British Airways Performance Analysis Assignment - 1

British Airways Performance Analysis - Assignment Example The above ratios reveal the comparative performance of BA for the two years under consideration. Profitability- wise operating profit ratio has registered a commendable performance in 2008 as compared to 2007. In fact ‘the operating profit margin measures the percentage of each sales dollar remaining after all cost other than interest, taxes, and preferred stock dividend are deducted. It represents pure profits earned on each dollar.†(Lawrence J Gitman, page 67) The performance of BA has been excellent raising its operating profit ratio from 7.09% in 2007 to 10% in 2008 despite the fact that the rise in revenue is merely 3%. In the year 2007 total revenue was  £ 8492m and that has risen only to  £ 8753m. The extremely good profitability performance is again corroborated by the fact that return on equity has gone up from a mere 8.39% to 21.74%. Such a large increase in return on equity is remarkable when the total equity has risen from  £ 2411m in 2007 to  £ 3233m. Overall BA has performed extremely well on profitability front. Liquidity has been a problem for BA in both years. Liquidity reflects the short term solvency situation of a company. Liquidity position provides an idea about whether the company is in a position to meet its short term obligations when those become due. Liquidity of a company is aptly reflected by its current ratio. The current ratio of 2:1 is considered optimum for any industry, but this standard again differs from industry to industry. BA has a current ratio of 0.95: 1 in 2007 and 0.97:1 in 2008. By any standard, the current ratio is much lower than the required standard. BA is facing a liquidity crunch and if it continues like this BA might face difficulties in meeting its short term obligations. Current ratio change in 2008 when compared to 2007 is not even noticeable. The contributing major factors to the deteriorating the liquid position of BA are current interest-bearing deposits that have depleted from  £ 1642m in 2007 to  £ 1181m in 2008. Liquidity is certainly a cause of concern for BA.