Financial Performance Management

Student Number:
 Table of Contents

Introduction............................................................................................................................ 3

Answer to Question 1.............................................................................................................3

Financial Performance Comparison of Virgin Atlantic and British Airways through Ratio
Analysis.............................................................................................................................. 3

Answer to Question 2.............................................................................................................6

Application of Kaplan and Norton’s Balanced Scorecard to Manage Virgin Atlantic’s

Performance....................................................................................................................... 6

Answer to Question 3.............................................................................................................9

Application of <IR> Integrated Reporting Framework in Virgin Atlantic’s Improvement.......9

Conclusion........................................................................................................................... 12

References........................................................................................................................... 14

Appendix.............................................................................................................................. 16

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Introduction
Financial performance is a comprehensive review of a company's entire position in areas
such as assets, liabilities, equity, costs, revenue, and overall profitability (Busco et al., 2019).
Assets, liabilities, and equity are all measured separately. It may be calculated using a
variety of business formulae that provide users with precise information about a company's
potential efficacy. In the case of internal users, financial performance is used as a
benchmark to gauge the health and position of their specific organisations (Galant and
Cadez, 2017). The financial performance of a firm is scrutinised by other parties in order to
decide whether or not it is a worthwhile investment. Financial statements must be analysed
before any financial indicators can be used to determine overall performance. A financial
performance study uses precise financial formulae and ratios, which, when contrasted to
historical and industry indicators, give insight into a company's financial health and
performance (Rodriguez-Fernandez, 2016). Financial performance is measured using seven
important ratios that are widely utilised in the business sector to aid and assess the overall
performance of a firm.

This report has focused on identifying which company, between Virgin Atlantic and British
Airways, is a better performer in terms of Financials. The comparison will be achieved by
conducting a ratio analysis between the companies, taking their financial data of 2019 and
2020. The poor Performer company will be advised strategies through discussing the
application of Balanced Scorecard and Integrating Reporting. The Kaplan and Norton’s
Balanced Scorecard Framework will be considered while discussing the application. And, the
<IR> Framework of integrated reporting will be considered to suggest its benefits and
limitation to the poor performer company.

Answer to Question 1

Financial Performance Comparison of Virgin Atlantic and British Airways

through Ratio Analysis

Liquidity Ratio is a financial tool which is used to identify the capability of an organisation to
cover it short term obligations or current liabilities. There are three types of liquidity ratio
which are commonly used, “Current Ratio, Quick Ratio or Acid Test Ratio, Cash Ratio” (Atrill
and McLaney, 2018).

Current Ratio is a liquid ratio and this ratio indicated whether a firm has short term function.
This ratio is used to compare its current assets to its current liabilities (Berk and DeMarzo,
2017). In terms of Current Ratio of Virgin Atlantic in the year 2020, the value was 0.50

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simultaneously in the year 2019 it was 0.59 It shows that company has more current
liabilities than its current assets; it means company is not at a good liquid position.

In case of British Airways, it was 0.36 in the year 2020 but in the year 2019 it was valued
0.74. In comparison of these companies Virgin Atlantic performed well in the year 2020, but
in the year 2019, British Airways performed better than Virgin Atlantic.

Again, Quick Ratio is a financial ratio which is indicates company’s capacity to pay its
current liabilities without needing to sells (Musallam, 2018). It shows a company’s liquid
position means it helps to identify a firm’s ability to cover its short-term obligations or current
liabilities. Quick Ratio of Virgin Atlantic in the year of 2020 the value was 0.46 and in 2019 it
was 0.56. It means company is not at standard condition, it indicates that company is facing
trouble to cover its short-term obligation. In comparison with “British Airways” its quick ratio
in the year 2020 valued 0.36 and in 2019 it was 0.71. It means in the year 2019 “British
Airways” quick ratio is good as compared to “Virgin Atlantic” but in 2020 Virgin Atlantic’s
quick ratio is better than “British Airways”

Cash Ratio is a financial instrument which is used to measure firm’s liquid condition, it’s also
a type of liquidity ratio, which shows how much cash is available to cover its current liabilities
(Atrill and McLaney, 2018). Cash Ratio of “Virgin Atlantic” in the year 2019 was 0.26 but in
the year 2020 it was 0.15 but in case of “British Airways” in the year 2020 it was 0.22 and in
the year 2019 it was 0.20. In comparison of these companies “British Airways” cash ratio is
more stable than “Virgin Atlantic”.

In terms of “Profitability Ratio”, it is a financial instrument which is used by analysts and

investors to identify a company’s ability to get profit or income (Berk and DeMarzo, 2017).
The components require to identify this ratio- “Gross Profit, Operating Income”, Income
Before Tax, “Net Income, Sales, Total Equity, Total Assets” etc. There are few types of
profitability ratio – “Gross Margin, Operating Margin, Pre-tax Margin, Net Profit Margin,
Return on Equity (ROE), Return on Assets (ROA)” etc.

In term of Profitability Gross Margin of “Virgin Atlantic” in the year 2020 was 0.53 but in the
year 2019 was 0.66. But in case of “British Airways,” Gross Margin was valued 0.73 in the
year 2019 but in 2020 it was 0.54. So, in the comparison of these companies British Airways
is better than Virgin Atlantic in term of Gross Margin.

In terms of Operating Margin of Virgin Atlantic, it was 0.02 in the year 2019 but in the year
2020 it was -0.62, In case of British Airways its operating margin in the year 2019 was 0.10
and in the year 2020 it was -0.97. In the year 2019 British Airways was better than Virgin
Atlantic but in 2020 Virgin Atlantic was better.

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  Pre-Tax Margin was better in case of “British Airways” compared to “Virgin Atlantic”.

 In case of Net Profit Margin here also “British Airways” performed better than “Virgin
Atlantic”.

 Return on Equity (ROE) of “Virgin Atlantic” is better than “British Airways”.

 In case of Return on Assets (ROA) “British Airways” was performed better than
“Virgin Atlantic”.

Leverage Ratio is one type of financial instrument which used to identify how a company
financed its assets and business operations by using debt or equity. There are few leverage
ratios which are normally used- Debt Equity Ratio, Debt Capital Ratio and Equity Multiplier.
Leverage Ratio is another financial tool which is used by financial experts and investors to
identify the ability of an organisation of doing business operations by using their DEBT and
EQUITY. Types of Leverage Ratio like, Debt Equity Ratio, Debt Capital Ratio, Equity
Multiplier, Interest Coverage Ratio etc. In case of Debt Equity Ratio, the value of “Virgin
Atlantic” in the year 2019 was -18.01 but in the year 2020 was -5.89 but in term of “British
Airways” its value was 2.22 in the year 2019 but in 2020 it was 9.26. In the comparison of
these companies British Airways performed well as compared to Virgin Atlantic.

In case of Debt Capital Ratio Virgin Atlantic’s value in 2019 was 1.06 but in 2020, it was
valued 1.20 but of British Airways it was 0.69 in the year 2019 but in 2020 it was 0.90, in
case of Debt Capital Ratio Virgin Atlantic performed better as compare to British Airways. In
case of Equity Multiplier British Airways has been performed better as compared to Virgin
Atlantic.

Working Capital Ratio is a financial instrument which indicates a firm’s ability to operate daily
operations and activities (Musallam, 2018). There are few types of Working Capital Ratio
like, “Inventory Days, Account Receivable Days, Account Payable Days, Duration Working
Capital Cycle”. In Working Capital Ratio, in term of Inventory Days “Virgin Atlantic’s” was
valued 24.62 in the year 2019 but in 2020 it was valued 124.10. Again, for British Airways it
was valued 35.75 in the year 2019 but in 2020 it was valued 27.66. In comparison of these
companies Virgin Atlantic’s Inventory Days was better than British Airways.

For Account Receivable Days Virgin Atlantic’s value was 35.46 in the year 2019 but in the
year 2020 it was valued 67.19. Similarly for British Airways Account Receivable Days was
32.56 in the year 2019 but in 2020 was 32.03. In case of Account Receivable Days Virgin
Atlantic has been performed better as compared to British Airways.

In term of Account Payable Days Virgin Atlantic has been performed well as compared to
British Airways. Duration of Working Capital Cycle was valued -1227.42 in the year 2020 of

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Virgin Atlantic and in 2019 it was 57.79. Similarly, for British Airways it was valued -413.83 in
2019 but in 2020 it was valued -411.34.

Answer to Question 2

Application of Kaplan and Norton’s Balanced Scorecard to Manage Virgin

Atlantic’s Performance

Virgin Atlantic is a British airline company group, present in names of Virgin Atlantic Airways
Limited and Virgin Atlantic International Limited. Their head centre in Crawley, England.
Virgin Atlantic Limited this company is 51% owned by virgin group and 49% by Delta Air
Lines. Overall, the total amount is £400m investment is split £204m virgin group (Obadina,
2019).

Vision: It is the vision of Virgin Atlantic to become “the most loved travel company.” For this
organisation, the best customer experience system serves as a source of inspiration. As a
result of this, the firm has been able to attract new employees by creating new challenges
that focus on the client experience (Kitamura, Matsushima and Sato, 2018).

Mission: The mission of Virgin Atlantic is “To grow a profitable airline, that people love to fly
and where people love to work.” Company’s motive is to be a profitable business entity and
to be a company where people love to fly and love to work (Virgin Atlantic Airways Ltd.,
2022).

BALANCED SCORECARD (BSC):

BSC’s full form is Balanced scorecard, its mean performance of strategic management
which is used for identify and developing whole structure and how to improve various
internal and external function of business. These tools identify well feedback for this
organisation. As well as, its measure better finance plane, growth and learning, better
process of business (Busco and Quattrone, 2015). This structure information input in a
single report. Its regulated information like, developing efficiencies and performance of
finance.

Elements of Kaplan and Norton’s Balanced Scorecard: There are four types of elements
which are-

 Financial perspective.

 Customer perspective.

 Business process component.

 Growth and Learning

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Concept of the Elements:

I. Financial perspective:

This elements measure by company’s any types of cost, term of return on investment
and other types of cost operating in the organisation.

II. Customer perspective:

It indicates contentment of customers .and their satisfaction, relation with company

and share market retention held by this corporations.

III. Business process components:

This measures all operational activities of the organisation and the processes which
relates with quality, cost and business process.

IV. Growth and Learning:

Its measure company’s growing knowledge, increasing company’s developing plane,

and good relation with internal and external employees (Kaplan, 2010).

All components are attached with one by one. It’s not to be a used in one function. This
organisation has to together or more of all components. All perspectives are work together
and achieve organisation goals and achieve well objective of running days. Four sub-
components are:

 Objective: organisations objective such as profitability and market share.

 Measure: observe company’s objective, and measure progress.

 Target: These sub elements can be determined organisation’s goal and measure
achieves.

 Initiative: it can be measure various types of action and objective taken to meet
(Kaplan, 2010).

BSC (Balanced Scorecard) it’s a better figure for any organisation to measure Company’s
performance, and this tool better route for corporation. There are some advantages of BSC,
which are

 It gives a stature this strategy like organisation takes frequently performance in a

proper way.

 There are some different perspectives to management of strategic. BSC helps to

achieve their goal and take helps positive actions

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  It ensures that overall area of this organisations is offset in an easiest way to
understand, and makes a better communicate for organisations.

 It gives well-structured goals and helps identifying employees’ superior goals

 It is also aligning organisations department and dividing up. Overall department and
division should line up with an ordinary strategy, and the stabilize balanced scorecard
facilitates this process. In the same way they can see how their main roll up to the
level of enterprise measures, better project report.

 Balanced scorecard makes better connections and easier, and outstanding scenario
of this organisation (Hoque, 2014).

Additionally Balanced scorecard some disadvantages are there. Such as:

 Balanced scorecard can be overwhelming, it also needs to be customized to each

and every organisation using this tool.

 It is required to be bought in from successful leadership, its necessary execute from

the top way to the bottom of the organisation.

 It also can get elaborated, Balanced scorecard take hold of some times and
enthusiasm to. There are innumerable case studies and resources to read from and
it’s easy to get broiled down with more different routes of utilize this method.

 Mostly, Balanced scorecard requires team members and managers reporting

information. Its mean gets in the routes of doing required work to meet objectives
(Hoque, 2014).

Application Kaplan and Norton’s BSC Framework to Virgin Atlantic

Financial Perspective:

Objective Measure Targets Initiatives

Growth of sales increasing more 12% revenue Generating more

customers profits

cost minimization Increasing Net profit 4% per annum Decrease cost of

operating

Asset utilisation Lease cost plane 4% per annum standardize of planes

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Customer Perspective:

Objective Measure Targets Initiatives

Increasing customer Retention of Increase a greater More user-friendly

satisfaction customers number of customers. customers

Relationship building well behaviour Flight is on time and Customer loyalty

with customers of customers better customer ranking program.

Business Process Components:

Objective Measure Targets Initiatives

Meals on flight Decoration of food Increase food menu Varities of food

meal by7%

Fast ground On ground turn 20 minutes Optimization

turnaround programs of cycle
On time departure 90%
time

Growth and Learning:

Objective Measure Targets Initiatives

Alignment crew 7% of crew ground Per annum 1 to 50% Crew ground

ground trained training

Stock ownership 10% of ground stock 6 years of 98% Better ownership

plane holder plane.

Answer to Question 3

Application of <IR> Integrated Reporting Framework in Virgin Atlantic’s

Improvement

As outlined in the company's mission statement, Virgin Atlantic aims “To build a successful
airline, that customers love to travel and where employees love to work.” That means Virgin

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Atlantic aspires to be both a financially successful airline and one that its passengers enjoy
flying with. “Where peoples enjoy to work” is also a goal of the airline (Virgin Atlantic Airways
Ltd., 2022).

Virgin Atlantic's vision statement is that it wants to be the most admired airline. Take a cue
from the company's customer experience model and apply it to this one. It also serves to
entice new employees to join the company. In addition, Virgin Atlantic places an emphasis
on the mental well-being of its employees and provides them with assistance and support in
order to improve employee retention and job happiness (Virgin Atlantic, 2020). However,
Virgin Atlantic's goal is to become the most beloved airline business in the world, where
employees and passengers alike enjoy their employment and travel.

Integrated Reporting <IR> is a report framework which shows the components which helps
organisations to create their values in financial as well as in term of non-financial. It helps
organisations to create their values over the years in term of short, medium and long (IIRC,
2013). Purpose of the Integrated Reporting is to how the company allocate their capitals in
short, medium and long term to show the report to the capital providers. It improves the
quality of information available for more productivity allocation and efficiency. Integrated
reporting helps in communication about how an organisation’s strategy, performance,
prospects and governance (Busco et al., 2013).

Capitals of Integrated Reporting <IR>: There are 6 capitals of Integrated Reporting which
all are interrelated with each other.

 Financial Capital: It shows all financial capitals or funds, that available in the
organisation which needs to operate all activities like production, service and all
operations. It also obtained financing like equity, debt or any type of grants, and
funds generated from operations and other investments.

 Human Capital: It includes all human activities, motivating all employees to grow
productivity and acquiring new talents and innovations. It includes governance
framework, risk management, ethical values etc. (De Villiers, Rinaldi and Unerman,
2014).

 Manufactured Capital: It includes all physical objects of organisation apart from

natural objects, it shows all physical objects which helps to manufacture and used for
operations of the organisation such as building, equipment or machineries,
infrastructure etc.

 Social and Relationship Capital: It includes the relationship with the peoples and
other institutions, communities etc. It also takes care of key stakeholders and other

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 networks which develops the social and individuals value, it creates social capital of
the organisation.

 Intellectual Capital: It includes knowledge base intangibles such as patents,

copyrights, rights and licences. It also shows systems and managerial processes,
and knowledge tacit (Dumay et al., 2016).

 Natural Capital: It includes all renewable and non-renewable energy natural

resources, and a process of goods processing which give supports to the present,
future of an organisation.

Key elements of Integrated Reporting: There are eight key elements of Integrated
Reporting

 “Organisational overview and external environment”

 “Governance”

 “Business model”

 “Risks and opportunities”

 “Strategy and resource allocation”

 “Performance”

 “Outlook”

 “Basis of preparation and presentation” (IIRC, 2013)

Organisational Overview and external environment of Virgin Atlantic: Headquarter of

Virgin Atlantic is situated in Crawley, England. This Airways was established in the year
1984, Its 51% owned by Virgin Group and 49% owned by Delta Group. It is one of the
leading airline companies in United Kingdom (UK) (Virgin Atlantic, 2021).

Risks and opportunities of Virgin Atlantic:

This company has financial risk like fuel price risk, credit risk, capital risk and liquidity risk.
On the other hand, Virgin Atlantic’s technology is one of the key opportunities. Growth in the
tourism industry is one another opportunity (Virgin Atlantic, 2020).

Benefits of Integrated Reporting in Virgin Atlantic: There are several benefits of Virgin
Atlantic by using Integrated Reporting:

 It gives more integrated thinking and management

 Better view of business performance, it’s given a better clarity of performance. It

gives greater insights and clarity of the business

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  It creates social value of the company; it creates good relationship with the
stakeholders and other networks. Though it improves company’s reputation

 It develops a greater engagement between the employees

 It improves gross margin of the company, by adopting integrated reporting

company’s getting more financial benefits

 It gives a better understanding of the factors that determines the ability to create
value of the organisation

 Financial capital helps to understand how to manage the fund and investments and
other financial benefits

 Human capital helps to manage peoples and it also helps to manage skills,
employees. It also helps to motivate employees and it analyse future growth of the
organisation

 It also improves the relationship with the customers and their satisfaction

 Better understanding also helps business to promote more creative thinking.

Integrated reporting also increases the opportunity to explore information and gives
a clear understanding

 It improves the quality of information for more productivity allocation and efficiency

 Integrated reporting helps in communication about how an organisation’s strategy,

performance, prospects and governance

 It helps to create values of any company in term of financial or non-financial, it helps

to create value for both (De Villiers, Rinaldi and Unerman, 2014; Dumay et al., 2016;
Malafronte and Pereira, 2020)

Challenges of Integrated Reporting in Virgin Atlantic:

 It changes the mindset of those people who were involved in

 There is lack of some terminology, which are common

 It changes the silo mentality while writing the annual report

 There is lack of standards

 It gives more focus to the financial capital where as other capitals also important for
growing an organisation. Others like “Human”, “Social and relationship”,
“Manufacturing”, “Natural”

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  There is some lack of complexity and contribution to the annual report where need to
do some changes

 There is lack of clarity (De Villiers, Rinaldi and Unerman, 2014; Malafronte and
Pereira, 2020)

Conclusion
It has been learned that British Airways was a better performer than Virgin Atlantic in terms
of their financials of 2019 and 2020. The Ratio Analysis has been attached in the appendix.
Therefore, the Virgin Atlantic has been advised with a Balanced Scorecard Framework of
Kaplan and Norton to improve its performance. Also, the company Virgin Atlantic has been
recommended with the <IR> framework to engage with better integrated reporting, so that
the company can identify its weaknesses effectively and make betterments in its financial
performance management.

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References
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Berk, J. and DeMarzo, P., 2017. Corporate Finance (3rd ed.), Chapter 2. Pearson.

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Busco, C., Frigo, M.L., Quattrone, P. and Riccaboni, A., 2013. Integrated Reporting:
Concepts and Cases that Redefine Corporate Accountability. Springer.

Busco, C., Malafronte, I., Pereira, J. and Starita, M., 2019. The Determinants of Companies'
Levels of Integration: Does One Size Fit All? The British Accounting Review,51(3), pp. 277-
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De Villiers, C., Rinaldi, L. and Unerman, J., 2014. Integrated Reporting: Insights, gaps and
an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7), pp.
1042-1067.

Dumay, J., Bernardi, C., Guthrie, J. and Demartini, P., 2016. Integrated reporting: A
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Galant, A. and Cadez, S., 2017. Corporate social responsibility and financial performance
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ended 31 December 2019. [Online] Available at: British Airways Plc Annual Report and
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Appendix

In £m RATIO ANALYSIS
   
CALCULATIONS:  
  VIRGIN ATLANTIC BRITISH AIRWAYS
Input data for Liquidity Ratios:   2020 2019 2020 2019
Current Assets 386 796 2,093 4,720
Current Liabilities 773 1,352 5,801 6,390
Inventories 30 39 73 156
Cash 115 353 1,261 1,258
             
LIQUIDITY RATIOS:   2020 2019   2020 2019
Current Ratio   0.50 0.59   0.36 0.74
Current Assets/Current Liabilities            
Quick Ratio (or Acid Test Ratio)   0.46 0.56   0.35 0.71
(Current
Assets-Inventories)/Current
Liabilities            
Cash Ratio   0.15 0.26   0.22 0.20
Cash/Current Liabilities            
   
  VIRGIN ATLANTIC BRITISH AIRWAYS
Input data for Profitability Ratios:   2020 2019 2020 2019
Gross Profit 457 1,926 2,180 9,662
Operating Income -539 55 -3,881 1,338
Pre Tax Income -858 -64 -4,184 1,459
Net Income -865 28 -3,489 1,109
Sales 868 2,927 4,001 13,290
Total Equity -576 -190 1,567 5,807
Total Assets 2,816 3,238 16,077 18,705
   
PROFITABILITY RATIOS:   2020 2019   2020 2019
Gross Margin   0.53 0.66   0.54 0.73
Gross Profit/Sales            
Operating Margin   -0.62 0.02   -0.97 0.10
Operating Income/Sales            
PreTax Margin   -0.99 -0.02   -1.05 0.11
PreTax Income/Sales            
Net Profit Margin   -1.00 0.01   -0.87 0.08
Net Income/Sales            
Return on Equity (ROE)   1.50 -0.15   -2.23 0.19
Net Income/Tot.Equity            
Return on Assets (ROA)   -0.31 0.01   -0.22 0.06
Net Income/Tot.Assets            
   
   

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 LEVERAGE RATIOS Input:   2020 2019   2020 2019
Total Debt 3,392 3,428 14,510 12,898
Total Equity -576 -190 1,567 5,807
Total Assets 2,816 3,238 16,077 18,705
EBIT (Operating income) -539 55 -3,881 1,338
Interest Expense 0 0 0 0
LEVERAGE RATIOS:   2020 2019   2020 2019
Debt/Equity Ratio   -5.89 -18.01   9.26 2.22
Total Debt/Total Equity            
Debt/Capital Ratio   1.20 1.06   0.90 0.69
Total Debt/(Tot.Equity+Tot.Debt)            
Equity Multiplier   -4.89 -17.01   10.26 3.22
Total Assets/Total Equity            
Interest Coverage Ratio   _ _   _ _
EBIT/Interest Expense            
   
Input data for Working Capital
Ratios:   2020 2019   2020 2019
Inventories 30 39 73 156
Account Receivables 162 288 356 1202
Account Payables 346 4 1243 2104
Purchases 88 567 950 1571
Sales 868 2,927 4,001 13,290
WORKING CAPITAL RATIOS:   2020 2019   2020 2019
Inventory Days   124.10 24.62   27.66 35.75
(Inventories/Purchases) x 360            
Account Receivable Days   67.19 35.46   32.03 32.56
(Account Receivable/Sales) x 360            
Account Payable Days   1418.70 2.28   471.03 482.14
(Account Payable Days/Purchases)
x 360            
Duration Working Capital Cycle   -1227.42 57.79   -411.34 -413.83
Stock Period + Credit Period -
Payable Period            
             
Data collected from 2019 and 2020 annual reports of Virgin Atlantic (Virgin Atlantic, 2020;
Virgin Atlantic, 2021) and 2019 and 2020 annual reports of British Airways (International
Airlines Group, 2020; International Airlines Group, 2021)

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