ABSTRACT
Performance ratios will need to be calculated to be able to assess past trends of a particular airline or to compare different airlines. This chapter explains how the more important and widely used ratios are calculated with reference to British Airways’ for two financial years. The operating ratio or margin gives an indication of management efficiency in controlling costs and increasing revenues. The ratio can be calculated with or without minority interests, but if they are included, they should be included in both numerator and denominator of the ratio. The ratio is usually calculated after tax, but some airlines take profit before tax. Debt to Equity ratio is considered one of the most important ones for an assessment of risk and solvency, although some analysts now rely more on the less problematical interest cover. The lower the debt/equity or solvency ratio the greater the firm’s capacity for borrowing more outside finance, due to the lower risk to potential lenders.
