Asset Utilization Analysis: IHG vs M&C

This assignment involves analyzing the asset utilization efficiency of IHG Plc by evaluating its total assets, fixed assets, and inventory turnover ratios over a three-year period (2014-2016). The analysis should also compare IHG's performance with that of its competitor, M&C Plc. The goal is to assess whether IHG has utilized its assets appropriately and identify areas for improvement.

To analysis and evaluation of the business and financial
performance of the Intercontinental hotel Plc over a three year
period.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Research approach..................................................................................................................4
PART 2............................................................................................................................................4
Sources of data collection.......................................................................................................5
Description of the methods used to gather data set................................................................5
Limitations of the information gathered.................................................................................6
Ethical issues..........................................................................................................................7
Explanation of the accounting techniques used along with their limitations.........................7
Business techniques................................................................................................................9
PART 3: RESULT, ANALYSIS, CONCLUSION AND RECOMMENDATIONS....................11
Financial performance evaluation........................................................................................11
Business analysis..................................................................................................................26
Conclusion............................................................................................................................31
Recommendations................................................................................................................33
REFERENCES..............................................................................................................................35
APPENDIX....................................................................................................................................37
1. Financial statements of IHG Plc.......................................................................................37
2. Financial statements of Millennium & Copthorne Hotels PLC.......................................39
3. Ratio analysis of Inter -continental hotel group Plc.........................................................42
4. Ratio analysis of Millennium & Copthorne Hotels PLC.................................................44

INTRODUCTION
Topic: To analyze and evaluate the business and financial performance of the Intercontinental Hotel Plc over a three-year period.
Selection of the topic
The topic which is selected for the preset research is to analyse and evaluate the business and financial performance of the
Intercontinental Hotel Plc over a three-year period. The main rationale behind selecting this topic is to get deep information related to
financial performance of the firm (Perez Arrau, Perez Arrau. and Fathi Easa, 2016.). Along with this it helps in developing the
knowledge in the financial area. In the present research an organisation is selected from hospitality industry that is Intercontinental
Hotel. The reason for selecting this industry is, it is one of the fastest growing industry and it help in gaining deep information related
to financial performance of hospitality sector.
Objectives of the present research is as follows:
 To analytical review the financial performance of Intercontinental Hotel Plc by comparing it with its competitor that is
Millennium & Copthorne hotels Plc over past 3 years.
 To determine the key value drivers for an effective performance and organisation issues barrier the good performance.
 To ascertain the effect of “Economic recession and financial performance of Intercontinental Hotel Plc.
 To measure the strategic position of Intercontinental Hotel Plc through analysing the performance.
 To recommend on the basis of analysing the financial performance of Intercontinental Hotel Plc.
Research questions
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In order to accomplish the above-mentioned objectives there are following questions
How competitive Intercontinental hotel Pl performance in past 3 years in term of Market share and Sale growth as compare to its
competitor Millennium & Copthorne hotels Plc?
What are the key value drivers for an effective performance and organisation issues barrier the good performance.
What are the effect of “Economic recession and financial performance of Intercontinental Hotel Plc.
What the strategic position of Intercontinental Hotel Plc through analyzing the performance.
Hospitality industry and market share
Hospitality industry is become the most successful and demanding sector of the present time. This is the period in which a
major development is observed in aviation and technological industries that influence people for travelling. Consequent to this, hotel
industry is gaining huge productivity. A broad category of field is included in the hospitality sector such as lodging, event planning,
theme parks, cruise line, transportation, etc. Further, the tie-up of the service industry with various airlines and cruises companies has
generated the entire holiday packages which are the most demanding product of this era. This field has become the most significant
part of economy of any country of the globe. Further, these companies are the reflection of a nation to the tourists that come to visit
the destinations. Nations with attractive destinations are fortunate in terms of revenue of service industry. It may however be
recognised that different countries have variable tax and pricing structure which may impact the profit earned.
In context to UK, which is the sixth largest international tourism destination, the role of the service sector is definitely major.
The market share of this sector is found to be about 12%. The major entities that accounts in the share are Premier In, Tavelodge,
Hilton Hotels, Holiday Inn express, Ibis, Jurys Inn etc. It is the biggest and fastest growing industry of the country. According to the
UK tourism statistics of 2016, the revenue collected from the tourists through hospitality industries is £127.4bn. However, it may be
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recognised that the revenue collected for conducing the various domestic events is excluded from the data. With the various programs
such as conferences, music events, outdoor events, etc. the industry earns £142.3bn. In addition to this, the sector is achieving growth
rate of around 1% P.A. from past 6 years.
Company overview
Inter Continental Hotels
The Inter Continental Hotel operates under the hospitality industry which is a conglomerate hotel and located at Denham, UK.
It is one of the multinational company which provides its hospitality services to the customers across the world. According to the
survey of fiscal year 2016, employees providing their services and duties to the company are 28,589 and generated net profit worth of
$417 million at the end of financial year 2016. Mission of the Intern Continental Hotel is to create a thriving community for the young
customers like below age of 40 years in order to make sure representation in the association. Further, it has mainly three purposes
behind operating in the hospitality sector which are related to growth and development, future of the industry and fostering
collaboration. Origin of the intern continental hotel is from Brazil on August 19, 1981. Further, it becomes a brand in hospitality
industry as a specific division of the PanAm. In the year 2003, The group of Inter Continental hotels was split among two business
entities like Mitchells & Bulters. Therefore, when looking at the growth then consistently becoming broad and expanded business in
the world. Further, from the financial perspective also Intern Continental Hotel is growing with the better rate.
Millennium & Copthorne hotels Plc
The present project focuses on the competitors company of Inter Continental Hotel which is Millennium & Copthorne Hotels.
This selected rivalry entity is a public company as well as one of the leading hospitality management business. Headquarter located of
the chosen competitor company is located in London UK and having presence across the world. It has lower brand image along with
financial performance in the hospitality industry as compared to the above stated enterprise. Number of total employees are 10,966
and net income is worth of 98 million GBP according to the research of fiscal year 2016.
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Research approach
Research approach is important aspect of the research which provides detail information of the method of collecting the
information. In the present research, inductive approach is used in which first general information is gathered then focus on specific
information. Further, investigator in this approach first analyzes the observation through taking the theoretical framework. Along with
this, it provides better outcome at the time when quantitative research is taken into consideration ( Heisig, Heisig and Fathi Easa,
2016). The present research is based on analysis and evaluation of the business and financial performance of the Intercontinental Hotel
Plc over a three year period. Therefore, inductive approach is undertaken. The rationale behind selecting this, techniques is that it
helps in carried out study through collecting general information first then focus on specific issues which impact financial
performance of the firm. However, it can be stated that the selected research approach is effective for completing the entire research.
PART 2
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Sources of data collection
In the field of research, there are mainly two sources that can be undertaken for the purpose of data such as primary and
secondary. Hence, description of the sources that researcher can undertake for data gathering are enumerated below:
Primary data: In research, primary data implies for the one which is gathered by the researcher first time with the motive to
resolve specific issue. Hence, there are several methods that can be by undertaken for the purpose of primary data collection such as
survey, observation, focus group, interview etc (Xie and et.al., 2016). Hence, data gathered from such sources are highly effectual and
thereby assists in presenting the suitable solution of issue.
Secondary data: When researcher undertakes information that has already been collected, evaluated and published by other
scholars known as secondary. Hence, source of secondary data majorly includes books, journals and scholarly articles (Johnston,
2017). Besides this, with the help of internet scholar can gather specific information which is required to resolve issue.
In the present research, with the motive to assess and evaluate the performance of Intercontinental hotel Plc in against to
Millennium & Copthorne hotels Plc data set have been obtained by the researcher from secondary sources. Moreover, financial reports
of the concerned companies furnish appropriate information about their monetary position and performance over others.
Description of the methods used to gather data set
In order to evaluate performance of Intercontinental Plc over the years and in against to the competitors like M&C Plc several
secondary methods have been used for data collection such as:
 Websites of the company: By accessing the company’s website researcher has gathered information from balance sheet,
income as well as cash flow statement. Moreover, for doing ratio analysis and interpreting profitability, liquidity as well as
solvency aspect scholar requires information from the financial statements of concerned firms. Hence, with the aim to evaluate
the 3 years performance of IHG plc and its competitor such as M&C Plc annual reports pertaining to the year 2014, 2015 and
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2016 has been considered. Thus, with the help of internet and visiting the company’s website researcher has gathered data
from the financial reports of firm. Such data set will help scholar in meeting the research aim and objective to the significant
level.
 Books: Scholar has evaluated and thereby gathered data set from the books of accounting related to the techniques which in
turn helps in analyzing company’s financial performance. Hence, by using books scholar has prepared brief thesis has been
prepared by the researcher in relation to the ratio analysis techniques along with the limitations of each such as profitability,
liquidity etc.
 Journal and scholarly articles: In the recent times, along with the strategic framework there are several external factors that
have an impact on company’s sales and thereby profit margin. Hence, by considering such aspect journals and articles related
to IHG and M&C’s SWOT as well as Pestle analysis of hospitality sector has been evaluated. The rationale behind the
collection of such information is that it helps in assessing the reasons due to which profitability and other measures showing
inclining or declining trend.
Thus, all the above depicted methods have been considered to gather data set which in turn assists in evaluating IHG’s financial
performance over M&C Plc.
Limitations of the information gathered
In order to get information about the financial position, health as well as performance of IHG Plc data from the period of 2014 to
2016 has been gathered by the researcher using income statement and balance sheet. The reason behind the evaluation of financial
statement is to get information about IHG’s performance over the competitor under the category of profitability, liquidity, solvency,
efficiency and investment. This aspect shows that information gathered from financial statement is suitable and assists in meeting the
research aims as well as objectives to a great extent. However, there are some limitations which are associated with the data set
gathered by the researcher. For assessing the financial position of IHG plc over the rival firm annual reports have been evaluated the
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researcher. On the other side, for preparing annual statements or report different types of business unit consider varied rules. In this, it
is highly difficult for the firm to assess which one is performing in a better way. To avoid such limitation researcher has compared
performance of IHG Plc and its competitor with ideal ratio. Hence, by making comparison of liquidity, solvency ratios in against to
the standards scholar have presented the extent to which monetary position of IHG Plc is sound.
Along with this, due to time limitation scholar has gathered financial information from the period of 2014 to 2016 rather than 5
years. Further, to evaluate the IHG’s performance in against to competitor evaluation has been done with only one competitor such as
M&C. This is another limitation because if investigator gathers data of more than 2 competitors then there will be wide framework for
decision making. However, to overcome such limitation scholar has selected M&C, which is operating in hospitality sector, and
gathered data pertaining to 3 years from 2014 to 2016. All the above depicted aspects show that scholar has made best possible efforts
to avoid reducing the effect of limitations related to data gathering.
Ethical issues
For analyzing financial performance of IHG Plc data from income statement and balance sheet has been gathered as well as
recorded as it is. This in turn shows that data is copied from the annual reports of IHG Plc and M&C. Thus, to deal with such issue
reference and citation of annual report has been done by the scholar. Besides this, to avoid the similarity aspect synonyms have been
used by the researcher such as stock (inventory) etc.
Explanation of the accounting techniques used along with their limitations
Researcher has used ratio analysis techniques to determine whether financial position and performance of IHG Plc is sound
over M&C. From assessment, it has been identified that ratio analysis is the most effectual techniques which provides high level of
assistance in summarizing the financial statements of firm in a structured way (Boyas and Teeter, 2017). By using the ratio analysis
technique company and its stakeholders can evaluate various aspects such as efficiency, liquidity, profitability, solvency etc. Along
with this, outcome of ratio analysis assists business unit is identifying whether company’s performance is improving or deteriorating
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over the time frame and as compared to the rival firm (Pasciuto and et.al., 2017). By taking into account all such aspects it can be
depicted that ratio analysis technique helps company in measuring its performance level and thereby gives input for developing
competent framework for the near future. Further, technique of ratio analysis also assists company in comparing the relationship
between financial statements and thereby helps in assessing both strengths and weaknesses. On the basis of above depicted aspects it
can be said that ratio analysis technique gives quick indication regarding the financial performance in the context of following areas:
 Profitability
 Liquidity
 Solvency
 Efficiency
 Investment
Hence, by measuring IHG’s performance over the period of 3 years and in against to industry benchmark as well as rival firm
research issue which is being going to be investigated has been resolved. Moreover, profitability ratios indicate the gross and net
margin generated by the firm over the figure of sales. On the other side, liquidity ratios include both current and quick which in turn
entails the extent to which firm is capable in relation to meeting its obligation from assets other than non-current. Apart from this,
solvency ratio furnishes information about the capital structure or debt-equity position of firm (Lakshmi, Martin and Venkatesan,
2016). Further, efficiency ratio presents the extent how personnel has efficiently used both current and fixed assets while performing
business activities. In this way, ratio analysis technique helps in getting deeper information about each and every aspect associated
with the company’s operation.
Limitations of ratio analysis: There are some aspects which in turn limits the significance of ratio analysis technique such as:
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 Historical: In ratio analysis technique, information used by company or researcher is historical in nature. Moreover, for
evaluating liquidity, profitability, solvency and efficiency aspect past results are considered (Limitations of ratio analysis,
2017). On the other side, there is no possibility that firm will generate the same results in the near future. Variations in accounting policies: At the time of the preparation of final accounts different companies consider varied
accounting policies and process. For instance: One company is undertaking SLM for depreciation whereas rival considers
reducing balance technique. In this situation, analyst or researcher would not be in position to draw suitable conclusion
regarding financial position as compared to competitors.
 In the case of ratio analysis, contrasting results also create difficulty in front of analyst pertaining to decision making. For
example: Sometimes profitability position of the company is good but it’s weak from the perspective of liquidity. In this, it is
highly difficult to decide whether company’s financial performance is good or weak.
Business techniques
SWOT analysis
As per the views of Bohari and et.al., (2017) SWOT analysis is the most effective technique which in turn clearly highlight the
strengths, weaknesses, opportunities and threats. By undertaking such aspects business unit can develop competent framework and
thereby would become able to attain success. However, Mohezar, Moghavvemi and Zailani (2017) argued that SWOT analysis only
furnish information about the internal and external analysis but it does not offer alternative decisions. Along with this, SWOT analysis
produces lots of information out of which only some are useful. The strength of the company is that it is financially strong as it
adopted new technologies for carrying out its business activities. Weakness is that financial statement sometime not understandable
and meets the objectives of the firm. Company has opportunities to meet the objectives through analyzing its financial statements
PESTLE analysis
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In accordance with the views of Fozer and et.al., (2017) PESTLE analysis technique serves information about external
environment which is out of the control of business unit. Hence, technique of PESTLE analysis serves highly valuable information
which in turn helps in reducing the effect of potential threat to a great extent. On the critical note, Robinson and et.al., (2016) said that
in the real-life users access to quality external information is restricted because collation of the same requires more cost and time.
Along with this, it is time consuming process and demand for regular evaluation for making effective decisions. Further and et.al.,
(2016) stated that PESTLE analysis technique provides business unit operating at international level with a mechanism and helps in
identifying as well as exploiting the business opportunities.
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PART 3: RESULT, ANALYSIS, CONCLUSION AND RECOMMENDATIONS
Section of data analysis is highly significant which in turn clearly presents findings along with the chart and graphs. In the present
investigation, to evaluate the performance of IHG Plc during the period of 3 years ratio analysis technique has been undertaken. Along
with this, to determine or evaluate the financial position of IHG comparison has been done with M&C which is operating in the
similar industry. Findings derived through financial statement analysis has clearly been supported with market trend, strengths,
weaknesses as well as other factors that have impact on monetary position of IHG Plc. Further, to facilitate better understanding
regarding outcome derived graphs has also been included by the researcher. This in turn facilitates better understanding about the
results and aid in strategic decision making.
Financial performance evaluation
Sales revenue:
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Chart which is depicted above entails that sales revenue of IHG Plc decreased from £1858 to $1715 at the end of 2016. On the
other side, it has been found that sales of M&C inclined from $826 to $926 in 2016 (Financial statements of IHG Plc. 2017). By doing
Pestle analysis it has been assessed that in the last year more guests paid extra for the services demanded by them. This aspect shows
that industry is growing with the very high pace. Irrespective of such aspect, sales revenue of IHG Plc was declined that is not a good
indicator. Referring to this situation, it can be stated that from 2014 to 2016 IHG Plc failed to offer innovative products or services to
the customers. Now, individual prefer to stay in the hotel which provides them with quality, luxurious and innovative services. Along
with this, now environment sustainability aspect also impacts decision-making aspect of customers to a great extent (Murphy and
et.al., 2017). In addition to this, from business analysis or evaluation, it has been assessed that after the merger of Marriott with
Starwood business unit failed to attract large number of customers. Along with this, lack of effectual IT system is another main cause
due to which sales of IHG plc decreased over the time frame. Results of Pestle analysis also shows that now technological
advancement takes place within the industry to a great extent. Thus, due to the company’s failure in relation to complying with the
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high tech systems sales revenue decreased to a great extent. As per the outcome of evaluation, it is suggested to IHG Plc to lay
emphasis on taking feedback from the customers by using technological aspects. Thus, firm should send mail to the customers and
make efforts to assess or evaluate the needs, preferences as well as expectation of the customers. By this, IHG Plc would become able
to enhance customer base and profitability aspect.
Profitability ratio analysis
 GP margin: By doing assessment of financial statements it has been assessed that GP margin of IHG Plc increased over the
time period. In 2014, GP margin of IHG plc was 60.12%, whereas at the end of 2016 it accounted for 66.18% respectively.
Increasing trend in margin is good and shows company has exerted effectual control on direct cost. Trend However, in the
year of 2016, sales revenue of IHG Plc declined from £1117 to £1135 which in turn places direct impact on the profitability
aspect of firm. Slowdown in the economic growth has high level of impact on the purchasing power of people and thereby
influences sales revenue as well as profit margin of firm (Turner, 2016). It is one of the main reasons due to which sales
revenue of firm decreased. Further, existence of competitors such as Hilton, Marriott, M&C etc also have greater impact on
company’s sales and profit margin. Hence, it can be presented that irrespective of the aspect in relation to declining sales level,
firm has attained high profit margin by using its own strength such as strong financial framework.
Table depicted in appendix 2 clearly shows that GP ratio of M&C dropped from 59.69% to 57.34% in 2016 irrespective of the
inclining trend in sales level. Hence, it can be stated that during the period of 2014 to 2016 business unit failed to exert effectual
control on direct expenses which in turn resulted into decline in profit margin (Mariani and et.al., 2016). From business analysis, it has
found that due to the weak economic conditions in US and Europe firm laid high level of emphasis on offering services to the
customers at discounted price level. This in turn resulted into incline in sales revenue and decline in the profitability aspect. Thus, it is
one of the main reasons due to which gross margin of M&C decreased. Hence, through comparison it has found that gross
profitability aspect of IHG Plc is sound during the financial year 2014 to 2016 in against to its competitor. Moreover, throughout the
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concerned years undertaken for the study sales revenue and GP margin of IHG Plc was sound as compared to M&C. From such
evaluation, it can be presented that gross profitability aspect of IHG plc was sound from 2014 to 2016 over the rival firm.
Figure 1: GP margin
 NP margin: Graphical presentation shows that NP margin of IHG Plc fluctuated over the years. Moreover, in the accounting
year 2014, 2015 and 2016 NP margin of the firm accounted for 21.04%, 67.78% & 24.14% respectively. Trend of NP margin
presents that in the year of 2015, high revenue earned by IHG such as 67.78%. On the other side, in 2014 and 2016 NP margin
of IHG Plc was highly lower in against to 2015. The main reasons behind the increasing net margin in 2016 was the generation
of operating income amounted to £336 significantly. Overall, firm has controlled its indirect expenditures in an effectual way
during the period of 3 years. Hence, for the generation of higher income emphasis needs to be placed on investing money in
the projects that offer high benefits. In addition to this, business analysis results entail that IHG failed to make focus on
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economy class customers (InterContinental Hotels Group Plc (IHG), 2017). Due to this, hotel unit was unable to generate high
revenue and margin in the year of 2014 & 2016. Along with this, tax liability of IHG Plc also inclined from 11GBP to 174GBP
at the end of 2016. Hence, it is another main reasons due to which net profitability aspect of hotel unit decreased. In addition to
this, interest payment obligation of IHG PLC also inclined from 57 to 73GBP which in turn places direct impact on the
profitability aspect of firm.
Outcome of ratio analysis presents that NP margin of M&C decreased over the time frame. In 2014, net profitability generated by
M&C over sales accounts for 13.32%. Further, net profit margin of M&C was 7.67% & 8.42% respectively in the year of 2015 and
2016. By considering this, it can be entailed that business unit failed to keep effective control on indirect expenditures due to this net
profit of firm declined over the years. This aspect can clearly be supported with the secondary data findings which in turn show that
high investment in R&D activity is one of the main weaknesses of M&C. Along with this; usually customers prefer to visit the hotel
which offers high quality services at suitable price. Thus, with the motive to attract more customers company has setting down
competitive prices. Hence, threat from competitor’s strategy and burden of R&D expenses is the main causes behind the decreasing
margin of M&C. Along with this, due to having ineffective capital structure, interest payment has imposed high obligation in front of
M&C and thereby negatively affected net margin. Through evaluation and considering the overall trend it can be said that net
profitability of IHG Plc is good as compared to rival firm.
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Figure 2: NP margin
Liquidity ratio analysis
 Current ratio: From assessment, it has been identified that current ratio of IHG plc was .69 in 2016. Table depicted in
appendix 2 shows that current ratio of firm was highly fluctuated during the period of 3 years. In the year of 2014 and 2015
current ratio of IHG Plc implies for .99 & 1.17 respectively (Financial statements of IHG Plc. 2017). On the basis of such
aspect, it can be stated that in the accounting year 2014 and 2015 IHG Plc failed to maintain enough assets such as cash,
debtors etc. that can be used for meeting current obligations. Along with this, due to the downfall in Euro and recessionary
condition IHG Plc faced difficulty in the generation as well as maintenance of current assets (Inter-continental Hotel Group
Plc SWOT Analysis, 2017).
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Graph depicted below exhibits that current ratio of M&C plc continuously inclined during the period of 3 years. In 2016,
current ratio of M&C Plc implies for 1.55 which is higher as compared to other years. However, as per the Industry average and
performance of leading hospitality unit’s current ratio should be 2:1. In accordance with such aspect, business unit is required to
maintain 2 assets for meeting 1 obligation. The main reason, due to which IHG Plc failed to maintain liquidity in line with ideal
ratio were increasing interest rates, political pressure and changing tax policies. Hence, as compared to 2014 and 2015, better
liquidity has maintained by M&C Plc in the year of 2016. Thus, by taking into account the overall position it can be presented that
in 2016 company was in position to meet its all obligations on time. In accordance with the outcome of evaluation it can be said
that liquidity of M&C Plc is good over IHG Plc.
Figure 3: Current ratio
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 Quick ratio: Results of ratio analysis shows that quick ratio of IHG Plc declined from .92 to .62 at the end of 2016. In the
financial year 2015 quick ratio of the business unit was in line with the current ratio. From assessment, it has been identified
that ideal ratio of hospitality sector under this category lies within the range of .50 to .60:1. In accordance with such aspect in
against to 2 current liabilities firm must have 1 quick asset. This position shows that liquidity position of the company is good
to a great extent. Hence, in the recent past years quick ratio was equal to and higher as compared to the standard. In contrast to
this, quick ratio of M&C Plc continuously shows inclining trend in the performance. Moreover, in 2016, quick ratio of the
company was increased from .84:1 to 1.45:1 (Financial statements of M&C Plc. 2017). Thus, by considering the results of
overall evaluation it can be said that in every year from 2014 to 2016 M&C Plc was highly capable in relation to meeting its
monetary obligations. Along with this, IHG plc has also maintained enough quick assets for meeting the obligations in line
with the ideal ratio. Thus, it can be said that liquidity position of both the companies was good during the concerned period.
Figure 4: Quick ratio
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Solvency ratio analysis
 Debt-equity ratio: By applying the tool of ratio analysis it has been identified that debt-equity ratio of IHG Plc was 3.34:1 in
2016. As per the trend of hospitality sector companies should focus on maintaining standard ratio such as .5:1. Further,
according to the industry average and considering the trend of financials it can be stated that .5:1 is recognized as ideal ratio.
Hence, by comparing the debt-equity ratio of IHG Plc with standards it has been identified that company has fulfilled most of
the financial needs through debt. This aspect has placed negative impact on both solvency as well as profitability aspect of
firm. Moreover, in the case of high debt, company’s expenses are increases significantly. The reason behind this, when firm
takes resort of debt for meeting financial needs then it has to make payment of interest on a periodical basis. Whereas, in
equity, company is not bounded with any kind of fix obligations. In the case of shares, firm offers dividend only when it
generates enough or high profit margin. All these aspects clearly show that debt sources impose fixed obligation in front of
company and affects profit margin to the significant level. Thus, in comparison to industry average and performances of
leading companies it can be presented that solvency position of IHG Plc is not good.
Further, table presented in appendix 2 shows that debt-equity ratio of M&C Plc was .23:1, .29:1 and .36:1 during 2014 to 2016.
Hence, debt-equity position of the firm improved on a continuous basis. Moreover, solvency position can be said to be sound only
when it is equal or near to the ideal ratio. Hence, as compared to previous years in 2016, company has developed optimal capital
structure. Moreover, as per ideal ratio company should issue 1 debt in against to 2 equities. This in turn helps in framing suitable
structure and making control on cost level. Thus, as per overall assessment, it can be said that in 2016 solvency position of M&C
was sound over IHG Plc.
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Interest coverage ratio: By doing ratio analysis, it has been assessed that interest coverage ratio of IHG Plc was sound from the period
of 2014 to 2016. At the end of 2016, interest coverage ratio of IHG Plc accounts for 9.10. On the other side, M&C’s interest coverage
ratio was 5.70 in the financial year. By considering the findings of both financial and business analysis, it can be stated that IHG Plc is
highly capable in relation to meeting its obligations pertaining to interest on time. This aspect can be supported through business
analysis which shows that financial planning of IHG Plc is sound as compared to the rival firm. In addition to this, net profitability
aspect of IHG Plc is also sound as compared to M&C. All these aspects clearly support the results which exhibit that IHG Plc can
convince financial institution in relation to offering monetary assistance by highlighting the capability in relation to making payment
of interest pertaining to debt. Outcome of business evaluation also shows that financial position of IHG Plc is strong as compared to
the competitor firm.
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Investment ratios
 Earnings per share: Tabular presentation (refer appendix 1) shows that earnings per share has increased dramatically in 2015
from 1.63 to 5.36. Hence, in 2015, portion of company’s profit allocated to common stock was higher in against to 2014 and
2016. The main reasons behind such high allocation is increasing net margin from £391 to £1222. On the other side, due to the
decline in net margin, earnings per share also dropped from 5.36 to 2.02 in 2016. Hence, overall trend presents that in
accordance with the net margin generated IHG Plc has allocated enough profit to shareholders. In addition to this, earnings per
share associated with the stock of M&C was decreased from .34 to .24. EPS is highly influenced from the earnings generated
by firm during the concerned year. Hence, in accordance with the company’s earning, EPS also showed fluctuating trend.
Through considering the outcome of both internal and external analysis it can be depicted that IHG Plc is offering better
returns or earnings to the shareholders pertaining to per share.
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 Dividend per share: From analysis, it has been assessed that IHG Plc offered dividend to shareholders in an increasing pattern.
Moreover, DPS given by IHG Plc to the shareholders accounted for .92, 1 and 1.03 respectively. Dividend decision of the
company is highly based on the profit generated by the firm during the concerned year. Along with this, for building effectual
image at marketplace and in the mind of investors company needs to provide shareholders with regular and higher dividend.
This in turn helps in developing faith among the stakeholders. In contrast to this, dividend per share offered by M&C plc to its
investors in 2014 and 2015 accounted for .14. Whereas, in 2016, dividend given by the company to its shareholders accounted
for 0.06 respectively. Hence, overall evaluation of dividend offering level presents that IHG Plc provided shareholders with
higher earnings in the form of dividend over others. Thus, considering the investors and other aspects it can be said that IHG
Plc is on right track.
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Figure 5: Dividend per share
 Payout ratio: It has been asserted from ratio analysis that payout ratio of IHG Plc was 64.90%, 34.90% & 18.60%
respectively. This aspect demonstrates that in 2014 high proportion of earnings were paid out by M&C Plc to its shareholders.
In 2015 and 2016 there is significant declined in the payout ratio. Statement of financial position presents that in 2015 amount
of retained profit of 2653 GBP. In addition to this, IHG Plc has made significant investment in intangible assets. It is another
main reason due to which company has allocated fewer amounts to the shareholders. Moreover, for the smooth functioning of
business operations as well as functions IHG invested some portion of net profit in intangible assets. Further, by evaluating the
financial statements of M&C it has discovered that payout ratio was within 20.40% to 42.20% during the period of 3 years.
Hence, fluctuated trend was seen in the performance of M&C Plc. By taking into account the performance of all three years it
can be said that IHG Plc has offered high benefits to M&C over the rival firm.
23

Figure 6: Payout ratio
Business analysis
Pestle analysis of hospitality industry UK
 Political Factor: Politics is very unpredictable and influential so the political environment needs to be monitored contentiously as
government can impose rules and regulations that can have a profound impact on the organization. Following Act's of the UK that
may have impact on hospitality industry- Digital Economy Act, 2010; New immigration policies. Due to changes in the political
parties changes comes in rules and regulation which lead to directly impact the sales and profit of the business ( Bowie, Buttle,
and Mariussen, 2016). IHG is part of worldwide brand therefore it is essential for the company to ensure political stability that
play significant role. At the time approaches of politics is different as it based on the location of the hotel. It can influence the
traveler and avid toursit to a specific country.
24

 Economic Factors: UK is an open economy in which service sector is more strong than agricultural or industry sector. Economic
Factors influences marketing and management decisions that can directly affect the hospitality industry of the UK. In UK,
Hospitality industry has generated great employment opportunities that have significantly affected the economy of UK. AT the
time of recession spending power of an individual get down of people which impact sales as well as profit of the firm. There are
macroeconomic implication which can impact the effectiveness of business development within Inter continental hotels group
probably in the UK. Inflation rate, increase in interest rate etc can directly impact the sales and profit of the firm. For instance at
the time of when inflation rates continue to enhance which can deter the possible tourist (Benckendorff, Sheldon and Fesenmaier,
2014). Further, with increase in interest rate company was unable to take loan as because it need to pay high interest on it which
can impact the profit of the firm.
 Social Factors: Hospitality industry in UK has improved living conditions of its citizens. It has provided Labour Mobility,
Education and health consciousness, demographic changes, work and career opportunities, improvement in lifestyle, etc. With the
changes in the lifestyle of the people it is important to make modify products so that needs and demand of customer can be
fulfilled. Culture of society and the way of doing things lead to impact the culture of an IHG. It is important for the company to
understand taste and preferences of customer before delivering them any kind of services (Lehr, 2015.). Therefore, it is important
for the company to taken into consideration social factors so that sales continues to increase with the proper visitation.
 Technological factors: In UK Technology is growing rapidly that has a significant impact on the hospitality industry. It
comprises the utilization of the latest technologies and inventions that facilitates the business. For example- Online reservation
system, property management software's, online information changes program, etc (Andreu, Claver and Quer, 2017).
Development in technology has changes the way of Business operations in UK. The organization need to adopt changes so that it
can easily fulfill the needs and wants of customer by making innovative products and services.
25

 Environmental Factors: Hospitality Industry affects the environment directly in which it’s operating. UK government has
introduced many laws and regulations in order to save the environment and prevention of natural resources. Hospitality Industry
in UK is working toward the use of renewable resources and waste management system. UK government is promoting the
industries to produce green or ecological products (Jiang, Gretzel and Law, 2014). People are now more environmental friendly
as they perfer to buy such products which do not harm the environment Company need to ensure that it makes product which are
environment friendly so that more and more people like it.. Through considering the preference of customers company can easily
increase sales and profit
 Legal Factors: Hospitality industry in UK is subject to various legislations and regulations such as employment law, health and
safety law, discrimination law, consumer protection and e-commerce law, tourism Act, etc (Radu, 2015). All these laws affect the
operations, costs and demand of the products of hospitality industry in UK. It is important for the firm to ensure that all the legal
rules are followed strictly and carry out all the activities legally.
Internal analysis
SWOT ANALYSIS OF INTER CONTINENTAL HOTELS GROUP
STRENGTHS
 Product portfolio
It operated its chain across the various parts of the world and the main aim behind its opening is that to provide a facility and
comfort to both the units of the traveller whether it would be business traveller or would be leisure traveller (Martins, 2013). It
generated money and earning most of his income in form of royalty from its franchises and management fees from the hotel who
manages them.
 Size
26

It is a most reputed segment in terms of hotel and its having a huge size because the areas and scope is not limited and they
having various franchisee across the nations and controlling company having control on controlled company. It covers the wide range
of area and having focus on priority markets (Sedlacek, 2016).
 Financially stable
IHG company have strong sales network and distribution channel which help in increasing the sales and profit of the firm.
There is continuously increase in the cost of the firm which lead to increase the profitability of the business (Grosz and Wagner,
2016). The organization is earning profit these gains allow IHG to invest in accelerated growth strengthening its brands with a
lowering of its debt.
Branding:
IHG company is one of the successful hotel which is famous for selling quality products and services. Its market performance
is better than as compare to its competitor (Inter-continental Hotel Group Plc SWOT Analysis. 2017). The demand of its services
among customer is increases which lead to increase in the sales of the firm.
Goodwill:
IHG sales quality products and services which help in retaining customers for longer time. The audience for a brand is
established and as services and value is delivered through consistent and distinctive experience a brand begins to build goodwill.
There is consistency in its services and increase in customer satisfaction level lead to enhance the satisfaction level of the firm (Dabhi,
2014).
WEAKNESS:
27

 Cost of research and development
It is having a weakness in terms of cost of research and development because it having a high cost and charging more from its
customers as compared to other competitors (Intercontinental Hotels Group Plc. 2017). The research and developmental cost is high
and this cost analysis and research technique gives the huge impact and leaving negative signs on Intercontinental hotels group and
also affect its costing.
 Reputation
The company is not able to meet out the needs and not providing the quality services according to the customers' satisfaction
and failing down in handling the complaints which arise from its clients are the possible factors that affects the reputation of
Continental hotel group and damage its value and affecting its services.
OPPORTUNITIES
 Online booking facility
The company facilitates online booking facility and which made available to its travellers (Inter Continental Hotels group (IHG)
SWOT & PESTLE. 2017). So,before entering into the hotel the customer can book his rooms online in advance and the traveller
selecting it as per the requirement and made the payment online and availed the facility of this.
 New services helps in generating revenue
New services which provided under the IHGs continental hotel helps in increasing and generating revenue and providing long
term benefits to this entity,which helps in creating its value and increasing its profits (Nunes, 2013).
 Raising fund
IHG company have opportunity to raise fund and increased its revenue through selling quality products and services to its customers.
Company can modify its product according to the needs and demand of customers in order to increase revenue.
Threats
28

 Change in taste of consumer impact negatively on its reputation
Change in consumer tastes,favours and preferences regarding quality of foods and services facility will keep on hurting its
reputation and that directly gives out a negative impact on its reputation by subtracting its long term value (MUTWA, 2016.).
 Political and governmental risk factors
Political factors such as price stability,change in currency,inflation,deflation and other crisis and unnecessary government
intervention could also affect its goodwill and also minimise the operations and that impact directly reducing its value (Bouvier and
EDITION, 2013).
Conclusion
From the current research report, it has been concluded that sales revenue of IHG Plc has increased significantly from 2014 to
2016. It shows that customers or people have positive attitude towards the services offered by the hotel unit. By doing secondary
analysis, it has been assessed that business unit focuses on maintaining diverse portfolio of brands which in turn caters for multiple
price segment. In the case of upper scale segment IHG lays high level of emphasis on international business traveler. On the other
side, in upscale segment firm has placed high level of emphasis on both business as well as leisure travelers. In contrast to this,
midscale 3-star hotels focus on targeting domestic as well as leisure travelers. All these aspects clearly shows that firm has made
effectual arrangements for meeting the needs of all segments such as international, business, leisure and domestic travelers. Thus, vast
portfolio and leadership on the market segment is one of the major strength of IHG plc. However, it can be seen in the report that sales
revenue of the hotel unit decreased over the years. The main reasons behind this, firm does not place high level of emphasis on
marketing activities and campaign. This in turn closely influences customer base as well as productivity and profitability of firm. It
can be summarized from overall evaluation that sales revenue and profitability aspect of IHG Plc was good during 2014 to 2016 over
M&C.
29

Along with this, it has been articulated that liquidity position of rival firm such as M&C was highly near to the ideal ratio in
2016. During the concerned years such as from 2014 to 2016 undertaken for the investigation purpose current ratio of IHG Plc was
very far from the ideal ratio such as 2:1. Hence, by considering this it can be depicted that IHG Plc was not highly capable in relation
to meeting its obligation. Moreover, from 2014 to 2016 business unit failed to maintain enough current assets as compared to M&C.
Further, it can be stated that both the business units have maintained enough assets which can be easily converted into cash for
meeting various obligations. Thus, it can be mentioned from evaluation that liquidity position of IHG Plc is good to some extent.
Besides this, it can be inferred that debt-equity position of IHG Plc was not good. Financial analysis results clearly show that IHG plc
has taken resort of debt sources for meeting the monetary requirements rather than others. It clearly shows that capital structure of
firm is not good which in turn places direct and negative impact on the profitability aspect. Thus, business unit should avoid taking
assistance of debt sources for meeting financial needs or requirements.
Further, it has been mentioned from evaluation that well-known brand name, strong management, offering unique amenities
and affordable pricing is one of the main strengths of IHG plc. Besides this, it can be presented that company has opportunity to
maximize both revenue and profit margin by providing customers with innovative services. IHG plc also has potential to take entry in
the emerging economies and thereby enhancing customer base as well as revenue. However, IHG also has some weaknesses which in
turn place direct impact on the growth or success of firm. From evaluation, it has been assessed that debt burden of the firm is
continuously increasing which in turn imposes business risk. Along with this, high staff turnover is another main aspect that adversely
affects the financial and overall growth of IHG Plc. Hence, due to having high employee turnover firm failed to make optimum use of
assets during the concerned accounting years. Moreover, experienced personnel are highly able to make use of assets effectually as
compared to newly appointed individuals. Apart from this, recession and euro-zone crisis imposes threat in front of the organization
because such aspect will closely influence the purchasing power of customers. It can be concluded from evaluation that now changes
have taken place in the taste and preferences of customers more frequently. In this regard, if IHG Plc fails to gauge the needs of
customers appropriately then it will highly impact firm’s customer base and profitability. Further, it can be summarized political
30

aspects and high discretionary products impose major risk in front of the hotel unit. Thus, in conclusion to this report, it can be
entailed that financial performance or position of IHG Plc is good over M&C from the perspective of profitability and investment.
However, results of liquidity and efficiency ratio analysis shows that in such category M&C performed well from 2014 to 2016 as
compared to IHG Plc. Thus, as per the results derived from evaluation it is suggested to IHG Plc to make some modifications in the
existing framework by taking into account internal as well as external factors.
Recommendations
On the basis of identified results following recommendations are given to IHG PLC such as:
 It is recommended to IHG Plc that there is a need to lay more focus on undertaking effectual promotional plan or campaign.
Through this, firm would become able to develop awareness among the customers regarding the luxurious stay facilities
offered by it. Hence, through the means of advertisement business unit can persuade both inbound and outbound customers
and thereby would be able to generate higher margin. In this way, through increasing sales revenue firm can maximize both
gross and net profit. Moreover, from ratio analysis, it has been discovered that IHG Plc has controlled its expenses to a great
extent. Along with this, by providing customers with innovative products and services IHG Plc can increase revenue as well as
profit margin.
 On the basis of the current position, it is advised to IHG Plc to develop strategic framework that helps in enhancing liquidity
position. Moreover, stakeholders such as supplier, financial institutions etc. evaluates capability of firm in relation to meeting
obligations on time before offering any kind of monetary assistance. Hence, IHG Plc tends to focus on maintaining assets
within the firm such cash, receivables etc.
 As per the results of ratio analysis, it is suggested to IHG Plc to improve its capital structure by following the ideal ratio such
as 5:1. Thus, company should issue 2 equities in against 1 debt. By doing this, firm would be able to control cost pertaining to
31

interest on loan and gets higher margin. Along with this, firm should take decision in relation to the issuance of shares or
taking assistance of debt sources by considering the current position.
 IHG Plc should make focus on the maintenance of fixed assets which in turn assists in generating higher revenue. Along with
this, business unit needs to place emphasis on replacing existing assets with the latest one. By doing this, firm can improve
fixed assets turnover ratio to the significant level. Besides this, firm also needs to make focus on organizing training session
for personnel which in turn helps in enhancing their skills, abilities as well as proficiency level. From SWOT analysis it has
found that due to high employee turnover workforce of hotel unit includes newly appointed people. In this, by conducting
training session IHG plc can persuade or train to the personnel about the manner in which they should make use of assets in a
prominent way. Thus, by undertaking such measures IHG Plc can improve efficiency ratio to the significant level.
32

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continental-hotels-group-ihg/>. [Accessed on 5th October 2017].
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2017].
34

APPENDIX
1. Financial statements of IHG Plc
Income statement
Particulars USD (in million) 2014 2015 2016
%
change
trend
in 2015
%
change
trend
in 2016
Revenue 1,858 1,803 1,715 -3.1% -5.1%
Cost of revenue -741 -640 -580 -15.8% -10.3%
Gross profit 1,117 1,163 1,135 4.0% -2.5%
Operating expenses #DIV/0!
Sales, General and administration expenses 483 420 352 -15.0% -19.3%
Other operating expens... -46 -756 105 93.9% 820.0%
Total operating expenses 437 -336 457 230.1% 173.5%
Operating income 680 1,499 678 54.6%
-
121.1%
Interest Expense 64 72 73 11.1% 1.4%
Other income (expense) -16 -15 -14 -6.7% -7.1%
Income before taxes 600 1,412 591 57.5%
-
138.9%
Provision for income tax 208 188 174 -10.6% -8.0%
Net income from continuing operations 392 1,224 417 68.0%
-
193.5%
Other -1 -2 -3 50.0% 33.3%
Net income 391 1,222 414 68.0%
-
195.2%
35

Balance sheet
Particulars USD (in million) 2014 2015 2016
%
change
trend in
2015
% change
trend in 2016
Current assets
Cash
Cash and cash equivalents 162 1137 206
Short-term investments 5 0 20 -100%
Total cash 167 1137 226 581% -80.1%
Receivables 327 354 368 8% 4.0%
Inventories 3 3 3 0% 0.0%
Prepaid expenses 63 74 77 17% 4.1%
Other current assets 374 38 104 -90% 173.7%
Total current assets 934 1606 778 72% -51.6%
Non-current assets
Property, plant and equipments
Gross property, plant and equipments 1371 953 807 -30% -15.3%
Accumulated Depreciation -630 -525 -388 -17% -26.1%
Net property, plant and equipments 741 428 419 -42% -2.1%
Equity and other investments 368 420 359 14% -14.5%
Goodwill 74 233 232 215% -0.4%
Intangible assets 569 993 1060 75% 6.7%
Deferred income taxes 87 49 48 -44% -2.0%
Prepaid pension benefits 8 -100%
Other long-term assets 37 40 31 8% -22.5%
Total non-current assets 1884 2163 2149 15% -0.6%
36

Liabilities and stockholders’ equity
Liabilities
Current liabilities
Short-term debt 110 410 89 273% -78.3%
Capital leases 16 17 17 6% 0.0%
Accounts payable 88 87 94 -1% 8.0%
Taxes payable 96 130 88 35% -32.3%
Accrued liabilities 315 307 306 -3% -0.3%
Deferred revenues 37
Other current liabilities 318 418 503 31% 20.3%
Total current liabilities 943 1369 1134 45% -17.2%
Non-current liabilities
Long-term debt 1367 1032 1396 -25% 35.3%
Capital leases 202 207 210 2% 1.4%
Deferred taxes liabilities 147 135 251 -8% 85.9%
Deferred revenues 78
Pensions and other ben... 146 129 96 -12% -25.6%
Minority interest 8 10 8 25% -20.0%
Other long-term liabilities 730 578 521 -21% -9.9%
Total non-current liabilities 2600 2091 2560 -20% 22.4%
Total liabilities 3543 3460 3694 -2% 6.8%
stockholders' equity
Common stock 61 169 141 177% -16.6%
Additional paid-in capital 117 -100%
Retained earnings 1636 2653 1392 62% -47.5%
37

Accumulated other comp... -2539 -2513 -2300 -1% -8.5%
Total stockholders' equities -725 309 -767 -143% -348.2%
Total liabilities and stockholders' equity 2818 3769 2927 34% -22.3%
2. Financial statements of Millennium & Copthorne Hotels PLC
Income statement
Particulars USD (in million) 2014 2015 2016
%
change
trend in
2015
%
change
trend
in 2016
Revenue 826 847 926 2.5% 9.3%
Cost of revenue -333 -350 -395 5.1% 12.9%
Gross profit 493 497 531 0.8% 6.8%
Operating expenses
Sales, General and administration expenses 325 342 382 5.2% 11.7%
Other operating expens... 2 84 42 4100.0% -50.0%
Total operating expenses 327 426 424 30.3% -0.5%
Operating income 166 71 107 -57.2% 50.7%
Interest Expense 22 20 23 -9.1% 15.0%
Other income (expense) 44 58 24 31.8% -58.6%
Income before taxes 188 109 108 -42.0% -0.9%
Provision for income tax -37 -12 -10 -67.6% -16.7%
Net income from continuing operations 151 97 98 -35.8% 1.0%
Other -41 -32 -20 -22.0% -37.5%
Net income 110 65 78 -40.9% 20.0%
38

Balance sheet
Particulars USD (in million) 2014 2015 2016
%
change
trend
in 2015
%
change
trend in
2016
Current assets
Cash
Cash and cash equivalents 392 238 337 -39.3% 41.6%
Short-term investments
Total cash 392 238 337 -39.3% 41.6%
Receivables 50 35 39 -30.0% 11.4%
Inventories 4 4 5 0.0% 25.0%
Prepaid expenses 32 18 31 -43.8% 72.2%
Other current assets 96 106 120 10.4% 13.2%
Total current assets 574 401 532 -30.1% 32.7%
Non-current assets
Property, plant and equipments
Gross property, plant and equipments 3307 3436 4105 3.9% 19.5%
Accumulated Depreciation -554 -672 -867 21.3% 29.0%
Net property, plant and equipments 2753 2764 3238 0.4% 17.1%
Equity and other investments
Goodwill
Intangible assets
Deferred income taxes
Prepaid pension benefits
Other long-term assets 817 855 961 4.7% 12.4%
Total non-current assets 3570 3619 4199 1.4% 16.0%
39

Total assets 4144 4020 4731 -3.0% 17.7%
Liabilities and stockholders equity
Liabilities
Current liabilities
Short-term debt 399 178 93 -55.4% -47.8%
Capital leases
Accounts payable 23 22 35 -4.3% 59.1%
Taxes payable 49 45 48 -8.2% 6.7%
Accrued liabilities
Deferred revenues
Other current liabilities 166 155 167 -6.6% 7.7%
Total current liabilities 637 400 343 -37.2% -14.3%
Non-current liabilities
Long-term debt 518 65 951 -87.5% 1363.1%
Capital leases
Deferred taxes liabilities 221 210 220 -5.0% 4.8%
Deferred revenues
Pensions and other ben... 15 13 23 -13.3% 76.9%
Minority interest 472 436 502 -7.6% 15.1%
Other long-term liabilities 18 20 24 11.1% 20.0%
Total non-current liabilities 1244 744 1720 -40.2% 131.2%
Total liabilities 1881 1144 2063 -39.2% 80.3%
stockholders' equity
Common stock 97
Additional paid-in capital 843 843 843 0.0% 0.0%
Retained earnings 1117 1144 1195 2.4% 4.5%
40

Accumulated other comp... 303 289 533 -4.6% 84.4%
Total stockholders' equities 2263 2276 2668 0.6% 17.2%
Total liabilities and stockholders' equity 4144 4020 4731 -3.0% 17.7%
3. Ratio analysis of Inter -continental hotel group Plc
Particulars Formula 2014 2015 2016
% change
in 2015
%
change in
2016
Profitability ratio
Gross profit 1117 1163 1135 4.1% -2.4%
Net profit 391 1222 414 212.5% -66.1%
Net sales 1858 1803 1715 -3.0% -4.9%
GP ratio Gross profit / net sales * 100 60.12% 64.50% 66.18% 7.3% 2.6%
NP ratio Net profit / net sales * 100 21.04% 67.78% 24.14% 222.1% -64.4%
Liquidity ratios
Current assets 934 1606 778 71.9% -51.6%
Stock 3 3 3 0.0% 0.0%
Prepaid
expenses 63 74 77 17.5% 4.1%
Quick assets 868 1529 698 76.2% -54.3%
Current
liabilities 943 1369 1134 45.2% -17.2%
Current ratio Current assets / current liabilities 0.99 1.17 0.69 18.2% -41.0%
41

Quick ratio Quick assets / current liabilities 0.92 1.12 0.62 21.7% -44.6%
Solvency ratio
Debt 1367 1032 1396 -24.5% 35.3%
Shareholders’
equity -725 309 -767 -142.6% -348.2%
Debt-equity
ratio
Long term debt / shareholders
equity -1.89 3.34 -1.82 -276.7% -154.5%
Efficiency ratio
Fixed assets 1,884 2,163 2,149 14.8% -0.6%
Total assets 2,818 3,769 2,927 33.7% -22.3%
Inventory 3 3 3 0.0% 0.0%
COGS 741 640 580 -13.6% -9.4%
Net sales 1858 1803 1715 -3.0% -4.9%
Total assets
turnover ratio Total assets / sales revenue 1.52 2.09 1.71 37.5% -18.2%
Fixed assets
turnover ratio Fixed assets / sales revenue 1.01 1.2 1.25 18.8% 4.2%
Inventory
turnover ratio COGS / average stock 247 213.3 193.3 -13.6% -9.4%
Interest
coverage ratio 10.38 20.61 9.10 99% -12%
Investment ratios
Payout ratio DPS / EPS 64.90% 34.90% 18.60% -46.2% -46.7%
Dividend per Annual dividends paid / 0.92 1 1.03 8.7% 3.0%
42

share number of shares outstanding
earnings per
share
Earnings / number of
outstanding shares 1.63 5.36 2.02 228.8% -62.3%
4. Ratio analysis of Millennium & Copthorne Hotels PLC
Millennium & Copthorne Hotels PLC
Particulars Formula 2014 2015 2016
% change
in 2015
% change
in 2016
Profitability ratio
Gross profit 493 497 531 0.8% 6.8%
Net profit 110 65 78 -40.9% 20.0%
Net sales 826 847 926 2.5% 9.3%
GP ratio Gross profit / net sales * 100 59.69% 58.68% 57.34% -1.7% -2.3%
NP ratio Net profit / net sales * 100 13.32% 7.67% 8.42% -42.4% 9.8%
Liquidity ratios
Current assets 574 401 532 -30.1% 32.7%
Stock 4 4 5 0.0% 25.0%
Prepaid
expenses 32 18 31 -43.8% 72.2%
Quick assets 538 379 496 -29.6% 30.9%
Current 637 400 343 -37.2% -14.3%
43

liabilities
Current ratio
Current assets / current
liabilities 0.9 1 1.55 11.1% 55.0%
Quick ratio
Quick assets / current
liabilities 0.84 0.95 1.45 13.1% 52.6%
Solvency ratio
Debt 518 665 951 28.4% 43.0%
Shareholders’
equity 2263 2276 2668 0.6% 17.2%
Debt-equity
ratio
Long term debt / shareholders
equity 0.23 0.29 0.36 26.1% 24.1%
Efficiency ratio
Fixed assets 3,570 3,619 4,199 1.4% 16.0%
Total assets 4,144 4,020 4,731 -3.0% 17.7%
Inventory 4 4 5 0.0% 25.0%
COGS 333 350 395 5.1% 12.9%
Net sales 826 847 926 2.5% 9.3%
Total assets
turnover ratio 5.02 4.75 5.11 -5.4% 7.6%
Fixed assets
turnover ratio 4.32 4.27 4.53 -1.2% 6.1%
Inventory
turnover ratio 83.25 87.5 79 5.1% -9.7%
Interest 9.55 6.45 5.70 -32% -12%
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coverage ratio
Investment ratios
Payout ratio DPS / EPS 20.40% 42.20% 32.90% 106.9% -22.0%
Dividend per
share
Annual dividends paid / number
of shares outstanding 0.14 0.14 0.06 0.0% -57.1%
earnings per
share
Earnings / number of
outstanding shares 0.34 0.2 0.24 -41.2% 20.0%
5. Efficiency ratio analysis
 Total assets turnover ratio: In the business unit, the main motives of manager is to earn higher returns by using the assets of
firm including both fixed and current. Hence, by undertaking such ratio firm and other stakeholders can make idea about the
extent to which personnel are making use of assets efficiently. From the period of 2014 to 2016, total assets turnover ratio of
the firm showed fluctuating trend. In 2014, 2015 and 2016 total returns generated by the firm through using both current and
fixed assets imply for 1.52, 2.09 & 1.71 respectively. Hence, in 2016, company’s ratio declined in comparison to 2015. This
aspect shows that in 2016 business unit failed to utilize both fixed and current assets in an appropriate manner. On the
contrary to this, total assets turnover ratio was 5.11 times in 2016. Considering the performance of M&C Plc over the years
and in against to competitors it can be mentioned that total assets turnover ratio of it is good as compared to rivals.
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Figure 7: Total assets turnover ratio
 Fixed assets turnover ratio: Graphical presentation exhibits that fixed asset turnover ratio of IHG Plc increased year by years.
Moreover, in 2014 such ratio was 1.01, whereas in 2016 the same was accounted for 1.25. Hence, there is no significant
improvement in the fixed assets turnover ratio over the years. Referring to this, it can be stated that management team failed to
develop competent framework. Moreover, through SWOT analysis it has been identified that successful employee
engagement is one of the main strengths of IHG Plc. On the basis of such aspect, it can be presented that there are some
loopholes in the policies made by the management team. On contrary to this, such ratio of M&C Plc falls within the range of
4.27 to 4.53 times. Thus, during the period of concerned 3 years revenue generated by the companies through fixed assets was
not increased to the significant level. However, as per the results of comparison M&C Plc has used its fixed assets in a
prominent way over the rival firm.
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Figure 8: Fixed assets turnover ratio
 Inventory turnover ratio: Evaluation of financial statement shows that stock turnover ratio of IHG Plc was 247, 213 and 193
times. By considering the performance of IHG during the period of 3 years it can be stated that in 2014 company has managed
its inventory more efficiently as compared to cost of goods sold. Graph presented below shows that after the period of 2014,
inventory turnover ratio of IHG Plc decreased which is not a good indicator for the firm. Along with this, inventory turnover
ratio of M&C Plc accounted for 83.25, 87.5 and 79 times during the period of 2014 to 2016 ( Financial statements of M&C
Plc, 2017). Hence, decreased stock turnover shows that both the companies have faced difficulty in managing stock over the
past years. However, according to the outcome of such ratio pertaining to both the companies investigated it can be mentioned
that inventory turnover ratio of IHG was good over the competitor firm. Further, as per the performance from 2014 to 2016
both the business organizations need to lay emphasis on undertaking strategic action or measure that helps in enhancing
performance level.
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