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Critical evaluation of Ryanair CSR - Literature Review - Financial Review Assessment Answer

February 11, 2019
Author : Andy Johnson

Solution Code: 1EIGH

Question: Critical evaluation of Ryanair CSR

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Literature Review: Corporate Social Responsibility, Sustainability, Corporate Governance and Triple Bottom Line It has been explained by Ismail (2009) that the concept of corporate social responsibility refers to the strategies incorporated by a business organization into its operations in order to promote environmental friendly practices and to promote sustainable development (Ismail, 2009). Along with this McWilliams (2000) suggests that corporate social responsibility refers to those actions of a business organisations that are directed to social welfare and not to profit maximisation or shareholders wealth maximisation (McWilliams, 2000). The idea of Ismail (2009) and McWilliam (2000) has been supported by Matten & Moon (2004). In their paper, Matten & Moon (2004) define corporate social responsibility as a way for business organisation to return something to the society in exchange for the use of natural resources and hence harming the environment. Matten & Moon (2004) suggest that businesses have started using and promoting eco-friendly business operations like eco-friendly packaging and have also started participating in philanthropic work in order to protect the environment and benefit the society (Matten & Moon, 2004). According to lexicon (n.d.), the idea of business sustainability refers to the management of triple bottom line framework which includes social, financial and environmental (ecologial). Business sustainability refers to adherence of the business organisation  to the principles of sustainable development. According to Brundtland (1987) sustainable development practices refers to such business practices that do not harm the future in order to meet the needs of the present (Brundtland, 1987). In this regard, it can be analysed here that in the current dynamic era where natural resources are being extensively used by business organisations in order to meet the needs of the present cannot be considered a part of sustainable development practices. However, it should be noted here that there are several business organisations that follow the principles of sustainable development as a part of their corporate social responsibility initiatives (Ebner and Baumgartner, 2006). Another important concept that is necessary to be understood in order to understand the business environment is the concept of corporate governance. It has been explained by Gompers, Ishii & Metrick (2003) that corporate governance is the process, relation and mechanism through which business organisations are directed and controlled (Gompers, Ishii & Metrick, 2003).  In addition to this, it has also been explained by Harford, Mansi & Maxwell (2012) that corporate governance structure of an organisation defines the rights and responsibilities of different leadership members and other participants. These include the CEO of the organisation, board members, creditors, regulators, shareholders, auditors and other stakeholders (Harford, Mansi & Maxwell, 2012). It has also been explained by La Porta et al. (2000) that corporate governance defines the process for the business leadership, board and the managers to achieve the organisational objectives in context to market and regulatory environment (La Porta et al., 2000). According to Duc & Thuy (2013) corporate governance structure defines the roles and responsibilities of the CEO and the board members in order to achieve organisational objectives in the best possible way (Duc & Thuy, 2013). It has been opined by Hall (2011) that the business organisations in order to integrate sustainable business practices have adopted the triple bottom line accounting framework that focuses on three different aspects of a business which are people, profit and planet. These variables can also be put as social, financial and environmental (Hall, 2011). Business organisations evaluate their current business practices on these three parameters in order to create business value. According to Savitz (2013), the concept of triple bottom line promotes sustainable development in an organisation by focusing on sustainable financial performance, maintaining society friendly operations and by promoting and performing environmental friendly practices (Savitz, 2013).

CSR Projects and Initiatives by Ryanair

There are several corporate social responsibility and sustainability projects performed by Ryanair as a part of business social responsibility. Ryanair has partnered with ISPCC Childline as a part of their corporate social responsibility initiatives. ISPCC Childline offers 24 hours listening services for children, this empower children who are using messaging services, online communication media and telephone services (Ryanair, 2017). More than 90% of the funding of ISPCC Childline are donated by corporate houses and some individual donations. From the past few years, Ryanair has been donating a significant amount of fund to this worthy cause as a part of its corporate social responsibility project. In the year 2016, Ryanair donated approximately €100,000 to ISPCC Childline. In addition to this, for 2017 also, Ryanair management has decided to partner with ISPCC Childline and Ryanair will keep this partnership for several years to come (Ryanair, 2017). In addition to this, recently Ryanair organised a colouring competition  which was open to all primary schools in Ireland. In this competition, Ryanair invited pupils to design a Ryanair paper plane and to make a donation to ISPCC Childline. €500 was given to the students who won the competition and €5000 was given to St. Patrick's Girls National School (Ryanair, 2017). Along with this, Ryanair is also committed to minimising noise pollution and carbon emission (Ryanair, 2015). In this regard, Ryanair is focused on inventing in "next generations" engine technologies and aircraft. This would lead to minimise any negative impact caused by the business operations of Ryanair on the natural environment. It should be noted that in terms of energy efficiency and sustainable development practices, Ryanair is the industry leader and the business organisation is continuously striving to improve its operations by improving efficiency of operations. In the year 1999, Ryanair started an project, the objective of this project was to replace all old aircrafts of Boeing 737-200A category with next generation aircrafts of Boeing 737-800. This project was completed in the year 2005, December. The average age of current aircrafts possessed by Ryanair is no more than 6 years. It can be analysed here that lesser the average age of aircrafts possessed by a company, lesser will the carbon emission and notice pollution and hence lesser will be the negative impact on the environment or ecological balance.  Along with this, Ryanair has Boeing 737-Max-200 CFM LEAP-1B engines , combined with several aerodynamics improvement and highly advanced technology winglet which minimises fuel consumption and hence fuel emission per seat by 18%. The noise emission has also been reduced by this by 40% (Ryanair, 2015). Along with this, Ryanair has no late night flight departures that also minimised the noise emission level. Furthermore, Ryanair has extensive diversity management practices which makes sure that all of the people working with Ryanair get equal opportunity for training, promotion and hence career development. Ryanair groups strives to provide equal opportunity to everyone regardless of their race, marital status, gender, age, political, religious beliefs and other protected characteristics.

Financial Review

Liquidity Ratios 2017 2016 2015 2014
Current Ratio 156% 143% 172% 151%
Quick ratio 156% 143% 172% 151%
Cash Ratio 156% 145% 188% 144%
Profitability Ratios        
Gross Margin 46% 44% 40% 35%
Operating Margin 23% 22% 18% 13%
Pre-Tax Margin 22% 24% 15% 10%
Profit Margin 20% 24% 15% 10%

Key Ratios: Ryanair Source: The liability coverage of an organisation is measured by the current ratio. High proportion of current assets in relation to current liabilities imply that the company is in a good condition to pay its debts. On the other hand, low proportion would mean that the business organisation is not in a good condition to cover all of its liabilities. However, it should also be noted that this ratio should be balanced as too much of asset over liabilities would mean that the resources of the company are idle and the organisation is not using these resources effectively. In the year 2014, 2015, 2016 and 2017, the current ratio of Ryanair was 1.51, 1.72, 1.43 and 1.46 respectively which shows that company has been in a good position to cover all of its liabilities for the past four years. Quick ratio checks if the current assets or liquid assets like cash, market securities, account receivables are enough to cover maturing liabilities or not. Ryanair's quick ratio is 1.56 for the year 2017 which indicates that business is in a strong position to cover its maturating liabilities.  The assets and liabilities of Ryanair has been shown in the balance sheet (See Appendix 1). Cash ratio shows the amount of cash received by the company from market securities, other cash that can cover short term liabilities and receipts from customers. This ratio shows an increasing trend which is an indicator of strong financial position of the company. Furthermore, profit margin ration and gross profit margin ratio also show an increasing trend from the year 2014 to 2017. However, in the year 2016, profit margin ration was 24% which is 4% more than that of 2017. Here, it is recommended that business should focus on cutting down the cost in order to maintain its profit. The income and expenses of the business organisation can learned via income statement of Ryanair (See Appendix 2). Overall, it can be analysed from the balance sheet (Appendix 1), income statement (Appendix 2), and financial ratios of Ryanair that currently business is operating at a strong financial position.

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