Finance for Decision Making

FINANCE FOR
DECISION MAKING

TABLE OF CONTENTS
1.INTRODUTION...........................................................................................................................1
1.1 Rationale for the Report.........................................................................................................1
1.2 Company Background...........................................................................................................1
1.3 Main Findings........................................................................................................................1
1.4 Structure of the Report...........................................................................................................1
2. Evaluation of current financial position......................................................................................2
2.1 Profitability............................................................................................................................2
2.2 Liquidity................................................................................................................................3
2.3 Evaluation of the ratio analysis..............................................................................................4
2.4 Limitation of the ratio analysis..............................................................................................4
3 Future investment appraisals........................................................................................................4
3.1 Evaluation of NPV techniques...............................................................................................4
3.2 Evaluation of IRR techniques................................................................................................5
3.3 Investment appraisal results...................................................................................................5
3.4 Potential implication of investment.......................................................................................7
4. Potential acquisition of the Six Senses Hotel Group...................................................................8
4.1 Rationale for choosing the target company...........................................................................8
4.2 Synergistic gain...................................................................................................................10
4.3 Explanation & evaluation of financing the acquisition.......................................................10
4.4 Risks and Uncertainties.......................................................................................................10
4.5 Implications on the performance of firm.............................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

1.INTRODUTION
1.1 Rationale for the Report
InterContinental Group has successfully achieved the financial success over the past 5
years. The performance of the company is showing adequate returns over the capital which
shows that the company is achieving growth and success. IHG group is achieving adequate
returns from the last year company for expanding its business is planning to make new
investments and acquisitions. Study will summarise the financial position of IHG over the
current scenario.
1.2 Company Background
IHG is an international British hospitality company which is headquartered in
Buckinghamshire, England. Company has a hotel group of around 5656 hotels in around 100
countries. Company was founded in the year 2003 and it has been 17 years since the company is
operating. It has hotels and resorts. Company has made many acquisitions since its incorporation.
Company is successfully operating with the annual revenues of 4.627 billion and operating
income of 630 million. It is giving adequate returns to the shareholders and is earning net income
386 million. Company is planning to expand its business by acquiring new hotels for entering
into new markets. However since 2015 there has been a decline in the level of profits of
company. As per the current scenario performance of company is adequate and financial position
is strong.
1.3 Main Findings
From the research it has been found that the IHG is having robust health at the same time is
achieving growth every year as analysed from the last 5 year. The motive of expansions is
achieved by effective investment strategies over the years. The acquisition of big group affects
the profitability in initial year however it returns back to profitable stage by implementing
strategies expanding its business to new markets. The market share of the company has increased
significantly in the last 10 years. Company is having strong potential of acquiring the new hotel
group by adequately managing the exposure to risks associated with it.
1.4 Structure of the Report
Section 2 will provide the analysis of current standing of the Intercontinental Hotels Group.
Section 3 will provide evaluation using IRR and NPV for the investments in current company.
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Section 4 will provide about the discussion and evaluation on the potential acquisition of Six
Senses Hotel Group.
Section 5 will conclude the report.
2. Evaluation of current financial position.
2015 2016 2017 2018 2019
Return on capital
employed 56.59% 23.09% 31.64% 14.73% 14.87%
Return on Equity 396.12% 53.98% 69.00% 32.35% 26.14%
Gross Margin 64.50% 66.18% 65.92% 24.93% 26.89%
Net profit ratio 67.89% 24.14% 33.18% 8.09% 8.32%
Debt equity ratio 673.46% 332.72% 317.25% 318.89% 275.22%
Current ratio 1.17 0.69 0.64 1.00 0.67
2.1 Profitability
2015 2016 2017 2018 2019
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00% 56.59%
23.09% 31.64%
14.73% 14.87%
Return on capital employed
Return on capital
employed
2015 2016 2017 2018 2019
0.00%
100.00%
200.00%
300.00%
400.00%
500.00%
396.12%
53.98% 69.00% 32.35% 26.14%
Return on Equity
Return on Equity
The above graphs show that company is earning adequate returns over the capital
employed and the equity. It could be seen that return on equity and capital employed was
significantly high in the year 2015. Company is showing declining trends over the last five years
due to the continuous acquisition of company in last few years (Baker, Filbeck and Ricciardi,
2017). However current position shows the effectiveness of company in managing its resources
and capital.
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