British Airways Financial Analysis :: Case Study Analysis, solution

British Airways Financial Analysis The following pages comprise of a financial analysis of British Airways for the financial year ending March 31, 1999. British Airways is a well-established company and has enjoyed high profits for the majority of its existence. However, the most recent accounts that have been published tell a different story of how the year has been. British Airways produced a pre-tax profit of  £225 million. This is  £355 million less than in 1998 which illustrates the decline in demand for British Airways services. Although this decline in profits of 61% seems unacceptable it was caused by a variety of abnormal expenses. For example the company spent  £35 million on computer systems to ensure that they are â€Å"year 2000 compliant†. British Airways also entered the low cost air travel market during the year with the launch of â€Å"Go†, which is running at a loss as it tries to establish itself in a highly competitive business environment. Lower fuel prices and the strength of the Pound benefited British Airways, and as a result the company stocked up on 45% of its fuel requirement for the next financial year. This also contributed to the fall in profits for the year. Operating Profit Fell from  £504 million in 1998 to  £442 million in 1999. The return on capital employed or primary ratio was just 17.06%. This is a great deal smaller than the 1998 figure of 61.2%. These figures both show that the business is achieving a return higher than that which could be achieved in a non-risk investment such as a high interest no access bank account which would only give a return of 7 to 9%. British Airways has a working capital of 5.1, which shows that it has high solvency. Overall, although the firm has incurred a loss of  £355 million in the financial year it is still a healthy business that shows promise of high profits in future years.