2.13 faculty of Business and Law

profileduty13
example1.pdf

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

Accounting and Finance BA (Hons)

ACFI3310 - Advanced Corporate Finance

Pxxxxxxx

2022 - 2023

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

MEMORANDUM

To: Analyst

From: Pxxxxxxx

Date: 16th February 2023

Subject: Evaluation of the bankruptcy risk for EasyJet Plc

As per your request, I have conducted a critical analysis of the bankruptcy risk for the

company using Beavers, Altman's, and Argenti's approaches.

1. Beaver (1966)

The first person to demonstrate how financial ratios could be used to forecast a company's

collapse was Beaver in 1966. In his analysis, failure was predicted using just one

single variable. From his investigation, Beaver selected the most reliable forecasting ratios to

evaluate the probability of a business failing. In order to evaluate the performance of EasyJet

plc to that of a rival, Ryanair Plc is used as a comparison in Appendix A. Over the past three

years, EasyJet Plc's liquidity ratio has considerably risen to 1.5558. In comparison to Ryanair

Plc, EasyJet Plc has a much higher liquidity ratio for the year 2021. As a result, EasyJet Plc

has a greater margin of safety when it comes to its capacity to pay back debts. However, it

can be seen that Ryanair Plc scores better when compared to some other ratios. This

illustrates how this approach may appear to be confusing, as the business classification is

based on one ratio at a time.

2. Altman (1968)

Altman expanded Beaver's statistical methodology in 1968, creating what is now known as the

multivariate discriminate analysis. By expanding the univariate analysis with more financial

measures, Altman made it more comprehensive. According to his model, a firm with a Z score

above 3 would be secure, while a firm with a Z score below 1.8 was potentially failing

(Kleinert, K. 2014, p11). As can be seen from Appendix B, EasyJet Plc has a z-score of 0.3526

for the year ending 2021, -0.0973 for the year ending 2020, and 1.4887 for the year ending

2019. Each of the z-scores is below 1.80, indicating a very high likelihood of financial

bankruptcy.

It could be argued that it is ideal to use the model as a quick assessment of economic health,

but if the results show an issue, it is wise to carry out a more thorough analysis.

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

3. Argenti (1976)

Argenti is broken down into three major classifications: defects, mistakes, and symptoms of

failure. This method offers a linear combination of ratios that differentiated groups of failing

and non-failing businesses most effectively. The score that the companies don't have to pass to

remain safe is 25. The total Argenti number in Appendix C is 32, which indicates a high

likelihood of bankruptcy and thus should raise some concern. I scored 25 out of 45 on the

overall number of mistakes in appendix C.2, which proves that the company's management is

ineffective.

In conclusion, I strongly recommend that the board of directors take the necessary measures to

mitigate EasyJet's bankruptcy risk. By focusing on key financial ratios and taking proactive

measures to improve their financial position, companies can reduce their risk of bankruptcy

and ensure long-term viability in a competitive market.

Thank you for your cooperation,

Pxxxxxxx

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

References (NOTE – This is not Harvard)

Armitage, J. (2020). EasyJet chief hires finance director from TUI to help Covid fightback. [online]

Evening Standard. Available at: https://www.standard.co.uk/business/easyjet-covid-lundgren-tui-

mytravel-thomas-cook-a4550301.html. [Accessed 20 February 2023]

Beyond Business Travel. (2018). Easyjet launching new loyalty scheme for business travellers. [online]

Available at: https://beyondbusinesstravel.com/easyjet-loyalty-scheme-business-travellers/.

[Accessed 23 Feb. 2023]

Biogr, J. and Lundgren (n.d.). Chief Executive Officer easyJet. [online] Available at:

https://www.airbus.com/sites/g/files/jlcbta136/files/2021-10/Biography-Johan-Lundgren.pdf.

[Accessed 21 February 2023]

BOARD AND AIRLINE MANAGEMENT BOARD PROFILES. (n.d.). Available at:

https://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/investors/content/governance-

section.pdf. [Accessed 20 February 2023]

Easyjet (2021). Innovation | Innovating the travel experience | easyJet. [online] www.easyjet.com.

Available at: https://www.easyjet.com/en/orange-spirit/innovation. [Accessed 22 February 2023]

EasyJet chief Johan Lundgren cuts pay to match predecessor. (2018). BBC News. [online] 29 Jan.

Available at: https://www.bbc.co.uk/news/business-42859853. [Accessed 23 February 2023]

EASYJET PLC STATEMENT OF RESPONSIBILITIES OF THE CHAIRMAN AND CHIEF EXECUTIVE 1.

CHAIRMAN. (n.d.). Available at: https://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/about-

easyjet/division-ceo-chairman-responsibility.pdf. [Accessed 19 February 2023]

easyJet plc. (2022). Results for the twelve months ending 30 September 2022. [online] 29 Nov.

Available at: https://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/investors/results-

centre/2022/2022-fy-results-release.pdf. [Accessed 21 February 2023]

EasyJet shakes up board after difficult summer. (2022). Financial Times. [online] 24 Aug. Available at:

https://www.ft.com/content/9b6bc92a-31c4-4056-914b-cb59849ad631.[Accessed 19 February

2023]

Fleming, M. (2018). Easyjet CEO: ‘We want to be the most data-driven airline in the world’. [online]

Marketing Week. Available at: https://www.marketingweek.com/easyjet-ceo-data-driven-airline/.

[Accessed 21 February 2023]

Georgiadis, P. (2022). EasyJet under fire as flight chaos exposes carrier’s operating model. Financial

Times. [online] 8 Jul. Available at: https://www.ft.com/content/ada5dfc3-0e6b-4657-a662-

2e6e72968e44. [Accessed 22 February 2023]

Kleinert, K. (2014). Comparison of accounting-based bankruptcy prediction models of Altman (1968),

Ohlson (1980), and Zmijewski (1984) to German and Belgian listed companies during 2008 – 2013

[online] 25 July. Available at:

https://essay.utwente.nl/65464/1/Kleinert_MA_Management%20and%20Governance.pdf.

[Accessed 23 February 2023]

Lally, K. (2023). easyJet update amid flight change to help people in Turkey. [online] Liverpool Echo.

Available at: https://www.liverpoolecho.co.uk/news/uk-world-news/easyjet-update-amid-flight-

change-26204401. [Accessed 22 February 2023]

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

Legal Dive. (n.d.). Decentralizing budget management to improve legal ops. [online] Available at:

https://www.legaldive.com/news/legal-ops-easyjet-helen-lowe-logikcull-

budgeting/643082/.[Accessed 22 Feb. 2023]

Live news updates from January 25: US and Germany to send tanks to Ukraine, Apple supplier issue

profit warning. (2023). Financial Times. [online] 25 Jan. Available at:

https://www.ft.com/content/b0b36e8b-fa2a-4b16-a63f-3a982969545f. [Accessed 23 Feb. 2023]

login.bvdinfo.com. (n.d.). Fame. [online] Available at: https://fame-r1.bvdinfo.com/version-

20230117-3405-114/fame/1/Companies/Report. [Accessed 20 February 2023]

mediacentre.easyjet.com. (n.d.). Home. [online] Available at:

https://mediacentre.easyjet.com/story/15577/easyjet-invests-in-latest-aircraft-technology-to-

achieve-permanent-carbon-emission-reductions-across-its-entire-fleet. [Accessed 21 February 2023]

Sharpe, O. (2020). EasyJet cost-cutting measures may be misguided, says GlobalData. [online]

Aviation Business News. Available at: https://www.aviationbusinessnews.com/low-cost/easyjet-

cost-cutting-measures-may-be-misguided-says-globaldata/. [Accessed 21 February 2023]

the Guardian. (2022). EasyJet executive quits after weeks of turmoil and flight cancellations. [online]

Available at: https://www.theguardian.com/business/2022/jul/04/easyjet-executive-peter-bellew-

quits-turmoil-flight-cancellations-airline. [Accessed 20 February 2023]

Appendices

Appendix A: Beaver Model

A.1 - EasyJet Plc

EASYJET PLC Ratio Formula 30/09/2021 30/09/2020 30/09/2019

£000 £000 £000

Cash Flow Cash Flow -755 - 0.1058 -542 - 0.0824 1,098 0.2121 Total Debt 7,134 6,574 5,178

Net Income (PAT)

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 (𝑃𝐴𝑇) 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

−858 9,773 - 0.0878 -1,079 -0.1273 349 0.0428

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

A.2 - Ryanair Plc

8,473 8,163 Capital Structure

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 7,134 0.7300 6,574 0.7759 5,178 0.6343

9,773 8,473 8,163 Liquidity Current Assets 4,165 1.5558 2,563 0.6699 2,119 0.7942 Current Liabilities 2,677 3,826 2,668 Working Capital Working Capital 1,488 0.1523 -1,263 -0.1491 -549 -0.0673 Total Assets 9,773 8,473 8,163 Turnover Cash 3,549 1.7569 2,298 0.6951 1,285 0.2358

Operating Expenses - Depr. & Amortisation

2,500-456- 24

3,809-485- 18

5,948-484- 15

RYANAIR PLC Ratio Formula 31/03/2021 31/03/2020 31/03/2019

£000 £000 £000

Cash Flow Cash Flow -2,085 - 0.3187 1,176 0.1350 1,761 0.2558 Total Debt 6,543 8,715 6,888

Net Income (PAT)

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 (𝑃𝐴𝑇) 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

−864 10,673 - 0.0810 574 0.0428 758 0.0668

13,423 11,359 Capital Structure

𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 6,543 0.6130 8,715 0.6493 6,888 0.6064

10,673 13,423 11,359

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

Note: Based on the appendices A.1 and A.2, EasyJet Plc appears to operate more profitably

due to its higher liquidity and positive working capital.

Appendix B: Altman Model

(Formula: Z = 1.2R1 + 1.4R2 + 3.3R3 + 0.6R4 + 1.0R5)

B.1 - EasyJet Plc

Liquidity Current Assets 2,957 0.9845 3,903 0.7996 3,261 0.9286 Current Liabilities 3,004 4,882 3,511 Working Capital Working Capital -46 -4.3576 -978 -0.0729 -250 -0.0221 Total Assets 10,673 13,423 11,359 Turnover Cash 2,683 1.6544 3,375 0.5753 1,466 0.2832

Operating Expenses - Depr. & Amortisation 2,108-486 6,530-663 5,727-549

EASYJET PLC

Ratio Formula 30/09/2021 30/09/2020 30/09/2019

£000 £000 £000

X1 Working Capital 1,488 0.1523 -1,263 -0.1491 -549 -0.0673 Total Assets 9,773 8,473 8,163

X2 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 −858 9,773 -0.0878 -1,079 -0.1273 349 0.0428

8,473 8,163

X3 𝐸𝐵𝐼𝑇

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 -827 -0.0846 -782 -0.0923 490 0.0600

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B.2 - Ryanair Plc

9,773 8,473 8,163

X4 Market Value of

Equity* 6.63 x 758,010

7,134 0.7045 5.02 x 456,750

6,574 0.3488 11.50 x 397,208

5,178 0.8822

Book Value of Total

Liabilities

*closing balance x

shares outstanding X5 Sales 1,458 0.1492 3,009 0.3551 6,385 0.7822 Total Assets 9,773 8,473 8,163

EASYJET PLC

Ratio 30/09/2021 Weighting Z score 30/09/2020 Weighting Z score 30/09/2019 Weighting Z score

X1 0.1523 1.2 0.1828 -0.1491 1.2 -0.1789 -0.0673 1.2 -0.0808

X2 -0.0878 1.4 -0.1229 -0.1273 1.4 -0.1782 0.0428 1.4 0.0599

X3 -0.0846 3.3 -0.2792 -0.0923 3.3 -0.3046 0.06 3.3 0.198

X4 0.7045 0.6 0.4227 0.3488 0.6 0.2093 0.8822 0.6 0.5293

X5 0.1492 1.0 0.1492 0.3551 1.0 0.3551 0.7822 1.0 0.7822

Distress 0.3526 -0.0973 1.4887

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

Note: According to appendices B.1 and B.2, both companies have Z-scores below 1.8, which

indicates a very high probability of bankruptcy.

RYANAIR PLC

Ratio Formula 31/03/2021 31/03/2020 31/03/2019

£000 £000 £000

X1 Working Capital -46 -4.3576 -978 -0.0729 -250 -0.0221 Total Assets 10,673 13,422 11,359

X2 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 −864

10,673 -0.0810 574 0.0428 758 0.0668 13,422 11,359

X3 𝐸𝐵𝐼𝑇

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 -691 -0.0648 1,019 0.0760 866 0.0763 10,673 13,422 11,359

X4 Market Value of

Equity*

16.55 x 1,127,657

6,543 2.8521

9.21 x 1,091,561

8,715 1.1535

11.67 x 1,133,395

6,888 1.9200

Book Value of Total

Liabilities

*closing balance x

shares outstanding X5 Sales 1,393 0.1306 7,529 0.5610 6,598 0.5809 Total Assets 10,673 13,422 11,359

RYANAIR PLC

Ratio 31/03/2021 Weighting Z score 31/03/2020 Weighting Z score 31/03/2019 Weighting Z score

X1 -4.3576 1.2 -5.2291 -0.0729 1.2 -0.0875 -0.0221 1.2 -0.0265

X2 -0.081 1.4 -0.1134 0.0428 1.4 0.0599 0.0668 1.4 0.0935

X3 -0.0648 3.3 -0.2138 0.076 3.3 0.2508 0.0763 3.3 0.2518

X4 2.8521 0.6 1.7113 1.1535 0.6 0.6921 1.92 0.6 1.152

X5 0.1306 1.0 0.1306 0.561 1.0 0.561 0.5809 1.0 0.5809

Distress -3.7145 1.4763 2.0517

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

Appendix C: Argenti Model

C.1 - EasyJet Plc (Defects)

Management Deficiencies

Item A Score

Available

A Score

Awarded

Support

Autocratic

chief

executive

8

0

On 1st of December 2017 Johan Lundgren became the Chief

Executive of EasyJet. Johan has worked in the travel industry

for more than 30 years (Biogr, J. and Lundgren, nd, online). On

25th of January 2023 Financial Times reported a rose of shares

by 10% after Johan Lundgren announced that the firm will

return to a profitable pre-pandemic flying levels by the end of

Summer (Financial Times, 2023, online).

By introducing a new loyalty programme, Johan has also

highlighted a series of initiatives that aim to attract more

business travellers. He also revealed plans to create a new

loyalty programme that will complement and support all of these

initiatives and foster even greater customer loyalty to EasyJet

(Beyond Business Travel, 2018, online).

The CEO has claimed to build the most data-driven airline in the

world, with data serving as the key to driving efficiency. Easy

Jet will be able to reduce expenses and boost revenue by

concentrating on core sectors including holidays, business

customers and loyalty. EasyJet has appointed its first chief data

officer, who will optimise flight schedules to determine when

passengers are most likely to travel and maximize the in-flight

experience (Fleming, M, 2018, online).

In 2018 the gender pay gap in EasyJet Plc was 51.7%. To

address the gender imbalance that underlies the overall gender

pay gap at EasyJet plc, Johan Lundgren has restated the

company's commitment to increasing the proportion of female

pilots with a target of 20% of new entrant pilots by 2020.

Furthermore, Johan cut his pay by £34,000 to match that of his

predecessor Carolyn McCall in order to demonstrate his

personal commitment to addressing the gender gap (BBC News,

2018, online).

Failure to

separate role

of chairman

and chief

executive

4

0

According to the Statement of Responsibilities of the Chairman

and Chief Executive, EasyJet Plc undoubtedly distinguishes the

roles of the Chairman and the Chief Executive. The Chairman's

main responsibility is to lead the Board and make sure it runs

smoothly. While, the Chief Executive's main responsibility is

the day-to-day management of the Company's businesses as well

as the creation and execution of strategy (EasyJet Plc, nd).

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

Passive

board of

directors

2

0

During the year 2022 EasyJet announced a change of its board,

with three directors leaving as the airline’s management aims to

move on from the summer’s disruption, which was caught up in

the barrage of flight cancellations, delays and disruption in May

and June that marred the return of mass travel following two

years of border restrictions. According to the chair Stephen

Hester, the new appointees will strengthen the board by bringing

extensive airline and travel industry experience, with extra focus

on operations and logistics, customer experience, digital and

data (Financial Times, 2022, online).

Lack of

balance of

skills in

management

team –

financial,

legal,

Marketing,

etc

4

0

EasyJet Plc has an experienced and committed management

team of 9 members. Almost all members have a various

nationalities and important fields of expertise. For example,

Peter Bellew who is the Chief Operating Officer has key areas

of expertise in aviation and flight operation, while Ella Bennett,

the group people director has key areas of expertise in reward

and digital transformation. The company understands the

advantages of having a diverse executive leadership team to

encourage innovation and boost performance.

In the Corporate Governance Chairman Statement, it is

highlighted that every member of the management team is

extremely knowledgeable and experienced in a variety of sectors

and roles across the industry (EASYJET PLC, nd, online).

Weak

finance

director

2

0

Kenton Jarvis, one of the top executives at his previous

employer, TUI and Aviation, was appointed by EasyJet Chief

executive Johan Lundgren in February 2021 to be his new

finance director and help guide the faltering airline's comeback

from the devastating impact of the pandemic on the business.

According to EasyJet, Jarvis had demonstrated his capacity to

produce savings and effective turnaround programmes. This

knowledge will be essential as EasyJet moves into a phase of

recovery from the pandemic's most severe restrictions (

Armitage, J, 2020, online).

Lack of

‘management

in depth’

1

1

EasyJet Plc's management has poor organisational

characteristics. Peter Bellew, an EasyJet executive, left his

position in order to pursue other career options. When Stephen

Hester, the new chair of easyJet, began taking on more

responsibility in the wake of the crisis, senior executive level

changes have been on the horizon. Over the half-term holidays,

the airline cancelled hundreds of flights due to issues,

particularly at its major base at Gatwick. Due to Bellew's

departure, Johan Lundgren, the airline's CEO, will be under

more pressure to improve business conditions (the Guardian,

2022, online).

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Poor

response to

change

15

0

EasyJet Plc has reacted to numerous changes that have affected

them. Most recently, EasyJet Plc added a new service to let

travellers to assist individuals affected by the earthquake in

Turkey and Syria. The company will start an urgent onboard

collection to generate money for UNICEF's urgent earthquake

appeal for Turkey and Syria. EasyJet's whole network will host

in-flight collections, giving more than 2.7 million travellers in

36 countries the chance to donate.

Any funds received will be used to support UNICEF's 24-hour

emergency response in the area, which will aid in giving

children who have lost their homes, are sleeping on the streets,

or have been separated from their families (Lally, K. 2023,

online).

Accounting Deficiencies

No

budgetary

control

3

0

In 2021, EasyJet Plc confirmed that it would reduce its

workforce by up to 30%, i.e. approximately 4,500 jobs, as it

continues to struggle with the air travel restrictions put in place

as a consequence of the worldwide coronavirus pandemic

(Sharpe, 2020, online).

The spending of lawyers, compliance officers, and other

members of the in-house legal team is beyond the operations

chief's complete control. Helen Lowe, the director of legal

operations at EasyJet, proposed that rather than concentrating

that effort within the function, its better teach the lawyers and

other members of their in-house legal team how to manage their

own budgets. By teaching them fundamental accounting skills,

this can assist in preparing the staff to handle their own budgets

(Legal Dive, nd, online).

No cash flow

plans

3

0

The airline's targeted network allocation, significantly enhanced

revenue capabilities, and financial strength allowed EasyJet Plc

to achieve a record bounce back, leading in the strongest

headline EBITDAR for Q422 of £674 million, according to the

2022 Annual Reports and Financial Statements. All of this offers

the framework for generating significant shareholder returns.

The Board is also confident that the firm will enter the 2023

fiscal year with one of the best balance sheets in European

aviation and that it will seize growth opportunities as they arise

based on the group's cash flow forecasts and projections.

(easyJet plc, 2022, online).

No costing

system

3

0

EasyJet Plc has a strong costing system since it places an

emphasis on quick turnaround times for flights, high rates of

capacity, and seeks to reduce costs across the board, including

by using aircraft from low-cost carriers. For instance, 24% of its

customers support mobile boarding cards, and as the airline has

grown, EasyJet has been able to minimise airport inflation by

negotiating favourable landing and take-off rates (Economics,

nd).

Total defects score: 1/45

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

C.2 - EasyJet Plc (Mistakes)

Item A Score

Available

A Score

Awarded

Support

High

gearing

15

10

30/09/2021 30/09/2020 30/09/2019

Gearing

Ratio

2.7033 3.4618 1.7347

Despite the fact that the gearing ratio has decreased between the

years 2020 and 2021, EasyJet Plc has an extremely high gearing

ratio of 2.7033 for the year ending 2021. As a result, the business

will frequently take out loans to cover operating expenses, putting

it at danger whenever interest rates rise or the economy contracts.

This could lead to financial problems, and even bankruptcy.

Overtrading

15

15

30/09/2021 30/09/2020 30/09/2019

Turnover 1.7569 0.6951 0.2358

Current

Assets

£4,165,000 £2,563,000 £2,119,000

Trade

Debtors

£44,000 £18,000 £79,000

Working

Capital

Ratio

0.1523 -0.1491 -0.0673

EasyJet's Plc current assets, working capital, turnover, and trade

receivables seem to have risen too rapidly throughout 2021

without having the financial resources to support such a quick

expansion, indicating that the company is overtrading.

Overtrading can result in bankruptcy if proper sources of funding

are not obtained.

The big

project

15

0

Presently, EasyJet Plc is working on an initiative to achieve net-

zero carbon emissions by 2050. By enabling the optimization of

aircraft descents, the company stated in 2022 that it would invest

several million pounds across its entire fleet in the newest aircraft

software, which will aid the airline in reducing carbon emissions

significantly and permanently in the near future.

All suitable aircraft will experience fuel and consequently carbon

emissions reductions as well as noise reductions with the fleet-

wide implementation of Descent Profile Optimisation and

Continuous Descent Approach.

Once the retrofit is finished, easyJet will be operating the world's

biggest fleet of aircraft equipped with Descent Profile

Optimisation and Continuous Descent Approach, resulting in an

estimated yearly decrease in carbon emissions of 88,600 MT,

ACFI3310 - Advanced Corporate Finance - Pxxxxxxx

which is equal to driving an ordinary car 16,173 times around the

earth (mediacentre.easyjet.com, nd, online).

Total mistakes score: 25/45

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C.3 - EasyJet Plc (Symptoms of Failure)

Item A Score

Available

A Score

Awarded

Support

Financial

Signs

4

3

Decrease in revenue: EasyJet's revenue significantly declined

from £3,009,000 to £1,458,000 between the years 2020 and

2021 due to the COVID-19 pandemic.

Increase in losses: EasyJet's net losses increased significantly in

2020 and 2021, primarily due to the decline in revenue and

increased costs. In 2020, EasyJet's net loss was £1,079,000

compared to a profit of £349,000 million in the previous year.

In 2021, the net loss was £858,000.

Decrease in shareholder value: EasyJet's share price declined

significantly in 2020 and 2021, reflecting the decline in revenue

and profitability. In 2020, the share price decline to 4.83 and in

2021 to 6.83, compared to 2019 that was 11.58.

Creative

accounting

4

0

International Accounting Standards are used in the financial

statement preparation process of EasyJet Plc.

The financial statements for the group and the business have

been prepared by the Directors in accordance with that

legislation and international accounting standards.

Non-

financial

signs

3

2

After two horrible years of border restrictions due to

the pandemic that had sent the industry into crisis, easyJet's

chief executive was looking forward to a new challenge as the

first indications of travel disruption started to appear in the

spring of 2022. Returning travellers have overwhelmed the

European aviation infrastructure after just three months, with

easyJet among the worst-affected carriers in a wave of

disruption brought on by a lack of personnel in every aspect of

the sector. In 2022, the airline has cancelled 1,760 flights from

the UK, five times more than it did during the same timeframe

in 2019 (Georgiadis, P, 2022, online).

However, rapid technological changes can impact the airline

industry, such as the emergence of new booking platforms,

mobile applications, and in-flight entertainment systems.

EasyJet has been able to successfully adjust to these changes

over the past five years by using digital to change the airline and

the travelling experience. For instance, the business equipped its

app with a mobile departure feature in 2013, enabling users to

check in in under ten seconds (Easyjet, 2021, online).

Terminal

signs

1

1

There are alarming signs for EasyJet Plc's approaching

bankruptcy, both financial and non-financial. Consequently,

there are terminal signs.

Total symptoms of failure score: 6/12

Total Argenti score: 32/102