Financial Statement Analysis

Financial Statement Analysis

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Financial Statement Analysis

Financial statement of a company comprises of three major documents. They are income statement, balance sheet and cash flow statements. The information of these documents is used to calculate financial ratios. Financial ratios illustrate company’s financial health and show its position in the business landscape. Financial ratios are tools that help to interpret a company’s financial planning, and its performance during the existence of the business. It allows the company to compare own activities with respect to previous years as well as among other companies. Financial ratios enable to understand operating performance and financial condition of the company through profitability ratio, liquidity ratio, activity ratio, financial leverage ratio, and shareholders’ ratio.

This assignment conducts a financial ratio analysis of two companies of Airline Industry; they are Lufthansa Airline (LH), and Emirates Airlines (EK). Financial ratios are evaluated using information from the income statement and balance sheet. These two documents are obtained from the websites (“Lufthansa Annual Report 2013”,n.d; “The Emirates Group Annual Report 2012-2013”). Financial ratios are evaluated for the years 2012, and 2013.

Liquidity ratio

Liquidity ratio measures short-term solvency – the ability of the company to meet its debt obligation. It is expressed through the financial ratios, such as Current ratio (CR) = Current assets / Current liabilities, and Quick ratio (QR) = (Cash + Marketable Securities + Receivables) / Current liabilities.

Table 1.Liquidity ratio

| Current Assets | Current liabilities | Cash | Market Securities | Receivables | CR | QR |

LH 2012 | 9777 | 9742 | 143 | 3530 | 464 | 1.004 | 0.42 |

LH 2013 | 9663 | 10947 | 1550 | 3146 | 491 | 0.88 | 0.49 |

EK 2012 | 77086 | 26046 | 7532 | 8055 | 8126 | 2.96 | 0.91 |

EK 2013 | 94804 | 31319 |...