Making Financial Decision Based on Financial Information Assignment

Making Financial Decision Based on Financial Information - Assignment Example British Airways Plc and Iberia had merged to form a new leading airline group named International Airlines Group (IAG). IAG is formed, and its shares were listed on London Stock Exchange, on 24 January, 2011. As a result of the merger  with Iberia, British airline’s revenue has increased up 17 percent (to ?9,990 million), and the operating profit increased to ?518 million in 2011 (12 months to 31 December) when compared to the profit of 2010 i.e. ?342 million. Profit before tax in 2011 was ?679 million and in 2010 they had a loss of ?32 million. Fuel costs went up to ?3 billion in 2011. 2011 saw noteworthy hikes in the prices of fuel in opposition to the background of slow recovery of global economy.   British Airways was not resistant to outside factors distressing the aviation industry, but the IA Group which spent a great deal of 2011 in delivering powerful operational and financial performance, was able to establish firm foundations for a brilliant future.  The hike in the operating profit was delivered, regardless of fuel costs in the period, beyond ?3 billion, and up to 34 per cent annually. On the contrary, the cost of non-fuel units went down by 4.2 percent. The operating outcome for 2011(31 December) included charges of restructuring amounts ?12 million and they were chiefly concerned with its divisions. The restructuring charges of ?6 million in 2010 are chiefly relating to the costs of lease exit. The taxation charge for 31 Dec, 2011 was is ?7 million; and in nine months which ended on 31 December 2010 the credit was about ?13 million. Diminutions in corporation tax rate in the UK were substantively passed in 2011. The major rate of corporation tax was condensed to 26 from 28 percent with effect from 1st April 2011, and to twenty five per cent from 1 April 2012. â€Å"Net debt comprises the current and non-current portions of long-term borrowings, less cash and cash equivalents, and other current interest-bearing deposits† (Annual Report and Accounts 31 December 2011 n.d). The position of cash remains powerful with the cash and the cash equivalents to ?1,829 million.   Decisions: The current ratio of British Airways, according to the budget analysis for 2011 is 0.75 (Current Assets/ Current liability, 2774/3683). This means that the company has faces some difficulty in the repayment of its bill on timely basis. â€Å"Current ratio is a financial ratio that measures whether or not a company has enough resources to pay its debt over the next business cycle (usually 12 months) by comparing the firm's current assets to its current liabilities† (Current radio Interpretation 2009). Even though there is hike in the price of oil, British Airways preserves a strong focus on controllable costs, by functioning strongly with the suppliers. On the whole, the operational performance of British Airways is much stronger. It flights are punctual, and passenger are aware of it. 2. Explain the calculation of unit cost s and make pricing decisions using relevant information The unit cost is the cost per standard unit supplied, which can be a single sample of a specified number. When purchasing above a single unit, the total cost will rise with the number of units, other than it is general for the unit cost to reduce as quantity is increased. This discount in long run unit costs which occur from an increase in