Ratio Analysis of Ryanair Essay Example | Topics and Well Written Essays - 1500 words

Ratio Analysis of Ryanair - Essay Example First we chose Operating Profit as our initial measure of economic performance. Since Operating profit is the cornerstone of the success of any company, and it serves to provide an overall picture of a business in general. It is clearly an indicator of the success of the strategic planning and decisions made during the course of the course of the year by management in general. One can clearly gauge also how the company performed compared with the competition. In order to calculate the operating margin you have to divide operating income by the total revenue. The Operating Profit for RynAir for the year 2007 was 21.09% (471,745/2,236,865) compared with an industry average of 0.6 % (Dun & BradStreet, 2007). Here we can perceive that management definitely is plating their cards right at RynAir. They are demonstrating a level of efficiency and profitability that is vastly superior to any competitor. The financial ratios we have chosen portray a clear image of the Rynair’s profitability, solvency and resource efficiency. The first two ratios we have chosen measure the firm’s level of solvency, or its ability to pay its liabilities. These two are the Quick Ratio and Debt to Equity Ratio. The Quick Ratio or Acid test ratio is the most demanding and clear portrayal of a company’s true level of liquidity.   It serves as one of the main metrics used by financing institutions in order to gauge the credit worthiness of a business or corporation. In order to compute the quick ratio, first obtain the current assets and subtract the inventory, this number represents the "quick assets" or the type of assets that can be converted to cash immediately.  From this total of quick assets the total of current liabilities must be discounted. The result from this formula is the quick ratio. Due to the fact that inventory is rarely sold as quickly as the more liquid assets, this is why inventory levels are excluded from the