Finance for Hospitality, Tourism and Events

This report explores finance in the hospitality, tourism, and events industry. It covers topics such as profit and loss statements, ratio analysis, different types of costs, and performance improvement. Study material and solved assignments are available on Desklib.

Finance for Hospitality,
Tourism and Events

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Preparation of profit and loss statement of Croc's Diner for the year ended 30th June 2001:....1
Balance sheet of Croc's Diner for the year ended 30th June 2001:.............................................2
Commenting on performance of business with utilisation of ratio analysis:...............................2
TASK 2............................................................................................................................................2
Defining costs:.............................................................................................................................2
Identification and evaluation of different types of costs along with their behaviour:.................3
Defining ratios:............................................................................................................................4
Ratio as a tool of performance management including factors of benchmarking:......................4
Stating five different classes of ratios:.........................................................................................4
Computation of ratios:.................................................................................................................4
Recommendations for performance improvement:.....................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Finance can be described as an activity of fund management which involves savings,
lending, investing, forecasting or borrowing of money. Hence, finance indicates creation,
management and investigation of monetary amounts and investments in business. It is broadly of
three categories, which are, corporate finance, personal finance as well as public finance. In other
words, finance is a broader term which defines activities that are associated with capital markets,
leverage, banking, investments, or credits (Alani, Khan and Manuel, 2017). This report is based
on financial evaluation of Croc's Diner. Hence, income statement for business is prepared and
ratio analysis is conducted for the same. Further, costs is defined along with its various types as
well as their behaviour. In addition to it, ratios are described as a performance management tool
which includes factors of benchmarking. Apart from this, different ratio classes are stated and
recommendations are provided for improvement purpose.
TASK 1
Preparation of profit and loss statement of Croc's Diner for the year ended 30th June 2001:
Sales 84436
COGS 40708
Gross margin: 43728
Expenses
Wages 12730
Loan interest 500
Advertising and
promotions 2550
Cleaning 760
Maintenance 1000
Business expenses 1456
Gas and electricity 2444
Total expenses 62148
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Net profit before tax 22288
Tax expense 1640
Net profit after tax 20648
Balance sheet of Croc's Diner for the year ended 30th June 2001:
Fixed assets
Furniture and equipments 8800
Lease hold premises 20000
Total fixed assets 28800
Current assets
Inventory 720
Debtors 150
Cash in hand 890
Bank balance 4567
Total current assets 6327
Total assets 35127
Current liability
Creditors 4000
Total current liabilities 4000
Finance by/ Equity
Capital 16979 (less: drawings
11000) 5979
Surplus 20648
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Bank loan 4500
Total equity 31127
Total liabilities and equity 35127
Commenting on performance of business with utilisation of ratio analysis:
On the basis of ratio analysis which is computed for Croc's Diner it is evaluated that
earning capacity of business in context to its core operations is good as its gross profit margin is
high. While, company needs to focus more on reducing non operating or business expenses for
the purpose of attaining higher profitability and productivity (Beirman, 2020).
TASK 2
Defining costs:
Costs refers to monetary value that business spends in the process of production, delivery
and other operations of entity. In other words, costs can be defined as expenditure that incurs in
purchase of equipments and raw materials, labours of enterprise, production activities, services
etc. In the records of bookkeeping, such costs are recorded as expenses.
Identification and evaluation of different types of costs along with their behaviour:
There are various types of costs, such as, variable costs, fixed costs and semi variable
costs.
 Fixed costs: This type of costs do not vary with changes in output, in other words
increment or decrement in amount of products produced does not have any impact of
fixed cost of an organization. It includes costs related to factory or building, insurance etc
(Higham, 2018).
 Variable costs: This costs type highly depends on outputs that are produced in an
organization or it can be stated that variable cost vary in accordance to number of outputs
produced. It can also be described as sum total of all marginal costs over units that are
produced.
 Semi variable costs: Further, semi variable costs can be described as a combination of
variable as well as fixed costs, hence, such costs are neither absolutely fixed nor variable.
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 Marginal costs: This type of costs can be explained as expenditure incurred in
production of one additional unit of output. Hence, marginal costs indicates change or
variations in total costs of business which arises when quantity or unit that is produced in
increased by an additional unit. Therefore, it states expenditure that is incorporated in an
enterprise in order to produce next unit.
 Opportunity costs Such type of costs refers to cost of next best alternative. Hence,
opportunity costs indicates potential benefit of business which is missed out in order of
choosing an alternative over other. It is not represented in financial reports of business.
 Explicit costs: It refers to costs which is directly paid by firm. Hence, explicit costs can
be described as quantifiable or identifiable operating expenses of an organization. For
example, payment of wages (Menicucci, 2018).
 Implicit costs: It indicates that costs which represents opportunity costs of business. It is
also called as implied or imputed costs. It defines expenses of resources which is owned
by an organization that can be utilised for some another purpose.
Defining ratios:
Ratio can be defined as a quantitative technique of analysing performance of company.
Reason is that ratio analysis provides clear insight to management of an organization about
operational efficiency, liquidity position as well as profitability status of business. Ratio analysis
helps is analysing financial status of company by interpreting its information related to finance
(Sainaghi, Phillips and Zavarrone, 2017).
Ratio as a tool of performance management including factors of benchmarking:
Ratio analysis is a reliable tool which enables managers to analyse financial information
of an enterprise. Application of technique of ratio analysis helps managers in evaluating
performance of business on the basis of internal benchmarks or goals. This performance
management tool enables interpretation of actual financial status of entity as well as ensures
identification of weak points or loop holes, by eliminating it organization can gain higher
sustainability or success.
Stating five different classes of ratios:
Ratios are of different classes which are described below:
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 Liquidity ratios: It is a demonstration of ability of business for paying debts or other
short term obligations. It involves computation of current ratio, quick ratio, cash ratio etc.
 Activity ratios: Computation of activity class of ratio describes efficiency of business
operations. It indicates utilisation of company's assets for the purpose of generating sales
in involves inventory turnover, receivables or payables turnover etc.
 Leverage ratios: Solvency or leverage class of ratio is an analysis of paying capacity of
an organization in context to its long term debt (Navarro-Galera and et.al., 2016).
 Performance ratios: Analysis of performance ratios enables computation of profit
generating capacity of an enterprise.
 Valuation ratios: This class of ratio analysis provides outline about share price of
company. In other words, valuation ratio represent relationship among market value and
book value of an organization.
Computation of ratios:
Profitability ratios:
 Return on total assets: It measures ability of company in generating profit from its total
assets.
Formula= Net profit before interest/ total assets *100
Particulars Amount
Net profit before interest 22788
Total assets 35127
Result 0.65
On the basis of above ratio it can be interpreted that return on total assets of business is
0.65 which states that organization is adequately efficient in generating revenue from its total
assets.
Working note:
Net profit before interest = Net profit before tax + interest
= 22288+500 = 22788
 Net profit margin: It is a computation of net profit generated by an organization in
relevance to net sales.
Formula= Net profit before interest/sales*100
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Particulars Amount
Net profit before interest (22288+500) 22788
sales 84436
Result 26.99%
Net profit ratio of company states that profit margin of company from its sales of 26.99
percent which states that efficiency of organization in earning profit from sales is low and hence,
can be further improved by productivity enhancement.
Working note:
Net profit before interest = Net profit before tax + interest
= 22288+500 = 22788
 Gross profit margin: It shows profit generated by firm from its core competencies or
production activities.
Formula= gross profit/ sales*100
Particulars Amount
Gross profit 43728
Sales 84436
Result 51.79%
Company's gross profit margin is 51.79 percent which states revenue generation capacity
from core business is high.
 Return on capital employed: It evaluates assessment of firm's efficiency from its
capital.
Formula= net profit before interest / capital employed *100
Particulars Amount
Net profit before interest (22288+500) 22788
Capital employed 31127
Result 0.73
Capital employed in business provides earning to company of approx 73 percent which
states company is efficient.
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Working note: Capital employed = Total assets – current liabilities
: 35127-4000 = 31127
 Return on equity: It evaluates computation of returns that is generated from
investments.
Formula= net profit after interest / equity *100
Particulars Amount
Net profit after tax 20648
Equity 31127
Result 0.66
From the above ratio it can be interpreted that company is capable of gaining adequate
amount of return from equity invested.
Liquidity ratio:
 Current ratio: It measures ability of business for paying short term borrowings.
Formula= current assets / current liability
Particulars Amount
Current assets 6327
Current liabilities 4000
Result 1.58
Ideal current ratio is 2:1. hence, current ratio of company is comparatively low.
 Liquid ratio: It indicates capacity of business in paying current liability without
involving inventory(Walstad and Rebeck, 2017).
Formula= current assets – stock / current liabilities
Particulars Amount
Quick assets 5607
Current liabilities 4000
Result 1.40
Working note:
Quick assets = Current assets – Inventory
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= 6327-720 = 5607
From the above liquid or quick ratio it is estimated that liquidity position of an
organization is less.
Recommendations for performance improvement:
From the above ratio analysis it is estimated that company is required to focus on in profit
earning. Hence, business expenses should be lowered so that profitability can be improved.
CONCLUSION
Above report concludes that It helps of management team of an organization to
adequately plan and manage financials for the purpose of gaining higher efficiency and
productivity. Ratio analysis can be described as a useful tool of management which enhances
understanding of financial results and hence serves as a key indicator for performance of an
organization.
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REFERENCES
Books and Journals:
Alani, F., Khan, F. R. and Manuel, D., 2017. Need for Professionalism and Quality Service of
the Tourist Guides in Oman. International Journal of Tourism & Hospitality Reviews.
4(1). pp. 20-29.
Beirman, D., 2020. Restoring tourism destinations in crisis: A strategic marketing approach.
Routledge.
Higham, J., 2018. Sport tourism development. Channel view publications.
Menicucci, E., 2018. The influence of firm characteristics on profitability. International Journal
of Contemporary Hospitality Management.
Navarro-Galera, A., and et.al., 2016. Measuring the financial sustainability and its influential
factors in local governments. Applied Economics. 48(41). pp. 3961-3975.
Sainaghi, R., Phillips, P. and Zavarrone, E., 2017. Performance measurement in tourism firms: A
content analytical meta-approach. Tourism Management. 59. pp. 36-56.
Walstad, W. B. and Rebeck, K., 2017. The test of financial literacy: Development and
measurement characteristics. The Journal of Economic Education. 48(2). pp. 113-122.
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