Financial Analysis of Crystal Hotel: A Comparative Study

This report analyzes the financial performance of Crystal Hotel and compares it with industry benchmarks through ratio and vertical analysis. It provides insights into revenue, cost of sales, personnel costs, and unallocated operating costs. The report also includes profitability, efficiency, liquidity, and solvency ratios to evaluate the hotel's financial health. Recommendations are given to improve cost management and increase revenue from food and beverages. The report concludes with a discussion on the hotel's performance compared to the industry.

BIZ201 Accounting for Decision Making

Executive Summary
The purpose of this report is to address the financial issues faced by Crystal Hotel and to
make comparison of company performance with industry benchmark through use ratios and
vertical analysis. Vertical comparative analysis of company with industry benchmark shows that
company had been successful in saving must of its cost but it lack behind in reducing the cost of
sales and unallocated operating cost. It might be possible that company provide extra services
free of cost to their customer that adds to operating cost that no other hotel provide.

Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Comparative Analysis of income statement of Crystal Hotel with its industry benchmarks..........4
Ratio Analysis of Crystal Hotel and comparative analysis with the industry values......................6
Use of other industry benchmark to compare company performance with that of industry.........10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12

Introduction
This report has been developed for carrying out an analysis of the case study of ‘Crystal
Hotel’ with the application of the technique of financial statement analysis. In this context, it has
developed and presented vertical analysis of the financial statements for the hotel for the
financial year 2015. This is followed by conducting ratio analysis of the hotel for gaining an
estimate of its present as well as future financial performance. The ratio analysis evaluates the
profitability, efficiency, liquidity and solvency position of the business. The results obtained with
the use of vertical analysis technique are compared with the industry benchmarks for evaluating
the performance of the hotel in comparison to the hotel. This mainly includes comparison of
revenue, cost of sales, personnel costs, unallocated operating costs and total cost of production.
The financial results obtained with the use of ratio analysis are evaluated with respect to the
industry data for analyzing the future performance of the hotel as compared with the overall
industry.
Comparative Analysis of income statement of Crystal Hotel with its industry benchmarks
Crystal Hotel Pty Ltd Vertical
Analysis
Statement of Profit or Loss Company Industry
For the period ended 30/06/2015 Numbers
of Rooms
Average
Room
Price
Range
160 rooms 2015 2015
150$ >150
rooms 80$-150$
Revenue
Rooms Revenue $4,006,920 61.88% 65.00% 50%
Food and Beverage Revenue $936,497 14.46% 25.00% 39%
Functions $960,326 14.83% 6.00% 7%
Other Revenue $571,906 8.83% 4.00% 4%
Total Revenue $6,475,650 100.00% 100.00% 100%
Cost of Sales
Rooms Cost of Sales $844,634 13.04% 8.00% 6%
Food and Beverage Cost of Sales $807,461 12.47% 8.00% 11%
Other Cost of Sales $134,636 2.08% 2.00% 2%
Total Cost of Sales (excluding
personnel cost) $1,786,731 27.59% 18.00% 19%

Gross Profit $4,688,919 72.41%
Personnel Costs
Rooms $492,078 7.60% 13.00% 13%
Food and Beverage $458,716 7.08% 11.00% 15%
Administrative and General $297,868 4.60% 4.00% 4%
Sales and Marketing $222,209 3.43% 1.00% 1%
Property Management and
Maintenance $172,763 2.67% 2.00% 4%
Total Personnel Costs $1,643,634 25.38% 30.00% 36%
Unallocated Operating Costs
Administrative and General $438,461 6.77% 2.0000% 2%
Information Systems $3,574 0.06%
less than
4% or
equal to
4%
less than
5% or
equal to
5%
Sales and Marketing $200,167 3.09% 3% 2%
Security $53,616 0.83%
less than
4% or
equal to
4%
less than
5% or
equal to
5%
Transportation $81,020 1.25%
less than
4% or
equal to
4%
less than
5% or
equal to
5%
Property Operations and
Maintenance $291,911 4.51% 5% 5%
Utilities $116,764 1.80%
less than
4% or
equal to
4%
less than
5% or
equal to
5%
Total Undistributed Operating
Costs $1,185,514 18.31% 14.00% 14%
Total Cost of Sales $4,615,879 71.28% 62.00% 70%
Operating Profit $1,859,770 28.72% 38.00% 30%
(Brigham & Michael, 2013)
In this section income statement of company has been compared with the industry
benchmark. Industry benchmark is based on two main criteria and they are number of rooms and
average room price. As the number of rooms of Crystal Hotel was 160 rooms and average room
price was $150, the data of industry benchmark has been extracted from table 1 & 2 and it was

compared with company vertical analysis of income statement above. Some important points of
comparison have been discussed below:
 Revenue: When revenue percentage of different streams have been compared with
industry benchmark it has been found that company focus functions and other revenue in
addition to room revenue and sale of food & beverages. Industry benchmark is very low
for both functions and other revenue that supports that Crystal Hotels make organization
of functions at large scale as compared to competitors in same industry. On the basis of
average room price industry benchmark, Crystal Hotel had outperformed the other
companies. It means Crystal Hotel have high occupancy ratios as compared to
competitors. On the basis of number of rooms, company has slightly low revenue
percentage from rooms as compared to industry benchmark which indicates company
follows competitive pricing strategy to allow to maximum occupancy of rooms. Crystal
hotel earned approx 15% from sale of food & beverages but it very low as compared to
industry. Overall it is recommended to focus on sale of food & beverages through use of
attractive offers (Damodaran, 2011).
 Cost of Sales: Overall cost of sales of company was very high as compared to industry
benchmark in both cases (Number of rooms and average room price). It means there is
need to focus on reducing the cost of sales through reducing the offering made to
customers and use of value proposition measures to control the cost.
 Personnel costs: Personnel cost of company have been charged relatively low as
compared to industry benchmark that allows company to save some cost and use such
money for improvement of hotel overall facilities.
 Unallocated operating cost: These cost are fixed in nature and they are very important
for providing the main services but it is very important company should allow only such
cost that add value to the revenue. These costs add 18% of overall revenue while average
industry benchmark limits it 14% that indicates company is providing additional services
that no hotel is providing (Davies & Crawford, 2011).
Ratio Analysis of Crystal Hotel and comparative analysis with the industry values
This section of the report has presented the financial results in context of the profitability,
efficiency, liquidity and solvency position of the Crystal Hotel Pvt Ltd. The outcomes achieved
with the use of ratio analysis technique are evaluated as per the industry benchmarks in order to
evaluate the financial performance of the hotel as compared with the industry benchmarks.
Profitability Analysis
The analysis is carried out for determining the ability of a business to generate profit after
meeting all its expenses related to carrying out its operational activities. It is calculated by the
use of following ratios:

Gross Profit Margin Net Profit Margin Return on Assets Return on Equity
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
72.41%
19.53% 22.72%
30.86%
81.00%
11.00% 8.00% 9.00%
Profitability Ratios
Percentage
Gross Profit Margin: This measure has been used for examining the financial health of a
company by calculating the profits realized from the sales after deducting the cost of goods sold.
The ratio is used for measuring the efficiency of a company in using its resources such as
materials and labor for generating profits (Moles & Kidwekk, 2011).
Formula: Gross Profit/Sales
It can be stated from analyzing the gross profit margin of the company in comparison
with the industry benchmark that it has realized less profits and therefore it should emphasize on
reducing its cost of sales for achieving the industry benchmark.
Net Profit Margin: The ratio is used for depicting the profits generated by a company after
meeting all its operational expenses such as interest and taxes.
Formula: Net Profit/Revenue
The overall analysis has depicted that the net profit margin ratio of the hotel has reported
a higher margin that is 19.53%, in comparison to that of the industry benchmark of 11%. This
means that it has outperformed the market in terms of net profitability which ensures its good
aspect of the future financial performance (Zimmerman & Yahya-Zadeh, 2011)
Return on Assets (ROA): The ratio is used for assessing the ability of a company to generate
return on assets.

Formula: Net Income/Total value of assets
It can be stated from analyzing the financial results of the hotel that it has realized higher
returns, that is, 22.72% from the use of its asset base in comparison to the overall industry
benchmark that is 8%. The performance of the hotel business can be stated as very good as
compared with its competitors that ensures its good future prospects.
Return on Equity (ROE): It provides an assessment regarding the profits realized by a
company for generating income from the equity base. The formula used for the calculation is as
follows:
ROE=Net Income/Shareholders Equity
ROE of the hotel, that is, 30.86%, as compared with the industry benchmark of 9% that
states that the hotel has outperformed the industry by realizing higher returns on equity as
compared with its competitor base.
Efficiency Ratios
The ratio depicts the ability of a company to use effectively its assets and liabilities. It
can be measured for the hotel with the use of following ratios:
Inventory Turnover Number of days
Inventory Held Accounts Receivable
Turnover Accounts Receivable
Collection Period
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
6.60
55.27
3.82
95.67
8.6
35
Efficiency Ratios
Times
Inventory turnover: The ratio measures the ability of a company to replace its inventory within
a given accounting period.
Formula: Sales/Average inventory

The ratio for the company, that is, 6.60% is significant lower as compared with that of the
industry of 8.60% which means that it need to improve its ability for replacing inventory.
Accounts Receivable collection period: It measures the ability of a company to covert sales into
profits (Arnold, 2013)
Formula: Outstanding Receivables/Total sales
The ratio for the hotel, that is, 95.67% is higher as compared with the industry benchmark
of 35% which means that it need to improve its ability to covert credit sales as compared with the
competitors.
Liquidity Ratios
The liquidity analysis is used for measuring the ability of a company to meet its financial
obligations with its liquid assets. It can be accessed for the hotel with the use of following ratios:
Current ratio Quick Ratio
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1.86
1.46
3.20
2.12
Liqudity Ratios
Times
Current Ratio: The ratio measures the ability of a company to meet its current financial
obligations with its liquid asset base.
Formula: Current Assets/Current Liabilities
The ratio has depicted a lower growth margin of 3.20% as compared with that of the
industry of 1.86% which means that it need to improve its liquid asset base for reducing the
financial risk of not covering up its current obligations.

Quick Ratio: The ratio depicts the ability of a company to meet its financial obligations with its
most liquid asset base such as cash in hand, accounts receivable and others.
Formula: (Cash + marketable securities+ Accounts Receivables)/Current liabilities
The hotel has reported a lower quick ratio of 1.46 % as compared with the industrial
benchmark of 2.12% which means that it need to improve its cash flow position for meeting the
current financial obligations (Baker & Powell, 2009).
Solvency Ratios
Debt to Equity Ratio Debt Ratio Equity Ratio
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
Solvency Ratio
Percentage
Debt to equity ratio: It measures the proportion of debt and equity capital for the given period.
Formula: Total Liabilities/Shareholder’s equity
Crystal Hotel uses more than 35% of debt capital in proportion to equity capital which
indicates average leverage position of the company (Baker & Powell, 2009).
Use of other industry benchmark to compare company performance with that of industry
Occupancy %: This benchmark helps in measuring the performance of hotels through
calculating the number of rooms occupied as compared to room available.
Formula: Rooms Occupied/Rooms Available
Average Daily Rate: This benchmark compares average price paid per room on the particular
day and it is measured in terms of revenue per hotel on the given date.
Formula: Revenue earned /Rooms occupied (on the given date)

Revenue per available room REVPAR: Unlikely this benchmark is similar to average daily
rate but the criteria defined by this ratio is somewhat different as it measures average daily
revenue earned on number of rooms available (Krantz, 2016).
Formula: Total Room Revenue/Rooms available
Conclusion
On the basis of overall comparative analysis Crystal Hotel performance with that of
industry benchmarks it can be said company had performed well as compared to its competitor.
There are some recommendations provided with regards to each ratio and company must
implement those recommendations in order to improve the performance.

References
Arnold, G., 2013. Corporate financial management. USA: Pearson Higher Ed.
Baker, K. & Powell, G. 2009. Understanding Financial Management: A Practical Guide. USA:
John Wiley & Sons.
Brigham, F., & Michael C. 2013. Financial management: Theory & practice. Canada: Cengage
Learning.
Damodaran, A, 2011. Applied corporate finance. USA: John Wiley & sons.
Davies, T. & Crawford, I., 2011. Business accounting and finance. USA: Pearson.
Krantz, M. 2016. Fundamental Analysis for Dummies. USA: John Wiley & Sons.
Moles, P. & Kidwekk, D. 2011. Corporate finance. USA: John Wiley &sons.
Zimmerman, J.L. & Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues
in Accounting Education, 26(1), pp.258-259.