Accounting

Balfour Beatty and Vinci are both globally leading construction companies with their net worth in billions of dollars. This paper is a detailed analysis of both the companies.

Balfour Beatty

Company profile
It is a top UK construction company which was founded in 1909 by George Balfour and Andrew Beatty. The company is listed on the London Stock Exchange and has an impressive global workforce of an estimated 30,000 employees. Although, the company initially started out as a construction concern but with the passage of time has diversified into many wider areas which were relevant to the construction industry and as of today has four major business streams which are building management services, civil and specialized engineering services, rail engineering and services along with an investments function. (Balfour Beatty, n.d)

Objective
Our goal is to deliver consistent, long term growth to our shareholders (as cited in the CEOs review in Annual Report 2008).

Balfour Beatty has a legacy which stretches to more than a century. The company has performed consistently well over the years to ensure stable profits for its investors and vows to continue this in future as well. (Balfour Beatty, n.d)

Strategy
The company has been following a medium to long term growth strategy and intends to take growth measure in the following areas

The company intends to further increase its UK infrastructure and has made necessary acquisitions over the years to do so.

The company also intends to tap the demand for high-level and sophisticated services in both the UK and the US through expansion of its professional services division in the UK and through collaboration with Heery International in the US.

Similarly, Balfour Beatty further intends to increase its stake in the public-private partnership (PPP) market. The company has already acquired GMH Military Housing which has fostered domestic growth. Similarly it will shortly launch its PPP project in Singapore which will increase its market share in the Central Asian PPP market. (Balfour Beatty, n.d)

Board Structure
The companys board comprises of 12 directors of which seven including Steve Marshall (Chairman) are non-executive directors. The board is primarily responsible for the strategic direction of the company along with management of risks, allocation of resources, annual budgeting and capital expenditure among numerous other tasks.

The board further comprises of the following committees

Audit committee
This committee is responsible for correct presentation of the companys financial statements, assisting both external and internal auditors, reviewing risk management processes. It comprises of non-executive directors and is chaired by Graham Roberts who is also the Finance Director of The British Land Company.  At the end of the period, this committee provides an oral report to the Board outlining their performance, achievements and any significant changes made during the period.

Nomination committee
This committee also comprises of non-executive directors and is chaired by Chairman of the Board Steve Marshall. It is responsible for the appointment of executive directors.

Remuneration committee
Similarly, this committee is also chaired by another non-executive director Robert Walvis. The function of this committee is to determine appropriate remuneration for the executive directors of the company.

Business Practices committee
The provision of this committee is not required by corporate governance and is aimed at streamlining business practices. In 2008, this committee was chaired by Stephen Howard.

Group Tender and Investment committee
This committee comprises of executive directors and is chaired by the company CEO Ian Tyler. The usual agenda items of this committee are to analyze strategic level matters for instance capital expenditure.  Another function of this committee is to authorize any significant investments and divestments.

Finance and General purposes committee
Similar to Group tender and investments committee, this committee also comprises of executive directors and is aimed at dealing with financial matters for instance approval of routine banking matters. Share option grants etc.

Brief biographies of key personnel

Steve Marshall, Chairman Balfour Beatty
He is an FCMA and joined Balfour in 2005 as a company director. However in 2008 he was made the Chairman of the company.

Ian Tyler, CEO Balfour Beatty
He is a qualified chartered accountant and he joined Balfour Beatty in 1996. Prior to joining Balfour he had served as a finance director of ARC. Tyler has been consistently promoted at Balfour. He was made a director in 1999 which led to his appointment as Chief Operating Officer and which eventually led to his selection as companys CEO. (Balfour Beatty, n.d)

Accounting policies

Asset valuation and depreciation model
Balfour Beatty values it non-current assets at original cost less accumulated depreciation and any impairment losses. However, due to the transition from UK GAAP to IFRS some land and buildings were revalued which were therefore carried at their revalued amounts.

As for asset depreciation, the company uses a straight line method. Buildings which have been leased are depreciated at 2.5 over their lease term, whereas plant and equipment are depreciated at rates ranging from 4 to 33. (Balfour Beatty, n.d)
Inventory valuation
Inventories are recorded at the lower of original cost and net realizable value (NRV). The company uses the first in first out (FIFO) method for determining the cost of closing inventories. (Balfour Beatty, n.d)

Breakdown of Turnover
Business segment20072008YoY changeFigures in millions of  s
Building management and services 3,527     4,498    27.5
Civil and specialist engineering services 2,112     2,587    22.5
Rail engineering services    775     1,016    31.1
Investments      51        160    213.7
Total 6,465     8,261    27.8(Balfour Beatty, n.d)

Corporate responsibility
In the wake of global warming and numerous other environmental concerns, manufacturing concerns have been subject to increased regulation. For instance, regulatory authorities in UK require industrial concerns to observe lower CO2 emissions and provide adequate facilities for both industrial waste management and maintaining employees well being.

CO2 emissions have gone down by 30 in 2008. Similarly, Balfour Beatty introduced the Zero-Harm policy which is to be observed by all its concerns in an absolute manner by the end of 2012. Furthermore the accident frequency rate (AFR) also dropped by 5 to 0.2 in 2008. (Balfour Beatty, n.d)

Vinci

Company profile
Vinci is a French construction company which is considered to be the global leader of the construction industry. It was founded in 1899 and is listed on Euronext DG. It has an enormous global workforce of over 150,000.

The company is the largest revenue generating construction concern in the world and offers a wide range of construction and civil engineering related services. (Vinci.com, n.d)

Objective
The company aims to ensure both growth and resilience along with value creation for its shareholders. (Vinci.com, n.d)

Vinci is the market leader in the construction industry and as can be seen from its objective it intends to further expand and sustain its existing market positions.

Strategy
Vincis long-term strategy is to expand on its existing business model which will assist in striking a balance between developments of both short term and long term cycles. In order
to achieve growth of short term cycles Vinci intends to do the following

Further strengthen the local market position with capture of segments which display growth potential.

Obtain the expertise and technology to gain access to niche markets across the globe.

It further intends to strengthen the companys ability for management of potentially complex projects.

The company also intends to focus more on organic growth in order to improve its financial condition. (Vinci.com, n.d)

Board structure
The board comprises of 14 directors including the chairman. Furthermore, the board also comprises of the following committees which are required as part of corporate governance

Audit committee
This committee assists the board in true and fair presentation of consolidated accounts. It comprises of three non-executive directors and is chaired by Henri Saint-Olive.

Strategy and investments committee
This committee helps the board in developing the companys strategy. It also analyses material impact of proposed investments and divestments. It comprises of six directors which are headed by Chairman of the Board namely Yves-Thibault de Silguy.

Remuneration committee
The remuneration committee is responsible in proposing and in determining remuneration of the board of directors. The committee comprises of three non-executive directors.

Appointments committee
This committee is responsible for examining of any new appointments for the board
and hence reserve the right to make any recommendations. This committee is also chaired by the Chairman of the Board.

Vinci also has two separate committee namely Executive committee and Management co-ordination committee.

Executive committee
This committee is responsible for the appropriate functioning of the VINCI and comprise of Vincis executive personnel.

Management and co-ordination committee
This committee is aimed at bringing together the board of directors and executive committee members in order to facilitate better co-ordination between them. (Vinci.com, n.d)

Brief biographies of key personnel

Yves-Thibault de Silguy, Chairman VINCI
He has had several key positions in many key government organizations in the 1970s and 80s for instance Ministry of Foreign Affairs, European Commission etc. He has extensive and diversified experience of governance in many distinct organizations and before becoming the Chairman of Vinci he served as the CEO of Suez Lyonnaise des Eaux.

Xavier Huillard, Director and CEO VINCI
He has worked as a civil servant earlier on in his career and then moved to the construction sector where he has made the rest of career. Mr. Xavier is considered to be a veteran of the construction industry with decades of experience. Prior to joining Vinci in 2000, he served as both the Chairman and CEO of SOGEA.

Richard Francioli, Executive Vice President (EVP), VINCI Construction
He has been associated with the VINCI Group for over two decades now. Francioli has also served as a civil servant earlier on in his career which led to his appointment as a director at SOGEA.  He joined Vinci in 1983 and since then has held various positions in the construction function of the company which led to his appointment as Chairman of Vinci Construction in 2006 and as Executive Vice-President (EVP) in January, 2010. (Vinci.com, n.d)

Accounting policies
Asset valuation and depreciation model
Vinci values its non-current assets at production cost less depreciation and impairment losses. The company follows the cost model and therefore assets are not revalued.
Non-current assets are depreciated using the straight line method according to which the asset is depreciated over its useful life. However, in some cases the company also employs the accelerated depreciation method pertaining to the type of asset for instance components of buildings which have an estimated life of their own which is different to that of the whole building. Similarly, quarries whose estimated life is dependant on the materials extracted from it. (Vinci.com, n.d)

Inventory valuation
Inventories are valued at their cost of acquisition or production.  However they are recorded at the lower of original cost or net realizable value (NRV) at each balance sheet date. (Vinci.com, n.d)

Breakdown of Turnover
Following is a breakdown of Vincis revenue as per its different business lines
Business line20072008YoY changeFigures in millions of  s
Revenue from toll and other services      4,574          4,781    4.5
New infrastructure construction under concessions       1,119          1,013    -9.5
Concessions      5,693          5,794    1.8
Energy      4,300          4,614    7.3
Roads      7,706          8,183    6.2
Construction    13,653        15,772    15.5
Contracting    25,659        28,569    11.3
Eliminations and misc.-        479    -        383    -20.0
Total    30,873        33,980    10.1(Vinci.com, n.d)

Corporate responsibility
Vinci has faced similar environmental issues to Balfour Beatty since both operate in Europe and are collectively regulated by the EU to observe measures for protection of the environment. Vinci has taken concrete measures over the last year to counter the adverse effects of the environment upon the company and the society in general. CO2 emissions have dropped only slightly by 3 in 2008. Vinci has adopted the zero accidents policy similar to Balfour Beattys policy which is focused at complete elimination of workplace accidents. In the last five years, not only the AFR has dropped by 35 but the severity rate has also slumped by 40. (Vinci, n.d)

Comparison of financial performance
Ratio Analysis
Profitability
Profitability for both the companies has been quite depressed particularly, net margin which is very low. However gross profit margin of Vinci is better Balfours and has remained constant with last year. Balfour on the other hand has managed to achieve an impressive ROCE at 23 in 2007 which slightly decreased in 2008 at 22.

Return on equity (ROE) saw a sharp decline of approximately 35 from 31 in 2007 to 23 in 2008 whereas in the case of Vinci the situation was otherwise and ROE increased from 36 in 2007 to 37 in 2008.

Liquidity
Liquidity position of both companies is not good since both current and quick ratios have been found to be below 1 for the two years in question. When comparing, the liquidity position of Vinci was much better than Balfour and in fact it saw a little improvement over the last year. In the case of Balfour the liquidity position further deteriorated in 2008 although not significantly. (Vinci.com, n.d)

Marketability
The stock market position for both the companies saw a significant slump in 2008. This was largely due to the global recession which resulted in a considerable drop in the share price of both the companies. As can be seen below, the PE ratio for both the companies dropped by almost 50. Both dividend yield and dividend cover on the other saw an increase for instance dividend yield almost doubled in 2008 for Balfour and increased by 67 for Vinci from 3 in 2007 to 5.04 in 2008. Similarly, dividend cover for Balfour saw an improvement of 6 from 3.02 in 2007 to 3.21 in 2008 as can be seen below.

Gearing
Balfours leverage position is well managed when compared with that of Vinci which is extraordinarily high. Interest cover has increased by an impressive 44 from 8.5 in 2007 to 12.25 in 2008. Similarly, the gearing has also declined and is now within acceptable limits. Vinci on the other hand is highly leveraged, not only is the interest cover quite low but the gearing ratio (i.e. debt-to-equity ratio) is unacceptably high at 2.36 meaning that the companys long term liabilities are twice as much as its equity. (Balfour Beatty, n.d)

This sends a signal that the company is under heavy influence of debt holders, similarly its growth prospects are potentially abysmal. This also shows that neither the company is in a position to borrow further since existing bondholders might not permit further borrowing nor it is earning sufficient profits to discharge its long term obligations. Hence this raises questions over the sustainability of the company in the long run.

Efficiency
The working capital management at both Balfour and Vinci seem to be a mirror image of one another. For instance Days receivables outstanding (DSO) are lower for Balfour whereas its days payables outstanding (DPO) are quite high, this scenario is completely opposite in the case of Vinci. Both DPO and DSO have remained somewhat the same in 2008 for Balfour. Vinci on the other hand has seen a reduction of 5 and 6 in receivables days and payables days respectively.

Stockholding period on the other hand has increased for both Vinci and Balfour by 10 and 36 respectively. However, even with the increase in 2008 the stockholding period is low for both companies.

1. How could Guillermo use budgets and performance reports in his decision make process

In my point of view, Guillermo uses the technique of flexible budget (Horngren et al., 2008, chapter 01, p. 05). This technique helps Guillermo in order to provide different scenarios like changes in unit sales, changes in variable cost (due to the Direct Material, Direct Labor and FOH) (Horngren et al., 2008, chapter 5, p. 7). Moreover, Guillermo also keeps a watchful eye on the macro factors like competitors strategy etc. In the eye light of the competitors reaction Guillermo is able to make appropriate decision. If the Guillermo is willing to take the new robot into its business operation it brings curse for the Guillermo business and also on his family. Moreover, in my point of view Guillermo chooses the option of distribution channel of the Norwegian furniture into North America. It brings greed to the Guillermo business because this strategy not hit the values of its current business. According to all keep things into consideration Guillermo makes the budgets and evaluate variances and take corrective, measures where required in order to runs its business smoothly and efficiently.  

2. How might ethics influence his accounting decisions

Every single businessman wants that its business runs smoothly with out any hindrance in the Guillermos scenario he manipulated his business figures in order to make the business attractive which is unethical (Horngren et al., 2008, chapter 1, p. 09). From the Guillermos accounting decision perspective he manipulated its sales its variable cost per unit, unit sales in order to attract the outside company like makes the figure attractive for the Norwegian company. So it is very important for Guillermo not to take and adopt unethical values in his decision making because it is very good in the long run but disastrous for the company in the long run. Guillermo uses the big bath accounting which is not a good accounting practice and in the future this unethical accounting practice creates a hurdle for Guillermos business.      

3. What accounting information is most relevant for Guillermo to consider when making decisions

The most significant and meaningful accounting information that Guillermo will take into consideration is Earning before taxes. Because if Guillermo chooses the option of controlled lathe then he will certainly made an additional investment which means that lower deprecation is imposed on his investment and in the end he will pay lower tax. This initiative will increase the net profit of the Guillermo store. Moreover, if Guillermo chooses the option of Norways manufacturer then he has to make additional investment which results in the shape of higher depreciation and lower tax rate. As a result, earning before tax is more appropriate for decision making rather than on the basis of net profit. The Guillermo should consider the other accounting information. The information is
Companys current sales figure both in terms of unit and in volume.

If Guillermo chooses the robot option it increases its capital expenditure.

Impact on direct labor and FOH cost in both scenario (Robot or distribution).

Companys current financing position like they are capable to take either more debt or more equity.

Net income or additional income should more than WACC which is important for the companys business and its future prospects.

Management accounting
This is an internal management tool that is used to identify, measure, accumulate, analyze, prepare, interpret and communicate information required by the managers for planning, evaluating and controlling the resources within an organization. Management accounting ensures appropriate use of resources and accountability of the management in their duties. According to Chartered Institute of Management (CIMA), management accounting enables non-managerial groups within the organization to prepare their financial reports. Such groups are shareholders, creditors, tax authorities and regulatory agencies. The American Institute of Certified Public Accountants (AICPA) divides management accounting into three strategic management, performance management and risk management. Strategic management increases the knowledge of laying down strategies within the organization. Performance management is a tool for developing decisions and managing performance of the organization. Risk management helps the managers identify measure, manage and report risks (Bhimani, 2003).

Management accounting focuses on the future of the business. It is used to add value to the business by forecasting future trends within the organization which may create opportunities to the organization. The data required for management accounting is collected from various sources, for example, marketing information, pricing, logistics and many more (Cheatham  Cheatham, 1993).

Financial accounting
Financial accounting refers to the process of preparing financial statements for use by the various stakeholders within the organization. The stakeholders concerned with financial statements are shareholders, suppliers, bankers, workers, partners, the government, and others. The function of financial accounting is to report the performance of the organization. The management team serves as an agent to various stakeholders of the organization. The financial statements monitor the progress of the organization and report to the interested users. Financial accounting has the function of preparing financial statements, providing managers with information required to plan and manage the business, and they ensure that the legal regulations are adhered to. Countries have their own Generally Accepted Accounting Principles (GAAP) which regulates all the organizations within the jurisdiction of the country. There are international regulatory standards which focus on the global business activities. The GAAP should follow the guidelines established by the international accounting standards (Hopwood, Pfaff  Leuz, 2004).

The accounting equation equates the assets of the organization to the sum of liabilities and owners equity. Financial statements are prepared on this knowledge. Double entry system of accounting is used to prepare the trial balance. Profit and loss statements and the balance sheet are prepared from the trial balance. The preparation of the financial statements follows certain formats which have been stipulated by the standards of accounting. Financial statements show the income and expenditure of the company over a given duration of period. A summary of the total value of assets, liabilities and shareholders is presented on the balance sheet. Debit balances on the financial statements result from the assets, expenses and withdrawals. Credit balances are caused by liabilities, revenue and capital (Riper, 1994).

Financial accounting is used to report about the past (Solomons, 1986). The need of the financial statements is to reflect the past performance of the organization. The roadmap to success can only be made through clear analysis of the past to predict the future. Managers use the financial accounting results to prepare management accounting mechanisms. Financial accounting is a stepping stone to the preparation of management accounting systems (Hopwood, Pfaff  Leuz, 2004).

Analysis
Innovative management accounting practices have been established to improve the management of resources within the organization. Cost accounting is used to control the cost of production. The costs of any business entity should not exceed the sales. Cost accounting provides the managers with methods of regulating the costs to avoid losses. Variance analysis is a traditional tool in management accounting that compares the actual and budgeted results. Raw materials, labour and overheads can be regulated through the variance analysis. Life-cycle cost analysis is used to regulate modern problems experienced in management accounting. Activity-based costing is used to control the costs of various activities within the organization. Life-cycle costing regulates the costs of products at the design stage (Riahi-Belkaoui, 1992).

Management accounting ensures the continuous flow of production activities within the organization. The activity-based costing helps regulate the number of activities in a production process. This is a control measure which reduces the costs involved in the production of commodities. The profitability of a company depends on minimization of costs and maximization of sales. Management accounting increases the ability of the managers to reduce the cost of production. There are various tools that managers have to use to regulate the costs of production and to ensure the future success of the company (Bhimani, 2003).

Management accountants manage the business teams and report the financial matters of the organization. They provide decisions concerning the financial and operational activities of the organization. The internal activities of the business are properly regulated using management accounting tools (Cheatham  Cheatham, 1993).

Management accounting enables the managers forecast and plan about the future of the organization. Variance analysis creates awareness about deviations from the planned activities. This helps control the strategies that the organization has established and to direct the resources towards the achievement of a common goal. Costs are reviewed and monitored to ensure that profitability of the organization is achieved (Hopwood, Pfaff  Leuz, 2004).

Management accounting has enhanced the development of operations research about the activities of the organization. Operations research increases efficiency in resource allocation. It ensures optimum allocation of resources and the regulation of the business activities.

Profitability of the organization is well monitored using the mechanisms of operations research. Costs are minimized and all other relevant factors contributing to the success of the business is integrated in an effective manner (Garner  Tsuji, 1995).

Sales management is an aspect of management accounting that creates ability of the management to regulate sales in the market. Sales are the determinant factors about the profitability of the organization. The management of the clients and customers is possible by use of a good sales management system (Holzer  Riahi-Belkaoui, 1986).

Financial accounting is essential to the people outside the organization who may be affected by the activities of the organization (Barsky  Jablonsky, 2001). The internal activities of the organization are regulated by use of the management accounting while the external affairs are regulated by the financial accounting. The activities of the management team need to be assessed by both the internal and external factors so that any loopholes can be avoided. The success of the organization depends on the cooperation of internal and external environment. Managers should integrate both management accounting and financial accounting systems to monitor the success of the organization (Solomons, 1986).

Local and international regulations about financial accounting standards have been established to control the planning, presentation and use of financial accounting data. The management should ensure appropriate measures have been put in place to avoid misuse of the financial accounting standards. Any irregularities in the application of the standards attract penalties from the legal systems within the country and the international bodies. These measures create success in business by ensuring the proper utilization of resources. Financial accounting gives a report about the profit trends of the organization. These reports are scrutinized by external bodies to ensure no irregularities in the preparation of the accounts (Garner  Tsuji, 1995).

There are several professional qualifications that have been established to regulate the activities of accountants. For example, Chartered Certified Accountant (ACCA), Chartered Accountant (CA), Certified Public Accountant (CPA) and others. The American Academy of Financial Management offers Chartered Cost Accountant (CCA) which regulates costs within an organization. These bodies regulate the professional activities of accountants and prevent malpractices in accountancy. The success of the business will exclusively depend on the ability to apply the guidelines provided by the professional bodies (Mckee, Garner,  Mckee, 2002).

It is mandatory to prepare the financial accounts of a business (Riper, 1994). To regulate the activities of the managers, the legal systems have established a mandatory rule in the preparation of financial accounts on annual basis. This creates accountability in the performance of business activities. Management accounts are prepared according to the discretion of the managers. There are no legal requirements to prepare these accounts. Regular preparation of the financial and management accounts is important to create a vision that the business targets to achieve. They also show the efficiency of the management. Decision making within the organization requires the analysis of the business activities by the use of management and financial accounts. All the departments should be represented in decision making. The accounts indicate the performance of all sectors of the organization and are essential in analyzing departmental performance (Holzer  Riahi-Belkaoui, 1986).

The management accounts analysis indicates the profit centers and the costs centers. The information about each department is summarized. The profitable departments are maintained while the unprofitable ones are improved. The decision about creating new investments is assessed using management accounts and this avoids blind investment. The processes that increase costs are cut down and better ones introduced. Successful business activities are facilitated by effective control about all the departments costs (Riahi-Belkaoui, 1992).

Risk management increases the security of business activities. Management accounting evaluates the risks that are attached to certain investment plans and gives the managers a clear path to follow in their business venture. Entrepreneurship is possible only through proper mechanisms of risk evaluation and management. Modern business is based on entrepreneurship and the management should establish systems that encourage employees to be innovative.  Innovation involves creativity and implementation of new ideas. The use of management and financial accounting measures the increase in knowledge about production.

Managers should apply leadership skills in the workplace. Leadership will enable the employees contribute to the goals and objectives of the organization. The managers should use the management and financial accounting systems as tools to measure their ability to create an innovative environment as well as ability to use leadership in management (Mckee, Garner,  Mckee, 2002).

Conclusion
The role of managers is to combine the internal and external business environment to create successful ventures. Management accounting and cost accounting tools should be effectively used to create professional business practices which lead to the success of the organization. The management should provide all the resources required in the preparation of the management and financial accounts. These resources may be manpower, funds, legal protection, and other support materials and services. The process of preparing these accounts should be monitored by responsible individuals to avoid misuse of resources and misplacement of information. Auditing of the financial reports should be done on a regular basis to ensure all the information is properly used. The auditors also ensure the assets of the organization are safeguarded. The managers should give all the necessary support to internal and external auditors and create a good environment for verification of all accounts. The auditors should check that the proper accounting guidelines are followed by the accountants.

The government has a role to ensure all the legal requirements are adhered to by the accountants to maintain professionalism. The stakeholders to an organization should focus on the quality of accounting practices done by the management to ensure the business does not create losses. Investors to a business should access the financial accounts of a business to know the viability of their investment. Decision making within the organization should focus on how successful and profitable the various departments are. Information about the performance of each department are well analyzed in the accounts and should guide the managers in their decision making process. Department heads should be responsible for the performance of their departments. The overall management team has the duty to integrate the activities of the organization and to ensure profitability of each department.

Begin by defining what Performance Measurements in Service Businesses are. Go on to differentiate between service businesses and product businesses and the complexity of measuring performance in each of the two. Give the specific ways through which performance measurements in service businesses may be done while at the same time giving reasons as to why some of those measures cannot be used for product businesses. Give various methods through which performance of employees in service businesses can be documented. Also reveal ways through which this information assists higher levels of management in planning and forecasting the organizational needs. Mention some of the pros and cons of performance measurements such as cost implications and performance appraisal. Give reasons as to why it is important for service businesses to measure performance. This may include to reward or decide on retrenchment criteria. Analyze in detail the various reference models and frameworks related to performance measurement and give specific details in regard to each of them.

Discuss economic value added, activity-based costing, quality management, customer value analysis, action profit linkage and all other major terms related to performance appraisal.

Explain ways through which organizations minimize performance control related costs and effectively use collected data to improve the quality of employees work. Conclude by giving detailed information about views given by others. You may do this by collecting information on the internet or other sources. Also make sure that you give your own analysis in the conclusion and give reasons as to why you take a particular stand. Mention your view also towards the views of others that you collect on the internet and give reasons as to why you either approve or disapprove of others views.

The Charles Schwab Corporation (CSC) is a prime and premier financial holding company. CSC relates to financial sector and belongs to investment services industry. CSC deals in financial services, banking services, securities brokerage and etc. In the year 2008, CSC provides its valuable services to institutional clients as well as individual clients in three main sections
Corporate and Retirement Services
Advisor Services
Investor Services

Moreover, the Charles Schwab Corporation (CSC) offers a wide range of products like Mutual funds, brokerage, trust and banking in order to resolve all the issue related with clients investment and financial needs (Reuters, 2009). These product offerings include brokerage, banking, trust and mutual funds. By the end of December 2008, the companys client assets is 1.13 trillion, 7 million in active brokerage accounts and 1.4 million as corporate retirement plans along with more than 400,000 banking accounts (Reuters, 2009). In November 2008, the management of the company has announced new business unit and segment as institutional services. The basic motive of this segment is to assist all the needs and demands of independent investment advisors (IAs), third party retirement plans and corporate benefit plan sponsors (Reuters, 2009).  
Sector  HYPERLINK httpwww.google.comfinancecatidus-58211593 Financial  Industry  HYPERLINK httpwww.google.comfinancecatidus-66043603 Investment Services

The Charles Schwab Corporation (CSC) is working on heightened regulatory and market scrutiny of corporate governance practices in order to communicate and represent the organization in a manner that pleases the shareholders, utilizing resources in a new and evolving compliance environment. Management should be eyeing the macro factors like Governments policies, competition and tax rates where they operate business because local, national or international jurisdictions and new or changing regulations might create hurdle in their way. Companys strong point is that they have sharpened their focus on sales, service and customer orientation and are eagerly looking forward to improve its services quality in order to capture the market and the segment in every possible manner and the management is passionate to maintain the performance momentum and competitive advantage in the marketplace. The Charles Schwab Corporation (CSC) highest priority is their stockholders and a firm belief that has given the best possible reward of the stockholders investment properly which really makes an impression on the stock value and more importantly, the goodwill of the company.

THE CHARLES SCHWAB CORPORATION
FINANCIAL PERFORMANCE FROM (2008-2006)

COMMENTS ON THE FINANCIAL PERFORMANCE OF
THE CHARLES SCHWAB CORPORATION
CURRENT RATIO

The current ratio tells us about the liquidity of the company. It is the ratio which tells us the companys ability to pay off its liabilities using the current assets in case the company is liquidated. Higher the current ratio, the better it is (Kimmel, Weygandt,  Kieso, 2008). Charles Schwabs current ratio is on the lower side year by year from the year 2008-2006. This ratio indicates a higher margin of safety with respect to meeting current obligations. Charles Schwabs current ratio will not allow them to take more debt as compared to previous years practices. Although, Charles Schwabs has made short-term investments but it still the current ratio is reported on the lower side and not stable and healthy as compared to the previous years (Besley, Brigham, Scott, Eugene F., 2001). Charles Schwabs current ratio havent strong current ratio and its gives a not a strong and positive signal to the creditors that companys business operation is running on a right path. The current ratio of Charles Schwab suggests that company have not sufficient and ample reserve cash or liquid asset and Charles Schwab cant utilize the excess or reserve cash on their ongoing business.

GROSS PROFIT MARGIN
Efficient management strategy reflects in the gross profit sales which increased in the year 2008 and 2007 with 67 and 62 respectively (Annual Report, 2008) as compared with the year 2006. In the year 2008, Charles Schwab has focuses more on reduces the cost of goods sold which gives a positive reflection on the gross profit. Slight decrease in the year 2007 gross profit because of economic recession in the economy reflects on the gross profit of Marks and Spencer. Moreover, Charles Schwabs lower ratio of COGS in the shape of FOH, Purchases etc makes a positive impression on the gross profit margin of the company. On the whole the gross profit margin is fair enough and one should hope that the percentage of gross profit margin will increase in years to come.

NET PROFIT MARGIN
The profit margin on sales ratio tells us the ability of the firm to convert its sales into profits. A low profit margin on sales indicates high expenses which consume most of the revenue earned by the firm. In such a case, the firm needs to analyze and point out areas which are producing more expenses than usual. The higher the ratio, the better it is for the company. From the perspective of Charles Schwabs there is a significant moment is reviewed in all the year 2008 as compare with the year 2007. Charles Schwabs net profit margin is on the declining side in the year 2008-07 because of margins in selling, administration expenses, RD expenditure, etc. In that case Charles Schwab still has a room for improvement in the net profit margin. Moreover in the year 2008, because of rough economic and business condition, Charles Schwabs efficient business running strategy hit badly in terms of net profit margin. It is viewed that Net Profit margin rate will increase in years to come. The management strategy has helped generate more revenue but there has been significant impact made on the net profit (Myers, Brealey and Marcus, 2001).

RETURN ON ASSETS (ROA)
Charles Schwabs ROA of the year 2008 and 2007 suggests that the firm utilizes its asset and resources not in an appropriate manner in order to generate more profits in comparison with their asset acquisition (Kimmel, Weygandt,  Kieso, 2008). This ratio also gives the signal that improper asset management strategy is adopted in order to generate the maximum output. It is the prime responsibility of the management is to explore newer market segments but it is making sufficient profits out of their assets.

RETURN ON EQUITY (ROE)
An ROE of 30 (Annual Report, 2008) in the year 2008 indicates that Charles Schwabs is less dependent on debt financing and company is heavily relying on equity financing. The Charles Schwabs return on equity (ROE) in all the years shows volatile growth rates in all the 3 years because of Charles Schwabs internal policies or due to macro factors. Companys inconsistent performance in the shape of net profit year by year not make a significant impact on the ROE of the company in contrast with the industry as we know that the stockholder equity, which includes retained earnings, also makes a reflection on the companys stock prices (Kimmel, Weygandt,  Kieso, 2008).

TOTAL ASSETS TURNOVER
Managing asset in an efficient manner is an art and the management of Charles Schwabs is an architect. They have utilized their asset in to its full capacity and managing assets in a fashion that every component of total asset utilizes its full capacity. Marks and Spencer has a slight higher total asset turn over in the year 2008-07 as compare with the previous year practices. Moreover, it is the prime evident fact that the component of asset has a made significant impact on the sales due to this the Charles Schwabs is doing a fair job and this practice also make an impression in the future (Besley, Brigham, Scott, Eugene F. ,2001). In 2008 and 2007, the company seems to have been using its asset to generate profit at the critical line of hardly 1.0. However, in 2006 the rate has slightly declined. This means that the company hasnt wisely starting using the asset.

DEBT TO ASSET
Charles Schwabs DA ratio, is around 0.02 in the year 2008 (Annual Report, 2008) .In the year 2007 and 2006, the debt to total assets is around 0.02 and 0.01 respectively which is good as far as the performance  is concerned (Annual Report, 2008-07). The year 2008 is fair enough year for Charles Schwab, the main reason behind is the slightly proper utilization of debt in order to capitalize assets. Moreover, it also reveals the fact that the management of the company can generate more assets in response with the debt. A higher DA ratio would place the company under increased amount of risk, especially if the interest rates are rising. Hence, a lower DA ratio would be more desirable (Besley, Brigham, Scott, Eugene F., 2001).

RECOMMENDATIONS
According to my analysis and estimations, I summarize the following points regarding the financial condition of Charles Schwab. The points are stated below
Charles Schwabs management also looks after the short term liquidity which is pointed out in the current ratio and makes necessary adjustments to finance the business with short and intermediate financing modes according to the business requirements.

Formulate strategies in order to reduce costs which resulted in capturing more market segments.

Cash reserve is decreased primarily because of expansion in business volume.
It is the prime responsibility for the Charles Schwabs management is to revise its debt policies that would help out in raising the current ratio which is slightly dipping in the whole comparison.

Lower leverage and dependency on debt financing create an unalarming situation for Charles Schwab because in this current scenario current ratio is slightly weaker and it not gives the right signal to the debt holder. Current Asset cant generate the income in away that reflects in the current ratio.

Company also making the strategy to utilize all the assets at its optimum level and not should eyeing on the fact that no asset remains idle. Moreover, company focuses more on capital expenditure.

Design the Internal control system that really helps in the companys financial policies.
ROE suggests that the pay back or adequate return to its share holders is quite beneficial for the companys future perspective.

Net Profit of the firm is fair enough from 2008 to 2006 but due to mismanagement or lack of operational management suffers the Charles Schwab in the year 2008 and one should hope that the management of Charles Schwab revised its strategy and redefines its role in the business which in the end generates revenues at upside.

Unsound working capital management policies through out the period from 2008 to 2006 and I assume that this policy will not continue in the future and the companys management redefines its strategy.

CONCLUSION
Charles Schwab portrays a very strong and positive position in the markets place and without doubt this company has an ability to challenge its rivals to have a girds to become the market leader. There are certain areas where Charles Schwab should pay attention to like in the area of working capital, net profit margin, reduction in revenue expenditures on consistent basis and assist in increase its investors confidence towards the organization.

The independence and autonomy of internal audit is a contentious issue in the context of modern business with its given complexities. Three researchers, Joe Christopher, Gerkit Sarens and Philomena Leung have worked together to produce an article entitled, A critical analysis of the independence of the internal audit function evidence from Australia. The stated objective of their study is to analyse critically the freedom of internal audit professionals vis--vis its relationships with management and audit committees. This paper offers a critical evaluation of the deliberations carried out in the said research regarding the role of Internal Audit Executives (IAEs) in Audit Committees (AC) and attempts a detailed analysis on the professed role and influence of IAEs within the corporate framework.

Career paths for audit professionals
Internal audit differs from statutory audit in more sense than one. For one thing, as corroborated by the aforesaid article, statutory auditors comment and report to the shareholders of the company regarding the financial statements provided to them. On the other hand, internal auditors report to the audit committee who is the actual body to whom internal auditors owe allegiance and commitment, and not really to the Board of Directors. But more often than not, it is seen that these Audit Committees sub serve the interests of the Board of Directors and thus their autonomy and independence remains compromised, or even threatened.
Another aspect that this article stresses on is that internal audit is seen as career paths for audit professionals, and it is quite possible that over time, they may reach positions which outgrow aspects of internal audit, and take up broader and wider management responsibilities. At those levels, perhaps internal auditing may not be of critical importance. However, what needs to be borne in mind is that internal audit is a wide ranging function and cannot stay confined to financial statements and record keeping alone.

In large organizations, even non-financial systems can be evaluated through their specific internal audit systems. The fact remains that internal audit often transgresses routine accounting and financial transactions and assumes roles of total corporate accountability that may involve exercising domain concerns in other aspects not really relating to accounting. Internal audit, in its broadest terms also embraces and encompasses installation of norms and procedures in major areas of accountability and also ensure that those accountable align themselves with these predetermined and pre-assessed norms and procedures. Internal audit seeks conformance and adherence to these norms and attempts redressals, whenever digression or violations take place. Therefore, the contention by the authors that internal audit is just a stepping stone to future career growth of ambitious professionals does not seem to be a valid hypothesis. This is especially so when one considers the fact that in all major career cross-roads it is important that internal audit allegiance is rendered, especially in large organizations, where the distinction between ownership and management is distinct and cogent.  However, the article holds a valid point when it purports that the sustenance of divergence between ownership and management is best served by robust internal audit systems. Under such circumstances, it becomes necessary even for the board members and directors, or senior management officials of the company to adhere and be a part of the rules and regulations of the business.

CFOs decide about internal audit budgets and not audit committees
Coming to the next aspect, regarding internal audit budgets, it can be said that the budgets have to be presented by the internal auditors to the Audit Committee. The article under evaluation claims that in the Australian context, the budgets are usually seen and approved by the Chief Finance Officers or an official of that ranking who finally decides about internal audit budgets thus undermining the role of internal audit and even audit committees. However, it needs to be appreciated that the CFO may have to consider the opinion of IAEs and also the AC while recommending the budget and instituting changes in it. Unless this is done, the very exercise of internal audit systems and procedures will be a futile exercise that fails to serve the purpose for which it is conceived. Moreover, one also needs to consider the fact that perhaps the CEO or CFO, especially in a large multiproduct unit, will not have the kind of exposure to the minute details of the business and its workings, while it is possible that the members of internal audit team possess the same. Thus, to a very large extent, top management needs to rely on the recommendations and advice provided by audit committee manned by IECs. Therefore, it becomes apparent that internal auditor and the members of the audit committee, as the article suggests, should be given the leeway of participation while framing financial policies of the company.
           
Thus, it will better serve the interests of the company if the top management considers the opinion and recommendations of the IAE and the AC before approving, disapproving or instituting changes in internal audit budgets. According to the writers, it is believed that internal auditor needs to be seen as partners. (Christopher, Sarens  Leung 2009, p.6). Coming to the third aspect, it is believed that for a proper functioning of internal audit, IAs needs to be seen as partners. While on a broader plane this appears as a constructive approach, since partnerships ingrain a strong affinity and rapport with the corporate unit, a possibility also exists that this may vitiate the independence and autonomy aspect of the internal audit team. Perhaps, as corroborated by the writers, one of the sustaining factors of the internal audit function is its independent, unbiased and free attitude, and this is feared to be compromised, or undermined if the aspect of partnership within corporate governance is sought to be established. The main aspect of objectivity is feared to be reduced, in the event a kind of understanding or partnership with the top management is established, which could reallocate priorities in favour of the management instead of the shareholders. However, it is necessary to seek a deeper understanding under which the use of partnership is sought to be established. In this context, the use of the work partnerships is not considered in its literal sense, but perhaps to convey a sense of affinity and bonding with the organisation. It is meant that by partnering, the internal audit would seek to align itself completely with corporate goals and policies and work together for achieving stakeholders prosperity besides realising the goals and objectives of the corporate. Moreover, it also serves as a platform for working together for strengthening the overall performance of the business unit in all major areas of public and shareholder accountability. It is for achieving common corporate good the article holds, that what matters is The perception of people within the organisation regarding internal auditors as partners (Christopher, Sarens  Leung 2009, p.6).

That being said, it is now necessary to provide further critique of this study, especially with regard to the method of research that has been followed. This study has delved on various research methods for carrying out the research. The main tool is the online questionnaire method. This research study has sought recourse to online questionnaire to a select number of respondents. While a sample size 206 have been considered, the actual number of responses received is only 34, which represents just 16.50 of the total sample. Perhaps one of the major disadvantages of online questionnaire system is that there is no guarantee of response, and the positive benefits of personal interaction is often lacking. Moreover, the mindset of respondents who answer these online questions are not really known, which could have been known in the event of personal interaction.  Non-response bias is also increased when different levels of technical ability are present among the respondents and it becomes a particular problem when response rates are low (Advantages and disadvantages of online questionnaires 2009). Sometimes it is also possible that the respondents may fail to understand the idea behind such online questioning and thus desist from responding. Further, another concern remains that online responses may be poor in quality, contain significant errors and could thus not form part of the survey.

As validated by the writers, this online survey has been confined only to just a select members of IIA, and not to a wider segment. In the Australian context, it can be said that membership into the IIA is neither legally required nor mandatory under auditing laws, and it is quite possible that a large number of trained and competent IA practitioners may be outside the ambit of the IIA. This raises pertinent questions as to the validity and scope of this research study, especially when it is quite possible that a significant portion of the IA professionals in Australia may have been omitted in this study. Thus, to this extent, it may not present the correct state of affairs regarding the independence of IA and how it impinges upon this study.

The next major aspect that needs to be considered is that the respondents are never directly asked whether they are functioning independently or not. The modus operandi that is adopted in this study is to consider the measurements of certain trends examined in these questions that sought to review the independence of internal auditors vis--vis other parties. Thus, it would have been more appropriate if the independence and autonomy aspect of internal audit functions are gleaned through direct questions asked and answers received. Another major drawback of a research of this kind has been that the different levels of threats have been given equal significance which may not be possible under empirical observation.  For instance, it is quite possible that in certain organisations, the influence of CEOs or CFOs in approving internal audit budgets may be lower than in other corporates. The aspect of partnering audit functions will receive greater emphasis in some organisations as compared to others. Besides, in some companies, career growth of IAE may be stifled due to organisational structures and may move along audit lines only. Thus, the aspect of taking internal audit as a career vehicle and not as an end to itself may not be either plausible or tenable.

Impact of legislation on internal auditing
Most organisations in Australia and Europe do pay a great deal of significance to internal audit because of its multifaceted impact on business, and the need for fiscal and accounting discipline advocated by internal audit mechanism. It is also necessary that the dangers of following an inflexible and straightjacket policy needs to be eschewed, and internal audit needs to be progressive minded and development oriented, especially in the changing facets of globalised commerce and business environment. Moreover, it is also necessary that business follow best accounting and auditing practices and also enforce Sarbanes Oxley Laws (wherever applicable) and the implementation of CLERP Act 2004 in the Australian context. CLERP is the acronym for The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 Under Part 13, a member of the Financial Reporting Panel may issue written summons requiring specified persons to appear before the Panel to give evidence andor produce documents and to attend Panel proceedings unless or until they are excused or released from attendance (Australian securities and investments commission amendment regulation 2004 (no.3) 2004 no.397 2004).

However, in all fairness, it can be said that the concept of internal auditors independence which is the key aspect of this study, needs to be seen in a wider context, especially with regard to career paths of aspiring audit professionals, and also how a strong fundamental knowledge of internal audit can consolidate and improve ones career path in a competitive business environment. It is interesting to learn whether outcomes of the study of perceived threats to internal audit functions is restricted to this Australian study alone, or has a wider impact in other parts of the globe also, it is also necessary to consider that more research needs to be done in order to clearly establish these facts, perhaps on a more globalised scale.

Further research could validate whether results achieved in this study shall be applied in a large framework also.

Moreover, a wider sample population, perhaps not restricted to IAA, but encompassing other professional bodies, is also necessary to be included in order to make studies of this kind more in tune with current realities in this critical field of  professional accounting. Although the ethical guidelines of the professional bodies are updated periodically there have been no radical changes and with the exception of audit committees few of the above recommendations have been implemented (Byrne 2001).

Conclusion
According to the authors of the research paper under critique, the principal objective of the study is to analyse critically the freedom of internal audit professionals vis--vis its relationships with management and audit committees. The results of this survey can be viewed from two perspectives  from the viewpoint of freedom of independent auditors vis--vis management and also from autonomy from the perspective of audit committees. The results of the study are suggestive of the fact that while there are trends for internal auditors to be organisationally placed to maintain independence stature. However, quite often, the management are in a position to assume threatening postures to these assertions. For one thing, independent auditors may need managements assistance for career growth plans and this may have a bearing on their conduct of audit and its results. For another, CEOs and CFO are in a position to influence preparation and approval of budgets, which once again, undermines the status and freedom of internal auditors.

Top management indirectly influences the functioning of IES and viewing them as partners can also be threatening. Coming to audit committees, IAEs could participate in deliberations in such committees and air their views. These AC offer better leeway and response than what the management has propounded. The results of the study conducted by these writers confide that management threats are indeed present and this has been validated by appropriate research. It comes as a matter of hope that the threats posed by management can, to a certain degree, be offset by audit committees. These threats seem to be neutralised by the fact that AC can wield influence and negate management threats. Thus finally, it transpires that this study has, indeed, been able to meet its objectives to a reasonable extent.

Commentary on Financial Ratios

Profitability Ratios

1.
Operating profit margin on ordinary activities Aer lingus -1.33, Ryan Air 20.16
Aer lingus shows a negative margin of 1.33 for the year 2008 this is largely attributable to the rising fuel costs Aer lingus had to face. This year fuel costs rose almost by 58.4.Another reason to the depleting operating profit margins is the decrease in passenger fares, although the number of passengers that traveled with Aer lingus this year has increased but because of the fall in passenger fares the revenue only increased by 5.6.

On the other hand, Ryan air has a better operating profit margin that is mainly because of the difference in sizes of the two companies. Ryan air is Europes largest low fares airline and therefore is a highly attractive to passengers looking for low fares. Ryan air also showed an impressive increase of 20 in the number of passengers that traveled with them as compared to last year. That also increased their revenue by 21 because they did not have to decrease their prices further as their fares are already cheap (Aer lingus plc, 2008).

2.
Operating profit margin including extra ordinary activities  Aer lingus -11.64, Ryan Air 16.84. The operating profit margin including extra ordinary activities has decreased to negative margin of -11.64.This largely due to the cost of exceptional items, these are one-off costs that includes  117.5mln in relation to staff cost restructuring in this year, a 5.9mln relating to a defense of a take over bid by RyanAir plc and some 17.5mln paid under the program for continuous improvement. Whereas, RyaniAir plc again shows a profit margin of 16.84, because they did not incur any major exceptional cost in the year 2008 .Ryan earned a tax gain of  10.6m from the disposal of five aircraft.

3. Net profit margin Aer lingus -7.96, RyanAir 14.38
The net profit margin of Aer lingus has decreased from the previous year, last year they shows a 105.3 m profit after tax but in 2008 they incurred a loss of 107.8m. This is mainly because of the rising fuel costs and heavy cost suffered under net exceptional items. RyanAir has an impressive net profit margin of 14.38, bit has decreased from the last years margin of 19.47.This could be because of the foreign exchange loss suffered of over  56m.

4. Return on Assets Aer lingus -5.45, RyanAir 6.45
This ratio shows Assets utilization with respect to the profit earned for the year. Aer lingus has a negative return its assets because of the loss incurred this year and it also invested big amounts in buying aircraft fleet and also expanding its operations outside Ireland. RyanAir showed an impressive return on its Assets despite investing heavily in buying Boeing aircraft

5. Return on Equity Aer lingus -12.58, RyanAir 15.47
The reason for a negative return margin on equity is that the company incurred loss for the year and it also issued ordinary shares for the year, including bonus shares. RyanAir has a better return on equity than Aer lingus in 2008, because they made a profit this year whereas Aer lingus incurred a loss. RyanAir did not issue any new shares this year in fact they exercised a share buyback of 59.5m ordinary shares.

6. Return on capital employed  Aer lingus 3.41, RyanAir 13.12
Aer lingus shows a positive margin on return on capital employed, because they made a profit of 105m in Earnings before interest and tax, despite the fact they further borrowed in a finance lease this year in long term liabilities. RyanAir showed a return of 13.13 on capital employed mainly because they did not borrow much in long term liabilities and also did not issue any shares this year (Ryan Air Plc, 2008).

Liquidity Ratios

1. Current ratio Aer lingus 1.36 times, RyanAir 4.064 times
Normally a current ratio of 2 times is considered a good one, but 1.36 times is not too bad considering the financial conditions Aer lingus is in. This Aer lingus current liabilities increased tremendously compared to the previous year, whereas the current assets only showed a slight increase. Ryan has an impressive current ratio of 2.06 times which means they have adequate level of current assets to meet their current liabilities.
However, this could also be a negative sign for the company because it may mean the company either has too much capital tied up in cash or it is unable to recover from receivables early enough.

2. Quick ratio Aer lingus 0.12 times, RyanAir 0.97 times
The quick ratio also known as acid test ratio reveals the more realistic picture than the current of companys ability to pay off its current liabilities. The low quick ratio suggests that entity is not able to generate enough cash resources, either because of declining sales or not able to collect receivables quickly enough.

It eliminates the illiquid types of assets like inventory from current assets because inventory is not considered to be as rapidly convertible into cash. Generally the quick ratio should be 11 or higher however this varies widely by industry. Aer lingus has a very low quick ratio of 0.121 it suggests that the company does not have enough liquid assets to cover its current liabilities. The probable reasons include the increase in current portion of finance lease obligation by   63.4million in the year ended 2008.The current liability portion of derivative financial instrument increased from  6.2million to  11.4million in 2008. Another possible reason seems to be that Aer lingus reclassified its financial assets as loans and receivables that were previously recognized as available for sale. As a result its liquid assets were reduced by  9.6million during the year, so the quick ratio was also decreased by the reduction in cash equivalents.

Ryan Air s ratio (0.97) is close to an ideal acid test ratio of 11 it suggests that the company is quickly converting receivables into cash and has faster inventory turnover and cash conversion cycles than Aer lingus. Though Ryan Air still needs to improve its quick ratio to an ideal ratio of 11 or higher to ensure that the company is able to cover its financial obligations.

3. Cash ratio Aer lingus 0.008 times, RyanAir 0.94 times
This ratio determines entitys ability to meet its current liabilities from its cash resources. Aer ingus has a very low cash ratio, indicating that it has a fewer cash resources to meet its current liabilities. T has not been able to receive cash from trade receivables to increase the companys cash reserves. RyanAir has a satisfactory ratio of 0.94 times, indicating that the company can meet its current liabilities from its cash resources.

Gearing Ratios

1. DebtEquity Aer lingus 1.70 times, RyanAir 1.53times
Aer lingus has a better debtequity ratio indicating that the company is less geared and raising finance through further issue of equity rather than borrowing from the lenders. RyanAir has a lower ratio than Aerlingus, mainly because it did not issue any further ordinary shares this year and raised finance through borrowing long term debt (Ryan Air Plc, 2008).

2. Total debt to total assets Aer lingus 62.91, RyanAir 60.46
Ideally this ratio should be around 50, but Aer lingus doesnt have too bad a ratio of total debt to total assets, indicating that the company can safely meet its liabilities from its resources. Ryan Air almost has a slightly better ratio than Aer lingus.

3. DebtCapital Employed Aer lingus 40.17, RyanAir 47.55
This ratio measures the debt the company has a percentage to the capital employed. Aer lingus has a satisfactory level of debt ratio compared to its total capital employed indicating that the company is mainly financing through equity finance. RyanAir has a higher percentage of debt indicating that the company is financing its needs through long term borrowings as it did not issue any further ordinary shares this year. It also had a buyback of 59.5m of its ordinary shares in 2008(Aer lingus plc, 2008).

4. Interest times earned ratio Aer lingus 2 times, RyanAir 6.45 times
This ratio measures how much the company earns in its earnings before interest and tax to cover its interest expense. Aer lingus has a considerably lower ratio indicating that its not earning enough to cover for the interest expense. This is due to the exceptional cost t ha to bear this year which has decreased its earnings before interest and tax. RyanAir has a satisfactory ratio of 6.45 times, which means that it is earning enough to pay off to the lenders.

Efficiency ratio

1. Asset turnover Aer lingus 68.45, RyanAir 44.88
This ratio determines how efficiently the company is utilizing its assets to earn revenue through them. Aer lingus shows an impressive ratio of 68.45 which indicates it is utilizing its assets quite efficiently. RyanAir has a low asset turnover indicating that assets are not being utilized well enough.

2. Account receivables Turnover Aer lingus 17.623 times, RyanAir 79.74 times
This ratio measures how well the company is doing to recover cash from its receivables, Aer lingus has a 17.623 times accounts receivables turnover ration, which indicates that the company is able to recover cash from debtors in time and maintains good credit terms with them.
Ryan Air has a very high ratio, indicating that the company may be allowing too much of credit period to customers to increase revenue. Though offering attractive credit terms to customers to increase sales is a good policy but in the long term it will harm the company in a way that it will not be able to pay off its obligations or finance its activities from its own resources, as a result company will be forced to borrow more loans.

Investor Ratios

1. Earning per share Aer lingus 0.20 euro cents, RyanAir 0.26 euro cents
This ratio shows the profit earned for the each issued stock, Aer lingus incurred a loss this year so thats why it has a negative earning per share. RyanAir made a profit in 2008 but its earnings per share is still lower considering that it did not issue further share and exercised a buyback option of it issued share capital (Aer lingus plc, 2008).

2. Dividend per share Aer lingus 0, RyanAir 0
This ratio measures the amount of dividend that is declared for the shareholders of the company. Both Aer lingus and RyanAir did not pay out any dividend this year to the shareholders. Although, its beneficial for the companies to retain profits which then can be used to fulfill future finance needs of the company but in the long run, not giving dividends to shareholders might damage the investors confidences in the company. And it will make the companys shares less attractive (Ryan Air Plc, 2008).

3. Dividend payout ratio Aer lingus 0, RyanAir 0
This ratio measures the amount of dividend paid out for the earnings per share. As both the companies did not payout any dividends to the investors so both have a zero ratio.

MeritsDemerits of Aer lingus
The above ratio analysis for Aer lingus shows a deteriorating performance for the year 2008 from the previous year. Although some of the factors that hampered the companys financial performance are uncontrollable for the company, like fuel costs which rose tremendously (almost doubled) from the previous year. The economic downturn also played its role in the companys financial problems, which forced the company to reduce its fares.

Almost all of the profitability ratios apart from the return on capital employed show negative margins. The loss which company incurred was due to the exceptional costs of  140.9m that Aer lingus had to bear. Excluding this non-routine exceptional cost, Aer lingus earned a profit of  21.2m it is also indicated by the positive return of 3.41 on capital employed (Aer lingus plc, 2008). Despite of the economic downturn and crisis in aviation industry, Aer lingus managed to increase the number of passengers from the last year, though it was offset by the reduction in travel fares. The Ancillary revenue increased by 37.7 from the last year, cargo revenue showed a slight increase of 5.5 and the other revenue head also increased by 11.5.

The companys liquidity ratios are not too impressive, which may be a risky sign for the company because it means that the company does not have adequate cash or cash equivalent to meet its obligations, it will lower the confidence of the investors and the lenders who might be unwilling to lend in future. The companys gearing ratios seem satisfactory which shows that Aer lingus has not been depending on borrowing debts for its financing needs. The lesser the gearing level a company keeps, the more the confidence investors show in that company.

Company has performed well in achieving impressive efficiency ratios, and is utilizing its assets efficiently. As the company incurred a loss this year, so it could not afford to pay its shareholders any dividends. Aer lingus managed to cut its cost by implementing a third part maintenance contract which saved more than  20.0m in cost in the first half of 2008.

Analysis of statement of Cash Flows for Aer lingus

Judged by the criteria of relevance and reliability, cash flow statements are an extremely useful source of information for the users of accounts. Users would be interested in the survival of the company which is dependent on its ability to generate cash to pay its payables rather than to make a profit. Cash flow statements are very reliable because they are free from subjective allocation of cost to particular accounting periods, and are free from subjective valuation models that dog the reliability of the balance sheet. With a cash flow statement what you see is what you get.

A provisional review of Aer lingus cash flow statement reveals a net increase of  18,266,000 in cash and cash equivalents in the accounting period. At the last year ended 31 December 2007, Aer lingus had a bank overdraft of ( 12,185,000), where as this year they managed to turn that around and had a positive cash and cash equivalent balance of  6,081 at the year ended December 2008. Below is the detailed analysis of how the cash inflows and outflows took place in the year ended 2008.

Operating Activities
Aer lingus payables increased in this year from the last year, which explains one of the reasons for the net cash and cash equivalent increase. Aer Lingus also received an income tax credit of  5,046,000, further increasing its cash balance.

Investing Activities
During the period the company earned a substantial inflow of cash through finance income which also had a positive impact on cash balance at the year end. Total of  54,798,000 interest was earned by the company under finance income, interest income earned on other financial assets of  4,420,000 and amortization of available-for-sale reserve   1,642,000. There was also an exchange gain on cas-.x