Reporting on Equity Evaluation of major airlines in the industry

Reporting on Equity Evaluation of major airlines in the industry

This study is based on the equity rating of an air hose ‘Ryanair ‘ which is a European taking low menu Airline belongs to Ireland with it ‘s headquarter in Dublin. One of its biggest operational bases is at London Stansted Airport in UK. It is one of the cardinal participants with in the market, and possibly the most profitable air line. Ryanair is World ‘s favorite air hose that operates in 41 bases and more than 1100 low menu paths across 26 states and linking 153 finishs. Ryanair has fleet of 232 new Boeing 737-800 aircraft with orders of extra 82 new aircraft that are expected to present over the following 2.5 old ages. Ryanair presently has employees of more than 7,000 and transport about 73 million riders in the financial twelvemonth 2010/11.

Business Environment

Every concern has to put its ain features and profiles their rivals. For this every concern set up its ain alone mission and vision statements and the cardinal aims in order to fulfill their ends. Furthermore, they normally set their mission, vision and aims to function the society every bit good as profiting the community throughout their concern rhythm.

When we talk about the air hoses, the finding of the demands, penchants and gustatory sensation of people is still valid. The suggestions of every people around the organisation are besides indispensable to make a merely and comprehensive scheme.

Mission of Ryanair

It is the chief mission of every air hose to present the safety of their rider, but how did the

Ryanair pull the tourers and other persons to go is because of their project to do air travel cheap, simple, convenient signifier of transit in the universe. The thought of low cost air hoses are based on the likely demands of the people to wing more frequently when it is cheap or low-cost to wing by airplane. Ryanair is the most suggested air hoses when it comes to low- cost selling.

Vision

Ryanair has a vision of a universe where the menu could take down to cut down rates to convey the steady

traffic of concern people and tourers to their part. Its construct is non new in every air hoses and their vision merely underpins their mission. The broader vision in constructing an effectual concern and push on the touristry is more applicable ( 2003 ) . It ‘s a major challenge for the Ryanair to prolong their mission and yet with conformity of their vision in advancing touristry.

Corporate Scheme

Ryanair ‘s aim is to keep itself as the taking European low-fares scheduled rider air hose through continued execution of cost decreases, runing efficiencies and offerings of its low menus service. Ryanair nonsubjective is to offer low menus that create increased rider traffic while continuously concentrate on cost-containment and operating efficiencies. The cardinal necessities of Ryanair ‘s scheme include the undermentioned

Low Operating Costss

Safety and Quality Maintenance

Development of Operating Results through Ancillary Servicess

Focused Standards for Growth

Taking Advantage of the Internet

Porter Generic Strategy

Ryanair focuses on the cost film editing scheme harmonizing to the porter ‘s generic scheme theoretical account to place itself in the market place. Cost leading scheme is based upon concern organizing and controls its value-adding activities to be the lowest cost manufacturer of a merchandise with an industry. The company provides the decreased cost of menu than its rivals in the air hose. On the other manus Ryanair has besides become focuser as it is concentrated on an narrow client section that consist of Irish and UK concern people who could non afford to wing major air hoses.

Nature of Industry with Reference to Strategic Grouping

Ryanair is viing in high competitory environment where the rivals are viing to draw market portion from their challengers. One of the ground for high competitory competition is roar of travel industry and besides the European Union ordinances. These ordinances are intended to better quality and monetary values of air hose industry.

If we consider the last decennary we come to cognize that the air travel grew by 7 % per twelvemonth. Both concern and leisure intents travel grew worldwide. The scheduled air hoses have carried more than 1.5 billion riders last twelvemonth. In instance of the leisure market, the handiness of big aircraft like Boeing 747 has made it suited and sensible for people to go farther to new and alien finishs. Developing states authoritiess realized the benefits of touristry to their national economic systems and urged the development of resorts and substructure to tempt tourers from the comfortable states in Western Europe and North America. As the economic systems of developing states are turning, their ain citizens are going the new international tourers of the hereafter.

Strategic Grouping of European Airline Industry

Price/ Quality

Limited

Market Coverage

Local Area

1. Train

Up Market

1. British Air passages

2. American Air passages

3. Lufthansa

Discount house

1. Ryanair

2. Easy Jet

Large 4

Virgin Atlantic

Harmonizing to this categorization the Ryanair comes in the low cost section or discount houses.

Airline Industry Life Cycle

Lapp like life animals, industry besides has its circle of life. The phases of industry lifecycle include atomization, agitate out, adulthood an diminution ( Kotler 2003 ) .The industry life rhythm can be represented by holding a expression of the undermentioned figure:

Merchandise ( Industry ) Life Cycle Stages

The first states in Europe to grip air conveyance were France, Germany and the Netherlands. In 1919 KLM was established, still the oldest bearer. The first flight was from London to Schiphol, Amsterdam transported two English people in 1920. Major European air hoses of the clip like KLM ‘s initial growing chiefly depended to serve paths with widespread colonial ownerships ( Dutch Indies ) .The loss of the Dutch Empire was the lone ground that KLM found itself based at a little state with little possible riders, which trusting largely on transportation traffic, and was foremost to present the hub-system to help easy connexions. France started an airmail service to Morocco in 1919 which was sold in 1927, renamed Aeropostale, and with more capital invested become a major international bearer. Aeropostale went insolvents in 1933. It became nationalized and merged with many other air hoses to go Air France. In 1926 the German air hose industry started with Lufthansa and became a major investor in air hoses outside of Europe, establishing Varig and Avianca. Junkers, Dornier, and Fokker built the most advanced German air hoses in the universe at the clip. German air travel got peak in the mid-1930s, when Nazi propaganda curates approved the launch of commercial zeppelin service, the large dirigibles but it was fact that they used flammable H gas which raised safety concerns that terminated with the Hindenburg catastrophe of 1937. Imperial Airways was United Kingdom ‘s flag bearer which became BOAC ( British Overseas Airlines Co. ) in 1939. Imperial Airways made usage of immense Handley-Page biplanes for paths between London, Middle East and India. Imperial aircraft ‘s image in the center of the Rub’al Khali was being maintained by Bedouins and was among the most celebrated images from the flower of the British Empire

The deregulating of the European Union air space in the early 1990s has had significant consequence on construction of the industry at that place. The displacement towards ‘budget ‘ air hoses on shorter paths has been important. Airlines such asA EasyJetA andA RyanairA got growing at the disbursal of the traditional national air hoses.

The tendency has been there for these national air hoses themselves to be privatized such as have occurred forA AerLingusA andA British Airways. Other national air hoses, including Italy’sA Alitalia, have faced – chiefly with the rapid addition of oil monetary values in early 2008.

Industry Profitability In View of “ Porter 5 Forces Model ”

From a strategic direction position it is utile for administrations to understand the competitory forces in their industry or sector since these will reason the cuteness of that industry and the likely success and failure of peculiar administrations within it.

The porter five nucleus elements/forces are:

Competitive Competition

Menace of new entrants

Menace of replacements

The Bargaining power of purchaser

The Bargaining power of providers

Porter ‘s Five Forces Model

Rivalry among Existing Rivals ( Intense Rivalry )

There is really tough competition among the rivals of European air hose industry particularly that prevarication in the same grade such as Easy Jet, Ryanair and Aer Lingus.

The services degree is same for all participants in the 3rd quarter-circle are the same with either low or no distinction.

The market in which the Ryanair is runing is saturated with Ryanair is keeping the biggest ball of clients and is the ruling participant.

Menace of Entrant ( Low )

Menace of new entrant is low because it requires rather high capital investing to come in in this industry. It is besides difficult to happen suited airdromes. Even with capital investing it is really hard for new entrants to dispute incumbent participants like Ryanair that has experience of old ages and solid name in the market.

Menace of Substitutes ( High )

Menace of replacements for a short draw air hose can be in the signifier of land travels and if we talk about indirect replacements so it is video conferencing which may cut down the demand for air travel. The most of import point to reference here is that in both of the above mentioned instances there is no exchanging cost for the clients so they will non experience any vacillation to take in between these.

Dickering Power of Buyers ( High )

Dickering power of purchasers is high as people are good informed of monetary values and trades via different resources and cyberspace is one of them. Now most of air hoses they are seeking to make this market section where they can get more market portion by supplying lowest menus. The clients are monetary value sensitive and they will exchange to any other air hose which will give them lowest menus.

Dickering power of Suppliers ( High )

The provider power is medium to high, because the aeroplane suppliers are the 1s with good sum of power in their manus while accessory providers being the 1s with low power hence equilibrating out the supplier power of the industry.

Regulators and airdrome governments have medium power and this has been balanced out by more usage of regional airdromes instead than the chief or national airdromes.

Competitive Strategy and “ Three Generic Strategies ”

Ryanair has been following mix cost based focal point schemes harmonizing to competitory schemes. Cuting costs have been focused and Ryanair is presenting this benefit to their clients. The company non merely focuses on techniques that save them money instead it is implemented in their system from top to bottom everyplace.

Cleavage Scheme

Differentiation Strategy Cost Leadership

Narrow Market Scope

Broad Market Scope

Uniqueness Competency Low Cost Comptency

Prognosis of the Performance of the Firm of Choice

Common Size Statements

Balance Sheet 2004-2005

2004

Cesium 2004

2005

Cesium 2005

Fixes Assetss

Intangible Assetss

44499

2 %

30449

1 %

Tangible Assetss

1576526

54 %

2092283

55 %

Entire Fixed Assetss

1621025

55 %

2122732

56 %

Current Assetss

Cash & A ; Liquid Resources

1257350

43 %

1613643

42 %

Histories Recievable

14932

1 %

20644

1 %

Other Assetss

19251

1 %

24612

1 %

Inventories

26440

1 %

28069

1 %

Entire Current Assets

1317973

45 %

1686968

44 %

Entire Assetss

2938998

100 %

3809700

100 %

Current Liabilitiess

Histories Collectible

67936

2 %

92118

2 %

Accrued Expenses & A ; Other Liabilitiess

338208

12 %

436187

11 %

Current Adulthoods of Long Term Debts

80337

3 %

120997

3 %

Short term Borrowings

345

0 %

7938

0 %

Entire Current Liabilitiess

486826

17 %

657240

17 %

Non Current Liabilitiess

Commissariats for Liabilitiess and Charges

94192

3 %

112745

3 %

Other Creditors

30047

1 %

18444

0 %

Long Term Debts

872645

30 %

1293860

34 %

Entire Other Liabilitiess

996884

34 %

1425049

37 %

Stockholder ‘s financess equity

Called Up Share capital

9643

0 %

9675

0 %

Share Premium history

560406

19 %

565756

15 %

Net income & A ; Loss history

885239

30 %

1511980

40 %

Share Holder ‘s equity

1455288

50 %

1727411

45 %

Entire libilities & A ; Shareholder ‘s equity

2938998

100 %

3809700

100 %

Balance Sheet 2006-2009

2006

Cesium 2006

2007

Cesium 2007

2008

Cesium 2008

2009

Cesium 2009

Non Current Assetss

Property Plant & A ; Equipment

2532988

55 %

2884053

51 %

3582126

57 %

3644824

57 %

Intangible assets

46841

1 %

46841

1 %

46841

1 %

46841

1 %

Available For Sale Financial Assets

406075

7 %

311462

5 %

93150

1 %

Derivative Financial Instruments

763

0 %

59970

1 %

Entire Non-Current Assetss

2580592

56 %

336969

6 %

3940429

62 %

3940429

62 %

Current Assetss

Inventories

3422

0 %

2420

0 %

1997

0 %

2075

0 %

Other Assetss

29453

1 %

77707

1 %

169580

3 %

91053

1 %

Current Tax

1585

0 %

Trade Receivables

29909

1 %

23412

0 %

34178

1 %

41791

1 %

Derivative Financial Instruments

18872

0 %

52736

1 %

10228

0 %

129962

2 %

Restricted Cash

204040

4 %

258808

5 %

292431

5 %

291601

5 %

Financial Assets Cash & gt ; 3 months

328927

7 %

592774

10 %

406247

6 %

403401

6 %

Cash & A ; Cash Equivalents

1439004

31 %

1346419

24 %

1470849

23 %

1583194

25 %

Entire Current Assets

2053627

44 %

2354276

41 %

2387122

38 %

2543077

40 %

Entire Assetss

4634219

100 %

5691245

100 %

6327551

100 %

6387862

100 %

Current Liabilitiess

Trade Payabless

79283

2 %

54801

1 %

129289

2 %

132971

2 %

Accrued Expenses & A ; Other Liabilitiess

570614

12 %

807136

14 %

919349

15 %

905715

14 %

Current Adulthoods of Debt

153311

3 %

178918

3 %

366801

6 %

202941

3 %

Derivative Financial Instruments

27417

1 %

56053

1 %

141711

2 %

137439

2 %

Current Tax

15247

0 %

20822

0 %

425

0 %

Entire Current Liabilitiess

845872

18 %

1117730

20 %

1557150

25 %

1379191

22 %

Non Current Liabilitiess

Commissariats

16772

0 %

28719

1 %

44810

1 %

71964

1 %

Derivative Financial Instruments

81897

2 %

58666

1 %

75685

1 %

54074

1 %

Deferred Income Tax Liability

127260

3 %

151032

3 %

148088

2 %

155524

2 %

Other creditors

46066

1 %

112177

2 %

99930

2 %

106549

2 %

Non Current Maturities of Debt

1524417

33 %

1683148

30 %

1899694

30 %

2195499

34 %

Entire Non Current Liabilitiess

1796362

39 %

2033742

36 %

2268207

36 %

2583610

40 %

Stockholder ‘s financess equity

Issued Share Capital

9790

0 %

9822

0 %

9465

0 %

9354

0 %

Share Premium Account

596231

13 %

607433

11 %

615815

10 %

617426

10 %

Cash Redemption Reserve

378

0 %

493

0 %

Retained Net incomes

1467623

32 %

1905211

33 %

2000422

32 %

1777727

28 %

Other Militias

-81659

-2 %

17307

0 %

-123886

-2 %

20061

0 %

Share Holder ‘s equity

1991985

43 %

2539773

45 %

2502194

40 %

2425061

38 %

Entire liabilities & A ; Shareholder ‘s equity

4634219

100 %

5691245

100 %

6327551

100 %

6387862

100 %

Income Statement 2004-2006

2004

Cesium 2004

2005

Cesium 2005

2006

Cesium 2006

Operating Gross

Scheduled Grosss

924566

1128116

1433377

Ancilinary grosss

149658

208470

259153

Entire Operating grosss

1074224

1336586

1692530

Operating Expenses

Staff Costss

-123624

-12 %

-140997

-11 %

-171412

-10 %

Depreciation & A ; Amortization

-101391

-9 %

-98703

-7 %

-124405

-7 %

Fuel & A ; Oil

-462466

-27 %

Care, Materials & A ; Repairs

-37417

-2 %

Marketing & A ; Distribution Costss

-13912

-1 %

Aircraft Leases

-47376

-3 %

Path Charges

-164577

-10 %

Airport Handling Charges

-216301

-13 %

Other Operating Expenses

-597922

-56 %

-767397

-57 %

-79618

-5 %

Entire operating Expenses Excluding Good Will

-822937

-77 %

-1007097

-75 %

-1317484

-78 %

Operating Net income

251287

23 %

329489

25 %

375046

22 %

Amortization of Goodwill

-2342

0 %

-2125

0 %

Operating net income

248945

23 %

327364

24 %

Other disbursals

Foreign Exchange Loss/Gain

3217

0 %

-2323

0 %

-1234

0 %

Gain/Loss on Disposal of Assetss

-9

0 %

47

0 %

815

0 %

Interest Receivable & A ; Similar Income

23891

2 %

28342

2 %

38219

2 %

Interest Payable & A ; Similar Charge

-47564

-4 %

-57499

-4 %

-73958

-4 %

Entire Other Expenses

-20465

-2 %

-31433

-2 %

-36158

-2 %

Net income on Ordinary Activities before Tax

228480

21 %

295931

22 %

338888

20 %

Tax On Net income On Ordinary activities

-21869

-2 %

-29190

-2 %

-32176

-2 %

Profit/Loss For The Financial Year

206611

19 %

266741

20 %

306712

18 %

Income Statement 2007-2009

2007

Cesium 2007

2008

Cesium 2008

2009

Cesium 2009

Operating Gross

Scheduled Grosss

1874791

225692

2343868

Ancilinary grosss

362104

488130

598097

Entire Operating grosss

2236895

2713822

2941965

Operating Expenses

Staff Costss

-226580

-10 %

-285343

-11 %

-309296

-11 %

Depreciation & A ; Amortization

-143503

-6 %

-175949

-6 %

-256117

-9 %

Fuel & A ; Oil

-693331

-31 %

-791327

-29 %

-1257062

-43 %

Care, Materials & A ; Repairs

-42046

-2 %

-56709

-2 %

-66811

-2 %

Marketing & A ; Distribution Costss

-23795

-1 %

-17168

-1 %

-12753

0 %

Aircraft Leases

-58183

-3 %

-72670

-3 %

-78209

-3 %

Path Charges

-199240

-9 %

-259280

-10 %

-286559

-10 %

Airport Handling Charges

-273613

-12 %

-396326

-15 %

-443387

-15 %

Other Operating Expenses

-104859

-5 %

-121970

-4 %

-139140

-5 %

Entire operating Expenses Excluding Good Will

-1765150

-79 %

-2176742

-80 %

-2849334

-97 %

Operating Net income

471745

21 %

537080

20 %

92631

3 %

Amortization of Goodwill

Operating net income

Other disbursals

Foreign Exchange Loss/Gain

-906

0 %

-5606

0 %

4441

0 %

Gain/Loss on Disposal of Assetss

91

0 %

12153

0 %

Interest Receivable & A ; Similar Income

62983

3 %

83957

3 %

75552

3 %

Interest Payable & A ; Similar Charge

-82876

-4 %

-97088

-4 %

-130544

-4 %

Entire Other Expenses

-208708

-9 %

-98153

-4 %

273118

9 %

Net income on Ordinary Activities before Tax

451037

20 %

438927

16 %

-180487

-6 %

Tax On Net income On Ordinary activities

-15437

-1 %

-48219

-2 %

11314

0 %

Profit/Loss For The Financial Year

435600

19 %

390708

14 %

-169173

-6 %

Appropriate Absolute Valuation Models

Dividend Discount Model

“ A dividend price reduction theoretical account is a fiscal theoretical account that values portions at the discounted value of future dividend payments. A portion is worth the present value of all future dividends. As the values portions on the existent hard currency flows received by investors, it is theoretically the most right rating theoretical account. ”

Dividend Discount Valuation

A dividend price reduction theoretical account would specifically be a discounted hard currency flow ( DCF ) that uses dividend prognosiss over several phases.

If it is a instance that there are any dividends which have been announced but the portion has non yet gone ex- dividend for that so these are recognized sums in the close hereafter and it does non necessitate prognosiss.

It is possibility for prognosiss that based on elaborate fiscal modelsA for the close hereafter.

Beyond that the prognosiss are based on less elaborate theoretical accounts ( e.g. presuming a slow decrease in net income growing and a hole payout ratios may be used

Assume a fixed growing rate beyond some point ( e.g. after five or ten old ages ) provides a terminal valueA to be intended at that point

If you sum up the involvement series we get,

This P is so adjusted by assorted factors e.g the size of company

Where K is expected return which is equal =yield + expected growing.

Where D1= D0 ( 1+g )

Then P0 = D1/k-g

Free Cash Flow Approach

Free hard currency flow ( FCF ) determines how much money a company gets after take away care Capex. It is important because it provides rating of the bing concern without harder to mensurate value of investing in growing and new ventures. The last should be value more than the money that is being invested in them. The free hard currency flow would be resulted same what the dividends would be when a company decided to pay out every bit much as it could in dividends sole of either running down its operations or lifting debt. Free hard currency flow ( FCF ) is frequently used in discounted hard currency flow ratings.

Free Cash Flow to Firm ( FCFF )

A free hard currency flow to house is a step of fiscal public presentation which indicates the net sum of hard currency generated for the house, dwelling of disbursals, revenue enhancements and alterations in net working capital and investings.

Free hard currency flow ( FCF ) is calculated utilizing the expression

FCFF = NI + NCC + Int ( 1-T ) – FCinv – Wcinv

A positive value depicts that the house has left with hard currency after disbursals. A negative value represents that the house has non made adequate gross to cover its investing actions and its costs. In this state of affairs, an investor should look deeper to measure why it is go oning. It would be either the major investing activities or company is confronting deeper jobs.

Free Cash Flow to Equity ( FCFE )

This is the step of how much hard currency can be paid to the equity stockholders of the company after outgos, reinvestment, and debt refund.

The hard currency flow to equity is calculated by utilizing this expression:

FCFE =A NetA Income – Net Capital Expenditure – Change in Net Working Capital + New Debt – Debt Repayment.

FCFE= NI – Int ( 1-t ) + net adoptions

This alternate rating method gained popularity as the dividend price reduction theoretical account ‘s usefulness became progressively questionable.

Residual Income

A residuary income theoretical account usage to values securities utilizing a combination of book value of the company ( i.e. its NAV ) , and a present value based on accounting net incomes. The value of the company is the amount of 1 ) the NAV at rating clip and 2 ) the residuary income present value: net incomes are expected to excel the needed rate of return on equity. The residuary return is calculated as:

( R-r ) * B where

B = NAV

R = the return on accounting net incomes and proprietors equity

R = required rate of return on equity.

It can besides be expressed as net proft- ( r*B )

The importance of the excess net income in surplus of the needed rate of return is step of the wealth that the company creates for stockholders. The company sums to the value of its assets and justifies a company being value greater than the value of its assets. The value of a company therefore should be the amount of this and its assets. The NAV will differ from twelvemonth to twelvemonth affects the calculation of the returns. The alteration in the net net income subtraction dividends and other returns to stockholders, plus capital increased.

Evaluation on wealth creative activity is abstractly similar to EVA. The Residual income theoretical accounts are suited to securities rating where EVA is chiefly utile to direction. The residuary income theoretical account ‘s advantage is that it is based on accounting steps of net income and value of assets. The chief expostulation of residuary income is that as it is relied on accounting Numberss which frequently fail to copy the true economic value of assets and hard currency flows.

Asset Based Models

Asset- based theoretical accounts compute the value of a house as the amount of the market values for the single constituents of the house, less the market value of the liabilities. This can be expressed as:

Value of firm= Market value of assets- Market value of liabilities

Asset based theoretical accounts are utile to gauge minimal value. They are easy to utilize and understand. Furthermore they are besides utile for comparing houses of similar size and nature.

The disadvantage is that the book value is an plus based theoretical account is based on historical cost. The house ‘s value is mostly derived from its assets, whose value is dependent on direction ‘ pick of accounting rules. Asset based theoretical accounts ignore future growing potency of the house.

Actual Valuation & A ; Reporting

The value of the house is calculated utilizing the undermentioned theoretical accounts

The Value of Firm Using Dividend Discount Model

We ca n’t use the dividend price reduction theoretical account as Ryanair has ne’er given dividends till yet but there are programs to give dividends from 2013 onwards.

The Value of Firm Using Dividend Discount Model

We will cipher the free hard currency flow to tauten utilizing the expression:

Free hard currency flow to house ( FCFF ) = Net Income + Amortization – Changes in Working Capital -Capital Outgo

Where,

Change in working capital = Cash + Accounts Receivable + Inventory – Histories Collectible – Accrued Liability

Capital Outgo = ( Changes in assets current twelvemonth – old twelvemonth ) – ( Changes in Liability current twelvemonth – old twelvemonth )

Note: The values have been taken from the income statement and balance sheet of Ryanair available at: hypertext transfer protocol: //www.ryanair.com/en/investor/investor-relations-news

Changes in Working Capital = 588374

Capital Expenditure = -77133

Free Cash Flow to Firm = 424297000

Value of Firm Using FCFF = Free hard currency flow from steadfast / WACC

Beta Value Ryanair = 1.03

Cost of equity = ( Market Risk Premium * Equity Beta ) + Risk Free Rate

Where, Market Risk Premium = Expected Rate of return – Risk Free Rate

Risk Free Rate UK 2009 = 4.55 %

Expected Rate of Return = 9.99 %

Cost of Equity = 10.15 %

Cost of Debt = 5.6 %

Ryanair Tax rate = 11 %

WACC = 15 %

Value of Firm Using FCFF = Free hard currency flow from steadfast / WACC = 2803008000 Euros

The value of Firm utilizing Free Cash Flow to Equity Model

Free Cash Flow to Equity = FCFF + Net Borrowings – Interest ( 1-t )

Free Cash Flow to Equity = 301189 Euros

Value of Firm Using Cash Flow to Equity = FCFE/Ke where Ke is cost of equity.

Note: FCFE is calculated in excel ( excel file attached )

Value of Firm Using Free Cash Flow to Equity = 2967379000 Euros

4.0 Value of Firm utilizing Residual Income

Residual Income= NI ( Net Income ) – ( Cost of Equity* Value of Equity )

Residual Income= -415317000

Note: Value of house utilizing residuary income ca n’t be calculated as the company does non supply dividends as we need to hold value of ‘g ‘ for ciphering house ‘s value.

5.0 Value of Firm Using Asset Based Model

Asset based theoretical account for happening value of house are used when the house possess the natural resources like oil, gas, etc. As Ryanair does non possess any kind of natural resources, so we ca n’t utilize this theoretical account to happen the value of the house.