Thomas Cook Ratio Analysis

P/E Ratio: (It is possible to calculate this only for 2015 and LTP because it has been making losses uptil the previous year so EPS was negative): Thomas Cook has a P/E ratio of 69x. Shares in Thomas Cook seem to be trading at a discount to its peers. This could be because of Thomas Cook’s inferior profitability and its significantly high debt levels. However, given the expectation of stronger profitability in 2016 and turnaround strategies, the gap might get a little slimmer.

Market to book value: Thomas has a price to book ratio of ___x. Since this ratio is above 1, it shows that there is a more value in the business than what is captured by the financial statements. The ratio seems to be on the higher side compared to peers in the industry such as TUI.

Current Ratio and Quick Ratio: Thomas Cook’s current and quick ratio has improved slightly over the two year period, however it is still quite low (below 1). Short term creditors prefer high ratios because it reduces their risk, while investors may be interested in the financial leverage provided by short term debts. Low current and quick ratio seems to be the norm in the industry in which Thomas operates and does not subscribe to the thumb rule of 2:1. This is because of the ‘services’ nature of the industry. Current assets, excluding cash are barely 12% of total assets while cash accounts for around 62% of the current assets for Thomas Cook.

Operating Cash flow to maturing obligations: This ratio has also slightly improved over the two year period, but is still extremely low. This ratio shows that Thomas Cook does not generate high cash flows from operating activities to cover a greater part of current liabilities. This may indicate that Thomas Cook is very much likely to face liquidity issues in due course as they are highly vulnerable to adverse business, financial and economic conditions. Again, it does hold a significant amount of cash, around 35% of current liabilities.

Working Capital to Sales Ratio:...