Gearing ratios (eBook)

Seminar paper from the year 2020 in the subject Business economics - Investment and Finance, grade: 1,0, University of Portsmouth, language: English, abstract: This report aims at analysing the gearing ratios of both easyJet PLC, a British airline operating in several countries, and Lufthansa AG, a German aviation company operating globally. easyJet is listed in the British stock index FTSE100 and Lufthansa is listed in the German stock index DAX. These companies have been chosen, because they belong to the continent’s biggest airlines and a direct comparison seems to be feasible. The gearing ratios have been calculated using data from the companies’ annual reports from 2015 onwards.

The report found that easyJet has always had a lower gearing ratio than Lufthansa and consequently a more stable, less risky financial position. Moreover, the report found that the accounting policies of both companies are the same and thus the interpretation of results is not distorted. However, the report also found that the tone of easyJet’s narrative reporting is more optimistic, which is likely to influence the reader’s opinion in its favour. Limitations are the small sample size, the short time span and that only one ratio is analysed. Consequently, results cannot be generalised. Moreover, financial ratios do not provide a benchmark. That’s why an analysis of the industry average had been conducted as well.