ACTIVITY 2: British Airways – Trends & One-off Analysis 2008 2007 2006 Profit & Loss Account Turnover 8,753 8,492 8,213 Operating Expenses 7,878 7,936 7,519 Operating Profit 875 602 694 Retained Profit 680 290 451 Balance Sheet Total Fixed Assets 7,019 7,099 7,438 Investments 2,231 1,226 1,380 Stock 109 74 77 Debtors due within one year 574 635 664 Cash at bank and in hand 433 662 326 Creditors: within one year 4,498 4,798 4,439 Creditors: more than one year 4,712 5,380 6,518 In the above table, a snapshot of British Airways’ Performance and its trend and one-off analysis has been established.
The more detailed discussion on the trends of British Airways in respect of financial performance is described in the following paragraphs. ACTIVITY 3: Effects of Trends on Performance of British Airways 1. Turnover The turnover of the company has been on an increasing trend, but very slow growth can be observed mainly due to the overall financial depression in all over the world.
Yet the company has remained successful in increasing its revenues, so there can be found an upward trend of revenues in 3 years from 2006 to 2008. This will certainly improve the performance of the company but still substantial amount of effort is required to increase the growth of revenues so that the company can generate significant revenues to cover all the expenses as well as generating handsome earnings as well to provide a positive signal to the shareholders. 2.
Operating Expenses Since 2007 was a nightmare for British Airways, the company could not manage to decrease or even at least maintain the operating expenses. But, the company sharply turned the table in the year 2008 and successfully managed to reduce its expenses with a relative substantial amount. So there was not a straight trend that can be found in operating expenses as the haphazard movements can be observed in 3 years from 2006 to 2008.
The company needs to take some serious steps to estimate the stable amount of expenses in future. 3. Operating Profit Because of the higher operating expenses in the year 2007, the company showed sluggish results in respect of operating profits which dropped substantially but, in the very next year the company performed marvelously well and achieved previous year’s shortfall, as well as, current year’s targets. As a result, the company could not maintain a straight trend from 2006 to 2008 because of the random operating expenses in the same period. 4. Retained Profit The retained profits of the company decreased by almost half of the amount in 2007, but as the company performed well in 2008, the recovered last year’s deficits along with increased the amount of retained profits by more than twice as compared to amount of retained profit in 2008.
In short, the company was not able to reflect a positive increasing trend in terms of retained profits. 5. Total Fixed Assets In 2006, the book value of company’s fixed assets was 7,438 but it reduced sharply in 2007 to 7,099. However, the company managed to persist with 7000 figure of fixed assets in the year 2008 which is in fact, a real positive sign for the company’s financial position.
Therefore, not a straight decreasing trend is observed however, it seems that the company is going to stabilize the amount of fixed assets in upcoming years. 6. Investments The investments that the company undertook in 2006 were on an increasing trend. However, very slight negative movement can be observed in 2007 but the company showed almost a doubled increase in investments figure in the year 2008.
So, the company yet in another area of business, could not demonstrate any positive trend from 2006 to 2008. 7. Stocks The amount of inventories does not play a very significant role in this company’s financial performance. The company had experienced a stable trend in the amount of stocks but a fairly increasing movement can be observed in 2008 in this regard. 8. Debtors due within one year The company’s performance in respect of the amount debtors due within one year is very satisfactory as the company’s amount of debtors is on a decreasing trend in a very stable manner.
It can be anticipated that the company would follow the same pattern of cash collection from debtors in the following years of operations as well. The company apparently does not need to undertake special efforts to maintain this positive trend. 9. Cash at bank and in hand In the year 2007, the company had preferred to maintain a relatively larger amount of cash at bank or in hand (because of selling more investment securities) in order to meet any irregularity because of company’s depressing performance in the same year.
However, the company reduced the amount of cash in 2008 when company observed the improvement signals in its financial operations. However, the company could not manage to reflect any sort of trend in its cash based activities right from 2006 to 2008. 10. Creditors: within one year Due to sluggish and disappointing performance in 2007 as compared to preceding year, the company observed a significant increase in the amount of creditors falling due within one year. However, after achieving better results in very next year, the company managed to bring its amount of creditors back to the level of 2006.
Therefore, the company on the whole remained on a specific level of creditors who are due within one year. More specific efforts are required to stabilize this trend of creditors. 11. Creditors: more than one year Surprisingly, the company performed tremendously well in reducing the amount of creditors which are falling in more than one year. In this area, the company showed exceptionally better performance. There is positive decreasing trend that the company is following in this area of business.
The company should try the optimal efforts to maintain this decreasing trend in the upcoming years of operations. References Brealy, R. A, Myers, S.C, & Allen, F (2008) Principles of corporate finance. 8th ed. Northwestern University: McGraw-Hill/Irwin