BUSINESS ACCOUNTING ASSIGNMENT

Business Accounting Assignment



Table of Contents

Executive Summary3

Introduction4

Analysis of Financial Strengths and Weaknesses (Lufthansa Airlines)4

Ratio Analysis of Lufthansa8

Comparison of Key Ratios with 2 suitably selected companies (Singapore Airlines and Cathay Pacific)11

Critical Appraisal of Two Accounting Policies followed by the Company15

Recommendations19

Conclusions20

References22

Executive Summary

The assignment starts with a brief introduction to airline industry especially the Lufthansa Airlines. Firstly, the analysis of financial strengths and weaknesses was made for Lufthansa Airlines. This has given us a clear picture of the Airline's financial health. In order to better understand the financial health of Lufthansa, we computed five major ratios of the company. These ratios were analyzed and evaluated accordingly. Additionally, a comparison of key ratios of Lufthansa was performed with Singapore Airlines and the Cathay Pacific. This has given us a picture of competitive edge for Lufthansa. Lastly, a critical appraisal of two accounting policies used by Lufthansa was done in comparison with Singapore Airlines and Cathay Pacific. The assignment is generally ended with a set of recommendations and a conclusion as well.

Business Accounting Assignment

Introduction

The international airline industry provides service to virtually every corner of the globe, and has been an integral part of the creation of a global economy. The airline industry itself is a major economic force, both in terms of its own operations and its impacts on related industries such as aircraft manufacturing and tourism, to name but two. Few other industries generate the amount and intensity of attention given to airlines, not only among its participants but from government policy makers, the media, and almost anyone who has an anecdote about a particular air travel experience.

During much of its development, the global airline industry dealt with major technological innovations such as the introduction of jet airplanes for commercial use in the 1950s, followed by the development of wide-body “jumbo jets” in the 1970s. At the same time, airlines were heavily regulated throughout the world, creating an environment in which technological advances and government policy took precedence over profitability and competition.

Analysis of Financial Strengths and Weaknesses (Lufthansa Airlines)

An analysis of returns earned by Lufthansa Airlines indicates that the company adds value for shareholders. The next logical question is can the company continue to add value by maintaining these returns? In order to answer this question I have computed the ROCE and ROE.

Contrary to general perception, Lufthansa Airlines is an efficient user of capital, including equity capital. This is reflected in handsome returns, which I have attempted to break down into various components to check if they are sustainable.

Ratio

 

2009

%

2010

Best or Worse

Return on Equity

Profit after tax

0.135535175

 

0.082724627

Worse

 

equity

 

 

 

 

Dividend Yield

Dividend per share

1.818181818

 

1.833333333

Best

 

Share price

 

 

 

 

Dividend Cover

Profit after tax

174.125

 

137.3529412

Worse

 

dividend

 

 

 

 

Earnings per Share

Profit after tax

0.002532727

 

0.002594444

Best

 

Number of share

 

 

 

 

Price Earnings ratio

Share price

35529.71576

 

25695.93148

Worse

 

EPS

 

 

 

 

Earnings Yield

EPS

0.909

 

0.00089

Worse

 

Share price

 

 

 

 

Return on Total Assets

Profit before interest

0.099663274

 

0.100732601

Best

 

Total assets

 

 

 

 

Sales per Employee

Sales revenue

0.088443665

 

0.091225619

Best

 

Average no of employees

 

 

 

 

No credit period

Current assets-stock

385.6666

 

360.1

Worse

 

Average daily cash usage

 

 

 

 

Current ratio

current assets

0.735544218

 

0.820075976

Best

 

current liabilities

 

 

 

 

Quick Ratio

current assets - stock

0.368941327

 

0.414527455

Best

 

current liabilities

 

 

 

 

Gearing

Debt

0.174963253

 

0.200631032

Best

 

Equity + debt

 

 

 

 

Debt to equity

Debt

0.212067225

 

0.250986766

Best

 

Equity

 

 

 

 

 

Operating profit

0.137538312

 

0.101995775

Best

 

____________

 

 

 

 

 

Total assets - current liabilities

 

 

 

 

 

Operating profit ...