Analysis and Recommendations for DeHavilland Aircraft Services Share HoldingsContentsExecutive Summaryii1. Introduction12. Analysis Method & Rationale13. Detailed Analysis24. Recommendations45. Conclusion5References6Appendix7Executive SummaryThe report analyses the financial indicators of DeHavilland Aircraft Services plc (DAS) in the context of a request for a recommendation from a client who now holds a 10% stake in the company, and is considering whether to increase that share to 25%, sell the present stake, or to retain it as is. An analysis is conducted using six financial ratios – current ratio, acid test ratio, return on capital employed, price to earnings ratio, cash ratio, and total debt to assets ratio – and the company’s profit and cash flow performance are analysed as well. The analysis of the current, acid test, and return on capital employed ratios indicate that DAS plc suffers from some financial inefficiency and does not perform as well as the sector average.
There has also been a decline in profits and profit margins, and a positive cash flow for 2011 was mostly the result of a one-off financing issue. However, the company is in a very sound position with regards to its liabilities and at this point presents a very low risk.
In addition, the price to earnings ratio of its stocks is excellent. Since the increase in the clients’ stake to 25% carries with it some influence over company policy and management direction, our recommendation is that the client should exercise that option. 1. IntroductionThis report presents an analysis and recommendations of options available to our client with respect to their share holdings in DeHavilland Aircraft Services plc (DAS), specifically, whether they should retain their current 10% share in the company, divest themselves of that share, or increase the holding to 25%.
A brief background summary of DAS is presented below, followed by an explanation of the financial ratio analysis methodology used. The detailed findings of the analysis are then presented, along with recommendations as to how our client should proceed. Background of DAS and Current SituationDeHavilland Aircraft Services plc (DAS) is a leading provider of aircraft service and maintenance, with about a 20% market share in the sector. The financial performance of the company from 2010 to 2011 has been mixed; this is analysed in greater detail below, but in general the company is in sound financial health despite slightly lower profits and cash flows year-on-year.
Significant challenges DAS will face in the near term are the renewal of its contract with English Airways, which currently provides DAS with the largest part of its turnover and operating profit, and the unknown implications of the recent loss by theft of £ 800,000 of parts from DAS’ warehouse. 2. Analysis Method & RationaleIn order to properly form conclusions about the financial health and future prospects of DAS, an analysis of a number of financial ratios is conducted.
Financial ratios are divided into four categories. Activity ratios provide insight into the company’s management in the context of turning resources into income. Liquidity ratios assess the company’s ability to meet its financial obligations. Profitability ratios are another way to measure management effectiveness, by providing an insight into control of expenses. Finally, leverage ratios indicate the company’s ability to acquire additional debt, and pay its long-term debt obligations. (Colbert, 1994)