5% in 2008. The asset and equity levels were relatively stable for the two years, so most of the changes can be attributed to changes in the net income. To investigate those net income changes, the margins can be analyzed. The gross margin for 2009 was 3.14%; for 2008 it was 19.8% and for 2007 it was 21.1%. The net margin for 2009 was -5.7%; for 2008 it was 14.3% and for 2007 the net margin was 19.4%. What this indicates is that the decline in the profits and therefore in the ROE and ROA stems from a decline in operating profit.
For Ryanair, the operating revenues increased 8.4%, but the operating expenses increased 30.9%, leading to the sharp decline in operating profit. This focuses attention on the key cost drivers that contributed to this unusually large increase in operating costs. In this situation, the primary culprit is the fuel charge, which increased 58.9%. The dollar value increase of the fuel and oil expense was around two-thirds of the total increase in operating expenses. The managerial report to shareholders explains this increase. Fuel costs increased for all airlines but unlike other airlines Ryanair does not pass along such increases in the form of a fuel surcharge. This is a strategic decision that the company uses to maintain its position as the lowest-cost carrier in all of its markets. Not imposing a fuel surcharge, however, means that the company must absorb all of the increase in fuel prices. As a result, the profitability margins suffered in 2009. The company attempted to mitigate the impact of high fuel costs through hedging, but lost that gamble in late 2008 (part of fiscal 2009) when fuel prices crashed after management had locked in a price of $124 per barrel (Robertson, 2009).
The debt ratios are an indicator of the company's long-term financial position. This information is crucial both to potential shareholders and to lenders (and potential lenders). The debt ratio, debt-to-equity ratio and the interest coverage ratio are all used as indicators of the firm's long-term financial position. For Ryanair, the debt ratio in 2009 was 34.3% and in 2008 was 30.0%. The debt-to-equity ratio in 2009 was 90.5% and in 2008 it was 75.9%. These figures indicate that Ryanair has increased its gearing in the past year. The gearing ratio is not abnormal for an airline, nor is it cause for concern among shareholders or bondholders either. However, if a long-term trend emerges that the company is steadily increasing its gearing without having sufficient strategic motivation to do so, that could be an indicator of financial distress. Of more concern, however, is the decline in the interest coverage. As the operating profit has declined, so too has the value of this ratio. Interest coverage in 2008 was 5.5 times, while in 2009 it was .70 times. This indicates that the company is barely making enough money at present to cover its interest obligations, whereas in 2008 it was easily making enough money.
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