ABSTRACT
This chapter explains how the important and widely used Airline Financial Ratios are calculated with reference to Cathay Pacific Airways. The ratios can be categorised as follows: performance/earnings; risk or solvency; liquidity; and market valuation or investment. EBIT is earnings or net profit before deducting interest and tax. This is effectively another word for 'operating profit'. 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. Liquidity covenants may be applied to bank debt, especially in cases where the airline does not have a high credit rating. The price/earnings ratio shows that how many years of current earnings are necessary to cover the share price. The self-financing ratio is defined as internal sources of funds expressed as a percentage of the increase in fixed assets. TAP's performance was helped by improved cost control and strong growth in its key Brazilian markets.
