FINANCIAL ANALYSIS FOR MANAGERS Case Solution
The net profit margin ratio is low for both the companies, as compared to the industry averages. For Air Berlin, the net profit margin is in negative figure. However, the net profit margin for Iberia is 2.05, which is quite lower than 5.30 of industry average.
The financial information and the capital structure suggest that the company has high proportion of debt in its capital structure. Therefore, the return on equity is too high for both the companies. The industry average is 23.33 while for Air berlin and Iberia it is 90.62 and 35.30 respectively.
The P/E ratio also differs significantly from industry averages. There is volatility in prices of shares trading in a day. Overall analysis confers that both the companies are underperforming as per the industry averages.
Time Series Analysis of Air Berlin and Iberia
Net Profit Margin
The net profit margin ratio is the measure of profitability of the company. It defines success of the company and is the measure that investors seek eagerly. The ratio analysis for the company Air Berlin shows worse profitability position. The company has a declining net profit margin ratio trend, it was positive (0.2%) in the year 2012, but it fell to -9.1% in the year 2014.
On the other hand, the ratio analysis of Iberia shows better performance, it has increasing profit margin ratio. The ratio is 4.9% in the year 2014. Based on the overall analysis, Iberia has been more profitable than Air Berlin, which is making loss.
Gross Profit Margin
This profitability ratio tells the companyâ€™s ability to generate profits by providing services. As per the gross profit margin ratio, Iberia beat Air Berlin again. Air Berlin has a gross profit margin ratio of 23.7% in year 2012, 23.4% in year 2013, and a slight increase with 24.9% in year 2014.
On the other hand, the gross margin for Iberia is in its increasing trend with almost 2% increase per year. It was 66% in the year 2012, which went up to 70% in 2014. Iberia is highly profitable; considering its cost of services, it is making heavy return on these costs. Air Berlin is making some return, but this will probably become loss after incorporating operational expenses.
Operating Profit Margin
The trend is similar to that of the previously discussed ratios. Air Berlin has a declining trend and its operating margin is in negative. The operational expenses are so high that they cannot be covered by the gross profits. Iberia has an increasing trend in this ratio as well, with operating margin of 6.2% in the year 2014.
Return on Assets
This ratio is the measure of companyâ€™s ability to utilize its total assets to earn return. The company uses assets in its business and makes earnings through their use. Therefore, the higher the return on asset ratio, the higher the company is making effective use of its assets and the company makes higher profits as well. The ratio is calculated by dividing the revenues over the average net assets.
Iberia here too has an increasing trend, where it has ratio of -4.8%, 0.6%, and 4.4% for the years 2012, 2013, and 2014 respectively. Where the ratio goes from negative to positive for Iberia, it goes positive to negative for Air Berlin. Air Berlin has -20.1% returns on assets in the year 2014………………….
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