Question : Every organisations desires to achieve strong financial position into market for which management is required to frame an effective strategy for further investment that brings profitable return. This assessment improves basic understanding of financial information by using performance measurement ratios. For this, following learning outcomes must be addressed: Analyse the importance of working capital management for an organisation. Analyse published financial statements and determine the presentation skills that highly concerning current performance and future strategies. Answer : Organization Selected : EasyJet plc INTRODUCTION Financial strategy is very essential for every organization, especially for airline industry. The present report is giving brief discussion about significance of management of working capital of EasyJet plc. In the same series it had evaluated a depth analysis of its financial performance and stability for achieving good return and future strategies. Further, it had provided recommendation for its shareholders about its performance. Overall financial stability of EasyJet Plc for generic stakeholders EasyJet Plc is a British low-cost airline whose headquarter is situated at London Luton Airport. It has operated on 862 routes and along with this fleet of 279 aircrafts. Its applicability is providing cost advantage and to deliver operational efficiency and low fares and simultaneously friendly service to their customers (Bourjade, Huc and Muller-Vibes, 2017). Strategy Share price 1615 Capital It consists of very strong capital base as it has market capitalisation of £4 billion. The credit rating of specific organization is strongest in world for airline industry. Shareholders perspective It has huge interactions with various stakeholders in context of its operations, customers, regulators, suppliers and national government. Expansion Performance measurement ratio Liquidity ratio Year 2014 2015 2016 2017 Current assets 1261 1279 1454 1734 Current liabilities 1420 1768 1573 1670 Current ratio 0.89 0.72 0.92 1.04 Interpretation: The above graph is replicating liquidity aspect which is increasing from year to year as in 2017. It created ability to fulfil its liability but it’s ideal ratio is 2: 1 so as per current ratio it is not perfect but it is improving in very efficient manner (EasyJet PLC ADR, 2018). Acid test ratio Year 2014 2015 2016 2017 Current assets 1261 1279 1454 1734 Current liabilities 1420 1768 1573 1670 Prepaid expenses 10 7 97 118 Quick ratio 0.88 0.72 0.86 0.97 Interpretation: While observing its quick ratio in above graph it had achieved sudden increment because of ability to repaying its liability from its quick assets in short term of EasyJet plc.. Solvency ratio Debt Equity ratio: Year 2014 2015 2016 2017 Shareholder’s equity 2172 2249 2712 2802 Debt 299 228 561 870 Debt equity ratio 0.14 0.10 0.21 0.31 Interpretation: The above graph is depicting solvency of EasyJet plc by debt equity aspect, it is operating its operations from debt by 0.34 which is near to ideal ratio that is 0.40 so it reflects good position in its industry. Financial Leverage Year 2014 2015 2016 2017 Financial leverage 2.06 2.15 2.03 2.13 Interpretation: The above graph is depicting amount of debt which EasyJet plc. Is using for buying its assets which had sudden growth in 2017 Profitability Ratio Gross margin ratio Year 2014 2015 2016 2017 Gross profit 684 790 1746 1875 Net sales 4527 4686 4669 5047 Gross margin 15.11% 16.86% 37.40% 37.15% Interpretation: The above graph is depicting gross margin, in 2014 it was not able to get satisfied margin but from year 2015. It is capable to earn from its sales revenue and it is giving good profit in year 2017. Operating margin Year 2014 2015 2016 2017 operating profit 581 688 498 404 Net sales 4527 4686 4669 5047 Operating margin 12.83% 14.68% 10.67% 8.00% Interpretation: Operating margin ratio is one of the essential indicator for measuring profitability. As per analysing Operating profitability of EasyJet Plc it can be said that is decreasing from year to year due to its competitors which had grabbed market. So, from operations it is not able to achieve good earning Return on asset Year 2014 2015 2016 2017 Net income 450 548 427 305 Average Total assets 4447 4655 5166.5 5738 ROA 10.12% 11.77% 8.26% 5.32% Interpretation: The above graph is replicating return on asset as it is an airline company which is included in service industry so it is not able to achieve good return on assets but simultaneously it had earned good return in 2014. It also reflects capability of earning return but because of improper utilisation of its assets it is in this position. Efficiency ratio Receivables Turnover ratio Year 2014 2015 2016 2017 Receivables turnover ratio 60.36 80.79 81.2 68.2 Interpretation: The above graph is representing turnover on its receivables or in simple words it can be elaborated that use of its organization's asset in efficient aspect or not. There is decrement in turnover from 2016 to 2017 because of fluctuation of interest rate and cost of EasyJet plc. Asset turnover ratio Year 2014 2015 2016 2017 Net sales 4527 4686 4669 5047 Total assets 4482 4828 5505 5971 Asset turnover ratio 1.01 0.97 0.85 0.85 Interpretation: The above graph is presenting turnover on its asset as it is measuring efficiency of organization from year 2014 to 2017 which had huge change. In year 2014, EasyJet plc was able to generate sales and revenue which is directly related to its valuation of assets. But in year 2016 and 2017 its efficiency has been decreased of specific organization. Critically analysing financial information On the basis of financial information, it has been analysed that EasyJet plc is having good financial position and stability on basis of its solvency ratio, but it is not able to give sufficient return in context of efficiency ratio. While observing its profit from operations, it is not giving sufficient margin because of huge fluctuation in cost of fuel and variations in foreign exchange. As fuel is considered as biggest cost in airline industry, market capacity had achieved continued growth but it had make airline weaker (Financial ratio for measuring company's performance, 2018). In this financial year Brent price had also increased by 13%. CONCLUSION From the above report it can be concluded that, EasyJet Plc is giving good returns in aspect of profitability. As there are huge fluctuations in fuel cost and foreign exchange so it is affecting financial, but from perspective of shareholder it is recommended to buy share ofEasyJet plc. As it is included in emerging industry. UPTO50% Avail The Benefit Today! To View this & another 50000+ free Enter Email Submit
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