Accounting Fundamentals || Assignment

RUNNING HEAD: ACCOUNTING FUNDAMENTALS
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Accounting Fundamentals

Accounting Fundamentals
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Ratio Analysis
1. Liquidity Position
In order to know the liquidity position of Jasmine Hotel current ratio and quick ratio
of the company is calculated. The current ratio of the company in 2017 was 2.94 and
in 2018 the ratio was 3.33. This indicates that the current assets of Hotel are more
than its current liabilities that is a good indicator for the company. This implies that
Jasmine Hotel can pay its short term obligations on time using its current liabilities.
The ideal current ratio for the industry is 2:1 but Jasmine Hotel showed ratio of 3.33
in 2018. On the other side, quick ratio excludes inventories and includes all current
assets that can convert into cash immediately. The quick ratio of Jasmine Hotel in
2017 was 2.60 and in 2018 it was 3.15 that also states that liquidity position of Hotel
is strong and the company can pay its short term obligations on time.
Jasmine Hotel
Marriott Hotel
Liquidity Ratio 2017 2018
1. Current ratio 0.47 0.43
(Market watch,2018)
The main competitor of Jasmine Hotel is Marriott Hotel, current ratio of Marriott in
2017 was 0.47 and in 2018 it was 0.43 and the current ratio for the industry is .95
(Market watch,2018). Hence, it can be said that the liquidity position of Jasmine Hotel
is strong but the company need to reduce its current assets as higher ratio indicate that
the company assets are ideal and this amount can be invested in other activities to
gain return. Further, as comparison to Marriott Hotel the liquidity position of Jasmine
Hotel is strong as ratio of the company is more than 2. Jasmine Hotel can pay its
Liquidity Ratio 2017 2018
1. Current ratio 2.94 3.33
2. Quick ratio 2.60 3.15

Accounting Fundamentals
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immediate liabilities effectively and the working capital flow of the company also
remains smooth without any shortage of cash for day to day activities.
2. Solvency Ratio Analysis
In order to understand the capital structure of Jasmine Hotel the debt and equity ratio
is calculated. Debt to Equity ratio is used to know the ratio of owners’ capital and
debts in the capital structure of the company. The debt equity ratio of Jasmine Hotel
in 2017 was 0.4340 and in 2018 it remains the same. As debt of Jasmine Hotel was
449745 and equity was 1036245. The proportion of debt in the capital structure is low
that indicate that financial position of Hotel is strong and the capital structure is less
risky (Hamit,2018). The maximum ratio that any company can maintain is 2:1. The
present ratio maintained by Jasmine Hotel is indicate the stable position of business
but any further decline leads to diluted liquidity situation.
Jasmine Hotel
Solvency Ratio 2017 2018
Debt to Equity ratio 0.4340 0.4340
Marriott Hotel
Solvency Ratio 2017 2018
Debt to Equity Ratio 2.19 3.83
(Market watch,2018)
On the other side, Marriott Hotel debt equity ratio for year 2017 and 2018 was 2.19
and 3.83 respectively. In comparing ratio of both companies it can be said that
Marriott Hotel capital structure is risky because of higher debt equity ratio. “Higher
the ratio, higher the proportion of debt in the capital structure” (Vogel,2016). Hence,
the financial position of Jasmine Hotel is better as the company has less debt than
equity. This represents that Jasmine Hotel can pay its long term debts smoothly.
Further, the proportion of debt in Marriott Hotel is high, this helps the company to
gain tax advantage but this increase the cost of capital for Hotel (Market