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An evaluation and analysis of the financial and business performance of a company over three year period. OBU Thesis Sample

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Oxford Brookes UniversityBSc (Hons.) in Applied Accounting

RESEARCH AND ANALYSIS PROJECT

Topic number 8:

The business and financial performance of an organisation over a three year period

List of contents Page

Introduction3Information Gathered5Use of Analysis techniques and Models7Ryanair: The Company Overview9Financial Analysis 10Business Analysis 25Conclusion 28Appendix 1 30Appendix 2 32Appendix 3 35Appendix 4 39

Skills and Learning Statement 42

INTRODUCTION

This research report contributes towards the Research and Analysis Project for submission to the Oxford Brookes University. This research report, in all respects, is prepared in accordance with the codes and guidelines prescribed by the University and does not breach confidentiality and anonymity of the organisation(s) involved and the industry being analysed.

THE TOPICHaving read all the research topics approved by the University, one of them sounded like a familiar choice among all and seemed the most interesting. Therefore I chose to work on The Business and Financial Performance of an Organisation over a three year period.The reason I chose this topic was that being an ACCA student I have always been interested in analysing the published Annual Reports of companies and I took this research work as an opportunity to exploit my technical and professional skills. The other reason for choosing this topic was that there was a vast amount of financial and business-related information available from many different sources.

THE ORGANISATION

For the purpose of this research work I have chosen RYANAIR HOLDINGS PLC. The reason I chose this organisation was simply because of my familiarity with the airline industry. Even in the European Airline Industry there was a vast choice of airlines which could be strategically categorised as: Scheduled Airlines (Flag carriers) Charter AirlinesLow Cost Airlines (Budget airlines) RYANAIR is strategically placed in the Low Cost Airlines industry. To me RYANAIR was the best choice for this analysis because of its rapid expansion, profitability, the success of it low cost business model and its capture of the market share Europe-wide. According to the figures provided by International Air Transport Association (IATA) in 2009, RYANAIR is the largest airline in terms of annual international passenger numbers. And secondly in terms of information, taking the fact that RYANAIR is the market leader, I was able to find a vast amount of published information on this particular airline.

THE OBJECTIVES AND THE APPROACHAs the name suggests, this research project will be focused on the business and financial analysis of RYANAIR extending over a period of three years. Through this analysis I will be able to conclude the financial position and performance of RYANAIR and analyse its business strategy and the industry it operates in. For the purpose of this analysis this report has been divided into two sections.(A) FINANCIAL ANALYSISTo serve this purpose the financial analysis of RYANAIR will be conducted on the published audited financial statements for the years 2007, 2008 and 2009 under:1) Trend Analysis Comparison of present financial ratios with the historic or future ratios to evaluate whether RYANAIR is financially improving or deteriorating under:

Profitability Liquidity Gearing Investor

2) Industry Comparison Comparison of the financial ratios and market-share of RYANAIR with that of a competitor in the same industry, EASYJET Airline Company Ltd.

(B) BUSINESS ANALYSISAnd to serve this purpose the following business models and analysis techniques will be brought into use:1) Five Forces model Porters 5-Forces Model will be used to analyse the European airline industry under:

Threat of new Entrants Substitute Products Power of Suppliers Power of Customers Industry Competitors

2) SWOT AnalysisAnalysing and identifying:

Strengths Weaknesses Opportunities ThreatsINFORMATION GATHERED

For any research process the information is vital and it is quite a task to gather relevant information for analysis and evaluation. The nature of the information gathered for an analysis depends largely upon the purpose. The information sources can be categorised as: Primary SourcesThis is the data collected by the researcher by means of questionnaires, interviews, surveys etc.Secondary SourcesThis is the data collected by other people but which can be used by the researcher for his own purpose.

SOURCES USED AND DATA COLLECTION TECHNIQUES

To carry on with this project I decided to take into account only the secondary information sources to obtain relevant organisation and industry data. The main secondary sources used are listed below: Annual Reports & Published AccountsAs for the financial analysis I had to gather financial data of the two companies (RYANAIR and EASYJET) for the years 2007, 2008 and 2009. This contained the annual audited accounts, the financial and business overview of the companies and the summary of the business activities. I obtained these reports from the investor relations websites of the respective companies. This secondary data was easiest to gather as it was publicly available and could be used for the purpose of this research.

European Low Fares Airline Association (ELFAA)This body represents the budget airlines operating in the Europe. Their website contained detailed statistics of the low-cost airline industry. Their published statistics served as a means to reconcile the Annual Reports of the companies operating in the industry. Their publications were accessed online.

International Air Transport Association (IATA)IATA is the global trade organisation of the air transport industry in the world. It is a representative body of about 93% of the scheduled airlines operating in the world. It served as a means of preliminary research into the airline industry via online access.

Civil Aviation Authority (British and Irish)CAA is the regulatory authority of all the aspects of aviation. This was a good source of overall regulatory framework observed by the airlines. This was again accessed online and their publications which were free to be used and downloaded were considered at different stages of this analysis.

Articles and Online News ArchivesThe BBC, The Financial Times and The Economist are only a few to mention under this category. Their articles and news archives were a great means of obtaining financial and business news. These again were all online accesses and the data collected was of vital use.

Other Relevant Secondary SourcesThis contained the online access to the websites which were used for the understanding of the business models and books used to grasp better knowledge of the financial indicators. Also included in this was the material accessed to get a thorough understanding of the key purposes of this RAP and acquire technical business report writing skills. The best sources were the Wikipedia, Google and other search engines.

LIMITATIONS AND ETHICAL ISSUES

During the process of information gathering, I came across many sources that were subject to copyright and that material could not be used or copied without the express consent of the organisation involved. This proved to be a barrier to the analysis as I decided not to use any of the copyrighted material. Therefore in this project, all of the data gathered is free to use and is publicly available. All the data is from the secondary sources and no primary sources were used and so no other ethical issues arose during the data collection process. During the process there was no access to confidential information, data was free from financial inducements and the research complied fully with the ethical standards published by the University.

USE OF ANALYSIS TECHNIQUES & MODELS

In this section the underlying principles of the financial techniques and business analysis models have been elaborated. It is important to highlight the issues and the body of knowledge that underpins each concept and the principles followed throughout this report. These are dealt as under:

(A) FINANCIAL ANALYSIS

Method used by the stakeholders to evaluate past, current and projected condition and performance of the firm and ratio analysis is the most common method.(Allbusiness.com Inc., 2010)

The two types of financial analysis techniques listed under the approach heading are taken as standard and are self explanatory. They are used as indicators and can be calculated from the information available from the financial statements. There are many uses of the financial ratios but these uses come with certain limitations which are as follows: There is no absolute definition of calculating a ratio Ratios can be subject to manipulation Ratios can vary according to the accounting policies adapted Only takes into account the financial numbers ignoring the more important non-financial indicators that affect the companys performance Does not take into account the time value of money

(B) BUSINESS ANALYSIS

Investigation into the operation of the business to expose the causes behind the results achieved, and the effects of those results on the business.(WebFinance inc., 2010)

To carry on a business analysis, I came across a number of techniques and models. For this purpose I decided to use the two models mentioned earlier. Here I take the opportunity to further elaborate each of the models used for this research.

1) Five Forces model This is a business analysis model, one of the most popular works of the famous Michael E. Porter of the Harvard Business School, used for the development of strategy and the analysis of the industry in