Financial Statement Analysis Ryanair

Masters in Financial Management

2023 - 2024

Financial Statement Analysis: Ryanair

Advanced Corporate Finance

Wouter De Maeseneire

Group Number: 8

Charlotte Bardijn, Saar Lemey, Tibo Nuyts & Leanne Strum

Student(s)’s signature(s)[pic 1][pic 2][pic 3]

[pic 4]

[pic 5][pic 6]

Executive Summary[pic 7]

Ryanair Group evolved from a small airline company with one airplane that flew between Waterford and London Gatwick to the second biggest airline company in Europe. With its focus on efficiency and cost-cutting, it now conducts more than 3,000 flights a day at low fares. This report analyses the balance sheet, income statement and cash flow statement of Ryanair from FY2018 to FY2023.

Despite facing challenges such as rising oil prices and the conflict in Ukraine, Ryanair has been back on its growth trajectory since FY2021, highlighted by the continuous expansion of its balance sheet following the setbacks caused by the COVID-19 pandemic. The main component of the asset side of the balance sheet is the PPE, especially the airplanes that are used for transporting their customers. Ryanair’s rapid growth can be attributed to its strong COVID-19 policy, which was mainly focused on increasing its cash balance. On the equity and liabilities side, steady growth in absolute figures can be noticed on the equity side and the largest chunk of the total balance sheet consists of non-interest bearing operational liabilities. Next, the most important liabilities to the airline are the trade payables, lease liabilities, maturities of debt and derivative financial instruments.

From the income statement can be concluded that ancillary revenues represent 30 to 40 percent of the operating revenues and that fuel and oil constitute the largest category of the operating expenses. Moreover, Ryanair is able to mitigate its airport and handling charges thanks to cost-effective facilities. Additionally, a large part of the financial expenses is driven by jet fuel hedge ineffectiveness. Finally, the net profit of 2023 recovered from COVID-19 and is nearly at the level of 2018.

The operating cash flow was negative in 2021 due to COVID-19 but recovered quickly. Indeed, in 2023, they were higher than the pre-COVID levels. Additionally, during the past six years, the airline has consistently seen negative financing cash flows. Those cash flow statements highlight Ryanair’s commitment to managing its debt wisely and actively working to reimburse it. To sustain its growth, the Group has been investing substantially in the PPE, resulting in negative investing cash flow.

Next, a ratio analysis was performed to investigate the liquidity, solvency, and profitability position of Ryanair. The liquidity ratios showed strong results for the Ryanair Group. The cash conversion cycle is negative since customers pay upfront and since inventories are low. The solvency ratios suggest that the airline generates ample operating cash flow and can thus comfortably reimburse its debt. Therefore, Ryanair is unlikely to face solvency problems. As a result of both effective hedging strategies and a more conservative approach to its debt management, the airline outperforms its competitors in every solvency ratio. The profitability ratios display a high asset turnover, which, despite a relatively low margin, drives the return on assets. Moreover, Ryanair has a strong return on equity (except during COVID-19) and an important percentage of leverage in its financing mix. Compared to competitors, Ryanair has the highest ROA and is in the middle in terms of ROE.

List of Figures[pic 8]

Figure 1: Stock price evolution of Ryanair, peers, and oil        9

Figure 2: Assets, equity, and liabilities of Ryanair over time        10

Figure 3: Evolution of Ryanair's assets, liabilities, and equity over time        10

Figure 4: Evolution of current assets (Ryanair)        11

Figure 5: Capital structure overview of Ryanair (FY2023)        12

Figure 6: Evolution of lease liabilities        13

Figure 7: Breakdown of operating revenues        15

Figure 8: Breakdown of operating expenses        15

Figure 9: Ryanair’s net profit or loss over the years        18

Figure 10: Evolution of operating, financing and investing cash flow (CF)        20

List of Tables[pic 9]

Table 1: Ryanair's effective rate of taxation over the years        17

Table 2: Current ratio, quick ratio and cash ratio        21

Table 3: WC, WCR and surplus/excess        21

Table 4: DIO, DSO, DPO and CCC        22

Table 5: CCC of Ryanair and peers        22

Table 6: Debt ratio        23

Table 7: Operating cash flow ratios        23

Table 8: Solvency ratios of Ryanair and peers        24

Table 9: Sales margin, assets turnover and return on assets of Ryanair        24

Table 10: Return on equity before and after tax and financial leverage of Ryanair        25

Table 11: Profitability ratios of Ryanair and peers        25

Table of Contents[pic 10]

Executive Summary        3

1. Introduction        7

2. Ryanair: Company Overview        8

2.1 Company History        8

2.2 Business Model        8

2.3 Stock Evolution        9

3. Balance Sheet        10

3.1 Assets        10

3.2 Equity and Liabilities        12

4. Income Statement        15

4.1 Total Revenue by Primary Geographical Market        15

4.2 Operating Revenues        15

4.3 Operating Expenses        15

4.4 Financial Expense and Income        17

4.5 Tax Expense        17

4.6 Net Profit/Loss for the Year        18

5. Cash Flow Statement        19

5.1 Operating Cash Flow        19

5.2 Financing Cash Flow        19

5.3 Investing Cash Flow        20

6. Ratio Analysis        21

6.1 Liquidity        21

6.2 Solvency        23

6.3 Profitability        24

7. Conclusion        26

8. References        27

9. Appendix        28

A. Balance Sheet        28

B. Income Statement        30

C. Cash Flow Statement        31

D. Analysis of Peers        33

1. Introduction[pic 11]

In this report, the financial statements of the second-largest airline in Europe, Ryanair, are analyzed. Ryanair is known for its low-cost pricing strategy and connects more than 240 destinations in more than 40 countries. Over the years, the airline has experienced remarkable growth. Today, it connects the whole of Europe with 22,000 employees, 565 airplanes and over 3,000 flights a day. The Ryanair Group now consists of five separate airlines, Ryanair DAC, Malta Air, Buzz, Lauda Europe, and Ryanair UK.

This report will analyze Ryanair’s financial statements from FY2018 to FY2023. It is important to know that the end date of the financial statements is the 31st of March and not the 1st of January. This six-year period is taken so that the impact of COVID-19 on the results can be captured and compared with the pre-COVID results of 2018. Furthermore, the effects of the current war and the rising oil prices are reflected in this period.

Three main areas will be covered in this report. Firstly, a company overview is given with a short history and explanation of the business model and stock price evolution. Secondly, the balance sheet, income statement and cash flow statement of Ryanair will be discussed in-depth. Next, a comprehensive ratio analysis of the current liquidity, solvency, and profitability position as well as a comparison with peers will be given. The peer group is composed of Wizz Air and easyJet (because of their low-cost strategy) and Lufthansa Group (because it is the largest airline company in Europe). Lastly, this report will end with a concise conclusion.