Executive Summary – Air Berlin & Easy Jet Financial Comparison
Air Berlin & Easy Jet Financial Comparison. Financial ratios are very fundamental in any organization or firm as they act as a guideline to the analyst and managers on what is required and the improvement needed. In any company, when the ratios indicate that there is a decline in financial performance, the managers are informed of the best practices to take in order to arrest the problem. In this case, the fundamental financial ratios used in comparing two low cost carriers in Europe; Easy Jet and Air Berlin, provide important information on the financial performances of the companies.
The profitability ratios indicate that Easy Jet is performing better than Air Berlin as it has higher net profit ratios, higher return on equity ratios, and higher gross profit ratios. These ratios have indicated that Air Berlin is operating poorly and if this trend continues it may be pronounced bankrupt. Efficiency ratios on the other hand are used in indicating the capability of a company to make profits from its assets. In this case, the more profits are made from the available assets the more profitable a company is.
Air Berlin & Easy Jet Financial Comparison
Liquidity ratios are also used in this study to determine the potentiality of these two companies to settle their current debts. Current ratio is used and has indicated that Air Berlin has 0.9 which is less than the standard ratio (1). Gearing ratios are used in the study to determine a company’s potentiality to borrow funds. The study shows that Easy Jet has been able to balance its rates of borrowing with its current assets hence assuming a better financial position.
Despite that loans are very essential in any business in solving financial problems, settling them can be very challenging to a business hence it is important if a business would try as much as possible to avoid relying heavily on loans. In this case therefore both Easy Jet and Air Berlin companies should ensure that they rely on their revenues in solving their financial problems so that they do not face huge problems in settling their current liabilities. Easy Jet on the other hand should ensure that it maintains its efficiency ratios or lower them in order to assume higher profits from their assets. Air Berlin & Easy Jet Financial Comparison.
Air Berlin should ensure that it is very competitive especially in pricing in order to increase its profits and lower efficiency ratios. A company is profitable if it is able to effectively pay its short term debts. The current ratio of Air Berlin is less than one (0.9) which means that it has high probability of failing to pay its short term debts. Air Berlin is supposed to ensure that it lowers its debts or ensure that they are paid regularly in order to avoid huge losses when the creditors demand full repay of their money. When these recommendations are considered, these two companies would improve their profits and increase sales. Air Berlin & Easy Jet Financial Comparison.
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