Accounting for Managers: Interpreting accounting information for decision-making

CASE STUDIES 445

Table A3.2 Paramount Services PLC

Ratio analysis

2002 2001

Sales growth 17.2%

Expense growth 26.9%

Profit growth 9.4%

Interest cover 4.4 5.9

PBIT/Sales 39.7% 45.9%

ROCE(PBIT/SHF+L/TD) 53.8% 65.7%

ROI (NPAT/SHF) 36.3% 43.8%

Dividend payout 49.4% 47.0%

Dividend yield 4.7% 3.7%

P/E ratio 10.56 12.78

Asset efficiency (Sales/TA) 1.2 1.2

Days sales outstanding 76.0 59.8

Working capital (CA/CL) 1.7 1.6

Gearing (LTD)/(SHF+LTD) 11.0% 9.9%

Case study 2: Swift Airlines

Swift Airlines has a daily return flight from London to Nice. The flight has a
capacity of 120 passengers. Swift sells its tickets at a range of prices. Its business
plan works on the basis of the following mix of ticket prices for each day’s flight:

Business 30 @ £300 £9,000

Economy regular 40 @ £200 £8,000

Advance purchase 20 @ £120 £2,400

7-day purchase 20 @ £65 £1,300

Stand-by 10 @ £30 £300

Revenue 120 £21,000

Swift’s head office accounting department has calculated its costs as follows:

Cost per passenger (to cover

additional fuel, insurance,

baggage handling etc.)

£25 per passenger

assuming full load £3,000 (120 @ £25)

Flight costs (to cover aircraft

lease, flight and cabin crew

costs, airport and landing

charges etc.)

£7,500 per flight

Route costs (to cover the support

needed for each destination)

£2,000 (based on^1 / 2 of the daily

cost of £4,000 – balance charged

to return flight)