The Financial Performance of Dart Group PLC - Essay Example

Financial ment analysis Financial ment analysis Introduction The aim of the study wasto analyze the Financial Performance of Dart Group PLC in comparison of the competition. Four listed companies (listed on London Stock Exchange) were compared with the main company. The profitability of the firms, the liquidity, and operational performance was analyzed by using the Financial Ratio Decomposition Approach. The data was collected by using the website banker.thomsonib.com; the data constituted of the firm’s financials. The financials were then used to design Reformulated Income Statement and Balance Sheet. The ratios were obtained from the reformulated income statements and balance sheets of the particular firms. The data included in the study was not fit to the standards. Therefore, the values of some ratios are misguiding and incorrect. The website (http://banker.thomsonib.com) provided some missing values that were the core reason for the incorrect and misguiding values. The competing firms were all listed on London Stock Exchange, and the values, therefore, are not entitled to be changed for currency and other issues. Main Company and its Local competitor: Dart Group PLC and Easy Jet. Portfolio: Dart Group PLC, Easy Jet, Air Partner, Fast Jet and Fly be Group PLC. Industry Classification: Airline. The main company selected for the analysis is Dart Group PLC and the competitors for comparison of ratios are Easy Jet (main competitor), Air Partner PLC, Fast Jet and Fly be Group PLC. I. Background information on the firm, its competitor, and the industry • Dart Group PLC Dart Group PLC is operating as a leisure travel and a Distribution & Logistics group. The Company started its operations by providing delivery of flowers that were of every color and now are flying passengers through their fleet of aircrafts. The company is known for their speedy deliveries. The Group has expanded with three new businesses; the first division is the “Jet2.com” the business operates more than 150 routes locally. The bases are developed at seven northern United Kingdom Airports. The Company has a sister company named the “Jet2holidays” this company provides the hotel facilities in more than 50 cities and also in sun destinations. The third and final division named “Fowler Welch” in considered to be one of the leaders in fast supplies. The business provides the top supermarkets with the fast moving goods. The company grew gradually and stabled within the 40 years since the establishment. Dart Group PLC are recently engaged in the scheduled leisure to Mediterranean, this means that the company is expanding in the international market. The Company also provides packaged holidays as the company own the airlines Jet2.com and also is operating in the Holiday services under its division Jet2holidays. The products that are provided to the supermarkets are freshly produced, and the trucks of Fowler Welch are temperature controlled. The business is linked with the retailers, producers (farmers) and the importers in the market (Dart Group PLC, 2015). • Easy Jet Easy Jet is also one of the leading European airlines, the Company operates on 600 routes in 30 countries. The Fleet of the Company includes 200 Airbus aircrafts. The company has employed approximately over 8000 employees. Out of these 8,000, 2,000 are pilots and approximately 4500cabin crew. The company has managed to fly over 60 million people to different destinations in the year 2014. “We have strong positions in key markets: No. 1 at London Gatwick, London Luton, London Southend, Bristol, Edinburgh, Milan Malpensa, Naples, Venice, Nice, Basel and Geneva; No. 2 at London Stansted, Paris Orly, Paris Charles De Gaulle, Lisbon, Lyon, and Rome Fiumicino with over 300 million people within a one hour drive of an Easy Jet airport.” The company focuses on providing safety to the consumers as the company never compromises on the safety of the valuable passengers. The Company is also working to eliminate the things that have no influence on the business operations in order to make the operations more lean and easy. The Company always works to facilitate their employees, and the strategy helps to find out the new and innovative solutions for any problem faced by the organization. Easy Jet is working to find all the possible means to make the traveling business easier, safe and affordable (EasyJet PLC, 2015). • Air Partner The Air Partner is considered to be one of the global leaders with respect to the private aviation. The Company has an innovative and rich history, the innovations regarding the charter solutions and the stability of the firm have made the Company one of the leading choice for the Fortune 500 companies, the government and the individuals that require private jets. “The Company was formed in 1961, with the basic operation of the advanced flying school for ex-servicemen.” The company progressed by leasing some of its aircrafts for training. The Company became to provide charter services to individuals, and the business started to flourish and generated more revenues. Air Partner is known for its flexible and reliable services. The Company assures that their customers are safe and secure and set the benchmark on the highest priority. The benchmark for security set by Air Partner exceed the requirements of Federal Aviation Administration (FAA) and the industry norms on the whole. Air Partner has employed the most experienced people that are determined to provide their best; the employees are well known about the aircrafts, the different airports and the customs of the airports. It provides the customers a journey that is managed expertly by the employees of the Company. The Company is working on developing long-term relationships, and these expertise and commitment of the employees have resulted in making the Air Partner one of the leaders all over the globe (Air Partner, 2015). • Fast jet PLC The Company is operating as a passenger airline service provider in Tanzania, Angola, Ghana and Central regions. Fast jet PLC has a fleet that constitutes of A319’s. The company has signed a collaboration (strategic partnership) with Venere.Com that provides the customers of Fast jet PLC to purchase the hotel rooms; the service is provided on the airline’s booking channels. In 2012, the management of the company decided to change the name from Rubicon Diversified Investment PLC to Fast jet PLC. The company was established in the year 2006 and the headquarter is located in United Kingdom. The company is operating as a subsidiary company of Lonrho PLC. The Company is focusing to provide affordable tickets to the customer so that all the people can easily travel to their specified destinations. The availability of Hotel selection on the booking channel allows the customers to enjoy the reliable travel and also to spend the best time during their stays. The Company provides Smart Class reservations to their valuable customers and also provide to hire a car when they reach the airport (Fastjet PLC, 2015). The Company concentrates on providing the best and reliable services to their customer and, therefore, the Company provides Booking, Airport, Baggage, Children and infant services, Medical and Special Needs, in flight high-quality meals and services, easy fees, and charges payment solutions and also delays and cancellation services for the customers. The customer help service works on 24/7 basis so that any passenger and customer can contact and know about their issues. • Fly be Group PLC The Headquarter is located in the United Kingdom, and the company operates all around Europe the region. The Company is known as the low-cost airline, the flights are operated within UK and the also to more than a dozen of countries of Europe. The Company flights cover around 130 destinations, and more than 35 departure points are located in the United Kingdom. Fly be Group PLC also has codeshare agreements with the British Airways, Air France, and Etihad Airways. The Company was founded in 1979, the management of the company tried very hard to be at this position. The Company was able to acquire key operations of the well know British Airway’s BA Connect regional business in 2007. “The overall fleet consists of a total of 70 aircrafts; these include the Embraer 195 regional jets and Bombardier Q400 turboprops.” The Brand name Fly be is derived from one of the previous/former operating units that is British European – BE. The organization is a well-known airline in United Kingdom, and the customers are satisfied with the operations and services that Fly be is providing. II. Ratio Analysis • Ratios The ratios that are the basis of the comparison are mainly the Profitability, Efficiency, Leverage and other ratios; that ratios were used to identify the financial health of the firms. The ratios used include: Profitability Ratios The profitability ratios are used to assess the ability of the firm to generate revenues, the expenses incurred in the period are compared and the total profits are calculated in percentages. The firms with higher values of profits are considered to be as well performers as compared to the other competitors in the market. The ratios that are used in this analysis regarding the profitability are in relation to the sales (Operating Profit margins and Net Profit margins) and profitability in relation to investments (Return on Net Operating Assets and Return on Common Equity). Profitability (in relation to Sales) 1. Operating Profit Margin The ratio is calculated to depict the strategy of the firm with regards to the pricing and the operational efficiency. The calculation is done to calculate the Operating Income (income left after paying off the wages and production costs and all other variable costs) of the firm and dividing it by the overall sales for a period of time. The higher value for the ratio illustrates that the firm would be able to pay interest on debt and other fixed costs. 2. Net Profit Margin The overall revenue left after paying off the variable costs and other expenses like tax, interest expenses incurred, depreciation and others (net profit of the firm) divided by the sales value gives the value of the net profit margin. The ratio helps in identifying the amount in dollars kept by the company generated from sales. This ratio is also useful for the comparison purposes as the companies from the same industry can be compared, and the leader can be identified. Profitability (in relation to Investments) 1. Return on Net Operating Assets (RNOA) The ratio is calculated to determine the financial performance of the firm. The values are calculated by dividing the net profit of the firm after tax by the average net operating assets (all assets that contribute to the generation of revenues). The higher results of the ratio represent that the firm is better with regards to the profit performance. 2. Return on Common Equity The returns that are generated by a firm, from the money invested by the shareholders, is calculated by using the Return on Common Equity ratio. The ratio is helpful in representing the firms profitability. The value of the preferred stocks is excluded from the Shareholders equity. Leverage Ratios The leverage ratio identifies the capital amount is gathered from the debt financing. The high value of leverage can be an alarming situation for the company and also to the investors. On the contrary, the low level of leverage is also questionable. 1. Operating Liability Leverage The ratio illustrates the combination of the fixed and variable costs of a company. The combination of these costs affect the sales volume, and the revenues generated from each sale. 2. Financial Liability Leverage (FLEV) The ratio is calculated by dividing the Average Non-financial Assets divided by the Common Shareholders Equity. The ratio indicates the assets that are held by the firm in relation to the equity. Higher values show that the firm uses debt financing to finance the assets. Efficiency Ratio The ratio is used to determine and analyze the efficiency of the firm with respect to the asset utilization. This ratio is also helpful in comparisons of two or more firms from the same industry, and the comparison identifies the firm that is most efficient in the utilization of their assets. 1. Asset Turnover The ratio represents the ability of the firm to generate profits/revenues from the assets that the company holds. The higher value of the ratio shows the firms efficiency with respect to deploying the assets. The comparison is meaningful when done within the same industry, and the ratio can be used in such comparison as it is a good indicator of efficiency. Others • Net Borrowing Cost (NBC) The ratio is used to identify the debt percentage utilized by the firm, the net worth of the firm can be analyzed by the use of this ratio. The higher value for the ratio represents that the firm is burdened with debt and the firms operations, and overall business is riskier due to the large amount of borrowings. The core reason for risk is that the most of the earnings of the firm will be used to pay off the debt payment (interests); this will result in lesser profits for the investors. • Spread The spread ratio is important and meaningful to the investors. It is an option that lies with the investors to purchase stocks (options) provided by the firms and selling those options ( the same stock) with different strike prices (current prices of the stocks). The investors look for the volatility of the firms stock and when they think that the stock will show some volatility they purchase it and sell it after some time or also on expiration date to earn gains on their stock investments. The opportunity for the investors is limited with regards to the profits they earn from selling the stocks and the risk level for this purchase and sale is very high. The ratio is calculated by subtracting the Net Borrowing Cost from Return on Net Operating Assets. • Main Company and its Local competitor Dart Group PLC The company is progressing in terms of dividends paid every year, the objective of progressive dividend is to facilitate the shareholders and motivate them to invest more in the stocks of the company and the annual dividend was increased by 47%. The business is also growing with respect to the performance (operational and financial both). The company’s divisions were individually growing (jet2holidays noted an increased in number of the passenger to double and that resulted in higher profits for the financial year 2014. The company increased the fleet by adding 2 Boeing 737-300 and also invested in the training for the crew training center. The company is working to increase the cash flows and also did so by increasing the money market deposits (Dart Group PLC, 2012). Ratios Formula 2014 2013 2012 2011 2010 Return on Net Operating Assets (RNOA) Operating income after tax / Average Net Operating Assets 177.6% 170.8% 23.9% 22.8% 268.3% Net Borrowing Cost (NBC) NFE after tax / Average Non-Financial Assets 0.0% -0.3% 0.4% 0.3% 1.7% Operating Profit Margin Operating Income after tax / Sales 79.0% 77.1% 10.2% 10.3% 71.2% Net Profit Margin Comprehensive income / Sales 3.2% 3.6% 3.3% 3.2% 3.6% Operating Liability Leverage Operating liability / Net operating assets 9.8% 10.0% 12.8% 14.1% 13.8% Financial Liability Leverage (FLEV) Average Non-financial Assets/Common Shareholder’s Equity 730.1% 747.9% 764.0% 630.7% 451.3% Spread RNOA-NBC 177.6% 171.1% 23.5% 22.5% 266.6% Asset Turnover (ATO) Sales / Average Net Operating Assets 224.7% 221.4% 234.1% 221.1% 376.7% Return on Common Equity Comprehensive income / Common Shareholder’s Equity 107.0% 115.8% 113.5% 105.2% 200.0% The analysis of the ratios revealed that the company was performing well with regards to the profitability as the Return on Net operating assets increased. It showed that Dart Group is utilizing its operating assets in the best possible ways. The other profitability ratios showed that the firm is unable to generate higher profit margins as the cost of sales and expenses have increased in the previous years that have resulted in a deduction of revenues. The Company’s return on equity ratio is also showing a decrease as the value of the equity had increased, and the revenues have decreased during the last 3-4 years. It is all due to the expansionary strategy of the Company. The Leverage ratios illustrated that the value of leverage had decreased in the previous year’s showing that Dart Group was switching to equity financing rather than burdening itself with more debts. It could be said by looking at the Operating Liability Ratio and Financial Liability Ratio of the Company. The ratios illustrated the downward trend in the leverage. The spread ratio for the company represented an upward trend indicating that the stocks of the company are more profitable in the future (Dart Group PLC, 2014). Easy Jet Easy Jet focuses on the satisfaction of their customers; the Company has worked in improving the current market and the airports they operate in. The low-cost fares are the other competitive advantage that the Easy Jet has. The Company was also focusing to improve the current aircrafts and have bought some new aircrafts to facilitate new and current customers and to earn above average returns. Easy Jet has decided to increase the dividend payout, the Company has announced a 35.5% increase in the annual dividend payments. The management of the Company had signed many contracts with the regulatory authorities such as airports and also with the governments. The contracts with the airport’s regulatory bodies would be helpful to provide growth and savings to the company (easyJet plc, 2012). Ratios Formula 2014 2013 2012 2011 2010 Return on Net Operating Assets (RNOA) Operating income after tax / Average Net Operating Assets -102.0% -100.4% -101.3% -99.0% -181.6% Net Borrowing Cost (NBC) NFE after tax / Average Non-Financial Assets 0.8% 1.6% 7.0% 9.7% 103.4% Operating Profit Margin Operating Income after tax / Sales -69.3% -70.6% -76.5% -77.6% -80.8% Net Profit Margin Comprehensive income / Sales 9.9% 9.3% 6.6% 6.5% 4.1% Operating Liability Leverage Operating liability / Net operating assets 6.9% 6.3% 5.0% 4.4% 4.2% Financial Liability Leverage (FLEV) Average Non-financial Assets/Common Shareholder’s Equity 49.8% 59.9% 21.0% 18.9% 5.0% Spread RNOA-NBC -102.8% -102.0% -108.3% -108.7% -285.0% Asset Turnover (ATO) Sales / Average Net Operating Assets 147.1% 142.2% 132.5% 127.5% 224.9% Return on Common Equity Comprehensive income / Common Shareholder’s Equity 25.9% 34.7% 26.6% 27.5% 34.4% The ratios of the company were analyzed for the year 2010-2014, and the results showed that the company performed well with regards to Profitability, Leverage, Efficiency and other ratios. The profitability ratios showed that the Returns on Net Operating Assets were decreasing; this was due to the non-efficiency of operation. The Operating Profit Margin was decreased as the company purchased new aircrafts for their operations. The Net Profit Margin of the company showed an increase, as most of the interest payments were reduced. The company’s Return on equity did not vary a lot, this revealed that the company is not efficient with regards to the utilization of the money generated from the Equity (easyJet plc, 2014). The efficiency ratios illustrated that the firm was growing gradually due to the better and effective utilization of their assets, this could be observed by looking at the increase in the Asset Turnover Ratio. As the company invested in the purchase of new aircrafts the overall operational liability leverage increased but the overall financial liability of the company showed a downward trend in the year 2014. The spread ratio of the company was same that showed the investors and shareholders of the company were unable to gain profits from the purchase and sale of the company’s stock. • Results of Main Company and its Local Competitor Analysis Dart Group PLC is operating in a more effective and efficient manner. The competitor Easy Jet PLC is leading the market with regards to the operational profitability. The firm can generate more revenues from its operations, on the other hand Dart Group PLC is far wealthier than its competitor in every other aspect (Leverage, Profitability- Net Profit Margin and Returns on Common Equity, and Efficiency). The investors must consider Dart Group PLC if they are willing to invest in the industry. Portfolio Ratio Analysis Five companies that were the part of the study were analyzed to find out the leading company in the market. The Ratios that were used for the comparison were the Return on Net Operating Assets, Net Borrowing Costs, Operating Profit margin, and Net Profit Margin, Operating Liability Leverage, Financial Liability Leverage, SPREAD, Asset Turnover and Return on Common Equity. The results of the comparison are stated below. RNOA 2014 2013 2012 2011 2010 Dart Group PLC 177.6% 170.8% 23.9% 22.8% 268.3% Easy Jet PLC -102.0% -100.4% -101.3% -99.0% -181.6% Fly be Group PLC -183.5% -187.4% -196.9% -213.3% -437.8% Air Partner PLC 2.1% 2.7% 4.8% 18.3% -14.5% Fast Jet PLC -208.7% -198.6% 104.5% 22.0% 7.0% NBC 2014 2013 2012 2011 2010 Dart Group PLC 0.0% -0.3% 0.4% 0.3% 1.7% Easy Jet PLC 0.8% 1.6% 7.0% 9.7% 103.4% Fly be Group PLC 1.4% 30.6% 92.6% 25.0% -40.4% Air Partner PLC 23.5% 20.0% 10.0% 6.9% 75.4% Fast Jet PLC -35.3% -26.2% -13.3% -19.0% 0.4% OPM 2014 2013 2012 2011 2010 Dart Group PLC 79.0% 77.1% 10.2% 10.3% 71.2% Easy Jet PLC -69.3% -70.6% -76.5% -77.6% -80.8% Fly be Group PLC -93.9% -98.6% -92.9% -88.3% -88.4% Air Partner PLC 0.7% 0.9% 1.3% 3.9% -1.9% Fast Jet PLC -154.0% -206.9% 75.4% 27.9% 5.4% NPM 2014 2013 2012 2011 2010 Dart Group PLC 3.2% 3.6% 3.3% 3.2% 3.6% Easy Jet PLC 9.9% 9.3% 6.6% 6.5% 4.1% Fly be Group PLC 1.3% -6.8% -1.0% 0.6% 3.9% Air Partner PLC 0.6% 0.9% 1.3% 3.9% -1.9% Fast Jet PLC -94.3% -145.1% 0.1% 0.2% -1.1% OLLEV 2014 2013 2012 2011 2010 Dart Group PLC 9.8% 10.0% 12.8% 14.1% 13.8% Easy Jet PLC 6.9% 6.3% 5.0% 4.4% 4.2% Fly be Group PLC 6.8% 6.7% 7.6% 9.8% 12.3% Air Partner PLC 55.4% 58.5% 65.2% 63.4% 66.0% Fast Jet PLC 49.4% 39.5% 71.2% 111.1% 127.3% FLEV 2014 2013 2012 2011 2010 Dart Group PLC 730.1% 747.9% 764.0% 630.7% 451.3% Easy Jet PLC 49.8% 59.9% 21.0% 18.9% 5.0% Fly be Group PLC 64.2% 9.0% 2.7% 14.2% -89.8% Air Partner PLC 48.1% 41.7% 76.9% 90.6% 100.0% Fast Jet PLC -10.3% -5.0% -24.4% -60.2% -51.7% SPREAD 2014 2013 2012 2011 2010 Dart Group PLC 177.6% 171.1% 23.5% 22.5% 266.6% Easy Jet PLC -102.8% -102.0% -108.3% -108.7% -285.0% Fly be Group PLC -184.9% -218.1% -289.5% -238.3% -397.4% Air Partner PLC -21.4% -17.3% -5.2% 11.4% -90.0% Fast Jet PLC -173.3% -172.4% 117.8% 41.0% 6.5% ATO 2014 2013 2012 2011 2010 Dart Group PLC 224.7% 221.4% 234.1% 221.1% 376.7% Easy Jet PLC 147.1% 142.2% 132.5% 127.5% 224.9% Fly be Group PLC 195.5% 190.0% 212.0% 241.5% 495.0% Air Partner PLC 309.9% 289.8% 362.7% 470.3% 758.7% Fast Jet PLC 135.5% 95.9% 138.6% 78.7% 128.8% ROCE 2014 2013 2012 2011 2010 Dart Group PLC 107.0% 115.8% 113.5% 105.2% 200.0% Easy Jet PLC 25.9% 34.7% 26.6% 27.5% 34.4% Fly be Group PLC 6.6% -60.8% -6.5% 5.9% 206.5% Air Partner PLC 9.2% 16.7% 23.1% 68.8% -51.9% Fast Jet PLC -114.9% -133.8% 0.0% 0.2% -2.2% I. Results and Discussions The main company of the portfolio (i.e. Dart Group PLC) was the leader of the market with steady but positive increase in returns generated by the operation assets (net). The next company that showed a positive value was the Air Partner PLC, the rest of the companies showed a negative trend. The Net Borrowing Cost for Dart Group PLC showed the lowest values; it was the result of the strategy adopted by the company to reduce the debt financing and concentrating more to equity financing. The Air Partner PLC ratios showed the highest proportion of debt, showing that the company was burdened with debt financing and, therefore, could be considered the riskiest company. Dart Group PLC was the most effective company that was able to obtain higher values for the Operating Profit margins; the results represented that the company had the highest operational efficiency. The other profitability ratios of the company showed the same results. The ratios related to the leverage of the companies showed that all the companies were focusing to reduce the amount of debts and spotlight on the equity financing for their operational purposes. The company is leading the market with regards to Returns on Common Equity, SPREAD and Asset turnover ratios. The current situation of the analysis reveals that all the companies except Dart Group PLC have issues regarding the profitability, efficiency and leverage. The current position suggests that prompt measures must be taken to resolve the issues as soon as possible or else the companies will be struck badly by extreme losses. Fast Jet PLC must concentrate on improving their operations, and other efficiencies as the ratio analysis showed a very alarming situation for the company. Fast Jet PLC is unable to utilize the equity effectively, operational and financial liabilities are also increasing, and the Company is facing consistent losses for the last two consecutive years, all these are issues that are needed to be resolved or these situations will lead to bankruptcy. II. Conclusion The companies were compared on the basis of Financial Ratio Decomposition approach, the results and the discussion suggest that the main company selected for the comparison that is Dart Group PLC is the best performer amongst the rest of the companies/competitors. The ratio analysis supported the conclusion as all the ratios of the company are efficient. The company is was able to effectively manage the operations; the leverage was very low that suggests that the company was less risky as compared to the competitors. The investors and external stakeholders are recommended to invest in Dart Group PLCs stocks in order to gather profits as the company is still progressing towards growth. List of References Air Partner, 2015. [Online] Available at: [Accessed in April 9, 2015] Dart Group PLC, 2012. Report & Accounts, West Yorkshire: Dart Group PLC. Dart Group PLC, 2014. Annual Report, West Yorkshire: Dart Group PLC. Dart Group PLC, 2015. [Online] Available at: [Accessed in April 9, 2015] easyJet plc, 2012. easyJet plc- Annual Report and Accounts, Luton: easyJet plc. easyJet plc, 2014. Annual Report and Accounts, Luton: easyJet plc. EasyJet PLC, 2015. [Online] Available at: [Accessed in April 9, 2015] Fastjet PLC, 2015. [Online] Available at: [Accessed in April 9, 2015] Read More