The financial performance and position analysis of British Airways can be done with the help of profitability, leverage and liquidity ratios in comparison with one of its major industrial competitors i.e. Air France-KLM (banker.thomsonib.com). The analysis of Air France-KLM would serve as a benchmark for the evaluation of performance and position of British Airways plc.
The profitability ratios presented in the above table highlight both the companies i.e. British Airways plc and Air France-KLM for the last 4 years 2002-05. The return on assets ratio for British Airways reveals that the company has been generating a declining return on its various assets over the last four years. This ratio has decreased by about 39% in 2005 as compared to the year 2002. For Air France, this ratio also shows that the return generated by the company on its various assets has been consistently declining over the four years. The ratio has decreased by about 50% in the year 2005 as compared to 2002. Despite this fact, Air France's return on asset ratio is about 12% higher than that of the British Airways plc for the year 2005. This suggests that Air France has been more successful in utilising its assets towards the generation of profit.
The return on capital employed ratio indicates the extent to which a company generates return on the funds invested by its investors. According the above table, British Airways' return on capital employed ratio has been on the declining trend for the last four years suggesting a significant plunge in the company's net profits. The ROCE for British Airways has declined by about 30% in the year 2005 as compared to 2002. Approximately, the similar situation has been with its competitor Air France plc; its ROCE has also been declining but at a higher rate than British Airways i.e. 50% if the figures for the year 2005 are compared with 2002. Still, Air France's ROCE is much higher than that of the British Airways.
The three profit margin ratios depicted in the above chart i.e. the gross profit margin, operating margin and net profit margin provide an insight into these companies' general profitability. The gross profit margin shows the revenue that is left with the company after accounting for various production and distribution costs. The operating margin reveals the extent to which a company loses its sales revenues in meeting its