THE BUCHAREST UNIVERSITY OF ECONOMIC STUDIES [609475]

THE BUCHAREST UNIVERSITY OF ECONOMIC STUDIES
FACULTY OF BUSINESS ADMINISTRATION
(ENGLISH TEACHING)

GRADUATION PAPER

PROFITABILITY ANALYSIS OF A COMMERCIAL
COMPANY

Academic Supervisor:
Lecturer PhD Andreea PONOR ÎCA

Graduate: Andra -Elena VASILE

BUCHAREST
2013

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Table of Contents

INTRODU CTION………………………………………………………………… .……………… 2

CHAPTER 1. THEORETICAL ASPECTS……………………………………………………… 3

1.1. Profitability based on profit ………………………….. ………………………….. ………………………….. ………. 5
1.1.1. Grouping the incomes and expenses according to their nature ………………………….. ……… 5
1.1.2. Classification of the operating expenses according to their function ………………………….. …. 6
1.2. The performance based on the profitability ratios ………………………….. ………………………….. …….. 7
1.2.1. The profit rate ………………………….. ………………………….. ………………………….. ……………………. 8
1.2.2. The return on sales ratio ………………………….. ………………………….. ………………………….. ……… 8
1.2.3. The economic rate of return ………………………….. ………………………….. ………………………….. … 8
1.2.4. The financial rate of return ………………………….. ………………………….. ………………………….. … 10
1.3. The performance through the stock exchange indicators ………………………….. ………………………. 11
1.3.1. The Price/Earnings ratio ………………………….. ………………………….. ………………………….. ……. 11
1.3.2. The Market to Book ratio ………………………….. ………………………….. ………………………….. ….. 11
1.3.3. The Price to Sales ratio ………………………….. ………………………….. ………………………….. …….. 12
1.3.4. The Earning per share ratio ………………………….. ………………………….. ………………………….. .. 12
1.3.5. The Dividend Yield ………………………….. ………………………….. ………………………….. ………….. 12

CHAPTER 2. CASE STUDY – PROFITABILITY ANALYSIS OF THE COMPANY AER O-
STAR……………………………………………………………………………………………… 13

2.1. Presentation of the company ………………………….. ………………………….. ………………………….. ……. 14
2.1.1. Investment policy ………………………….. ………………………….. ………………………….. …………….. 15
2.1.2. Products and services. Domains of activity ………………………….. ………………………….. ……… 15
2.1.3. Civil aviation ………………………….. ………………………….. ………………………….. …………………… 17
2.1.4. Military aviation ………………………….. ………………………….. ………………………….. ………………. 18
2.1.5. Objectives and strategic directions ………………………….. ………………………….. …………………. 18
2.2. Analysis of the intermediate management balances ………………………….. ………………………….. … 19

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2.3. Profit analysis ………………………….. ………………………….. ………………………….. ………………………… 21
2.3.1. Analysis of the gross result ………………………….. ………………………….. ………………………….. .. 21
2.3.2. Analysis of the operating result ………………………….. ………………………….. ……………………… 24
2.3.3. Analysis of the profit corresponding to the turnover ………………………….. ……………………… 29
2.4. Analysis of the profitability ratios ………………………….. ………………………….. ………………………… 35
2.4.1. Return on assets ratio analysis ………………………….. ………………………….. ……………………….. 35
2.4.2. Operating profit ratio analysis ………………………….. ………………………….. ………………………… 37
2.4.3. Return on equity ratio analysis ………………………….. ………………………….. ……………………….. 38
2.4.4. Analysis of t he financial rate of return ………………………….. ………………………….. …………….. 42
2.4.5. Analysis based on the stock exchange indicators ………………………….. ………………………….. 45
CONCLUSIONS ………………………………………………………………………………….. 46

REFERENCES …………………………………………………………………………………… 49

APPENDIX ……………………………………………………………………………………….. 51

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Introduction

Today‟s businesses are developing in a continua lly changing environment, which is more
and more complex, as well as uncertain, so that the companies should give an increased attention to
the ability of competing and adapting to the market conditions. Accordingly, in order to maintain on
the market and to achieve the main objective, of maximizing the shareholders ‟ property (wealth),
the companies should permanently evaluate the competitors, the consumer ‟s preferences, the state
of the economy, as well as its own economic – financial performance. It is known the fact that ob-
taining an earning superior to the costs involved for its realiz ation is not sufficient, but necessary in
order for it to have been obtained in conditions of efficient utiliz ation of the production factors and
of the capital. Therefore, measuring the performance of a company underlies the foundation of its
progress, whereas it makes possible the comparison between the results and the efforts necessary
for obtaining them and permits drafting the development directions.
Assuming that the concern for success is more and more pregnant, representing an absolut e-
ly necessary condition of the market economy, in the above paper I analysed the profitability and
the efficiency of the company, with concrete examples on the company Aerostar, through the prof-
its and the profitability ratios. Through the case study – the most essential part of the paper – I have
approached various types of result indicators, analysing: the intermediary managerial accounts, the
profit (the gross result, the operating result, the profit corresponding to the turnover), as well as
profitability rate.
At the end of the paper are presented the conclusions of the case study and are proposed re-
covery measures, as well as ways of increasing the profitability. Obviously, the paper also has some
deficiencies, taking into consideration the limited access to the sources of information and the data
confidentiality, but offers a realistic image of the profitability of the businesses performed by the
company Aerostar.

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Chapter I. Theoretical aspects

Any economic activity trains several factors of production, as well as capitals. In determi n-
ing the profitability, a company compares the results obtained by following a transformation activ i-
ty and/or exchange activity with the effort made for achieving them, meaning with the production
factors and the capital. Thus, there could be stated that the profitability „reflects the degree of capi-
talization of the company of all the categories of resources. ‟(W. Păvăloaia, M. Dumitru, Gh.
Lepădatu, Analiză economico -financiară. Concepte și studii de caz, Editura Economic ă,
București, 2010, page 209).
Most of the times, the profitability is defined as being the result achieved through the in-
volved capital. Consideri ng that the result could be evaluated through various modalities, there ap-
pear more models of calculation and analysis of profitability.
The profitability could be analysed both though the profit perspective, as well as through the
different profitability ratios. The profit is the main indicator of a company‟s performance, among its
functions being included: „auto-financing source, force of material incentive for the employees,
source of formation of the necessary resources for the development of the activ ity under normal
conditions ‟ (W. Păvăloaia, M. Dumitru, Gh. Lepădatu, Analiză economico -financiară. Concepte și
studii de caz, Editura Economic ă, București, 2010, page 229). Before detailing the performance
based on the profit, there must be presented some definitions regarding the data necessary for de-
termining the profitability. Therefore, the source of information for analysing the profitability of a
company is represented by the profit and loss account, financial statement that reflects the perfo r-
mances of the company during an accounting period. In the profit and loss account are presented the
incomes and expenses which generated the result and there could be identified the elements with
favorable impact, respectively unfavo rable ones upon it. Regarding the incomes and losses, depen d-
ing on their classification, the profit and loss account presents two ways: classifying the incomes
and expenses according to their nature, respect ively presenting the operating activities in accor d-
ance to their destination. Besides, the profit and loss account could be presented as a list (highligh t-
ing the result of the exploitation, financially, as well as extraordinary) or as an account (the expen s-
es and profit are disposed on the left side, whereas the incomes and loss on the rift side). In Rom a-
nia, the profit and loss account is prepared as a list, and the incomes and expenses are presented ac-
cording to their nature.

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1.1. Profitability based on profit
The profit reflects the absolute measure of the profitability and could be analysed from
structural or factorial point of view.
Through the structural analysis of the profit is intended the „establishment of the contrib u-
tion of the different types of results to the total modification, as well as the highlight of the inter-
vened changes on the component elements. (A. Ișfănescu, V. Robu, A. Hristea, C. Vasilescu, Ana-
liză economico -financiară, Editura ASE, București, 2002, page 144).
1.1.1. Grouping the incomes and expenses according to their nature
Based on the prepared profit and loss account, the gross profit of the accounting period is
structurally analysed on activities, like: operating , financial and extraordinary.
Model of calculation:
GR = RE op + RF + Rex = RC + Rex
where:
 GR is the gross result of the accounting period
 RE op is the result of the operating activity
 RF is the financial result
 Rex is the extraordinary result
 RC is the current result
The structural analysis of the gross result is made through the balance sheet method.
Within the structural analysis of the results through grouping the incomes and expenses ac-
cording to their nature, there could also be used the intermediary balances of administration (IBA).
These balances are partial indicators of profitability, the IBA board being an alternative of the profit
and loss account, which „highlights the phases of formation of the results of a accounting period,
respectively the way of utilising the material, financial and human resources within the activity of
the company. ‟ (Gh. Vâlceanu, V. Robu, N. Georgescu, Analiză economico -financiară, Editura
Economic ă, București, 2005, page 249).
Besides the indicators presented in the profit and loss account, within the board of interm e-
diary balances of administration are also calculated:
The commercial margin , which reflects the result obtained from the sale of goods, as a dif-
ference between the selling price and their cost.
The production of the accounting period , which represents the value of the global produ c-
tion of an enterprise within an accounting period. In what concerns this indicator, it is worthy to
note the fact that the elements which are part of the calculation of the turnover are evaluated at the
selling price (excluding the VAT), and the stocked and intangible production is expressed through
the production cost.

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The value added represents the result created by the enterprise destined to the remuneration
of the human factor, of the state and of the investors of technical and financial capital.
The gross surplus (deficit) from operating activities is the result obtained after remunera t-
ing the personnel and the State, being an important indicator for the capital investors because it rep-
resents the potential flux of availabilities resulted from the exploitation cycle. It could also be de-
fined as the difference between the monetary incomes from exploitation and the monetary expenses
from exploitation.
1.1.2. Classification of the operating expen ses according to their function
The information necessary for the preparation of the profit and loss account are grouped as fol-
lows:
1. Net turnover
2. Cost of sales
3. Gross margin towards the cost of sales (1-2)
4. Other incomes from operating activities
5. Distribution expenses
6. Administrative expenses
7. Other operating activities
8. The result of the exploitation (3+4 -5-6-7)
9. Financial incomes
10. Financial expenses
11. Financial result (9-10)
12. Extraordinary incomes
13. Extraordinary expenses
14. Extraordinary result (12-13)
15. Gross result of the accounting period (8+11+14).

The most important result indicators obtained through this method are:
a) The gross margin towards the cost of sales represents the difference between the net turnover
and the cost of sales. The latter is obtained through the summation of the production cost of the sold
finished goods, the work performed and the services provided to the third parties, as well as of the
acquisition of the sold goods.
In order to proper remunerate the shareholders, the gross margin must be superior to the
summed value of the financial, distribution and administrative expenses.
As the major weight within the gross result is represented by the gross margin, this indicator
is often used “both for the highlighting of the historical evolution of the results, as well as for the

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forecast of the company‟s profitability in the future.” (Gh. Vâlceanu, V. Robu, N. Georges cu, Op.
cit., page 253).
b) The result of the operating activities is obtained after adding to the gross margin other opera t-
ing activities and subtract the indirect production costs – general administrative expenses and dis-
tribution expenses.
c) The finan cial result is made by the difference between the financial incomes and the financial
expenses.
d) The extraordinary result – similarly, is obtained by subtracting the extraordinary expenses from
the extraordinary incomes.
e) The gross result of the accoun ting period totals the three results presented above, as follo ws: the
result of the operating activities, the financial and the extraordinary one.
Even though this method offers to the users information that is much more relevant than the
first method, highlighting the value of the turnover and of the cost of sales, in order to be estimated
the future cash flows must be presented additional information regarding the nature of the expenses.
In choosing the method of analysis, there should be taken into account the historical factors, the
characteristics of the field of activity, as well as of the type of enterprise, so that the elements repre-
senting the company‟s performance to be presented as accurate as possible.
The factorial analysis emphasiz es the prima ry causes that determine the size and the dyna m-
ics of the profit, permitting the „identifi cation of the factors with favorable influence over the profit
and of the factors with unfavourable influence, respectively ‟ (Eduard Dinu, Rentabilitatea firmei în
practică, Editura All Beck, Bucure sti, 2004, page 30). Thus, in case of unfavo rable influences,
there are identified the necessary corrective measures.
Within the factorial analysis there could be taken into account the gross result of the ac-
counting period, the result of the operating activity, the result corresponding to the turnover, as well
as the profit per unit product.
1.2. The performance based on the profitability ratios
When analysing the profitability of a company it is necessary to be able to make compar i-
sons on time spans, in space and towards certain norms or standards, and this is the reason why the
profita bility ratios are utiliz ed, which reflect relative measures of profitability.
A profitability ratio is a proportion between „an indicator of results and a measure that re-
flects a flux of activity or a measure of stock.‟ (Eduard Dinu, Rentabilitatea firmei în practică, Edi-
tura All Beck, București, 2004, page 30). As an indicator that reflects a flux of activity, we could
take into consideration , for example, the net turnover or the consumed resources, and for the stock –
the total assets, own capital, etc. Usually, the profitability ratios reflect a favorable situation if they
have increased values and also values that are continually increasing .

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The most common used profitability ratios are: profit rate (the rate of the consumed resources ‟ prof-
itability), the return on sales ratio (the ratio of commercial profitability), the return on equity, finan-
cial rate of return and the income rate of retur n.
1.2.1. The profit rate (the rate of the consumed resources ‟ profitability)
The profit rate reflects the correlation between the profit corresponding to the turnover and
the total costs corresponding to the sales. The factors that are influencing, throug h their evolution,
the value of this rate are: the structure of the production sold on product categories, the unit costs,
respectively the average sale prices (excluding VAT).
In what regards the cost, it has a double action over the profit rate, as it is found both at the
numerator and denominator of the proportion; thus, in case of exceeding the unit cost, its unfavo ra-
ble influence will be much powerful over this rate than over other rates (the profit, being at the nu-
merator of the proportion is reduced, while the total cost – the denominator, increase).
The factorial analysis of this ratio is made by using the method of chain substitution.
1.2.2. The return on sales ratio
The return on sales ratios shows the efficiency of the commercial activity develop ed by the
enterprise and expresses the correlation between the profit and the turnover; the more the profit is at
one leu turnover, through their evolution, the more efficient becomes the activity developed by the
company.
The factors that, through their evolution, influence the value of this rate, are the structure of
the sold production (on products), the average unit sale prices, respectively the unit costs.
The level of the commercial profitability ratio depends, among other factors, on the „competitive
position of the company within its field of activity, phase in which the field of activity is placed, as
a whole, the strategy adopted by the company. ‟ (Eduard Dinu, Op. cit., page 44).
The fact that this rate is determined based on the accounting profit represents a limitation,
considering that its value will be influenced by the accounting policies and practices.
1.2.3. The economic rate of return
The economic rate of return shows the efficiency of utiliz ing the total assets of the enterprise
and is especially used by the management, considering that it „measures the degree of profitability
of the entire invested capital.‟ (Liviu Spătaru, Analiza economico -financiară, instrument al man-
agementului întreprinderilor , Editura Economic ă, București, 2009, page 379). It expresses how
many lei of gross profit correspond to one leu of total assets and highlights how efficient were used
the material and financial resources corresponding to exploitation.
The economic rate of return can be calculated based on the exploitation ‟s result, of the gross
surplus from the exploitation or based on the gross profit. If it is taken into consideration the result
of the exploitation, the level of the rate would not take into account the fiscal policy of the tax on

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profit, of the ways of acquiring the capital and also of the elements of extraordinary nature. The
gross surplus of the exploitation makes that, besides, the level of the rate to not be dependent nei-
ther on the policy regarding the amortiz ation of the technical capital. The utiliz ation of the gross
profit, instead, is useful especially for the managers and includes the financial profit, respectively
the extraordinary one, which leads to an increased level of the rate.
At international level, to this rate corresponds the ROA („return on assets‟), which is calcu-
lated as a proportion between EBIT (earnings before interests and tax) and the total assets. ROA
offers information of which are interested especially the financial creditors.
Depending on the chosen analysis model, the factors that are influencing the evolution of the
economic rate of return are the total asset turnover and the gross margin. Thus, depending on the
field of activity, the directions of increasing the economic profitability are:
 the industrial enterpri ses practice high margins of profit, as a consequence of the superior
quality of the products, but have a decreased rotation of the assets. caused by the advanced
technology necessary for the exploitation;
 the enterprises from the commercial field, instead , operate with lower margins of profit,
whereas the rotation of the assets is quicker.
In order to depend the analysis of the economic profitability, another model implies the disso-
lution of the total assets in fixed and current assets, so that being highlighted the ways of increasing
the economic profitability: „acceleration of the current assets‟ rotation, the improvement of the fixed
assets‟ efficiency by their intensive utiliz ation, as well as by taking into account their performance,
adaptation of the commercial policies with the aim to increase the efficiency of the sales.‟ (Gh.
Vâlceanu, V. Robu, N. Georgescu, Op. cit, page 280).
There should also be mentioned the fact that a part of the economic profitability’s importance
is due to its influence over the rate of return, as it comes out from the following formula:

where
is the rate of the economic profitability, calculated based on the net profit.
The economic rate of return must have a high enough value so as the creditors and investors
could be remunerated, depending on the risk they assumed by crediting or investing in the enter-
prise.

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1.2.4. The financial rate of return
The financial rate of return is an indicator which the investors highly take into account in or-
der to know whether their investment is profitable or not, but it is also of huge importance for the
mana gement, which intends the firm to become more and more attractive for the shareholders
(through obtaining a rate of financial stability superior to the cost of its own capital). In what con-
cerns the shareholders, their interest over this rate is manifested both on the short -term (collecting
dividends), as well as on the long-run (the possibility of increasing the value of the dividends in the
future by increasing the value of the company‟s shares).
The financial profitability represents the capacity of the capital to generate profit, namely
„measures the efficiency of the financial investment of the shareholders ‟ capital.‟ (W. Păvăloaia, M.
Dumitru, Gh. Lepădatu, Op. cit., page 265). In order for the shares of the company to be as attrac-
tive as possible, the financial rate of return must have a value superior to the average interest rate.
The value of this rate takes into consideration the company‟s degree of indebtedness, and is
being calculated based on the net profit, as well as on the fiscal and accoun ting policies.
The managers can intervene over the level of the financial rate of return through the asset
turnover, the financing sources of the assets, as well as through the net profitability of the incomes.
In what concerns the asset turnover, the higher the value of this indicator, the more efficient is
the manner in which the assets are utilised; though, there must be taken into account the company‟s
field of activity, because it has a huge impact over the value of this indicator.
The net profit at one leu income expresses the efficiency of the pricing policy concerning the
prices practiced by the company, as well as its ability to control the costs. (Gh. Vâlceanu, V. Robu,
N. Georgescu, Op. cit, page 283).
The financial lever of the multiplicatio n factor of the own capital also show the company‟s
degree of indebtedness, thus, even though at a first glance this indicator proportionally varies with
the financial rate of return, there must be pay an increased attention to the proportion between the
profits and the costs generated by the company‟s debts. And the value of this indicator varies de-
pending on the sector of activity on which the enterprise operates.
The influence of the financial lever over the finan cial profitability is materializ ed in two situa-
tions:
1. risk case – profit : the financial rate of return has a higher value than the economic rate of return
In this case, the economic performances of the company exceed the costs generated by the
financial debts, which means that, once the financial lever increases, there also increases the remu-
neration of the shareholders.
2. risk case – loss: the financial rate of return has a smaller value than the economic rate of return

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The level of the financial lever increases based on the credits‟ contr action, but the assets prof-
itability does not exceed the interest rate.
The limits that appear in the moment of interpretation of this rate are based on:
 the analysis period: the data used for calculating the financial rate of return refer to one sin-
gle period, so as a decreased value does not necessarily reflect an unfavo rable situation;
 the risks at which the company is exposed: the value of the rate does not reflect the addi-
tional risks for obtaining it;
 the accounting value of the own capital: it is not taken into consideration the market value,
thus, for the listed companies, there exist the possibility that not the rate, but the course of
the actions to influence the profit brought to the shareholders by the investment made into
the company.

1.3. The performance through the stock exchange indicators
For the companies listed at the stock exchange, there could be calculated the profitability in-
dicators, such as: Price/Earnings ratio, Market to Book ratio, Price to sales ratio, Earnings/share ra-
tio (impo rtant especially for the major shareholders, whose priority is the increase of the shares‟
value), DIVY – dividend yield (a form of short term profitability, relevant for the minor sharehol d-
ers, interested by immediately collecting dividends).
1.3.1. The Price/Earnings ratio (PER)
The price is calculated as a report either between the stock exchange rate and the net profit
per share, or betw een the stock exchange capitaliz ation and the total net profit. Therefore, this coef-
ficient show how many times are the investors dispose to pay the company‟s profit, as well as the
number of years in which the investment is recovered from the issuing company‟s net profits. Usu-
ally, the price/earnings ratio (PER) registers values between 8 and 12, a level of the coeffici ent bel-
low the minimum limit reflecting weak values, and in the opposite situation – price/earnings ratio
(PER) higher than the superior limit – increasing values.
An increased value of PER means the fact that the financial market anticipates a favorable
evolution of the company‟s results, being able to immediately pay a high price, compared to the ac-
tual profits. Therefore, some investors consider that a share with a high PER could be overvalued.
Besides, there also exist the possibility that an action whose coefficient of stock exchange capital i-
zation is low to be undervalued, being, actually, an excellent opportunity of investment.
1.3.2. The Market to Book ratio (MBR)
The market to book ratio is calculated as a report between the stock exchange capita lization
and the net accounting assets and indicates the value that the financial market confers to the mana-
gerial team, as well as to the company‟s organiz ational structure. The companies with possibilities

12
to increa se and with an efficient organiz ational structure theoretically have, a higher market value
than the accounting value of the own capital. There could also happen, that in the economies that
are in recession, the proportion between the market value and the accounting value to be less than
one, even though the management is a good one.
A value higher than one of the Market to Book ratio (MBR) reflects a appreciation of the en-
terprise‟s value on the market superior to the one registered in accounting, as a consequence of
some elements that could not be registered in accounting (reputation, notoriety, quality of the man-
agement). Thus, the positive difference between the stock exchange capitaliz ation and the net ac-
coun ting assets represents the favorable goodwill, and the negative one represents the unfavorable
goodwill.
1.3.3. The Price to Sales ratio (P/S)
The price to sales ratio is an indicator similar to the coefficient of stock exchange capitaliza-
tion, the difference consisting of the fact that the value of the denominator is represented by the
turnover, and not by the net profit. Expresses the number of monetary units that the investors are
disposed to pay for a monetary unit generated by the sales. A company with a low level of the Price
to sales ratio (P/S), usually less than one, is attractiv e for the investors. The indicator is used in the
cases in which the level of Price/earnings ratio does not reflect the real situation (for example, as a
consequence of making some major investments, the net profit decreases and the Price/earnings ra-
tio has an increased value, but irrelevant one), as well as for the newly established companies or for
those that register losses (cases in which Price/earnings ratio is not relevant, respectively could not
be calculated).
1.3.4. The Earning per share ratio (EPS )
The earnings per share ratio reflects the part of the profit corresponding to a detained share.
In general, it represents interest for the major shareholders that, by making a long term investment
are interested not by collecting dividends, but rather for the company to achieve favorable results.
Obtaining these results, even in the case in which are preserved by the company, lead to the in-
crease of the shares‟ value.
1.3.5. The Dividend Yield (DIVY)
The dividend yield is calculated as a proportion betw een the total amount of the dividends
and the stock exchange capitaliz ation, being an indicator of which are interested the minor share-
holders, who are concerned about the company‟s profitability on the short -run, thus immediately
collecting dividends.
A high level of this indicator could represent, for some investors, that the share is underva l-
ued, whereas other consider, on contrary, that the company‟s situation got worse, anticipating that

13
the future dividends will be smaller. Similarly, a small value of the Dividend yield (DIVY) could
reflect a overvalued action or a proof that the future dividends will be higher.
Related to the interests and aims of the minor shareholders, there also present a huge im-
portance the distribution rate of the dividends, as well as the dividends per share.
It is very important that these indicator s would not be separately analyz ed, as none of them
could reflect the real situation of a company, individually. Besides, when interpreting these indic a-
tors, there must by taken into consideration the field in which the company develops its activity, in
the opposite case the obtained results not being comparable.

14
Chapter II. Case Study – profitability analysis of the company Aero-
star

2.1. Presentation of the compan y
Aerostar J.S.C. Bacău is a company with an old tradition in the Romanian aeronautic in-
dustry. Established for more than 50 years, through the Decision no. 1165/17.04.1953 of the Coun-
cil of Ministers of the Romanian Popular Republic under the denomination „Central Aviation Atel-
ier‟, the company Aerostar Bacău fully contributed to the evolution of the Romanian aeronautics.
Aerostor built the IAR-93 prototype, the first Romanian post-war fighter jet, as well as the first un-
dercarriage and hydro -pneumatic equipments of aviation in the country.
All over the time, Aerostar manufactured over 1.800 IAK-52 airplanes and repaired ap-
proximately 3.500 aircrafts and 6.000 turbo -jet engines. Besides, the Aerostar specialists set for
flight more than 10 prototype airplanes, making this comp any one of the pioneers of the Romanian
aeronautic industry.
If, before 1989 the production of the company was preponderant oriented towards the mili-
tary aviation, at the present moment, its efforts are turning towards the civil aviation, thus, in 2010,
was started the project „Extending the manufacturing and assembly capacities of aerostats destined
for the civil aviation‟, co-financed through the European Fund of Regional Development.
The company operates within the production domain, and its main object ive of activity is
3030 – manufacturing aircrafts and spaceships. The company develops its activity according to the
Romanian legislation, as well as to the European Union legislation, and also according to the inter-
national practices, respecting the princ iples of corporate governance. Besides, its shares have been
registered at the Bucharest Stock Exchange since 1998 (with stock exchange indicator „ARS‟),
being registered among the ten most profitable shares in 2012.
The commercial company Aerostar J.S.C. is a Romanian juridical person, having the jurid i-
cal form of open joint stock company, which develops its activity according to the Romanian le-
gislation and to the provisions of the constitutive act, and from 2012 applies the international stan-
dards of financial reporting.
The company‟s social capital is of 37.483.698,60 lei, entirely subscribed and paid-in share
capital by the shareholders, divided into 117.136.530 registered, ordinary shares. with a nominal
slue of 0,32 lei each, issued in dematerialise d form and highlighted through registration in the
Shareholders ‟ Register.
The production capacities of the company are located at the headquarter, where are con-
structed all the types of facilities, necessary to the good deployment of the production activ ities.
The built surface of the buildings is of 13,47 hectares, consisting of hangers, industrial halls, tech-

15
nological testing benches, as well as spaces destined for the development of the administrative and
social activities.
2.1.1. Investment policy
Looking retrospectively, there could be noticed an increase from year to year of the comp a-
ny‟s profit, this being the consequence of the massive investments made by Aerostar.
The company constantly invests in acquisition and moderniz ation of the equipments and
machine -tools (such as press in the Hydro -forming technology valuing 7,6 millions equivalent in
lei, being put in function in December 2010), as well as in sustaining the program of maint e-
nance/moderniz ation of the civil aircrafts, having as objective to become a centre of excellence for
the manufacturing of pieces and assembles for aerostats. Aerostar, as well, shows an interest for the
communication technology, annually allocating resources for this purpose.
In what concerns the project „Extending the manufacturing and assembling capacities of the
aerostats destined to the civil aviation‟, implemented during the period April, 23rd, 2010 and Octo-
ber, 22nd, 2012, the allocated resources for it were materializ ed in the acquisition of 20 advanced
equipments, of four software programs for machines -tools, as well as in the projection and con-
struction of a hanger for manufacturing and adjustment of the civil aircrafts.
There should be mentioned the fact that Aerostat has a new wide and complex project: „Cre-
ating a new manufacturing capacity for the diversification of the production and increase of export‟,
starting from June, 14th, 2012, also co-financed by the European Fund of Regional Development.
The project, valuing 21.976.768 lei (non-refundable financial assistance: 8.692.728 lei) and imple-
mented for a period of 24 months at the company‟s headquarter, having the purpose to „increase the
productivity through extension and diversification of the production, aiming the increase of the
turnover, the increase of the production volumes for export, increase of labour productivity, with
the condition of creating new available jobs and keeping the existing ones.‟ (Company ‟s Annual
Report from 2012).
As a consequence of the investment policy adopted by the company, all over the time, over
85% of the production capacities were improved, from technological point of view.
At the same time, Aerostar manifests an increased interest for the training of its employees,
organising each year programs of professional development and financially sustaining the new em-
ployed ones in order to perform master/doctoral studies within the domains of interest for the com-
pany.
2.1.2. Products and services. Domains of activity
The domain in which the company developed its activity is a highl y competitive one, but,
despite this fact, Aerostar manages to maintain its position as a leader on the Romanian market for
the products and services pertaining to the aeronautic and defence industry, but also to make its

16
presence felt on the international market as well, especially on the European one. The company as-
serts that its recognition is due to the diversified offer in the field of manufacturing and integration
for the aeronautic and defence industry, due to the experience and expertise, as well as to the high
technological level.
In fact, by analysing the table bellow, there could be noticed that the weight of the exports in-
creased from year to year, considering that the internal market is not able to assure sufficient re-
sources of increase and development.

Figure 2.1.: Sales distribution on the internal market/export
The main business lines of Aerostar are the manufacturing of the aeronautic products,
maintenance of the commercial aircrafts, aero and terrestrial systems for defence, production and
integration, but also products and services from the domains of civil electronics, special processes
and utilities.
The weight of the most important services and products, reflected in the turnover during
2010 -2012 have evolved as follows:

Figure 2.2.: Distribution of the turnover on the main products and services 29.00% 33.20% 43.40% 71.00% 66.80%
56.60%
2013 2012 2011Sales distribution on the internal market/export
Internal sales Export
29.03% 46.04%
12.32% 12.61% 37.21% 40.31%
14.94%
7.54% 44.20%
33.64%
15.83%
6.33%
Manufacturing of aviation
productsSisteme pentru apărare
(aviație, terestre, integrări) MRO civil aviation Alte produse și servicii Distribution of the turnover on the main products and services
2010 2011 2012

17
By analysing the above graph, there appears that the turnover of the company Aerostar has
been modified, as a consequence of the impact on the global economic situation, against the prod-
ucts and services corresponding to the military aviation.
2.1.3. Civil aviation
In the civil aviation domain have been developed programs in order to attract increase op-
portunities, especially in the field of manufacturing for aviation and maintenance of the commercial
aircrafts.
Aerostar is a high level supplier of aviation aerostats and assemblies for the global suppl y-
ing chains, but also subcontractor of landing grounds and hydraulic systems, being the authorised
supplier for their production and testing.
The company is an excellence centre in manufacturing aerostats, in manufacturing landing
grounds and also hydraulic systems, and at regional level – for the maintenance of the commercial
aircrafts.
In what concerns the affairs from the domain of landing groun ds and hydraulic systems
manufacturing, the production increased with 50% compared to the previous years, due to the in-
vestments made, of the qualified personnel and of the achieved know -how. Besides, there has been
signed a new contract for the interior spare parts of the landing grounds‟ absorbers of the aircrafts
Boeing 787, Airbus A350 and Airbus 330. The investments in the production structure, the know –
how within the development of equipments and support hydraulic systems, respectively testing
benches make this domain having a huge development potential.
In order to develop the maintenance of the commercial aircrafts, Aerostar holds the author i-
sation Part-145, obtained by the European Civil Aeronautic Authority, the latter being recognised
by the Europ ean Aeronautic Authority. The range of services was extended, actually including, be-
sides the maintenance works, also inspections for the aircrafts from the line Airbus 320, for the air-
crafts type Boeing 737 of all series and for the aircrafts BAe-146/RJ, as well as for their comp o-
nents. There should also be mentioned the fact that Aerostar is authorised for providing specialised
services pertaining to the line of non-destructive control. Their weight in the turnover, as well as the
number of the clients have rapidly increased.
Due to the major investments for development and technological restructuring, at the present
moment, Aerostar is a centre of excellence for the manufacturing of spare parts and assemblies for
aerostats. Through the continuing increas e of the contracts and orders, the manufacturing centre of
tin spare parts, small subassemblies and major subassemblies had a significant dynamic. In order to
consolidate its market position, the company substantially increased the production of spare parts
pressed through hydro -forming, assimilated a significant number of small subassemblies and intro-
duced for the manufacturing major assemblies, like spoilers and aerodynamic brakes.

18
2.1.4. Military aviation
The businesses within this domain are marked by the effects of the economic crisis, namely
the reductions of the budgets allocated for defence made by the European Governments. This is the
reason why the big contractors of the defence industry try to reorientate towards civil aviation and
also towards similar high-tech industries, even though these are very competitive domains. This
trend is also followed by Aerostar, the euro zone being an important market for the company, where
it operates mainly as a subcontractor of air-structures and hydraulic system s.
Aerostar is a major supplier of products and services pertaining to the category of the defen-
sive air and terrestrial systems of defence, providing services such as maintenance, repair, modern i-
sation, modifications and integration of advanced systems for diverse air platforms, as well as the
afferent logistic support.
The company has not managed yet to run significant businesses in the field of defensive ter-
restrial equipments, so it oriented towards the ground -controller equipments and manufacturing of
spare parts and devices.
The evolution of the sales on the civil market compared to the military one is synthesised in
the following graph:

Figure 2.3.: Sales distribution on the civil and military markets
Taking into consideration the situation of the two industries where Aerostar operates, the de-
fence and civil aviation industry, it is very important the strategic positioning, as well as the capita l-
isation of the existent potential in order to counter -balance the situation from the defence domain.
Even if the orientation of the company mainly towards civil aviation is opportune, the increase of
the oil price during 2009 -2011 has a certain influence over this industry. In the case of increase in
the number of passengers of the air traffic, the price of the tickets does not manage to cover the in-
crease of the oil price, which determines the the air transportation companies to reduce its costs, so
that they suppliers, including Aerostar would certainly be affected.
2.1.5. Objectives and strategic directions
The current mission of the company is to maintain its statute of the number one supplier of
the Ministry of National Defence in the domain of aviation systems and terrestrial systems, as well 63.62%
56.62%
39.30% 36.38% 43.38% 60.70%
2012 2011 2010Sales distribution on the civil and military
markets
Civil market Defence

19
as to develop as a supplier of spare parts, air structures, subassemblies and equipments for the
commercial and general equipments, so that to become a major supplier for the globalised aviation
industry. Besides, Aerostar aims to obtain the statute of number one supplier of maintenance for the
civil aircrafts, as well as for the conversion/modernisation of the civil aircrafts.
The development strategy for the period 2011 -2015 is one of „selective expansion ‟, which
means that will be of high priority the groups of products with good profitability and relatively low
risk, respectively: „spare parts, air structures and aviation assemblies ‟, „maintenance of civil air-
crafts‟, „aviation hydraulic systems‟, and „terrestrial defensive systems‟; the other groups of products
and services will be maintained and helped to improve their profitability. Besides, there is also
aimed the development of the main object of activity, so that the weight of the aeronautic domain
within the turnover to reach 70% by doubling the sales, due, in proportion of 75%, to the export.
For the year 2014 the company already has been notified about the orders and multi annual con-
tracts, through which is aimed to maintain the rise tendency.
Further on, Aerostar has as main objective the consolidation of its position on the markets
where it activates throug h attracting new programs and customers, increasing competitiveness,
modernising the processes through automatisation and information, development of the organis a-
tional culture, as well as through the continuation of making investments in new technologies.

2.2. Analysis of the intermediate management balances
The values of the intermediate management balances, as well as their evolutions, are pre-
sented in the following table:
Table 2.1.: Intermediate management balances during 2011 -2013 (all the amounts expressed in
thousands lei)
Intermediate management bal-
ances 2011 2012 2013 Change
2012 -2011 Change
2013 -2012
Absolut e Relative Absol
ute Relative
Merchandise sales 2.121 2.114 2.188 -7 99,67 74 103,5
Cost of sold merchandise 1.862 1.747 1.923 -115 93,82 176 110,07
Profit margin 259 367 264 108 141,7 -103 71,93
Sold production 154.148 154.268 194.725 120 100,08 40.457 126,23
Variation of the stocked production 4.698 3.432 9.340 -1.266 73,05 5.908 272,14
Incomes from the production of
fixed assets 2.117 1.308 619 -809 61,79 -689 47,32
Production during the accounting
period 160.964 159.008 204.684 -1.956 98,78 45.676 128,73

20
Intermediate consumption 76.490 70.245 97.340 -6.245 91,84 27.095 138,57
Value added 84.732 89.130 107.609 4.398 105,19 18.479 120,73
Operating subventions 0 0 0 – – – –
Expenses with excises, taxes and
similar payments 751 833 876 82 110,92 43 105,16
Expenses with personnel 51.080 50.813 65.478 -267 99,48 14.665 128,86
Operating gross surplus 32.902 37.484 41.254 4.582 113,93 3.770 110,06
Other incomes from operating ac-
tivities, including provisions 28.330 17.732 30.945 -10.598 62,59 13.213 174,52
Other operating expenses 672 872 1.315 200 129,76 443 150,80
Operating expenses regarding
amortisation and provisions 46.70 1 38.853 54.677 -7.848 83,20 15.824 140,73
Operating result 13.858 15.491 16.207 1.633 111,78 716 104,62
Financial incomes 7.699 7.557 11.744 -142 98,16 4.187 155,41
Financial expenses 6.151 5.012 9.385 -1.139 81,48 4.373 187,25
Current result 15.406 18.037 18.566 2.631 117,08 529 102,93
Extraordinary result 0 0 0 – – – –
Gross result 15.406 18.037 18.566 2.631 117,08 528.8
40 102,93
Profit tax 4.130 5.589 3.497 1.459 135,33 –
2.092 62,57
Net result 11.276 12.448 15.068 1.172 110,39 2.620 121,05

Despite the fact that the sales of merchandise decreased with 0,33% in 2012, compared to
2011, the profit margin registered an increase of 108.000 lei, as a consequence of the decrease of
the expenses with merchandise of 6,18%. In 2013, though, the cost of acquisition of the mercha n-
dise increased by 10,07%, whereas the sales just by 3,5%, which led to a decrease of the profit mar-
gin by 28,07%. This result shows that, in what concerns the structure of the sales, Aerostar should
have increase the weight of the groups of products/services with a trade markup higher than the av-
erage on the company.
Compared to 2011, the production of the accounting period decreased in 2012 with
1.956.000 lei, as a consequence of the decrease of the stocked production and the fixed one. Thus,
the situation is not unfavo rable, as it reflects that the commercial activity is efficiently developed –
the sold production increased, though, with 120.000 lei. And in 2012 the sold production registered
an increase, of 26,23%, and the producti on of fixed assets decreased by 52,68%, so that the produ c-
tion of the accounting period increased with 45.676.000 lei. The stocked production, which includes
also the one in progress, registered an increase of 5.908.000 lei compared to 2012. The situation is
provoked by the significant increase of the expenses with machineries ‟ maintenance and repair, so

21
that the production equipments have not functioned at the forecasted efficiency, and the production
plan has not been respected. It is recommended for the company to pay more attention to the
maintenance of the machineries, in order to eliminate the unproductive pauses and also in order to
efficiently use the working time.
In 2012 the intermediate consumptions registered a decreasing rhythm superior to the one
registered by the production of the accounting period, which led to the growth of the value added by
5,19%. In 2013, even though the intermediate consumptions increased by 38,57%, the value added
registers an increase of 20,73%, due to the growth of the production during the accounting period
by 28,73% compared to the previous year. The evolution of the value added reflects a favorable sit-
uation, mainly that the company generates an extra value over the expenses with the goods and ser-
vices provided by third parties, which remunerates the participant factors to production: state, credi-
tors, personnel, shareholders, capitals, as well as the company itself.
Also the gross surplus from operating activities follows a positive trend, registering in 2012
a value smaller with 13,93% compared to the previous year, respectively with 10,06% in 2013
compared to 2012, so that it manifests a favorable influence over the auto financing capacity of the
company. The huge difference between the added value and the gross surplus from the operating
activities reflects an important weight of the personnel in the total of the production factors.
The net result is not influenced by the fiscal policies and changes; there is noticed that the
followed trend by the company is upwa rd, with a significant increase in 2013, of 21,05% compared
to 2012.
The result of the exploit, as well as the gross result will be further analyz ed.
2.3. Profit analysis
2.3.1. Analysis of the gross result
The gross result of the company Aerostar raised from 18.037.000 lei in 2012 to 18.566.000
lei in 2013, which means an increase in absolute variation of 529.000 lei, respectively a relative
change of +2.93%. Following on, the gross result will be analyz ed both from structural point of
view, as well as factorial point of view.

1.1. OI
1. RE
1.2. Exp op
GR
2.1. FI
2. RF
1.2. Exp f

22

The necessary information for the analysis are presented in the following table:
Table 3.1.: Analysis of the gross result (amounts expressed in thousands lei)

Indicators Sym-
bol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolut e Relative Absolut e Relative
Gross result GR 15.406 18.037 18.566 2.631 117,08 529 102,93
Result of the operating
activities RE 13.858 15.491 16.207 1.633 111,78 716 104,62
Operating income OI 163.693 161.543 207.477 -2.150 98,69 45.934 128,43
operating expenses Exp op 149.835 146.052 191.269 -3.783 97,48 45.217 130,96
Financial result RF 1.548 2.546 2.359 998 164,47 -187 92,66
Financial incomes FI 7.699 7.557 11.744 -112 98,16 4.187 155,41
Financial expenses Exp f 6.151 5.012 9.385 -1.139 81,48 4.373 187,25

As in the structural analysis is being utiliz ed the balance sheet method, the influences of the
factors of I and II degree correspond to the values afferent to the absolute changes from the previ-
ous table.
Thus, by analyz ing the factors of I degree, the result of the exploit and also the financial re-
sult, there is found out that the first of them increased from year to year, leading to the increase of
the analyzed indicator with 1.633.00 0 lei in 2012, respectively with 716.000 lei in 2013. The finan-
cial result, though, has a fluctuant evolution: in 2012 increases with 64,46% and in 2013 decreases
with 7,35%. The increase from 2012 is explained by the increase of the incomes from the share s
owed by the subsidiaries, as well as of the incomes from interests – by registering some fixed debts
valuing 760.515.000 lei, but also by the decrease of the financial expenses, overall by 18,52%. The
decrease of the previously mentioned elements is due to the decrease of the expenses with interests
by 97,83%. In 2013, the explanation of the decrease of the result from the financial activity is repre-
sented by the increase of the financial expenses in a rhythm superior to the increase registered by
the financial incomes, referring especially to the expenses, respectively the incomes from the diffe r-
ences of exchange rate, so that approximately 70% of the turnover is reported to the American dol-
lar and euro, and the operating activities, overall, are reported to the leu. Besides, this negative fi-
nancial result is also influenced by the increase of the expenses with interests, as a result of the con-
clusion of a financial leasing contract, corroborated with the decrease of the incomes from interests
and of those generated by the shares held at subsidiaries.

23
Taking into consideration that Aerostar has as object of activity the production, the situation
is not an alarming one, the profit of the exploit increasing continually.
For the factorial analysis of the gross income it is used the next model:
(
) ̅̅̅̅
Where ̅̅̅̅ represents the average profit at 1 leu of total income .
The data taken from the balance sheet, and which will be used in the factorial analysis are found
in the following table:
Table 3.2.: Analysis of the gross result (amounts expressed in thousands lei)

Indicators 2011 2012 2013 Change 2012 – 2011 Change 2013 – 2012
Absolute Relative Absolute Relative
Gross result 15.406 18.037 18.566 2.631 117,08 529 102,93
Total incomes 171.392 169.100 219.221 -2.292 98,66 50.121 129,64
Total expenses 155.986 151.064 200.654 -4.922 96,84 49.590 132,83
Average profit
at 1 leu of total
income 0,08988 0,10665 0,08469 0,01677 118,66 -0,02196 79,41

The analysis model, adapted to the available information is the following:
1. TI
GR
2. ̅̅̅̅
After calculating the changes, there is found out that the factor which engraves the positive
evolution of the gross result from 2012 is the average profit at 1 leu total income, which though its
increase of 18,66% determines the increase of the analysed indicator with 2.835.081 lei. The total
income, though, decreasing with 1,34% leads to the decrease of the gross result with 206.000 lei.
In 2013 the situation is getting better, as the total income registers an increase of 29,64%,
overtaking the decrease of the average profit at 1 leu total income, so that the gross profit increases
with 5.347.091 lei. The explanation for which the average profit at 1 leu of total income decreases
with 20,59% – which determines the reduction of the gross result with 4.814.009 lei – is the fact that
the incomes increase in a rhythm inferior to the increas e of the expenses (Iexp=132,83% >
Iinc=129,64%).

24
The conclusion, after analysing the gross result – both the structural and the factorial one – is
that there must be found ways of reducing the expenses, without affecting the quality of the prod-
ucts. For example, the possibility to negotiate the prices with the suppliers, trying to get lower sup-
ply prices or, if possible, the provisioning could be made from the most close suppliers, in order to
reduce the transport costs. Besides, there must be given a speci al attention to the exchange rate.
2.3.2. Analysis of the operating result
For the analysis of the operating result have been utilised the following calculation models,
respectively analysis models:
(
) ̅̅̅̅̅
where:
 Io represent the operating income;
 Eo represent the operating expenses;
 ̅̅̅̅̅ represent the average profit at 1 leu of operating income
Io
OR
Eo

The data necessary for the analysis is synthesised in the following table (Table 3.3.):
Table 3.3.: Analysis of the operating result (amounts expressed in thousands lei)
Indicators 2011 2012 2013 Change 2012 –
2011 Change 2013 – 2012
Absolut e Relative Absolut e Relative
Operating result 13.858 15.491 16.207 1.633 111,78 716 104,62
Operating incomes 163.693 161.543 207.477 -2.150 98,69 45.934 128,43
Operating expenses 149.835 146.052 191.269 -3.783 97,48 45.217 130,96
Average profit at 1
leu of operating in-
come 0,0847 0,0959 0,0781 0,0112 113,27 -0,0178 81,46
The first influence factor, the operating income registers in 2013 an increase of 716.000 lei
compared to 2012, which determines the increase of the operating profit with approximately
4.404.079 lei. The decrease of the other influence factor, the average profit at 1 leu of operating in-
come, with 18,54% compared to the previous year has led to the decrease of the profit generated by
the operating activity with 3.687.079 lei. This result was obtained under the circumsta nces of the
increase of the operating expenses in a rhythm higher that the one of the corresponding incomes

25
(Io=130,08% > Eo=128,43%). By analysing the evolution of the operating expenses, there could be
observed a very significant increase registered by the expenses with maintenance and repair, as well
as expenses corresponding to the adjustments for stock depreciation. As a consequence of conduc t-
ing repairing activities of high value, the production equipments and, implicitly, the working time
were not able to be used according to the schedule, so that the production that is in progress has a
big value and is increasing compared to the previous year. Besides, the fact that there has been nec-
essary the adjustment of the stock value as a result of the deprec iation – which means that the stocks
are either old, or degraded; either used physically and/or morally – indicate an inefficient admi n-
istration of them, which unfavo rable influences the profit from the operating activity. In order to
improve the situation , the company should pay increased attention to the stock accounts in accor d-
ance with the volume of activity, as well as with the demand on the market. As well, it is recom-
mended the preventive maintenance of the machineries, so that the eventual problems to be avoided
as much as possible and not to negatively influence the working time.

where:
 Ao – operating assets;

– average operating income at 1 leu operating assets

– operating result at 1 leu operating income.
Analysis model:
1.

2.

3.

The necessary data for the analysis was taken from the Situation of the global result and
synthesised in the following table:

Table 3.4.: Analysis of the operating result (amounts expresse d in thousands lei)
Indicators Symbol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolut e Rela-
tive Absolut e Rela-
tive
Operating result OR 13.858 15.491 16.207 1.633 111,78 716 104,62

26
Operating assets 76.320 131.115 192.580 54.795 171,80 61.465 146,88
Operating income 163.693 161.543 207.477 -2.150 98,69 45.934 128,43
Operating expen s-
es Exp op 149.835 146.052 191.269 -3.783 97,48 45.217 130,96
Average income at
1 leu of operating
assets
2,1448 1,2321 1,0774 -0,9128 57,44 -0,1547 87,44
Operating profit at
1 leu of opera ting
income
0,0847 0,0959 0,0781 0,0112 113,27 -0,0178 81,46

The results of further calculation of the influences of the changes of the factors over the ana-
lysed phenomenon are synthesised in Table 3.5.

Table 3.5.: Influence of the changes of the factors (amounts expressed in thousands lei)
Influence of the change: 2012/2011 2013/2012
of the operating assets 9.950 7.262
of the average operating income at 1 leu of operating assets -10.132 -2.857
of the operating profit at 1 leu of operating income 1.815 -3.689

As there could be noticed, the favorable evolution of the analysed phenomenon is made by
the operating assets, which, by the increase of their value with 71,80%, respectively 46,88% does
not only determine the increase of the operating result with 9.950.000 lei in 2012 and with
7.261.098 lei in 2013, but also have a favourable impact over the production of the period and the
exploiting income. In 2012 also the operati ng profit at 1 leu of operating income determine the in-
crease of the analysed indicator with 1.815.00 lei, as a consequence of its increase with 13,27%.
In 2013, though, the average operating income at 1 leu of operating assets, as well as the op-
erating profit at 1 leu of operating income, through their evolution decrease the operating profit
with 2.857.004, respectively with 3.688.079 lei. The negative evolution from 2013 of the operating
profit at 1 leu of operating income has as explanation the decrease of the efficiency of the resources
consumed by the company and Aerostar should give more attention to its expenses, eliminating
those that are not absolutely necessary to the development of the activities in good conditions.
The decrease of the average income at 1 leu of operating assets with 42,56%, respectively
with 12,56% indicate an inefficient utilisation of the latter, and in order to recovery the company

27
could take into consideration the acceleration of the operating current assets turnover or impro ve-
ment of the quality of products/services.
̅̅̅̅ ̅̅̅̅
̅̅̅̅
̅̅̅̅

where:
 ̅̅̅̅ represent the average number of employees
 ̅̅̅̅ is the average value of the fixed assets
 is the operating income
 is the production of the accounting period
 ̅̅̅̅
̅̅̅̅ the degree of labour technical endowment

̅̅̅̅ efficiency of the fixed assets

degree of use of production

operating result at 1 leu of operating income
Analysis model:
1. ̅̅̅̅
2. ̅̅̅̅
̅̅̅̅
OR
3.
̅̅̅̅
4.

5.

This model is recommended for the industrial enterprises because their operating activity is
strongly related to the fixed assets of which they dispose, these having a significant influence over
the profit. Data necessary for the analysis is presented in the table 3.6.
Table 3.6.: Operating profit analysis (amounts expressed in thousands lei)
Indicators 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolut e Rela-
tive Absolut e Rela-
tive
Operating result 13.858 15.491 16.207 1.633 111,78 716 104,62
Average number of
employees 1.257 1.219 1.272 -38 96,98 53 104,35
Average value of the
fixed assets 13.182 9.954 37.190 -3.228 75,51 27.236 373,62

28
Production of the ac-
couting period 160.964 159.008 204.684 -1.956 98,78 45.676 128,73
Operating income 163.693 161.543 207.477 -2.150 98,69 45.934 128,43
Technical endowment
of labour 10,4869 8,1657 29,2374 -2,3212 77,87 21,0717 358,05
Efficiency of the fixed
assets 12,2109 15,9743 5,5037 3,7634 130,82 -10,4706 34,45
Degree of use of pro-
duction 1,0170 1,0159 1,0136 -0,0010 99,90 -0,0023 99,77
Operating profit at 1
leu of operating in-
come 0,0847 0,0959 0,0781 0,0112 113,27 -0,0178 81,46

The results of the calculation are synthesised in the follow ing table:
Table 3.7.: Influence of the changes of the factors (amo unts expressed in thousands lei)

Influence of the change: 2012/2011 2013/2012
of the average number of employees -418,9372 673,5217
of the technical endowment of labour -2.974,6013 41.71 2,7427
of the efficiency of fixed assets 3.225,1390 -37.936,3819
of the degree of use of production -13,6163 -45,0888
of the operating profit at 1 leu of operating income 1.815,0157 -3.688,7937

The increase registered by the operating profit in 2012, compared to 2011 is due to the in-
fluence of the fixed assets‟ efficiency, as well as the operating profit at 1 leu of operating income,
the other factors, by their evolution, diminishing the studied indicator.
The efficiency of fixed assets experiences a positive evolution, of +30,82%, as a conse-
quence of the decrease of the fixed assets‟ value and the increase of the production during the ac-
counting period; thus, the operating result increases with 3.255.140 lei, compared to the previous
year. In what conc erns the operating profit at 1 leu of operating income, the consequences of its
change over the variation of the analysed indicator, both in 2012, as well as 2013, have been ana-
lysed within the two previously presented models.
The average number of employe es decreased by 3.02%, as a result of the restructuring pro-
gram conducted by Aerostar, which leads to the decrease of the operating result with 418.937.002
lei. Prior removing from usage various equipments and machineries, the value of the fixed assets
registered a decrease of 24,49% compared to 2011. This decrease, along with the reduction of the

29
personnel have determined the decrease of the degree of labour technical endowment, which had as
final effect the decrease of the operating profit by 2.974.611 lei.
The increase in value of the stocked production, as well as the production in progress deter-
mines the decrease of the operating income by 2.150.000 lei. This unfavourable influence is also
reflected over the degree of production valuing – downward compa red to the previous year – which
reduces the value of the analysed indicator with 13.616.300 lei.
In what concerns the following year, 2013, there could be observed an extremely favourable
influence of the change of the degree of labour technical endowmen t over the operating result, valu-
ing 41.713.000 lei, due to the investments in new and efficient equipments, but there could also be
noticed an unfavourable influence, valuing 37.937.000 lei, caused by the massive decrease of the
fixed assets‟ efficiency, by 65,55% compared to 2012. Taking into consideration the fact that the
production during that accounting period registered an increase of 28,73% compared to 2012, the
cause of appearance of that situation represents the increase by 273,62% compared to the previous
year of the value of fixed assets. Such an increased value of the fixed assets in 2013 is due to the
increase in value of some equipments and machineries as a result of revaluation, as well as of the
acquisitions of technical installations and machineries, that were much more significant, from the
value perspective, in 2013 – 12.397.000 lei – compared to 2012 – 278.000 lei. Taking into consider a-
tion all the previously exposed aspects, the decrease of the fixed assets‟ efficiency is somehow justi-
fied.
Prior the analysis of the change of the degree of use of production, there is noticed an unfa-
vourable influence of this over the studied phenomenon, valuing 45.088.800 lei, as a consequence
of the increase of production during the accounting period in a rhythm superior to the operating in-
come; the situation being caused by the high and increasing value compared to 2012 of the stocked,
as well as of the production that is in progress.
The average number of employees, by the increase with 53 persons, respectively by 4,35%
compared to the previous year, led to the increase of the operating profit with 637,521,700 lei.
As a conclusion, Aerostar must diminish its expenses, for example through the negotiation
with the suppliers for smaller prices – without affecting the quality of the products – which would
lead to the increase of the operating profit at 1 leu of operating income. Besides, in order to reduce
the stocked production, the company must insure that the working time and the production equip-
ments are efficiently utilised.

2.3.3. Analysis of the profit corresponding to the turnover
The utilised model for the analysis of the profit corresponding to the turnover are:

30
∑ ∑
where:
 qv represents the physical volume of the sold production;
 s is the structure of the sold production per products;
 c represents the unit cost;
 p is the average selling price;
 Pr is the profit corresponding to the turnover
Analysis model:
1.1. qv
1.2. s
Pr
1.3. c
1.4. p

The data necessary for the analysis are presented in the table 3.8.
Table 3.8.: Analysis of the profit corresponding to the turnover (amounts expressed in thousands
lei)
Indicators Symbol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolut e Relative Absolut e Relative
Turnover T 156.269 156.382 196.913 113 100,07 40.531 125,92
Expenses corre-
sponding to the
turnover Exp 131.266 132.178 177.320 912 100,69 45.142 134,15
Recalculated turno-
ver ∑ – 156.295 180.254 – – – –
Expenses corre-
sponding to the re-
calculated turnover ∑ – 131.845 151.869 – – – –
Profit correspon d-
ing to the turnover Pr 25.003 24.204 19.593 -799 96,80 -4.611 80,95

After calculating the influence of change of the factors over the variation of the profit corre-
sponding to the turnover, were obtained the following results:

31
Table 3.9.: Influence of the change on the factors (amounts expressed in thousands lei)
Influence of the change: 2012 /2011 2013/2012
of the physical volume of the sold prod-
ucts 4,16 3.694,7851
of the structure of the sold products -557,20 486,2149
of the unit costs -333 -25.451
of the average unit prices 87 16.659

The profit corresponding to the turnover follows a downward trend during the analysed pe-
riod, initially decreasing by 3,20% and then, in 2013, by 19,05%, as a consequence of the unfavou r-
able influence of the complete unit costs, at which, in 2012, was also added the one of the sold pro-
duction. The complete costs of the products with majority weight in the turnover increased by
0,25% in 2012 and by 16,76% in 2013, which resulted in the decrease of the profit with 333, re-
spectively with 25.451.000 lei. The increase of the production costs was caused by the rising of the
expenses with raw materials, but also the rising of production that was in progress had an important
role in 2013, which led to the fact that the production has not been valued at its full capacity.
In what concerns the structure of the sold production, in 2012, this was modified in the di-
rection of the decrease of the weight of products with commercial profitability bigger than the aver-
age on the company and, implicitly, the weight increase of those with commercial profitability
smaller than the average of the enterprise, which resulted in a decreased profit corresponding to the
turnover with 557.000.020 lei. The situation is caused by the still too high level of the weight of the
defence systems in the total sales, which are more and more unpro fitable from year to year. In 2013,
though, Aerostar changes the structure of the sales in the upward direction of the maintenance and
reparation services in the domain of civil aviation, which have a commercial profitability bigger
than the average on enterprise; as well, the weight of the products and services from the defence
domain has been reduced, so that the profit corresponding to the turnover increased with
486.214.009 lei.The average selling prices registered an increase for the products with majo rity
weight in the structure of the turnover, having a favourable influence, of +87.000, respectively
+6.659.000 lei, over the analysed indicator.
The physical volume of the sold production increases with 0.02% in 2012 and 15,27% in
2013, which also increa ses the profit corresponding to the turnover with 416.000 lei, respectively
with 3.694.785 lei.

32
As a conclusion, there exists demand for the company‟s products and services, but Aerostar
should negotiate with the suppliers smaller supplying prices, but also to utilise the machineries, as
well as the labour force more efficiently.
∑ ( ∑
∑ ) ̅̅̅
Where ̅̅̅ represents the profit for 1 leu of turnover

Analysis model:
1.1. qv
1. T
1.2. p
Pr
2.1. s
2. ̅̅̅ 2.2. p
2.3. c
This model offers more information that the previou s one, assuming that is highlights,
through the direct influence factors, the two main directions of profit growth: the increase of the
sales turnover, respectively the change of the profit for 1 leu of sales.

The table 3.10 comprises the database necess ary for the analysis.
Indicators Symbol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolut e Relative Absolut e Relative
Turnover T 156.269 156.382 196.913 113 100,07 40.531 125,92
Expenses corre-
sponding to the
turnover Exp
131.266 132.178 177.320 912 100,69 45.142 134,15
Recalculated turn o-
ver ∑ – 156.295 180.254 – – – –
Expenses corre-
sponding to the re-
calculated turnover ∑ – 131.845 151.869 – – – –
Profit correspon d-
ing to the turnover Pr 25.003 24.204 19.593 -799 96,80 -4.611 80,95

33
Average profit at 1
leu of turnover ̅̅̅ 0,16 0,1548 0,0995 -0,0052 96,73 -0,0553 64,29

The table 3.11. presents the consequences of the change of the factors that are influencing the varia-
tion of the profit corresponding to the turnover.

Table 3.11.: The influence of the change on the other factors (amounts expressed in thousands lei)

Influence of the change: 2012/2011 2013/2012
of the turnover 18,08 6.273,1793
of the physical volume of the sold produ ction 4,16 3.694,785 1
of the average unit selling prices 13,92 2.578,3942
of the average profit for 1 leu of turnover -817,12 -10.884,1793
of the structure of the sold production -557,5102 531,1506
of the average unit selling prices 73,3902 14.035,6701
of the unit costs -333 -25.451

The turnover experiences a favorable evolution evolution during the analysed period, deter-
mining the increase of the profit corresponding to the turnover with 180.800 lei in 2012 and
6.273.180 lei in 2013. The other factor of Ist degree, the profit at 1 leu of turnover decreases from
year to year, leading to the diminution of the analysed indicator with 817.120 lei in 2012, respe c-
tively with 10.884.179 lei in 2013. The consequences of the change of the factors of second degree,
as well as the recovery measures were detailed within the previous model.

̅̅̅ ̅̅̅̅
̅̅̅
̅̅̅̅

where:

 ̅̅̅ represents the average number of employees;
 ̅̅̅̅
̅̅̅̅ is the degree of labour technical endowment;

̅̅̅̅ is the efficiency of the utilisation of the fixed assets, expressed through the sales that usu-
ally correspond to 1 leu of fixed assets.

34
Analysis model:

1. ̅̅̅
2. ̅̅̅̅
̅̅̅̅
Pr
3.
̅̅̅̅
4.1. s
4.
4.2. p
4.3. c

Compared to the previous models, this one emphasises the influence of the extensive
utilisation of the human factor, the degree of ethnical endowment of the labour force, as well as the
efficiency of using the fixed assets over the profit. The data base necessary for the analysis is pre-
sented in the following table.
Table 3.12.: The turnover analysis (amounts expressed in thousands lei)
Indicators Sym-
bol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolu
te Rela-
tive Absolu
te Rela-
tive
Turnover T 156.269 156.382 196.913 113 100,07 40.531 125,92
Expenses corresponding to the
turnover Exp 131.266 132.178 177.320 912 100,69 45.142 134,15
Profit corresponding to the
turnover Pr 25.003 24.204 19.593 -799 96,80 -4.611 80,95
Average number of emplo yees ̅̅̅̅ 1.257 1.219 1.272 -38 96,98 53 104,35
Average value of the fixed as-
sets ̅̅̅̅ 13.182 9.954 37.190 -3.228 75,51 27.236 373,62
Degree of technical endo w-
ment of labour ̅̅̅̅
̅̅̅̅ 10,4869 8,1657 29,2374 -2,3212 77,87 21,0717 358,05
Efficiency of utilising the fixed
assets
̅̅̅̅ 11,8547 15,7105 5,2948 3,8557 132,52 -10,4157 33,70
Profit at 1 leu of turnover
0,16 0,1548 0,0995 -0,0052 96,73 -0,0553 64,29

35
The consequences of the change of the influence factors of the profit corresponding to the
turnov er are synthesised in the following table (Table 3.13.).

Table 3.13.: The influence of the change on the other factors (amounts expressed in thousands lei)
Influence of the change: 2012/2011 2013/2012
of the average number of employees -755,8596 1.052,34 78
of the labour technical endowment -5.366,8694 65.174,3092
of the efficiency of utilising the fixed assets 6.140,8090 -59.953,4777
of the profit at 1 leu of turnover -817,1200 -10.884,1793
of the sales structure -557,5102 531,1506
of the average selling prices 73,3902 14.035,6701
of the unit costs -333 -25.451

The decrease from 2012 of the profit corresponding to the turnover was caused by the unfa-
vourable influences of the change of the average number of employees, of the labour technical en-
dowm ent, as well as of the profit at 1 leu of turnover; all of them being factors that were previously
analysed in this paper.
The efficiency of utilising the fixed assets increased, in the first stage, by 32,52%, based on
a small increase of the turnover compared to the previous year and of the consistent diminution of
the value of the production equipment – by taking out of use or annulment of some of those fixed
assets; thus, the analysed indicator experiences an evolution of + 6.140.809 lei. The situation
changes, though, the next year, when the increasing rhythm of the value of fixed assets exceeds the
one of the profit corresponding to the turnover and is also reduced the efficiency of the utilisation of
fixed assets, which has a negative impact over the profit corresponding to the turnover, that de-
creases with 59.953.477 lei. The situation is considered as justified, assuming that Aerostar has a
huge need of modern and efficient installations and equipments, which are very expensive. Fur-
thermore, the comp any’s field of activity is one in which the investments are recovered/depreciated
in a much longer time span.

2.4. Analysis of the profitability ratios
2.4.1. Return on assets ratio analysis
The calculation model of the return on assets, also known as return on investment is the fol-
lowing:

36

∑ ∑
∑ ∑
∑

where:
 qv represents the physical volume of the sold production;
 s is the structure of the sold production per produ cts;
 c represents the unit cost;
 p is the average selling price;
 Pr is the profit corresponding to the turnover
Analysis model:
1. s
ROA 2. c
3. p
The data necessary for the analysis are synthesised in the table 3.14.
Table 3.14.: The return on assets analysis (amounts expressed in thousands lei)
Indicators Symbol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolute Rela-
tive Absolute Rela-
tive
Turnover T 156.26
9 156.382 196.913 113 100,07 40.531 125,92
Expenses corre-
sponding to the
turn over Exp 131.26
6 132.178 177.320 912 100,69 45.142 134,15
Recalculated turn o-
ver ∑ – 156.295 180.254 – – – –
Expenses corre-
sponding to the re-
calculated turnover ∑ – 131.845 151.869 – – – –
Profit correspon ding
to the turnover Pr 25.003 24.204 19.593 -799 96,80 -4.611 80,95
Return on assets (%) ROA 19,047
6 18,3117 11,0495 -0,7359 96,14 -7,2622 60,34

After calculating the consequences of the change of the factors that influence the return on
assets ratio, have been obtained the following results:
Table 3.15.: The influence of the change on the other factors (amounts expressed in thousands lei)

37
Influence of the change: 2012/2011 2013/2012
of the structure of the sold production -0,5031 0,3788
of the unit costs -0,2987 -17,0358
of the average selling prices 0,0658 9,3949
The return on assets ratio decreased by 0,73% in 2012, respectively by 7,262% in 2013, as a
consequence of the decrease of the profit corresponding to the turnover, as well as due to the in-
crease of the expenses.
The structure of the sold production, by being modified in 2012 in behalf of the products
with a profitability towards costs smaller than the average of the enterprise, determined the decrease
of the ration by 0,50%; this problem being solve d the next year, through the increase of the weight
of the products having the profit rate higher than the average value, which determined the increase
of the analysed indicator by 0,37%.
The complete unit costs increase by 0,25% in 2012 and by 16,76% in 2013, diminishing the
return on assets ratio by 0,29%, respectively by 17,03%. The average selling prices increased with
0,06% in 2012 and with 9,24% in 2013, the profit rate increasing this way by 0,06%, respectively
by 9,39%.Even though in 2013 the return on assets ratio is within the interval 9%-15%, considered
by some specialists the optima interval in which must be situated this rate, the company must di-
minish its expenses and at the same time to increase the volume of work, as well as the prices. It is
recommended the increase of the selling prices to be consequence of the products and services im-
provement of quality and, besides, to take into account the prices of the similar products on the
market, as well as the buying power of the actual and potenti al customers. Also, there should be fur-
ther modified the structure of the turnover, in the same direction with the increase of the weight of
the profitable sales, but in the market conditions’ demand.
2.4.2. Operating profit ratio analysis
Even though in the specialty literature exist various approaches and calculation methods of
it, the most used one is the following:

∑
∑

1. s
2. p
3. c
The necessary data for the analysis is found in the table 3.16.
Table 3.16.: The operating profit margin analysis (amounts expressed in thousands lei)

38
Indicators Symbol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolut e Rela-
tive Absolut e Rela-
tive
Turnover T 156.269 156.382 196.913 113 100,07 40.531 125,92
Expenses corre-
sponding to the
turnover Exp 131.266 132.178 177.320 912 100,69 45.142 134,15
Recalculated turn o-
ver – 156.295 180.254 – – – –
Expenses corre-
sponding to the re-
calculated turnover ∑ – 131.845 151.869 – – – –
Profit corresponding
to the turnover Pr 25.003 24.204 19.593 -799 96,80 -4.611 80,95
Operating profit
margin (%) 16 15,4775 9,9501 -0,5225 96,73 -5,5274 64,29

In the following table are presented the influence factors of the operating profit margin ratio,
as well as the consequences of their changes.
Table 3.17.: The influence of the change on the other facto rs (amounts expressed in thousands lei)
Influence of the change: 2012/2011 2013/2012
of the structure of the sold production -0,3565 0,2697
of the average selling prices 0,0469 7,1279
of the average costs -0,2129 -12,9250

The operating profit margin, also known as return on sales ratio, decreases from year to
year, by 0,52% in 2012, respectively by 5,52% in 2013. The analysis and interpretation of the con-
sequences of the change of the influence factors of this rate, as well as the recovery measures are
similar to the ones of the return on assets.
2.4.3. Return on equity ratio analysis
Calculation model:

where:
 TA – Total assets;
 Pr – profit corresponding to the turnover;
 T – turnover.

39

– total assets turnover, expressed in number of rotations.
Analysis model:
1.

ROE
2.1. s
2. Pr op 2.2. p
2.3. c

The data necessary for the analysis is presented in the following table.
Table 3.18.: Return on equity analysis (amounts expre ssed in thousands lei)
Indicators Symbol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absol
ute Rela-
tive Absol
ute Rela-
tive
Turnover T 156.269 156.382 196.913 113 100,07 40.531 125,92
Expenses correspon d-
ing to the turnover Exp 131.266 132.178 177.320 912 100,69 45.142 134,15
Recalculated turnover ∑ – 156.295 180.254 – – – –
Expenses correspon d-
ing to the recalculated
turnover ∑ – 131.845 151.869 – – – –
Profit corresponding to
the turnover Pr 25.003 24.204 19.593 -799 96,80 -4.611 80,95
Total assets TA 148.027 168.60 3 240.461 20.576 113,90 71.858 142,62
Operating profit mar-
gin (%) 16 15,4775 9,9501 -0,5225 96,73 -5,5274 64,29
Total assets turnover
(number of rotations)
1,0557 0,9275 0,8189 -0,1282 87,86 -0,1086 88,29
Return on equity ratio
(%) ROE 16,8909 14,3556 8,1481 -2,5352 84,99 -6,2075 56,76

Results of the calculation are synthesised in the table 3.19.

Table 3.19.: The influence of the change on the other factors (amounts expressed in thousands lei)

40
Influence of the change: 2012/2011 2013/2012
of the total assets turnover -2,0506 -1,6811
of the operating profit margin -0,4846 -4,5264
of the sold production structure -0,3307 0,2209
of the average selling prices 0,0435 5,8370
of the average costs -0,1975 -10,5843

By interpreting the previously presented results, there could be stated that the return on equi-
ty ratio is the consequence of the unfavourable influences exerted by both factors of Ist degree – the
total assets turnover, as well as the operating profit margin (return on sales).
The total assets turnover reflects the capacity of the assets to generate turnover, and in the
cade of Aerostar, this indicator registers a decrease of approximately 12%, both in 2012, as well as
in 2013. The decrease is followed by the increase of the total assets‟ value, through the perspective
of the investments in efficient production equipments, which had the scope to diminish the produ c-
tion cycle. There also must be specified that the turnover unfavourably influences the return on eq-
uity because the relative dynamic of the turnover is inferior to the one registered by the total assets,
but such a situation is normal in case of the industrial enterprises, that have high return on equity
ratios due to the higher profit yields, and not due to the higher assets turnover. Besides, the assets
run over is also influenced by the high degree of the company‟s mechanisation and automatisation.
The operating profit margin, previously analysed, by its decrease, diminishes the studied in-
dicator by 0,48% in 2012, respectively by 4,52% in 2013. The influence factors of IInd degree,
through which the operating profit margin influences the variation of the return on equity have been
analysed and interpreted within the previously presented model.
In order to redress the situation, it is recommended the acceleration of the total assets turno-
ver by optimising the assets‟ structure, diminishing the production cycle, decreasing the weight of
the stocks, as well as of the durations and costs of the investments that are in progress. In order to
increase the return on equity, there could also be possible to act over the operating profit margin,
through the measures mentioned within the analysis of the latter (increasing the selling prices, di-
minishing the complete costs, changi ng the structure of the sales in favour of the most profitable
one).

where:

41

– efficiency of the fixed assets;

– current assets turnover.
Analysis model:
1.

2.

ROE
3.1. s
3. 3.2. p
3.3. c
Unlike the first analysis model of the return on equity, this one highlights the efficiency of
utilising the fixed and current assets, which is an extremely important condition for the increase of
the operating profit margin. Data necessary for the analysis is presented in the following table.

Table 3.20.: Current assets turnover analysis (amounts expressed in thousands lei)
Indicators Symbol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Absolu
te Rela-
tive Absolu
te Rela-
tive
Turnover T 156.269 156.382 196.913 113 100,07 40.531 125,92
Expenses corresponding
to the turnover Exp 131.266 132.178 177.320 912 100,69 45.142 134,15
Recalculat ed turnover ∑ – 156.295 180.254 – – – –
Expenses corresponding
to the recalculated turn o-
ver ∑ – 131.845 151.869 – – – –
Profit corresponding to
the turnover Pr 25.003 24.204 19.593 -799 96,80 -4.611 80,95
Fixed assets FA 78.287 83.341 120.295 5.054 106,46 36.954 144,34
Current assets CA 69.740 85.262 120.166 15.522 122,26 34.904 140,94
Operating profit margin
(%) 16,00 15,4775 9,9501 -0,5225 96,73 -5,5274 64,29
Efficiency of the fixed as-
sets
1,9961 1,8764 1,6369 -0,1197 94,00 -0,2395 87,24

42
Current assets turnover
2,2407 1,8341 1,6387 -0,4066 81,85 -0,1955 89,34
Return on equity %) ROE 16,8909 14,3556 8,1481 -2,5352 84,99 -6,2075 56,76

The consequences of the change of the influence factors over the variation of the studied ra-
tio are presented in the following table (Table 3.21.)

Table 3.21.: The influence of the change on the other factors (amounts expressed in thousands lei)
Influence of the change: 2012/2011 2013/2012
of the efficiency of the fixed assets -0,5512 -0,9682
of the current assets turnover -1,4994 -0,7130
of the operating profit margin -0,4846 -4,5264
of the structure of the sold production -0,3307 0,2209
of the average selling prices 0,0435 5,8370
of the unit selling costs -0,1975 -10,5843

The efficiency of the fixed assets decreases from year to year as a consequence of the value
increase of the fixed assets in a rhythm superior to the increase of the turnover. In 2013, based on
the investments made in productio n equipments, the increase of the fixed assets‟ value is quite evi-
dent (+ 44,34%), thus, even though the turnover has a big enough dynamic, of + 25,92%, the return
on equity decreases by 0.96%; the situation is considered to be justified, taking into consi deration
that Aerostar is an industrial company, and in the case of such companies, the investments are re-
covered in a relatively long period of time.
The current assets turnover, by its decrease with 0,4066 rotations in 2012 and 0,1955 in
2013, determine s the decrease of the return on equity with 1,49%, respectively with 0,71%. The de-
celeration of the rotations speed is explained through the increase of the stocks (stocked production
and production that is in progress, consumables and raw materials), as well as of the receivables.
Besides the recommended solutions within the previously analysed model, there must be
diminished the size of the stocks and there must be paid extreme attention to receivables collection,
in order not to influence the company‟s results and liquidity indicators in a negative way.

2.4.4. Analysis of the financial rate of return
Calculation model:

43

where:

represents the total assets turnover, expresses in number of rotations;

is the multiplying factor of the own capital;

– net profita bility of the total income.
Analysis model:
1.

Rf 2.

3.

The data base in order to perform the analysis is presented bellow (Table 3.22.)
Table 3.22.: Financial rate of return analysis (amo unts expressed in thousands lei)
Indicators Sym-
bol 2011 2012 2013 Change
2012 – 2011 Change
2013 – 2012
Abso-
lute Relative Absolut e Relative
Total income TI 163.693 169.100 219.220 5.407 103,30 50.120 129,64
Total assets TA 148.027 168.603 240.461 20.576 113,90 71.858 142,62
Own capital K 111.111 110.586 128.061 -525 99,53 17.475 115,80
Net profit 11.276 12.448 15.068 1.172 110.39 2.620
121,05
Total assets turn o-
ver
1,1058 1,0029 0,9117 -0,1029 90,70 -0,0913 90,90
Capital multiplying
factor
1,3322 1,5246 1,8777 0,1924 114,44 0,3531 123,16
Net profitability of
total assets(%)
6,8885 7,3613 6,8735 0,4728 106,86 -0,4879 93,37
Financial rate of re-
turn (%) Rf 10,1484 11,2564 11,7663 1,1080 110,92 0,5099 104,53

The results of the calculation are presented in the following table (Table 3.23.)

44

Table 3.23.: The influence of the change on the other factors (amounts expressed in thousands lei)
Influence of the change: 2012/2011 2013/2012
of the total assets turnover -0,9442 -1,0245
of the capital multiplying factor 1,3292 2,3695
of the net profita bility of total income 0,7230 -0,8351

The financial rate of return of the company Aerostar experiences a slight increase over the
analysed period: with 1,11% in 2012 and with 0,51% in 2013. The favourable evolution of this rate
is given by the capital multiplying factor, as well as by the net profitability of the income (in 2012).
By analysing the evolution of the capital multiplying factor, there could be noticed its in-
crease with 14,44% in 2012 and respectively 23,16% in 2013, as well as a positive influence over
the return on equity, of + 1,32% in 2012 and 2,36% in 2013, respectively. However, there must be
taken into account the company‟s degree of indebtedness, which increases from 24,94% in 2011 to
34,41% in 2012, reaching 46,74% in 2013. The increas e of the debt level is not alarming, being the
consequence of the company‟s development. Besides, the increase of the indebtedness makes possi-
ble the increase of the invested capital‟s efficiency, through the intensive utilisation of the tangible
assets and through the reduction of the necessary working capital. However, there must pay especial
attention to the indebtedness degree of the company, which, for the moment, does not have an in-
creased level, but which could, by its increase, to generate difficult ies in obtaining finances, like
bigger interest rates or additional guaranties for bank credits, as well as the decrease of the inves-
tors‟ interest.
The net profitability of the income has a fluctuant evolution, increasing initially by 0,47%,
and then reaching an approximately equal level with the one registered in 2011. The decrease of this
rate is due to the increase of the total income in a relatively bigger rhythm than the one of the net
profit, which denotes that the exploiting activity is not efficien tly developed, and Aerostar must
change its pricing policy, so that it would be a efficient one, but also to keep the costs under control.
Total assets turnover decreased with 9,3% in 2012 and 9,1% in 2013, as a result of the ac-
celerated growth rhythm of the assets compared to the one of the income, determining the decrease
of the financial rate of return by 0,94%, respectively by 1,02%. The value of the assets increased
based on the acquisitions of equipments and technical installations, which, taking into account the
field of activity of the analysed company, are quite expensive and could not bring income of the
same value in such a short period, but during a relatively longer time span.

45
As a conclusion, in order to improve the situation, there must be maximised the result of the
accounting period by optimising the commercial administration and, implicitly, the stocks, but also
by improving the quality of the products/services. Besides, in order for the indebtedness to have the
expected effects, the obtaine d income must cover the cost of the debts.

2.4.5. Analysis based on the stock exchange indicators
Database for calculating the indicators:

Table 3.24.: Stock exchange indicators analysis (amounts expressed in thousands lei)
Element s Symbol 2011 2012 2013 Index
2012/2011 Index
2013 /2012
Net profit Pr net 11.276 12.448 15.068 110,39 121,05
Total dividends Div 8.120 8.434 10.542 102,86 125
Stock exchange
capitalisation SEC 112.460 115.965 168.325 103,12 145,15
Accounting net as-
sets ANC 111.111 110.586 128.061 99,53 115,80
Turnover T 156.269 156.382 196.913 100,07 125,92
Number of issued
shares N 117.136.530 – –

In the following table are synthesised the values, as well as the relative changes of the stock
exchange indicators previously presented (in the subchapter 1.3.).

Table 3.25.: Profitability ratios analysis: (amounts expressed in thousands lei)
Indicator Calculation for-
mula 2011 2012 2013 Index
2012 – 2011 Index
2013 – 2012
PER ⁄ 9,9730 9,3160 11,1710 93,41 119,9 1
MBR ⁄ 1.0121 1,0486 1,3144 103,61 125,34
P/S ⁄ 0,7197 0,7416 0,8548 103,04 115,27
EPS ⁄ 0,0963 0,1063 0,1286 110,39 121,05
DIVY ⁄ 0,0729 0,0727 0,0626 99,75 86,12

The price/earnings ratio – PER – remains, during all those years, in the interval that is con-
sidered optimal, showing how much are the investors willing to pay for 1 leu of net profit, respe c-

46
tively 9,973 lei in 2011; 9,316 lei in 2012 and 11,171 lei in 2013, respectively. Therefore, the image
of the company on the market is a good one, being considered attractive for the investors.
By analysing the proportion between the market value and the accounting value, there could
be noticed that is bigger than 1 and also that is constantly increasing during the analy sed period.
Taking into consideration that the accounting net assets represent, actually, the company‟s own cap-
ital, MBR reflects the fact that the company has created value for the shareholders, the latter col-
lecting more from the amount of money the investors would be willing to pay for the existing shares
than from assets liquidation.
The following indicator, price to sales ratio also has an upward evolution, which does not to-
tally reflect a favourable situation, considering that the investors are more attracted by the shares
with a smaller value of P/S.
EPS or earning per share registers increasing values from year to year, reflecting an upward
tendency of the result that the company brings to its shareholders.
The analysis of the trend of the dividends ‟ efficiency reflects a downward evolution of the
latter, which could be seen as a possibility to increase the future dividends, as the value increase of
the dividend per share also confirms from year to year (0,07 in 2011; 0,072 in 2012 and 0,09 in
2013, respectively).
Overall, Aerostar is a company well quoted on the financial market, with a good stock ex-
change image, fact confirmed also by the fourth position in the top 2013 of the most profitable 10
shares from the Bucharest Stock Exchange.

47
Concl usions

After the conducted case study on the company Aerostar, there has been found put that, even
though the gross result and the operating one have an upward tendency, the values of the repair and
maintenance expenses, as well as the ones of adjustments for stocks depreciation have quite high
values, negatively influence the production of the accounting period and also the efficiency indic a-
tors. Thus, there have been registered a decrease of the profit corresponding to the turnover, respe c-
tively the profitability ratios, except the financial rate of return.
Thus, there are imposed recovery measures, which refer to:
• reduction of the costs, without affecting the quality of the products/services, by negotiating more
advantageous acquisition prices or by acqu iring from the closest suppliers (meaning smaller
transportation costs);
• improving the manner of utilising the equipments by reducing the accidental stops, caused by the
non-execution, in due time, of the revisions and reparations, which determine the incomplete us-
age of the labour force;
• preventive maintenance of the machinery and equipments by the personnel with a high qualific a-
tion degree, this consisting in discovering the causes of the functional interruptions (disconne c-
tions), the remedy of the defect ions, the making of the necessary adjustments;
• dimensioning the stocks according to the volume of activity and the market demand, avoiding, in
this way, the accumulation of the slow moving stocks, hard to be sold or even impossible to be
sold;
• accelerating the rotation speed of the stocks by supplying, in real time, raw materials, by de-
creasing the stock of finished goods destined for sale and by accelerating the rhythm of collec t-
ing the receivables;
• increase of the weight of the maintenance and repair services within the civil aviation domain,
considering that they have a profit rate higher than the average of the enterprise;
• increase of the volume of activities and selling prices;
• reducing the duration and the costs of the investments that are in progress.
Above all the previously mentioned, Aerostar should also follow, from now on, the deve l-
opment of its position on the international market within the civil aviation domain by producing
aviation products and maintenance services. Therefore, based on a ‘significant package of orders
and multi annual contracts’ (Annual Report of Aerostar from 2012, page 10) will be considered and
increase of the export by approximately 27%, which leads to the increase of a turnover by 33%, as

48
well as of the expenses correspond ing to it, by 30%. Thus, under the circumstances in which the
investments refer to continuing the previous ones, initiated in the past years, and as a consequence,
the total assets increase by just 20% and forecasts an increase of the own capital with 15% com-
pared to 2012, obtaining these values.

Table 3.26.: The company’s main profitability indicators (amounts expressed in thousands lei)
Indicator s 2012 2013
Export 139.808 177.556
Turnover 196.913 261.894
Expenses corresponding to the turnover 177.320 230.516
Profit corresponding to the turnover 19.593 31.378
Total assets 240.461 288.553

The obtained results based on the forecasted data are synthesised in the table 3.27.

Table 3.27.:
Indicator s 2012 2013 Index (%)
Profit rate 11,05 13,61 123,19
Return on sales 9,95 11,98 120,41
Return on equity 8,15 10,87 133,46
Financial rate of return 11,77 12,79 108,70

The increase of the profit rate reflects the efficiency of the expenses corresponding to the
turnover, as a result of the recovery measure s previously proposed. Also, the return on sales, prior
the optimisation of the sales‟ structure, as well as of the increase of the selling price and of the phys-
ical volume of the sold production, increases by 20,41%, reaching the level of 11,98%. The return
on equity ratio, due to the increase of the profit in a rhythm superior to the one of the total assets
increases by 33,46%, which shows a more efficient utilisation of the assets, both of the fixed ones,
as well as of the current ones (through the accel eration of the rotation speed). In what concerns the
financial rate of return, it increases as a consequence of the more accelerated increasing rhythm of
the net profit compared to the one of the own capital. There should also be mentioned that there is
kept the same financing structure, the company not applying for bank loans.

49
To conclude, even though the company‟s efficiency indicators are within acceptable limits,
their decrease imposes recovery measures, some of them being previously presented in this paper.
Of course, these measures do not represent any new elements for the company, being very probable
that Aerostar has already applied them for the year 2014. Taking into consideration the longevity
and the reputation of this company, as well as the ability of its managers, proved over the time,
Aerostar for sure will reach its objective to increase the efficiency and to develop on the intern a-
tional market.

50
References

Books:

1. BUGLEA, Alexandru, Analiză economico -financiară, Editura Mirton, Timișoara, 2011
2. CIORA, Costin, Analiza performan ței prin creare de valoare, Editura Economică,
București, 2013
3. DAVID, Iulia, Rentabilitatea în sistemul de performan țe economico -financiare ale
întreprinderii , Editura ASE, 2003
4. DINU, Eduard, Rentabilitatea firmei în practică, Editura All Beck, București, 2004
5. GEORGESCU, Nicolae, Diagnosticul performan țelor financiare pe baza rentabilității și a
eficienței utilizării capitalurilor (contract de cercetare) , Editura ASE, 2009
6. IȘFĂNESCU, Aurel; ROBU, Vasile; HRISTEA, Ana Maria; VOICULESCU, Camelia, An-
aliză economico -financiară, Editura ASE, București, 2002
7. LALA POPA, Ioan, Analiză economico -financiară, Editura Mirton, Timișoara, 2012
8. PĂVĂLOAIA, Willi (coordonator), Analiză economico -financiară. Concepte și studii de
caz, Editura Economică, București, 2010
9. PETCU, Monica, Analiza economico -financiară a întreprinderii , Editura Economică,
București, 2009
10. SIMINICĂ, Marian, Diagnosticul financiar al firmei, Editura Universitaria, Craiova, 2008
11. SPĂTARU, Liviu, Analiza economico -financiară: instrument al managementului
întreprinderilor , Editura Economică, București, 2011
12. STANCU, Ion, Finanțe, Ediția a 4-a, Editura Economică, București, 2007
13. ȘERBAN, Elena Claudia; CREȚU, Raluca; CUREA, Ștefania, Analiză economico –
financiară, caiet de lucrări aplicative , Editura ASE, București, 2008
14. VÂLCEANU, Gheorghe; ROBU, Vasile; GEORGESCU, Nicolae, Analiză economico –
financiară, Ediția a 2-a, Editura Economică, București, 2005
Websites:
1. www.a erostar.ro
2. www.tradeville.eu
3. www.bvb.ro
4. www.economica.net
5. adevarul.ro

51
6. www.agerpres.ro
7. www.ktd.ro

Appendi x
Appendix 1. Statement of financial position
Items 2011 2012 2013
Assets 78.287 83.341 120.295
Tangible assets 70.540 76.262 108.905
Intangible assets 481 585 1.777
Financial assets 186 212 183
Deferred tax 0 0 1.874
Current asstes 69.740 85.262 120.166
Inventory 12.397 15.064 24.749
Receivables 17.726 32.482 47.337
Cash and cash equivalents 39.617 37.716 48.040
TOTAL ASSETS 148.027 168.063 240.461
EQUITY 111.111 110.586 128.061
Capital 29.284 37.484 37.484
Current output 11.276 12.448 15.068
Earnings -1.170 -1.839 -570
Revaluation reserve 41.182 41.182 57.485
Other reserves 20.459 13.110 14.175
Other equity items 10.680 8.201 4.419
Long -term liabilities 11.692 24.496 39.672
Provi sions 9.545 20.648 29.220
Investment subsidies 2.107 3.673 6.365
Other long -term liabilities 40 175 4.087
Current liabilities 25.224 33.521 72.727
Trade liabilities 6.574 12.324 31.173
Financial leasing liabilities 0 0 22
Curr ent income tax liability 2.332 1.833 406
Provisions 11.817 15.576 36.615
Other current liabilities 4.501 3.788 4.511
TOTAL LIABILITIES 148.027 168.603 240.461

52
Appendix 2. Extra ct from the Situa tion of the global result
Items 2011 2012 2013
Turnover 156.269 156.382 196.913
Changes in inventories of finished goods and work in progress 1.412 3.432 9.340
The work performed by the entity and capitalized 2.117 1.308 619
Total operating income 163.693 161.543 207.476
Raw materials and consumable 54.499 38.747 58.724
Personnel expenses 51.080 50.813 65.478
Depreciation and impairment of fixed assets 7.585 6.680 10.388
Expenses for provisions 11.395 14.862 13.950
Expanditure on external services 13.432 20.024 23.071
Total operating expenses 149.835 146.052 191.269
Operating result 13.858 15.491 16.207
Financial income 7.699 7.557 11.744
Financial expenses 6.151 5.012 9.385
Financial result 1.548 2.546 2.359
Gross 15.406 18.037 18.566
Current and deferred tax 4.130 5.589 3.498
Net 11.276 12.448 15.068