liabilities are decreasing. When comparing using horizontal analysis one should remember we are looking at percentage change, so if there is an increase in percentage change of a certain area by a certain percentage when comparing 1 year, then there should be ideally a proportionate increase (let’s assume double the value of 1 year’s change) when we are comparing the increase in percentage across 2 years. For the assumptions made during calculation and the formulas used for horizontal analysis please refer to Appendix E. Easy Jet Description| % Change from 2010 2012| % Change from 2010 2011| Balance Sheet Horizontal Analysis| Total Non-Current Assets| 19. 2926045| 9. 766881029| Total Current Assets| -12. 40924092| 14. 71947195| Total Current Liabilities| 18. 68544601| 10. 51643192| Total Non-Current Liabilities| -13. 91788448| 10. 43841336| Shareholders Equity| 19. 52031979| 13. 59093937| Income Statement Horizontal Analysis| Total Operating Revenue| 29. 63336697| 16. 11167171| Total Operating Expenses| 25. 86638085| 13. 71918542| Operating Profit| 90. 22988506| 54. 59770115| Net Finance Charges| -30| 5| Profit for the year (after taxes)| 110. 7438017| 85. 95041322| Table 9 When we look at table 9, can observe the following for Easy Jet: 1) Significant Decrease in Current Assets in 2012 since 2010 2) Significant Decrease in Non-Current Liabilities in 2012 since 2010 3) Significant Decrease in Net Finance Charges in 2012 since 2010 All these 3 can be explained by the fact that Easy Jet’s Gearing ratio has been lowered in 2012 amp; Liquidity lowered in 2012, because as discussed in the previous section, the accelerate repayment of their mortgage loan of GBP 162 million, paid a special dividend to shareholders of GBP 150 million, ordinary dividends to shareholders of GBP 46 million and reduced the number of leased aircrafts in 2012-2011 (Easy Jet Annual Report 2012: 23). We can also argue that in the case of Easy Jet comparing against 2010 values may not be fair because it’s the year in which Easy Jet faced the largest number of operational issues with their cabin crew, volcanic ash and ATC strikes that would make that year’s values mu ch lower than expected, thus leading us to the conclusion that since 2010 Easy Jet is performing much better than 2010. Ryan Air Description| % Change from 2010 2012| % Change from 2010 2011| Balance Sheet Horizontal Analysis| Total Non-Current Assets| 13. 88888889| 13. 74222222| Total Current Assets| 26. 52608213| 13. 52092446| Total Current Liabilities| 17. 12700052| 18. 5962829| Total Non-Current Liabilities| 22. 56097561| 20. 21041324| Shareholders Equity| 16. 08158394| 3. 696552693| Income Statement Horizontal Analysis| Total Operating Revenue| 46. 92279375| 21. 46514508| Total Operating Expenses| 43. 34880124| 21. 47331787| Operating Profit| 69. 90798309| 21. 41258393| Total Other Expenses | -17. 8396072| 10. 14729951| Profit for the year (after taxes)| 83. 55715689| 22. 69898461| Table 10 As we can see for Ryan Air everything is generally increasing in the balance sheet, but in the Balance Sheet the percentage of change increase has slowed down when we compare the change va lues for 2010-2011 amp; 2010-2012. Upon investigating the Balance Sheet we will realize that there is an approximate Euros 500 million increase in Retained Earnings in the 2012-2011 year which has resulted in the higher percentage increase in shareholders’ equity and an increase in Cash and Cash equivalents of approximately Euros 700 million that has resulted in a higher percentage change for total current assets. The above proves why Ryan Air has a higher current ratio, and as mentioned before, they have mentioned that they are not spending in acquiring new aircrafts because they are waiting to invest in a better opportunity that may arise, possibly accumulating liquidity to buy Aer Lingus. When we look at the Income statement however there are 2 main istinctions: 1) A significant increase of about 3 times in operating profit in 2012 when compared to 2010 2) A significant decrease in other expenses in 2012 when compared to 2010 3) A significant increase of about 4 times in profit for 2012 when compared to 2010 The increases in operating profit and profit can be accounted for the fact that Ryan Air is considering the impacts of the volcanic ash amp; ATC strikes that disrupted airlines across Europe of 2010 in the fiscal year of 2011-2010, thus decreasing their percentage increase significantly in 2011when compared to 2010 but resulting in a much larger percentage increase for 2012 when compared to 2010. The decrease in other expenses is accountable for the fact that in the year of 2012 – 2011 there is a significant foreign exchange gain noted of Euros 4. 3 million mainly because of the weakening of the value of the Euro against the U. K pound sterling during this year as noted in the Ryan Air Annual report of 2012 – 2011 (Ryan Air Annual Report 2012: 86). Comparing Easy Jet and Ryan Air using Horizontal Analysis Balance Sheet Figure 26 Figure 27 Figure 28 Figure 29 Figure 30 Upon comparing figures 26 – 30 as seen above, clearly we can see that Easy Jet have increasing percentage change (except for the decrease in current assets and current liabilities due to loan repayment) one that increases at a faster rate when compared to Ryan Air. Ryan Air generally has higher liabilities percentage increase than Easy Jet but lower a percentage increase in assets when compared to Easy Jet. This is clearly noticed in the fact that Ryan Air has a higher gearing hence then run more on loans and has higher liabilities; Ryan Air has a lower SRCE than Easy Jet as seen in the efficiency section and a lower ROCE than Easy Jet as seen in the profitability section. Income Statement Figure 31 Figure 32 Figure 33 Figure 34 Figure 35 Upon comparing figures 31 – 35 as seen above, clearly we can see that Easy Jet have increasing percentage change in the areas of operating profit and profit one that increases at a faster rate when compared to Ryan Air. Even though Ryan Air has a much higher increasing percentage change in operating revenue, it’s generally higher increase in operating expenses shows it’s not as efficient as Easy Jet. The same can be seen when we compare the other expenses, both have a dip in the fiscal year of 2012-2011 however Easy Jet have a much larger percentage decrease because they paid of loans whereas Ryan Air’s decrease is because of the foreign exchange gain. This is further more proven by the fact that Easy Jet’s interest cover ratio values were higher and increasing and their debit ratios were decreasing as discussed in the previous section. The horizontal analysis of the balance sheets and income statements of the two company’s leads us to the conclusion that Easy Jet is actually more financially strategic than Ryan Air which is further more proven by the fact that in the previous sections where found Easy Jet to be more efficient and lower in gearing that Ryan Air. It also shows us that Ryan Air is more profitable and liquid as analyzed in the previous sections because it has a higher increase in operating revenue change and higher increase in the change in total current assets. Vertical Analysis of the Balance Sheet In this section vertical analysis is being used to observe significant percentage changes of the major areas in the balance sheet in proportion to the total assets of a particular year in each airline’s Balance Sheet. This helps us understand how the ratio of liabilities, assets and shareholders’ equity to total assets changes each year and allows us to further investigate what causes that change. An increase in the ratio areas such as assets is considered favorable and a decrease in areas such as liabilities is considered favorable. Since this shows assets are increasing and liabilities are decreasing which is the ideal situation we want since it would result in a greater profit. For the assumptions made during calculation and the formulas used for vertical analysis please refer to Appendix F. Easy Jet Description| 2012-2011| 2011-2010| 2010-2009| Balance Sheet Vertical Analysis| Total Non-Current Assets| 69. 10360885| 61. 10986798| 62. 15338496| Total Current Assets| 30. 89639115| 38. 89013202| 37. 84661504| Total Assets| 100| 100| 100| Total Current Liabilities| 29. 42956927| 26. 33698814| 26. 60504622| Total Non-Current Liabilities| 28. 80093132| 35. 51130007| 35. 89807644| Shareholders Equity| 41. 76949942| 38. 15171179| 37. 49687734| Table 11 As we can see in table 11 we can notice the following significant changes in the year of 2012-2011: 1) Increase in non-current assets to total assets: due to the acquiring of 19 A320’s and advance payment of aircrafts due to be delivered in the next 2 years as states in the 2012 annual report (Easy Jet Annual Report 2012: 23). 2) Decrease in current assets to total assets: due to the payment of the special dividend amp; repayment of mortgage loans and the reduction in leased aircrafts (Easy Jet Annual Report 2012: 23). 3) Increase in current liabilities to total assets: mainly due to a GBP 50 million increase in accruals and deferred income which is not explained in detail in the annual report. 4) Decrease in non-current liabilities to total assets: mainly due to a decrease in current and on-current Bank Loans and non-current finance lease obligations as detailed in the annual report of 2012 (Easy Jet Annual Report 2012: 85). 5) Increase in shareholders’ equity to total assets: this is mainly due to the increase in the hedging reserve and retained earnings as detailed in the annual report of 2012 (Easy Jet Annual Report 2012: 67). Ryan Air Description| 2012-2011| 2011-2010| 2010-2009| Balance Sheet Vertical Analysis| Total Non-Current Assets| 56. 938118| 59. 543974| 59. 49705159| Total Current Assets| 43. 061882| 40. 456026| 40. 50294841| Total Assets| 100| 100| 100| Total Current Liabilities| 20. 1644262| 21. 372732| 20. 48814025| Total Non-Current Liabilities| 43. 0985446| 44. 263611| 41. 4890393| Shareholders Equity| 36. 7370292| 34. 363658| 37. 66295581| Table 12 As we can see in table 12 we can notice the following significant changes: 1) Decrease in non-current assets to total assets in 2012-2011: probably attributable to the sale of Euros 27. 2 million according to the cash flow statement of 2012 (Ryan Air Annual Report 2012: 136). 2) Increase in current assets to total assets in 2012-2011: due to an increase in cash and cash equivalents be cause of the decreased capital expenditure which as previously discussed Ryan Air were acquiring liquid cash to invest wisely, probably purchase Aer Lingus (Ryan Air Annual Report 2012: 136). ) Increase in current liabilities to total assets in 2011-2010: this is due to the increased loss of cash flow hedging instruments as detailed in the 2011 annual report (Ryan Air Annual Report 2011: 147). 4) Increase in non-current liabilities to total assets in 2011-2010 but a decrease in 2012-2011: this is due to the financing of new aircrafts in 2011-2010, but a decrease in capital expenditure in 2012-2011 since Ryan Air were not buying any new aircrafts(Ryan Air Annual Report 2011: 89) (Ryan Air Annual Report 2012: 8). 5) Decrease in shareholders’ equity to total assets in 2011-2010 but an increase in 2012-2011: The decrease is mainly due to the decrease in retained earnings in 2011-2010, and in the increase in 2012-2011 is mainly due to retained earnings increasing in the year of 20 12-2011, all onfirmed by the fact that Ryan Air invested in capital expenditure in 2011-2010 but are retaining from investment in 2012-2011. Comparing Easy Jet and Ryan Air Using Vertical Analysis of the Balance Sheet Figure 36 Figure 37 Figure 38 Figure 39 Figure 40 Upon comparing figures 36 – 40 as seen above, clearly we can see that Easy Jet has a higher non-current to total asset ratio, higher shareholders’ equity to total asset ratio and lower non-current liabilities to total asset ratio which are good financial efficiency performance indicators and the fact that these are lower for Ryan Air confirm to us about Ryan Air high gearing and low efficiency. Easy Jet has higher current liabilities to total assets ratio because it has higher current tax liabilities than Ryan Air.