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Financial accounting report

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Filippo Toti

- Air Berlin saw a decline in profitability from 2010 to 2011, with its return on capital employed decreasing from -3.13% to -12.97% due to a drop in net profit margin from -1.99% to -6.95%. Revenue increased but losses also increased significantly. - Liquidity ratios for Air Berlin declined, indicating a reduced ability to meet short-term obligations. Gearing and interest coverage also increased, showing a growing reliance on debt. - Compared to competitor Lufthansa, Air Berlin had weaker profitability, liquidity, and financial leverage ratios, though its capital turnover was higher. Lufthansa remained profitable while Air Berlin's losses increased substantially

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2 Introduction................................................................................................................3 Key Financial Figures ................................................................................................3 Air Berlin Year 2011...............................................................................................3 Profitability and Efficiency...................................................................................................................3 Liquidity...........................................................................................................................................................4 Gearing..............................................................................................................................................................4 Investor ratios..............................................................................................................................................4 Comparing performances with Lufthansa ............................................................5
3 Introduction This assignment will examine the financial performances of the airline company AirBerlin. We will manage to do this by: Evaluating the dynamic performance by looking at the financial results for the year ended in 2011 against those of the previous year Comparing the latest results of Air Berlin against those of a competitor, which will be Lufthansa. The analysis will be based on the latest annual reports of each company. Key Financial Figures 2011 2010 Revenue (in million euros) 4,227.3 3,850.2 Consolidated loss for the year (in million euros) 271.8 106.3 Total assets (in million euros) 2,264.0 2037.1 Air Berlin Year 2011 Profitability andEfficiency The Prime Ratio of Return on Capital Employed, which indicates the profitability and efficiency of a companys capital investment, has decreased from -3.13% of 2010 to -12.97% in 2011. This decline is due to the diminution of the net profit margin from -1,99 in 2010 to -6,95 in 2011.
4 However the Capital Turnover increased from 1,57 times in 2010 to 1,86 in 2011, showing that we used efficiently our working capital to generate sales. The decrease in Net Margin can be seen due to the decreasing in the Gross Profit Margin, which moved from 0,41% in 2010 to -5,8% in 2011. Changes in the gross profit margin have a significant effect on the profit, generating an important loss in it. We can see that the stock turnover rate remained unchanged from 2010 to 2011. In addition we have also identified an increase in Debtors collection period from 29 days in 2010 to 31 days in 2011. The creditors collection period decreased from 38 days to 34 days. Since the debtors collection period increased and the creditors collection period decreased, the balance between this two facts results as a loss for the companys earnings. This happened because due to our bad revenues we lost our reliability that we used to have. Liquidity Air Berlins Current ratio declined from 0,93 in 2010 to 0,80 of 2011. This indicates that there has been a decline in the ability of the company to meet short-term liabilities. The Acid test ratio has also decreased from 0,79 in 2010 to 0,63 in 2011, thereby indicating a decline in Air Berlins liquidity, meaning that the current obligations exceed the ability to pay for them making the situation even worse and harder to meet the financial obligations in time. Gearing Gearing ratio increased from 70,49% in 2010 to 72,56% in 2011 meaning that the company is highly dependent from loans. The interest cover decreased scarily meaning that the company is in a dangerous position because in difficulty to repay his debts and we have lost reliability with the banks. Investor ratios Earnings per share continue decreasing, outlining the black period for the company in fact they had a further decrease o about 2, going from -1,14 of 2010 to -3,20 of 2011. When EPS decrease, it indicates the there is a loss in profits. This data scares because it is likely to decrease even more. In 2010 we registered a dividend per share of 5,27 but in 2011 the dividend reached 0 per share due to all the big losses we encountered this year.
5 Since our losses in the dividend per share we recorded decreases of dividend yield and of the book value per share, this caused by our genera losses of this year, which brought the earning per share in an eventual liquidation of the company to 2,98 compared to the 6,73 of 2010. Despite all our losses we have recorded improvements in Price earning ratio even if the situation is still not very positive, which has increased from -2,8 times of 2010 to -0,8 times in the last year. Also, we have been able to increase our market to book ratio, bringing it from 0,47 times to 0,86. Comparing performances with Lufthansa We decided to use Lufthansa as a competitor because its one of the only airline companies who has been able to generate profits and not losses this year and its our direct competitor in Germany were its considered the first airline before us. Profitability and Efficiency This year Lufthansa ended with a positive ROCE even if it is very low (1,96%). They achieved this by closing the year with a positive gross profit and net operating profit margin, which were 2,69% and 1,92% compared to our -5,8% and -6,95%. Despite this, we were able to employ our capital in a more profitable way to generate revenue, producing 1,86 times the capital we employed against 1,02 of Lufthansa. Lufthansa anyways, due to the reliability gained in the last years by closing with positive balances, has both longer debtors collection, 43 days against 32, and longer creditors collection period which is 92 days compared to our 34. Liquidity Lufthansa, as well as us, finds herself in a difficult position in terms of meeting their current liabilities as we can see from the current ratio which is 0,96. Lufthansa can say to find them selves in a safer position since their Acid test ratios measures 0,90 compared to our 0,63 times.
6 Gearing Lufthansa is less dipendent from loans respect to Air Berlin since its gearing ratio is 56,03% compared to our 72,56% and the most important thing is that Lufthansa, even if in a very small way, is able to cover its interest charges instead we are very far from their result measuring an interest cover of -4,51 times competed to their 1,15 times. Investor Ratios Lufthansa operated better even in the stock markets even if from its data we understand the black period airline companies are facing in the stock markets since even a profitable company like our competitor registered losses in their shares. We can see they have a negative earning per share of -0,03 compared to our even worst -3,20. Anyways they have been able to earn a dividend per share of 0,2 compared to our 0.

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Financial accounting report

  • 1. 1
  • 2. 2 Introduction................................................................................................................3 Key Financial Figures ................................................................................................3 Air Berlin Year 2011...............................................................................................3 Profitability and Efficiency...................................................................................................................3 Liquidity...........................................................................................................................................................4 Gearing..............................................................................................................................................................4 Investor ratios..............................................................................................................................................4 Comparing performances with Lufthansa ............................................................5
  • 3. 3 Introduction This assignment will examine the financial performances of the airline company AirBerlin. We will manage to do this by: Evaluating the dynamic performance by looking at the financial results for the year ended in 2011 against those of the previous year Comparing the latest results of Air Berlin against those of a competitor, which will be Lufthansa. The analysis will be based on the latest annual reports of each company. Key Financial Figures 2011 2010 Revenue (in million euros) 4,227.3 3,850.2 Consolidated loss for the year (in million euros) 271.8 106.3 Total assets (in million euros) 2,264.0 2037.1 Air Berlin Year 2011 Profitability andEfficiency The Prime Ratio of Return on Capital Employed, which indicates the profitability and efficiency of a companys capital investment, has decreased from -3.13% of 2010 to -12.97% in 2011. This decline is due to the diminution of the net profit margin from -1,99 in 2010 to -6,95 in 2011.
  • 4. 4 However the Capital Turnover increased from 1,57 times in 2010 to 1,86 in 2011, showing that we used efficiently our working capital to generate sales. The decrease in Net Margin can be seen due to the decreasing in the Gross Profit Margin, which moved from 0,41% in 2010 to -5,8% in 2011. Changes in the gross profit margin have a significant effect on the profit, generating an important loss in it. We can see that the stock turnover rate remained unchanged from 2010 to 2011. In addition we have also identified an increase in Debtors collection period from 29 days in 2010 to 31 days in 2011. The creditors collection period decreased from 38 days to 34 days. Since the debtors collection period increased and the creditors collection period decreased, the balance between this two facts results as a loss for the companys earnings. This happened because due to our bad revenues we lost our reliability that we used to have. Liquidity Air Berlins Current ratio declined from 0,93 in 2010 to 0,80 of 2011. This indicates that there has been a decline in the ability of the company to meet short-term liabilities. The Acid test ratio has also decreased from 0,79 in 2010 to 0,63 in 2011, thereby indicating a decline in Air Berlins liquidity, meaning that the current obligations exceed the ability to pay for them making the situation even worse and harder to meet the financial obligations in time. Gearing Gearing ratio increased from 70,49% in 2010 to 72,56% in 2011 meaning that the company is highly dependent from loans. The interest cover decreased scarily meaning that the company is in a dangerous position because in difficulty to repay his debts and we have lost reliability with the banks. Investor ratios Earnings per share continue decreasing, outlining the black period for the company in fact they had a further decrease o about 2, going from -1,14 of 2010 to -3,20 of 2011. When EPS decrease, it indicates the there is a loss in profits. This data scares because it is likely to decrease even more. In 2010 we registered a dividend per share of 5,27 but in 2011 the dividend reached 0 per share due to all the big losses we encountered this year.
  • 5. 5 Since our losses in the dividend per share we recorded decreases of dividend yield and of the book value per share, this caused by our genera losses of this year, which brought the earning per share in an eventual liquidation of the company to 2,98 compared to the 6,73 of 2010. Despite all our losses we have recorded improvements in Price earning ratio even if the situation is still not very positive, which has increased from -2,8 times of 2010 to -0,8 times in the last year. Also, we have been able to increase our market to book ratio, bringing it from 0,47 times to 0,86. Comparing performances with Lufthansa We decided to use Lufthansa as a competitor because its one of the only airline companies who has been able to generate profits and not losses this year and its our direct competitor in Germany were its considered the first airline before us. Profitability and Efficiency This year Lufthansa ended with a positive ROCE even if it is very low (1,96%). They achieved this by closing the year with a positive gross profit and net operating profit margin, which were 2,69% and 1,92% compared to our -5,8% and -6,95%. Despite this, we were able to employ our capital in a more profitable way to generate revenue, producing 1,86 times the capital we employed against 1,02 of Lufthansa. Lufthansa anyways, due to the reliability gained in the last years by closing with positive balances, has both longer debtors collection, 43 days against 32, and longer creditors collection period which is 92 days compared to our 34. Liquidity Lufthansa, as well as us, finds herself in a difficult position in terms of meeting their current liabilities as we can see from the current ratio which is 0,96. Lufthansa can say to find them selves in a safer position since their Acid test ratios measures 0,90 compared to our 0,63 times.
  • 6. 6 Gearing Lufthansa is less dipendent from loans respect to Air Berlin since its gearing ratio is 56,03% compared to our 72,56% and the most important thing is that Lufthansa, even if in a very small way, is able to cover its interest charges instead we are very far from their result measuring an interest cover of -4,51 times competed to their 1,15 times. Investor Ratios Lufthansa operated better even in the stock markets even if from its data we understand the black period airline companies are facing in the stock markets since even a profitable company like our competitor registered losses in their shares. We can see they have a negative earning per share of -0,03 compared to our even worst -3,20. Anyways they have been able to earn a dividend per share of 0,2 compared to our 0.