British Airways Essay Example | Topics and Well Written Essays - 3500 words

British Airways - Essay ExampleThe company likewise improves its susceptibility by lessening the day its pays transfer its suppliers and collects from its customers. An investor is most likely be attracted by the escalating sh ar price of British Airways but be put off by the 0 dividend yield.Profitability ratios measure the ability of the company to generate income from its investments less the approachs incurred. The computed operating profit margin, which is the ratio of operating income to sales measures as a percentage of sales, the excess revenue from sales over cost of normal process excluding financing. Net profit margin, on the other hand, is the ratio of solve income to sales. Return on common equity (ROCE) is a variant of return on investment. The return on common equity assesses the rate of return on the investments of common stockholders in the company (Analyzing Company Reports 2005). another(prenominal) ratio is the turnover ratio which shows to what the extent th e company uses its assets to produce revenue. Logically, higher profitability ratios indicate a healthier financial condition.Table 1 shows the computed profitability ratios of British Airways in 2006. In order to fully asses the profitability of British Airways in 2006, the companys profitability ratios for 2005 are also included. ... During 2006, the airline is able to turn 8.3% of its revenue in operating profit and 5.5% into net income from the 7.20% and 5.0% recorded in the previous year, respectively. It should be noted that operation in the airline industry requires incurring huge operating costs which could justify the relatively low percentages. However, compared to its competitors like Ryaniar Ltd and Thomsonfly Ltd, British Airways lags far behind.In line of asset turnover and return on equity, British Airways is in a downslide. It can be recalled that the main goal of a business organisation is the maximisation of stockholder value which is reflected on its return on eq uity. British Airways declining ROCE indicates its deviation from this goal. From the point of view of investors, British Airways appears to be mediocre investment relative to its competitors. This is also true for creditors who look at the profitability of a business organisation to assess its paying capacity. For managers, this can signal the company to check its management of cost and other disbursements.Financial Leverage RatiosFinancial supplement ratios provide an indication of the long-term solvency of the firm. They indicate the extent of non-owner claims on the firms profits as well as the firms operating capability to meet its obligation. Gearing is the long-term debt to equity ratio which assesses the balance between liabilities and equity in the firms long term resource structure. Another is the interest coverage ratio which measures the extent to which earnings cover the interest obligation of the company (Thomson 2002, p. C-6).Table 2Table 2 shows the financial levera ge ratios which reveal the capital structure of British Airways. The debt-to-assets and debt-to-equity ratios