British Airways Management of Company Finance

Ahoussou kouadio
Jean Christian
Student number: 2522706
Management of company finance

Analysis of the financial structure of

British Airways

Name of professor: Tony Kilmister
British airways is one of the most valuable company in the world that is why I choose her.

With the aim to evaluate the proportion of debt in British airways, we will study his financial gearing: income gearing and capital gearing.
In order to calculate the company’s capital gearing according to the book value, we need especially the value of the long-term and short-term borrowings and the value of shareholders’ funds.

But, there is several different formulas which arises some issues: the fact that the book value is lower than the market value (the first formula) and provisions can be considered either as liabilities or assets (the second formula), depending on firm.

Then I will calculate the Weighted Average Cost of Capital.

In 2004, the way of doing the balance sheets changed that’s why there are some differences between two reports.

Part ------------------------------------------------------------------------------------------1
Measure of the gearing and income ratio

Part ------------------------------------------------------------------------------------------2
Measure of the debt and equity based upon the market value

Part ------------------------------------------------------------------------------------------3
Estimation of the WACC.

I) Measure of gearing and income ratios

We will take those expressions: 1. Debt to equity ratio= Long term Liabilities/Shareholders’funds 2. Debt to debt plus equity ratio= LTL/(LTL+ Shareholders’funds) 3. Long Term Borrowings/Shareholders’ funds

a) Gearing Ratio

Capital Gearing = LTL / Shareholders' Funds

| |2006 |2005 |2004 |
|Capital Gearing |259.75% |437.6% |590.7% |