Managing Financial Resources in the Hospitality Industry

The report provides detailed information about financial management in the hospitality industry, GAAP, financial statements, components of financial statements, and financial reporting concepts. It also interprets financial statements using financial ratio of Smart Resort Ltd. The company's performance is good and needs to focus on maximizing the utilization of its assets for getting more profits in the future.

Managing Financial Resources in the Hospitality Industry

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Explaining the meaning of generally accepted accounting principles (GAAP).........................3
1.Identifying various users of financial statements.....................................................................3
2.Discussing different statements of companies.........................................................................4
3.Describing the components that supplement the financial statements.....................................4
4. Interpreting financial statements using financial ratio Smart Resort Ltd...............................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial management is the systematic process used by company to plan, direct and
control the business and financial activities such as proper utilization of funds and procurement.
The company apply general management principles to its financial resources. The present report
will provide detailed information about financial statements and various users of them. The case
study will discuss about components of financial statements and also calculate ratio analysis in
order to compare performance of the smart resort ltd.
1.Explaining the meaning of generally accepted accounting principles (GAAP)
GAAP means the rules, standards, principles and regulations of accounting issued by the
financial accounting standards board. It is mandatory for accountants in public companies in the
U.S need to follow these principles in order to maintain financial statements (Tikhomirova,
2021). The main objective of GAAP is to improve the comparability, clarification of the
communication of financial information and business statements. The major goal is to ensure a
firm’s financial statement are clear, complete and consistent in nature. These principles cover all
the topics such as balance sheet, materiality and classification. There are various principles of
GAAP such as principle of consistency, regularity, sincerity, prudence, periodicity, continuity,
materiality. With GAAP, the company helps maintain trust in the financial business.
Identifying various users of financial statements
Financial statements are essential to all the users because they can provide detailed
information about company’s profit, sales, revenue and debts and also the profitability of the
firm. The users can understand the ability of the firm to meet short- and long-term financial
obligations. The users of financial accounting reports include the owners, suppliers, lenders and
customers and general public and others.
Company management- In order to make operational and financial decision about the
business operations and related transactions the management team of the company needs to
understand the liquidity, cash flows and profitability.
Customers and employees- In order to judge the financial ability of a vendors the customers
need to review financial statements (Wu, 2021). A firm may elect its financial statement to
employees in order to provide detailed information about accounting and transactions.

Competitors- In order to analyse and evaluate about the financial condition and market
position competitors will go through financial statements. From this they gain their competitive
advantages and understanding the strategies.
Governments and tax authorities- government will request financial statement of
company so that they can determine whether the firm paid the appropriate amount of taxes and
they are liable to pay debts.
Investors- investors are also owners of the company thus they also want to know about
the business performance in order to decide whether they should continue with them.
At the end of the financial year, a set of financial statements is prepared for reporting to
the business owner. Moreover, the financial information is provided to local tax authority and
government. Management team of the company uses this information as a guide to future
business activities and decision-making process. The owners of the company include the capital
contribution and the debts which the firm is obliged to pay (Ali and Hamad, 2021). Problem
owner is the person in the company who owns the challenge that the company’s product or
service addresses. The budget owner is the person who has control of the money and they are not
much interested in the problem or solution. Most of the major business-related decision are made
by these three decision makers. Decision like sales, investment, and other financial decisions.
2.Discussing different statements of companies
Financial statements are records that convey the business operations and the financial
performance of the firm. Balance sheet of the company provides detailed information about
assets, stockholders equity and liabilities (Di Casola, 2021). Whereas the income statement
focuses on a company’s expenses and revenues, whereas cash flow statements evaluate how well
a company generates profit and its debt obligations and investments of fund.
(a) A loan creditor- The cash flow statement is essential for a loan creditor in order to
determine how much money is available to fund its debts, business operating and
expenses. Moreover, the loan creditors use the income statements in order to check the
firm capacity and ability to pay off its loans. Balance sheet will be helpful to show and
understand the financial position or health of firm and also ability to repay debts and
gather payments.
(b) A trade creditor- trade creditors review balance sheet in order to analyse company’s
financial performance. It shows the bills the company need to pay and other debts. It is an

entity that owes cash to another. Financial position will help trade creditors about thus it
is a balance sheet account so it will be credit.
3.Describing the components that supplement the financial statements
Balance sheets- This financial statement will provide detailed information about a
company’s assets, shareholders’ equity and liabilities. Assets of the company are owned by them
and have value. It is essential to be sold or used by the firm in order to provide services. Assets
includes plants, inventory and other physical property (Jurakulovna, 2021). Other intangible
assets are patents and trademarks. Liabilities of the company means the amounts that a firm owes
to other. It includes obligations like taxes owed to the government and money borrowed from
bank. On the other hand, shareholder equity is the cash that would be left if the firm sold all its
physical or intangible assets and paid off all its debts.
Income statements- This report will provide information about company revenue earned
over a time period. It gives the evaluation about expenses associated with the total earning. This
statement shows report earnings per share which tells about how much money shareholders
receive.
Cash flow statements- This statement will show detailed information about outflow and
inflow of the company. This report is essential for firm because they need to have enough money
on hand to pay all its expenses and purchase assets (Albanese and et.al., 2021). With this
document, the company can find out whether firm generated cash or not. There are three main
parts of cash flow statements such as investing activities, financial activities and operating
activities.
Investing activities- the cash flow statements generally include investing activities like sales and
purchases of long-term assets such as plant, equipment and physical property. For example- If
the firm purchase machinery, the cash flow statement would reflect investing activities as a cash
outflow. On the other hand, if the company sell off some investments the cash flow statement
would reflect as a cash inflow.
Financing and operating activities- cash raised by selling stocks and bonds from banks will be
apart of financial activities whereas, operating activities of the cash flow statements reconciles
the net income to the actual cash received by the company.
Discussing financial reporting concepts

Financial reporting means providing business related or financial information to third
parties such as creditors, customers and tax authorities. According to finance experts, there are
various objectives of financial reporting. Clear and accurate financial reporting is important part
of understanding and managing company’s finances. The fundamental objective of maintaining
financial reporting is to provide detailed information to external bodies such as investors,
suppliers and creditors in order to make investment decisions. It is important to have an
understanding of decision-making process so that company can provide useful guidelines to
them. While making decisions related to investment company’s investors aim to determine the
cash in order to estimate the future cash return and appreciation of capital. It is also helpful to
make portfolio decisions. It is helpful for financial transparency and simplify taxes. Comparison
is made between type of security to another so that company can determine the most attractive
returns.
The financial reporting provides information on management accountability in order to
judge the management of the company effectiveness for proper utilization of the resources and
running the business operations (Haralayya, 2021). The concept of management accountability
includes detailed information about budgets, capital expenses and future business activities. With
the help of financial statements and reports the company compare consistency of an entity
If the company maintain its financial report properly then they can run its business
effectively. Benefits of managing financial statement are- the company is better able to manage
the debt funds, overall management of inventory, stock management, cash flow management,
reducing risk exposure in the future. With the help of financial reporting the firm is able to
improve supplier relationship management. They can also improve its relationship with external
and internal bodies of the firm (Financial reporting, 2021). It will help to increase
communication and collaboration. The company needs to optimize financial performance and
also real time analyses. It also helps readers make a better investment and other business-related
decision. With the helps of financial reports and proper financial statements the company can
detect business patterns. Budgetary control and its management can be performed by financial
reporting analysis. All the information in the financial reports can be used by firm to measure
their debts funds which can be beneficial and take instant decision. It gives accurate information
about cash flow and business performance and health of the business.

By evaluating financial reports concepts, the statements not only inform about the
company but also provide protection to various shareholders and other users of financial
statements.
4. Interpreting financial statements using financial ratio Smart Resort Ltd.
(A)
particular formula 2018 2019
£ £
Net profit Net income/Net sales*100 2.93 2.60
Net income 167914 185370
Net sales 5732145 7123189
ROA Net income/Total assets 0.06 0.06
Net income 167914 185370
Total assets 2638862 3179266
ROE Net income/Shareholders’ equity 0.15 0.11
Net income 167914 185370
Shareholders’ equity 1094485 1656886
Current ratio Current assets/Current liabilities 1.82 1.63
Current assets 1786140 2064100
Current liabilities 982480 1265332
Debt to equity Total liabilities/Total equity 1.41 0.92
Total liabilities 1544377 1522380
Total equity 1094485 1656886
Quick ratio Current assets-inventory/Current
liabilities
0.67 0.57
Current assets 1786140 2064100
Inventory 1124642 1340432
Current liabilities 982480 1265332
Times interest earned
ratio
Operating income/interest expense 12.65 18.63
Operating income 277662 323631
Interest expense 21955 17370
Inventory turnover ratio Cost of goods sold/Average inventory 3.89 4.03
COGS 4377690 5396923
Average inventory 1124642 1340432

Average collection period Accounts receivable/Net sales/365 12.94 11.37
Accounts receivable 203143 221836
Net sales 5732145 7123189
Accounts receivable
turnover
Net credit sales/Average accounts
receivable
28.22 32.11
net sales 5732145 7123189
average accounts receivable 203143 221836
From the above-mentioned financial statement, it is evaluated that net income has been
increased in the year 2019. There is an increasing trend in sales of smart report ltd in the year
2019. So, by examining the report it is noted that the company performance is good.
The average collection period of the company is 11.37 in the year 2019. Collection
period means that how long customers are taking to pay the seller. It indicates that collection of
the smart resort ltd. is effective and efficient. The accounts receivable turnover shows that
business is efficiently collects on debts. In the year 2018 accounts receivable turnover is 28.22
and 32.11 in the year. Generally, higher number is better for the company performance. It means
the company is receiving the money on time which will ultimately impact positive productivity
of the company.
Inventory turnover ratio indicates that how much inventory stock is sold, used or
replaced by the company. In the year 2019, there is an increasing trend of inventory ratio, a
higher ratio tends to strong sales which ultimately increase the profit margins and net income of
the company. Times interest earned ratio is generally measured by the company in order to meet
its debt obligations on the basis of current income. Smart resort ltd. has a times interest earned
ratio in the year 2019 is 18.63 which shows that they are financially stable.
If a company has a quick ratio less than 1 then they must focus on paying off its current
liabilities in the short term in order to avoid any uncertainty or loss. The current ratio of the
company is 1.63 in year 2019. Generally, a ideal current ratio is anything over 1, thus, it
indicates that the firm has more than enough money to meet its liabilities. The company is
utilizing its capital effectively. Moreover, the company’s ROE and ROA needs to be improved as
both the elements needs to be more than 15% in order to generate profit. As the company
performance is good although company should focus on maximum utilization of its assets for
getting more profits in the future.

(B) Report of Smart Resort Ltd
To,
The CEO of Smart Resort Ltd
Date- 13 November 2021
Subject- To update the CEO on some of the key areas of company’s performance
By evaluating the report, it is to inform the CEO of the company that the company’s
business operation and production creates a base for future decisions. Moreover, it is suggested
to focus on unnecessary expenses and sell unused assets to avoid any uncertainty in the future.
The firm need to gather information through market research to gather all the relevant and
important information related to competitors. The firm needs to utilize its inventory, stocks and
assets on time. Additionally, it is also recommended to pay its debts on time to avoid bankruptcy
in the future.
CONCLUSION
To conclude, the company must focus on reducing expenses, if they want to improve its
financial position. By evaluating the present report, it is determined that company must offer
additional payment options and consolidate debt in order to achieve profit margin and make
financial position stable. In addition to that, the firm need to recover all its outstanding debt and
reduce unnecessary expenses for financial health of the company.

REFERENCES
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balance sheet. Quantitative Finance. 21(1). pp.99-123.
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Online
Financial reporting. 2021. [Online]. Available through: <
https://www.edupristine.com/blog/financial-reporting>