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Turkish Airlines’ and Oman Air’s Finance in 2013-2016

Executive Summary

The aviation industry has experienced severe challenges since the global economic turmoil in 2008; however, the purpose of this report is to evaluate the financial ratios of Turkish Airlines and Oman Air to assess and compare the performances over a period of four years (from 2013 to 2016). To scrutinize the actual financial situation of these two companies, this paper will use real-life data in order to calculate profitability, efficiency, liquidity, and gearing ratio; in addition, this report will concentrate on the financing of the airlines, the trend of financial performance and include a comparative analysis. At the same time, this report will illustrate horizontal common-size analysis (using 2014 as a base) and vertical common-size analysis (using total assets as a base) to predict the financial trends, and measure economic risks of these airlines; finally, it will include the evaluation of the performance of business units of Turkish Airlines.

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Introduction

The impact of the global financial downturn, unstable political situation, unfair measures of the government of different countries and many other external factors changed the business environments of Turkish Airlines and Oman Air; therefore, these companies failed to make efficient financial decisions and to implement strategies. For the rising fuel cost, Oman Air is facing continuous losses and withdrawal of governmental subsidy while Turkish Airlines operates with a narrow profit margin and it has been striving to carry on business through alternative financing. This paper will provide recommendations for both companies by analyzing different financial ratios; however, all calculations will be shown in appendix 2 and 3.

Financing of Turkish Airlines

It is the fourth-largest carrier in the world, which was established in 1933; presently, it operates in 119 countries and 298 destinations (Turkish Airline 2016, p.4); according to the annual report 2016 of this company, it has more than 24124 employees. The finance strategy of Turkish Airlines has been organized with the aim to get the highest facilities for credit financing with the lowest cost in different currencies. As a result, the company issued a variety of bonds and Trust Certificate in the international financing market in US dollar, Euro and JYP and so on (Turkish Airlines 2018); figure 1 gives more information in this regard.

Financing of Oman Air

The Government of Oman has decided for no longer subsidizing the Oman Air with public money since it has failed to recover its financial position and make losses. In this context, the company has tried to manage funds from alternative financing resources and joint venture with different airlines such as Deutsche Lufthansa, Turkish Airlines and others; furthermore, it has concentrated on making leasing agreements with aircraft manufacturers like Boeing and Airbus.

Liquidity Ratios

Current Ratio

Table 1: Current ratio of Turkish Airlines and Oman Air. Source: Self-generated.

Current ratio 2013 2014 2015 2016
Turkish Airlines (in Million USD) 0.68 0.77 0.81 0.80
Oman Air (RO’ 000; 1 RO = $2.6) 0.33 0.29 0.40 0.43

This is an important ratio for these airlines because it shows the capacity Turkish Airlines and Oman Air to pay short-term debts; at the same time, it determines whether the companies are able to use the short-term finance or not. Table 1 demonstrates that the current ratio of Turkish Airlines from 2013 to 2016 was 0.68, 0.77, 0.81, and 0.80 respectively. On the other hand, the current ratio of Oman Air from 2013 to 2016 was 0.33, 0.29, 0.40, and 0.43 accordingly. The result of this ratio indicates that both companies have limited capacity to reimburse the short-term debts, but the financial ability of Oman Air to meet short-term obligations is worse than Turkish Airlines; fig.2 demonstrates the result of current ratio graphically.

Acid Test

Table 2: Acid Test or quick ratio of Turkish Airlines and Oman Air. Source: Self-generated.

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Acid test or Quick ratio 2013 2014 2015 2016
Turkish Airlines (in Million USD) 0.63 0.72 0.76 0.75
Oman Air (RO’ 000) 0.26 0.24 0.34 0.38

Table 2 shows that quick ratio of Turkish Airlines from 2013 to 2016 was 0.63, 0.72, 0.76, and 0.75 respectively whereas this ratio for Oman Air was 0.26, 0.24, 0.34, and 0.38 accordingly; however, this result indicates that Turkish Airlines has limited capacity to fulfil its short-term monetary burdens because the standard range of this ratio is 1:1. Even though the quick ratio of Oman Air has increased slightly in 2016, the decline in the condition of this company was significant; therefore, Turkish Airlines is in a stronger position; fig.3 demonstrates the result of quick ratio graphically.

Profitability Ratio

Gross Profit Margin

Table 3: Gross profit margin of Turkish Airlines and Oman Air. Source: Self-generated.

Gross profit margin 2013 2014 2015 2016
Turkish Airlines (in Million USD) 18.55% 18.43% 19.98% 11.6%
Gross Profit 1823 2002 2,102 1,136
Total sales 9826 11070 10522 9792
Oman Air (RO’ 000) -26.38% -23.59% -14.21% – 25.42%
Operating Loss (100715) (96,380) (66,451) (120,084)
Total revenue 381709 408400 467712 472443

GPM is one of the most important indicators to the investors to decide about their further investment because it concentrates on the firm’s trading activities (Higgins 2015); however, the higher-margin is generally treated as rewarding. Table 3 shows that the operating loss of Oman Air from 2013 to 2016 was RO100.7million, RO96.38million, RO66.5million and RO120.08million respectively; therefore, the result of this ratio was in the negative, which indicates costs of this company being too high. From the result of this ratio, it can be concluded that GPM of both companies has decreased, but the drop in case of Oman Air was significant as it is in the most awful situation; fig.4 demonstrates the result of gross profit ratio graphically.

Net Profit Margin

Table 4: Net profit margin of Turkish Airlines and Oman Air. Source: Self-generated.

Net profit margin 2013 2014 2015 2016
Turkish Airlines (in Million USD) 3.63% 7.63% 10.16% -0.79%
Net profit for the year 357 845 1,069 (77)
Oman Air (RO’ 000) -29.69% -26.84% -18.46% – 27.48%
Operating Loss (113,345) (109,613) (86,368) (129,812)

NPM is a vital indication of profitability that permits stakeholders to assess a number of things, for instance, higher NPM indicates the business run cost-effectively and able to change its turnover into profits (Higgins 2015); moreover, it directly reveals the actual situation of a firm’s financial health. Table 4 shows that NPM of Turkish Airlines from 2013 to 2016 was 3.63%, 7.63%, 10.16% and -0.79% respectively; however, this ratio has dropped drastically in 2016, which indicates that it should redesign its strategies to restore its sustainable market position. On the other hand, the calculation of net profit margin of Oman Air demonstrates that it has failed to increase the NPM from 2013 and every year, it showed negative result; therefore, it indicates the very poor performance of Oman Air in the competitive market. Fig.5 demonstrates the result of the net profit ratio graphically.

Return on Shareholder’s Funds

Table 5: Return on shareholder’s funds of Turkish Airlines and Oman Air. Source: Self-generated.

Return on shareholder’s funds = return on total equity =ROTE 2013 2014 2015 2016
Turkish Airlines (in Million USD) 10.94% 21.39% 22.08% 1.51%
Total equity on 01 January 3033 3262 3,950 4,842
Oman Air (RO’ 000) -227.64% -125.49% -157.09% -819.78%
Total equity on 31 December 49792 87345 54977 (15,835)

It is essential to note that ROTE demonstrates the investment efficiency of the company by measuring the return of shareholders’ equity in a specific time limit. Table 5 shows return on shareholder’s funds of Turkish Airlines had decreased from 22.08% in 2015 to -1.51% in 2016, but it had boosted significantly from 11.34% in 2013 to 23.43% in 2014; therefore, it can be said that ROTE of Turkish Airlines is terrible for the investors to make further investment. On the other hand, ROTE of Oman Air was very poor to attract the investors and other stakeholders; furthermore, this company is unable to make additional profit from the investment in different sectors due to incurring extreme financial risks; so, Turkish Airlines is in a better condition; fig.6 demonstrates the result of ROTE graphically.

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Return on Capital Employed

Table 6: Return on capital employed by Turkish Airlines and Oman Air. Source: Self-generated.

Return on capital employed 2013 2014 2015 2016
Turkish Airlines (in Million USD) 5.71% 10.38% 11.25% -0.42%
EBIT 502 1046 1407 (59)
Total assets 11,901 13,746 16,383 18,491
Oman Air (RO’ 000) -29.28% -25.78% -16.76% -30.98%
Net profit (loss) before tax (109,261) (105,129) (80533) (126783)
Total assets 602376 750172 736967 748260

High ROCE is one of the most important indicators to assess whether the firm is profitable or not; however, it becomes hard for the aviation industry to achieve a greater percentage of the ratio due to adverse impact of the global financial crisis; in addition, Turkish coup d’état attempt in 2016 made the situation most awful to gain higher percentage. It is noticeable from the table above that Turkish Airlines had comparatively strong ROCE through this ratio of this company has drastically reduced from 11.25% in 2015 to -0.42% in 2016. On the other hand, table 6 shows that ROCE of Oman Air from 2013 to 2016 was -29.28%, -25.78%, -16.76% and -30.98% respectively, which demonstrates that Turkish Airlines was a more profitable company in 2016 in comparison with Oman Air; fig.7 demonstrates the result of ROCE graphically.

Efficiency

Debtor Turnover or Accounts Receivable Turnover

Table 7: Debtor Turnover of Turkish Airlines and Oman Air. Source: (Oman Air 2013, p.41; Oman Air 2015, p.28).

Debtor turnover 2013 2014 2015 2016
Turkish Airlines (in Million USD) 4.69 4.29 3.81 4.31
Total trade receivables on 31 December 2441 2714 2804 1741
Total trade receivables on 01 January 1747 2441 2714 2804
Oman Air (RO’ 000) 9.26 8.08 7.43 5.26
Net profit (loss) before tax
Total trade receivables on 31 December 42,671 58,370 67,529 112,003
Total trade receivables on 01 January 39748 42,671 58,370 67,529

From the calculation and evaluation of the debtor turnover of both companies, it can be said that higher ART demonstrates lower efficiency level of Turkish Airlines and Oman Air (table 7); as a result, these companies need to redesign its credit policies to avoid further burden; fig. 8 shows the result of this ratio graphically.

Accounts Receivable Collection Period

Table 8: Accounts receivable collection period of Turkish Airlines and Oman Air. Source: Self-generated.

Accounts receivable collection period 2013 2014 2015 2016
Turkish Airlines (in Million USD) 77.78 84.99 95.71 84.71
Oman Air (RO’ 000) 39.41 45.15 49.13 69.35

ARCP represents a number of times it needs to gather the entire accounts receivable; however, Turkish Airlines had required the maximum time in 2015 in comparison to 2013; in contrast, ARCP of Oman Air has increased by 69.35 in 2016; thus, both airlines failed to collect accounts quickly; table 8 shows calculation and fig. 9 demonstrates graph of ARCP.

Creditor Turnover or Accounts Payable Turnover

Table 9: Creditor turnover of Turkish Airlines and Oman Air. Source: (Oman Air 2013, p.41; Oman Air 2015, p.28).

Creditor turnover 2013 2014 2015 2016
Turkish Airlines (in Million USD) 10.44 10.39 10.99 13.45
Cost of goods sold (8003) (9030) ( 8,420) ( 8,656)
Accounts payable 31 December 877 861 671 616
Accounts payable
01 January
656 877 861 671
Oman Air (RO’ 000) 2.52 1.74 2.23 3.90
Cost of goods sold (482424) (494255) (534163) (592527)
Accounts payable 31 December 229209 337780 140354 163159
Accounts payable
01 January
153982 229209 337780 140354

It is notable from the calculation of table 9 that creditor turnover of Turkish Airlines is higher than Oman Air, which indicates Turkish Airlines could hold the finance for a long-time to spend for other sectors; thus, this company was in a better position than Oman Air; however, fig.10 shows this ratio graphically.

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Stock or Inventory Turnover

Table 10: Inventory turnover of Turkish Airlines and Oman Air. Source: (Turkish Airlines 2015, p.101; Turkish Airlines 2016, p.61).

Stock or inventory turnover 2013 2014 2015 2016
Turkish Airlines (in Million USD) 52.48 50.73 40.97 39.98
Inventories 160 195 216 217
Oman Air (RO’ 000) 32.86 31.36 33.73 34.95
Inventories 15,311 16,214 15,459 18,444

The inventory turnover ratio of Turkish Airlines indicates that it was able to effectively handle the inventories in some extent; however, IR ratio has declined in 2016, which means this company needs to focus on further improvement of sales revenue (Table 10). Here, it is important to mention that Oman Air has capable of slightly developing this figure in 2016; however, fig.11 indicates the inventory management system of Turkish Airlines is better than Oman Air.

Asset Turnover

Table 11: Asset turnover of Turkish Airlines and Oman Air. Source: (Turkish Airlines 2014, p.5; Oman Air 2013, p.41; Oman Air 2016, p.52).

Asset turnover 2013 2014 2015 2016
Turkish Airlines (in Million USD) 0.88 0.85 0.70 0.56
Oman Air (RO’ 000) 0.65 0.60 0.63 0.64

Generally, lower asset turnover represents weak financial condition of a company, but for the aviation industry, this result could vary around 1:0; here, table11 shows that this ratio of Oman Air from 2013 to 2016 was 0.65, 0.60, 0.63, and 0.64 respectively. In contrast, asset turnover of Turkish Airlines was 0.88 in 2013; however, fig.12 indicates Turkish Airlines is more efficient company than Oman Air.

Gearing Ratio

Capital Employed or Debt to Equity Ratio

Table 12: Capital employed by Turkish Airlines and Oman Air. Source: Self-generated.

Capital employed 2013 2014 2015 2016
Turkish Airlines (in Million USD) 2.65 2.48 2.38 2.63
Oman Air (RO’ 000) 12.09 8.59 13.41 -47.25

The main objective to calculate this ratio is to assess the long-term solvency and measure financial leverages of these airlines; however, the estimation of the debt to equity of Turkish Airlines demonstrates that it has used less debt as well as more equity to finance its growth (Myre 2015). Table 12 shows that capital employed of Oman Air from 2013 to 2016 was 12.1%, 8.58 %, 13.40% and -47.25% respectively; however, the negative result in 2016 indicates that Oman Air had negative equity of RO15835 thousand; therefore, it can be concluded that it has withdrawn more loan to buy assets through the actual price was less than the credit amount. However, fig.13 shows a debt to equity ratio for these two companies.

Interest Cover

Table 13: Interest cover of Turkish Airlines and Oman Air. Source: Self-generated

Capital employed 2013 2014 2015 2016
Turkish Airlines (in Million USD) 2.55 4.31 5.35 -0.57
Oman Air (RO’ 000) -10.40 -12.92 -5.38 -17.93

Table 13 shows that interest cover of Oman Air from 2013 to 2016 was -10.4%, 8.58 %, 13.40% and -47.25% respectively; however, it was unable to meet its interest payments; in contrast, Turkish Airlines was able to meet its interest payments; however, fig.14 represents the calculation of this ratio graphically.

Comparative and Trend Analysis Using Common-Size Statement

Horizontal Common Size Analysis (Using 2014 as a Base)

From the illustration and evaluation of the horizontal common sized profit and loss account, the percentage of sales had plummeted from -5.0% in 2015 to -6.9% in 2016, which was a negative indication for this airlines; therefore, the ratio of gross profit has dropped from -3.0% in 2015 to -46.0% in 2016. On the other hand, total operating expenses has decreased by 11.5% in 2015, but the management of Turkish Airlines has failed to perform up to the mark for which aggregate costs has increased by 18.2% in 2016; furthermore, COGS has also amplified by 2.8% in this period (Table 14). As a result, the percentage of profit before taxes has augmented by 34.5% in 2015; here, it is significant to note that the ratio of net income has decreased from 28.9% in 2015 to -107.1% in 2016, which illustrates that the performance of Turkish Airlines has fallen drastically due to sudden change of external or internal business environment.

Table 14: Common sized income statement sheet -horizontal analysis. Source: (Turkish Airlines 2016, p.8).

Turkish Airlines
Common sized income statement – horizontal analysis
Actual Actual Actual Percent Percent
(In $US millions)
2014 2015 2016 2015 2016
Sales 11070 10522 9792 -5.0% -6.9%
COGS (9030) (8420) (8656) -6.8% 2.8%
Gross profit 2040 2102 1136 3.0% -46.0%
General administrative expenses (273) (272) (315) -0.4% 15.8%
Marketing and sales expenses (1126) (1148) (1171) 2.0% 2.0%
Other operating expenses (45) (31) (86) -31.1% 177.4%
Other operating income 80 244 145 205.0% -40.6%
Total operating expenses (1364) (1207) (1427) -11.5% 18.2%
Operating (loss) / profit before investing activities 676 895 (291) 32.4% -132.5%
Other income from different activities 147 181 161 23.1% -11.0%
Operating (loss) / profit 823 1076 (130) 30.7% -112.1%
Financial income 419 532 300 27.0% -43.6%
Financial expenses (196) (201) (229) 2.6% 13.9%
Profit before taxes 1046 1407 (59) 34.5% -104.2%
Taxes (201) (318) (18) 58.2% -94.3%
Net income (loss) 845 1089 (77) 28.9% -107.1%

In accordance with the outcome of common sized income statement sheet (horizontal analysis) of Oman Air, the percentage of sales had plummeted from 14.5% in 2015 to 1.0% in 2016, which was a pessimistic sign for this company; on the other hand, the ratio of COGS has increased from 5.8% in 2015 to 10.9% in 2016 (table 15). As a result, the percentage of operating loss had risen from -31.1% in 2015 to 80.7% in 2016; however, it is important to mention that total operating expenses of Oman Air had successfully lessened by 111.4% within a year; however, the ratio of net loss has increased by 71.6%.

Table 15: Common sized income statement sheet -horizontal analysis. Source: (Oman Air 2014, p.31).

Oman Air
Common sized income statement – horizontal analysis
Actual Actual Actual Percent Percent
(In RO’ 000; 1 RO = $2.60)
2014 2015 2016 2015 2016
Sales 408400 467712 472443 14.5% 1.0%
COGS (504780) (534163) (592527) 5.8% 10.9%
Operating loss -96380 -66451 -120084 -31.1% 80.7%
Interest and investment income 375 472 603 25.9% 27.8%
Profit on disposal of shareholding in Oman Air Cargo LLC 5798 -100.0%
Share of profits from equity accounted investments 1826 1868 3181 2.3% 70.3%
The decrease in fair value of long-term receivables (263) (945) 41 259.3% -95.7%
Finance costs (9397) (13744) (16322)
Total operating expenses -7459 -12349 -6699 65.6% -45.8%
Loss before concession fee and tax -103839 -78800 -126783 -24.1% 60.9%
Concession fee 1290 1733 2438 -28.9%
Operating (loss) / profit before tax -105129 -80533 -129221 -23.4% 60.5%
Taxes 4450 5800 599 30.3% -89.7%
Net loss -109579 -86333 -129820 -21.2% 50.4%

Vertical Common Size Analysis (Using Total Assets as a Base)

According to the result of common sized balance sheet (vertical analysis with assets) for Turkish Airlines, the percentage of cash has increased by 2.4% with a year and the ratio of total non-current assets has amplified from 69.7% in 2015 to 72.9% in 2016. On the other hand, the percentage of short-term borrowings and current long-term liabilities has amplified significantly from 6.3% in 2015 to 13.1% in 2016; in addition, table 16 demonstrates that the ratio of total non-current liabilities has enlarged by 2.1% within a fiscal year.

Table 16: Common sized balance sheet – vertical analysis with assets. Source: (Turkish Airlines 2016, p.8).

Turkish Airlines
Common sized balance sheet – vertical Analysis with assets
Amount Percent Amount Percent
2015 2015 2016 2016
Assets ($US million)
Current assets
Cash and cash equivalents 900 5.5% 1466 7.9%
Financial Investments 62 0.4% 349 1.9%
Trade receivables 361 2.2% 379 2.0%
Other receivables 1385 8.5% 846 4.6%
Derivative financial instruments 100 0.6% 197 1.1%
Inventories 216 1.3% 364 2.0%
Non-current assets
Property, plant and equipment 11415 69.7% 13476 72.9%
Goodwill 12 0.1% 12 0.1%
Prepaid expense 415 2.5% 518 2.8%
Other receivables 1304 8.0% 763 4.1%
Intangible & other assets 213 1.3% 121 0.7%
Total assets 16,383 100.0% 18491 100.0%
Current liabilities
Trade payables to related and non-related parties 671 4.1% 616 3.3%
Short-term borrowings and current long-term debt 1028 6.3% 2421 13.1%
Other current liabilities 2172 1430 7.9%
Total current liabilities 3871 23.6% 4467 24.3%
Long term borrowings 6636 40.5% 7822 42.3%
Other current liabilities 1034 6.3% 1085 5.9%
Total non-current liabilities 7670 46.8% 8907 48.2%
Total liabilities 11541 70.4% 13374 72.5%
Equity 4842 29.6% 5087 27.5%
Total liabilities and assets 16383 100.0% 18461 100.0%

From the details of common sized balance sheet (vertical analysis with assets) for Oman Air, the percentage of important non-current assets such as aircraft, property, plant and equipment has reduced from 82.0% in 2015 to 72.4% in 2016; in contrast, trade and other receivables has increased from 9.1% in 2015 to 15% in 2016 (table 17). It is significant to note that the percentage of total non-current liabilities has decreased slightly, but the ratio of total current liabilities has enlarged from 34.8% in 2015 to 45.3% in 2016; therefore, Oman Air is in awful economic environment to achieve annual growth.

Table 17: Common sized balance sheet – vertical analysis with assets. Source: (Oman Air 2016, p.28).

Oman Air
Common sized balance sheet – vertical Analysis with assets
Amount Percent Amount Percent
2015 2015 2016 2016
(RO’ 000)
Assets
Non-current assets
Aircraft, property, plant and equipment 604595 82.0% 541782 72.4%
Goodwill 5379 0.7% 4042 0.5%
Intangible assets 0.0% 28,890 3.9%
Available for sale investments 514 0.1% 530 0.0%
Equity accounted investments 1884 0.3% 6224 0.8%
Long-term receivables 20920 2.8% 19615 2.6%
Total non-current assets 633292 85.9% 601083 80.3%
Current assets
Inventories 15459 2.1% 18444 2.5%
Trade and other receivables 67501 9.1% 112003 15.0%
Term deposits 6500 0.9% 7250 1.0%
Cash and bank balance 10549 1.4% 9480 1.3%
Assets classified as held-for-sale 3666 0.5%
Total current assets 103675 14.0% 147177 19.7%
Total assets 736967 100.0% 748260 100.0%
Total (deficit)/equity
Share capital 684158 92.8% 738158 98.6%
Government contribution to equity, legal reserve and other 58348 7.9% 63356 8.5%
Accumulated losses -687529 – 817349 – 109.2%
Total (deficit)/equity 54977 7.5% – 15835 – 2.1%
Long-term borrowings 367694 49.9% 348558 46.6%
Other current liabilities 57754 7.8% 76417 10.2%
Total non-current liabilities 425448 57.7% 424975 56.8%
Total current liabilities 256542 34.8% 339120 45.3%
Total liabilities 681990 92.5% 764095 102.1%
Equity 54977 7.5% -15835 -2.1%
Total liabilities and equity 736967 100.0% 748260 100.0%

The evaluation of performance of Turkish Airlines

To evaluate the performance, this report uses the ratio analysis for the last four years and comparative common sized balance sheet and income statements analysis for the year 2015 and 2016; however, table 18 and table 19 give more information-

Table 18: Evaluation of performance of Turkish Airlines using financial measures. Source: Self-generated.

2013 2014 2015 2016
Inventory turnover 32.86 31.36 33.73 34.95
It was able to effectively handle the inventories; stock decreased and turnover period increased in this period
Assets turnover 0.88 0.85 0.70 0.56
It has decreased from 0.88 in 2013 to 0.56% in 2016, which illustrates that the number of Aircrafts and other plants has increased; so, it used assets efficiently
Net profit margin 3.63% 7.63% 10.16% -0.79%
Sudden fall of NPM indicates adverse business environment to make profit; so, it needs immediate strategic change

Table 19: Evaluation of performance of Turkish Airlines using non-financial measures. Source: Self-generated.

Labor efficiency It has above 24124 employees and 48% of all staff are female; however, they perform efficiently
Materials efficiency It had 334 aircraft in 2016 and it has goal to increase this figure up to 400 aircraft by 2020
Passenger volume According to the annual report 2016, passenger revenue has decreased from 518 million in 2015 to 504 million in 2016
Service quality It is committed to provide supreme service quality
Passenger safety It is dedicated to ensure the highest level of passenger safety
Customer satisfaction Due to financial crisis, the customers were not satisfied with the pricing strategies;

Recommendations

  • From the analysis of the current ratio and acid test ratio, it has identified that Turkish Airlines and Oman Air were not able to utilize short-term finance or pay the short-term debts since current liabilities were not covered by means of their current assets; in this circumstance, these companies should introduce an effective cash management system;
  • Though Turkish Airlines was able to achieve a better net profit margin than Oman Air, but it failed to reduce total operating expenses; in this context, it should concentrate more on the cost reduction mechanism in order to minimize financial risks in the future.
  • This report only concentrates on the ratio analysis and comparative vertical balance sheet and horizontal income statements of both companies, but this paper has not scrutinized the external and internal factors those influenced financial performance these airlines; therefore, the management of these airlines need to invest more to research on market to identify main challenges. Proper identification of the barriers will help these airlines to make financial decisions to overcome from such vulnerable position;
  • The auditors of Oman Air should recognize and evaluate the risks of material mismanagement of the balance sheet and income statements; in addition, it should ensure the appropriateness of accounting policies, and should disclose financial information correctly in order to avoid financial risks and establish control over the financial management system;
  • At the same time, asset turnover ratio, and debt to equity ratio illustrate that the financial position of these airlines was not in satisfactory level; therefore, the management of these airlines should diversify funding sources, change price of services, ensure proper use of existing resources, reduce operating and other costs, and monitor performance of the human resources and so on.

Conclusion

From the calculation and evaluation of the ratio analysis, it can be concluded that Turkish Airlines and Oman Air made losses for the adverse impact of global financial crisis of 2008; moreover, the geopolitical and financing challenges made it difficult for these industry players to minimize financial risks and make profits. This report compares the financial performance of Turkish Airlines and Oman Air using some important ratios such as current ratio, net profit margin, asset receivable turnover, debt to equity ratio and so on; however, the result of these ratios demonstrates that the financial health of Oman Air was very poor. Though the financial performance of Turkish Airlines is comparatively better than Oman Air, but important indicators and trend analysis reveals that percentage of net profit margin has dropped radically in 2016; therefore, it failed to perform up to the mark.

Appendix 1: Figures

Financing
Fig. 1: Financing (Turkish Airlines 2018).
Current ratio.
Fig. 2: Current ratio (self-generated).
Quick ratio.
Fig. 3: Quick ratio (Self-Generated).
Gross profit margin.
Fig. 4: Gross profit margin (self-generated).
Net profit margin.
Fig. 5: Net profit margin (self-generated).
Return on shareholder’s fund.
Fig. 6: Return on shareholder’s fund (self-generated).
ROCE of Turkish Airlines and Oman Air.
Fig. 7: ROCE of Turkish Airlines and Oman Air (self-generated).
Accounts receivable turnover
Fig. 8: Accounts receivable turnover (self-generated).
Accounts receivable collection period.
Fig. 9: Accounts receivable collection period (self-generated).
Accounts payable turnover
Fig. 10: Accounts payable turnover (self-generated).
Inventory turnover of Turkish Airlines and Oman Air
Fig. 11: Inventory turnover of Turkish Airlines and Oman Air (self-generated).

Fig. 12: Asset turnover (self-generated)

Gearing Ratio

Capital employed of Turkish Airlines and Oman Air.
Fig. 13: Capital employed of Turkish Airlines and Oman Air (self-generated).
Interest cover.
Fig. 14: Interest cover (self-generated).

Appendix 2: Table of calculation for Turkish Airlines

2013 2014 2015 2016
Turkish Airlines (in Million USD)
Current ratio = current assets/ current liabilities 2125 / 3,117 = 0.681745268 2831 / 3667 = 0.772020725 3146 / 3871 =
0.812709894
3601 / 4497 = 0.80075606
Quick ratio = (current assets – inventories) / current liabilities (2125 – 160) / 3,117 = 0.630413859 = 0.63 (2831 -195) /
3667 = 0.71884574 = 0.72
(3146 – 216) / 3871 = 2930 / 3871 =
0.756910359 = 0.76
(3601 – 217)/ 4497 = 3384 / 4497 =
0.752501668 = 0.75
(current assets – inventories) 2125 -160 = 1965 2831 – 195 = 2636 3146 – 216 = 2930 3601 – 217 = 3384
Gross profit margin = gross profit / total sales 1823 / 9826 = 0.185528191 = 18.55% 2040 / 11.070 = 0.18428184 = 18.43% 2,102 / 10,522 = 0.199771906 = 19.98% 1,136 / 9,792 = 0.1160130 = 11.6%
Net profit margin = net profit / total sales 357 / 9826 = 0.03633218 = 3.63% 845 / 11070 = 0.07633243= 7.63% 1,069 / 10,522 = 0.101596655 = 10.16% (77) / 9,792 = = -0.007863 = -0.79%
Return on shareholder’s funds or ROTE = net profit / total Shareholder’s Funds 357 / 3262 = 0.10944206 = 10.94% 845 /3,950 = 0.213924051 = 21.39% 1,069 / 4842 = 0.220776539 = 22.08% -77 / 5087 = -0.0151366 = -1.51%
Return on capital employed = EBIT / capital employed 502 / 8,784 = 5.714936248 = 5.71% 1046 / 10,079 = 10.37801369 = 10.38% 1407 / 12,512 = 11.2452046 = 11.25% (59) / 13,994 = -0.421609261
= -0.42%
Capital employed = Total assets – current liabilities 8,784 10,079 12,512 13,994
Debtor turnover = total net sales / average accounts receivable 9826 / 2094 = 4.692454632 11070 / 2577.5 = 4.29485936 10,522 / 2,759 = 3.813700616 9,792 / 2,273 = 4.308910891
Average accounts receivable (2441 + 1747)/2 = 2094 (2714 + 2441)/2 = 2577.5 (2804 + 2714)/2 = 2759 (1741+ 2804)/2 = 2272.5
ARCP = 365 days / accounts receivable turnover 365 / 4.69 = 77.78444942 365 / 4.29 = 84.98532068 365 / 3.81 = 95.70756511 365 / 4.31= 84.70818015
Creditor turnover = cost of goods sold / average accounts payable 8003 / 767 = 10.44096543 = 9030 / 869 = 10.39125432 8420 / 766 = 10.9921671 8656 / 643.50 = 13.45143745
Average accounts payable (877 + 656) /2 = 766.5 (861 + 877) /2 = 869 (671 + 861) /2 = 766 (616 + 671) /2 = 643.5
Stock turnover = cost of goods sold / average inventory 8003 / 152.5 = 52.47868852 9030 / 177.5 = 50.73033708 8420 / 205.5 = 40.97323601 = 8656 / 216.5 = 39.98152425
Average inventory (145 + 160) /2 = 152.5 (160 + 195)/2 = 177.5 (195 + 216)/2 = 205.5 (216 + 217)/2 = 216.5
Asset turnover = sales / average total assets 9826 / 11,212 = 0.876382447 8,234 / 9,729 = 0.846335697 10,522 / 15,065 = 0.698440093 = 0.70 9,792 / 17,437 = 0.561564489
Average total assets (10,523 + 11,901)/2 = 11,212 (11,901 + 13746)/2 = 9729 (13746 + 16383)/2 = 15065 (16383 + 18491)/2 = 17437
Capital employed or debt-to-equity ratio = total debt / total equity 8640 / 3262 = 2.64868179 9796 / 3950 = 2.48 11,541 / 4842 = 2.38351920 13404 / 5087 = 2.634951838
Interest cover= operating profit / finance costs 781 / 306 = 2.55 785 / 182 = 4.31 1076 / 201 =5.35 (130) / 229 = -0.57

Source: Self-generated.

Appendix 3: Table of calculation for Oman Air

2013 2014 2015 2016
Oman Air (RO’ 000; 1 RO = $2.6)
Current ratio = current assets/ current liabilities 75680 / 229209 = 0.330179007 = 0.33 99909 /
342334 =
0.291846559 = 0.29
103675 /
256542 =
0.404124861 = 0.40
147177 /
339120 =
0.433996815 = 0.43
Quick ratio = (current assets – inventories) / current liabilities 60369 / 229209 = 0.26337971 83695 /
342334 =
0.244483458
88216 / 256542 = 0.343865722 128,733 /
339120 =
0.379608988
Current assets –
Inventories
75680 – 15311 = 60369 99909 – 16214 = 83695 103675 – 15459 = 88216 147177 – 18444 = 128733
Gross profit margin = gross profit / total sales (100715) / 381,709 = -0.26385283 = -26.38% (96380) / 408,400 = -0.235994123 = -23.59% (66451) / 467,712 = -0.142076748 = -14.21% (120084) / 472,443 = -0.254176694 = – 25.42%
Net profit margin = net profit / total sales – 113,345 / 381709 = -0.296940863 = – 29.69% -109613 / 408400 = -0.26839618 = – 26.84% -86368 / 467712 = -0.184660646 = -18.46% -129812 / 472443 = -0.274767538 = -27.48%
Return on shareholder’s funds or ROTE = net profit / total Shareholder’s Funds -113345 / 49792 = -2.276369698 = -227.64% -109,613 / 87345 = -1.254943042 = -125.49% – 86,368 / 54977 = -1.57098423 = -157.09% – 129,812 / 19,571 = 8.197789706 = -819.78%
Return on capital employed = EBIT / capital employed -109,261 / 373,167 = -29.28% (105,129) / 407,838 = -25.78% (80533) / 480,425 = -16.76% (126783) / 409,140 = –30.98%
Capital employed 373,167 407,838 480,425 409,140
Debtor turnover = total net sales / average accounts receivable 381709 / 41,209.50 = 9.262645749 = 9.26 408400 / 50520.5 = 8.083847151 = 8.08 467712 / 62949.5 = 7.429955758 = 7.43 472443 / 89766 = 5.263050598 = 5.26
Average accounts receivable (42671 + 39748)/2 = 41209.5 (58,370 + 42,671)/2 = 50520.5 (67,529 / 58,370)/2 = 62949.5 (112,003 + 67,529)/2 =89766
ARCP = 365 days / accounts receivable turnover 365 / 9.262645749 = 39.40558777 365 / 8.083 =
45.1517691
365 / 7.429 =
49.12546075
365 / 5.263 =
69.35141382
Creditor turnover = cost of goods sold / average accounts payable 482424 / 191596 = 2.517929701 494255 / 283495 = 1.743437703 534163 / 239067 = 2.234365262 592527 / 151756.50 = 3.904458788
Average accounts payable (229209 + 153982)/2 = 191595.5 (337780 + 2292090)/2 = 283494.5 (140354 + 337780)/2 = 239067 (163159 / 140354) /2 = 151756.5
Stock turnover = cost of goods sold / average inventory 482,424 / 14,681 = 32.86043185 494,255 / 15,763 = 31.3553892 534,163 / 15,837 = 33.72879965 592,527 / 16,952 = 34.95322086
Average inventory (14051 + 15,311)/2 = 14,681 (15,311 + 16,214)/2 = 15,763 (16,214 + 15,459)/2 = 15,837 (15,459 + 18,444)/2 = 16,952
Asset turnover = sales / average total assets 381709 / 582,374 = 0.655436197 408400 / 676,274 = 0.603897237 467712 / 743,570 = 0.629008701 472443 / 742,614 = 0.636189191
Average total assets (562372 + 602376) / 2 = 582,374 (602376 + 750172) /2 = 676,274 (750172 + 736967) /2 = 743,570 (736967 + 748260) /2 = 742,614
Debt to equity ratio = total debt / total equity 602,376 / 49792 = 12.098 750,172 / 87,345 = 8.59 736,967 / 54977 = 13.41 748260 / (15,835) = -7.25
Interest cover -100715 / 9682 = -10.40 -96,380 / 7459 = -12.92 -66,451 / 12349 = -5.38 -120,084 / 6699 = -17.93

Source: Self-generated.

Reference List

Higgins, R 2015, Analysis for financial management, 11th edn, McGraw-Hill Education, New York, NY.

Myre, M 2015, An analysis of airline’s financial performance and its influencing factors, Bachelor’s Thesis, Aarhus University, Web.

Oman Air 2013, Oman Air’ annual report for 2013, Web.

Oman Air 2014, Oman Air’ annual report for 2014, Web.

Oman Air 2015, Oman Air’ annual report for 2015, Web.

Oman Air 2016, Oman Air’ annual report for 2016, Web.

Turkish Airlines 2014, Financial statements of Turkish Airlines, Web.

Turkish Airlines 2015, Turkish Airlines’ annual report for 2015, Web.

Turkish Airlines 2016, Turkish Airlines’ annual report for 2016, Web.

Turkish Airlines 2018, Financing, Web.

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StudyCorgi. (2020) 'Turkish Airlines' and Oman Air's Finance in 2013-2016'. 19 December.

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