Managing Financial Resources in the Hospitality Industry

This report provides insights into accounting principles, financial statements, and ratio calculation for evaluating performance in the hospitality industry. It explains the different financial statements and their users, which statement is most interesting to loan or trade creditors, and the components that supplement financial statements in an annual report. The report also includes ratio calculations for evaluating performance.

MANAGING FINANCIAL
RESOURCES IN THE
HOSPITALITY INDUSTRY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Explaining accounting principles & various users of financial statements and assess the
information needs of different decision makers.....................................................................3
Discussing three financial statements of income financial position and cash flows and which
is most interest to loan or trade creditors................................................................................4
Describing the components that supplement the financial statements in an annual report and
financial reporting concepts...................................................................................................6
Calculating ratios for evaluation performance.......................................................................7
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Managing financial resources is associated with paying attention on identifying, analysing and
monitoring resources so that formulating decision to accomplish the business decision can
become possible. In the current era, it is highly required to overcome complexities of operating
in sector. The current report will comprise information related with different financial statements
& its users. It will focus on emphasizing on which statement is essential for loan or trade
creditors. This will presents components that supplement the financial statements in an annual
report. The currents study will comprise ratio calculation for evaluating performance.
MAIN BODY
Explaining accounting principles & various users of financial statements and assess the
information needs of different decision makers
Accounting principles refers the general rules & regulations that are company need to follow to
have sustainability in sector. The generally accepted principles are regularity, consistency,
sincerity, permanence of methods, non-compensation, prudence, continuity, periodicity,
materiality and utmost good faith.
Firm should adhere to GAAP rule & regulations. For comparing financial comparability
there should be application of the consistency of methods in reporting process. In order to
maintain the sincerity business should ensure that accurate & impartial information is provided.
Principle of non-compensation depicts that there should be full transparency without having
expectation of debt recovering (Kembauw and et.al., 2020). There should be much emphasis on
obtaining fact based financial data by eliminating speculations. Business will be continuing to
operate by valuing assets is related with continuity principle. The periodicity states that there
should be significant entries in appropriate period. There should be full disclosure of information
by presenting all financial data & reports. Utmost good faith is shows parties to remain honest in
all the transactions.
There are several users of financial statement which comprises employees, management,
suppliers, lenders, competitors, investors, financial institutions customers, financial analyst, etc.
Financial statement provides detail regarding its profitability, expenditure, debts, investment,
assets, etc which largely contribute in obtaining sufficient information to make judgments
regarding company’s financial health. Users of financial statements like cash flow, balance sheet,
profit & loss account and change in equity statement, etc. gives insights regarding functioning of

company (Users of financial statements, 2021). This information allows users to make strategic
decision on that can positively impact them. For example- investor uses stated financial
statement in order to evaluate enterprise’s efficiency of utilizing provided funds in turn higher
return on investment can be derived.
There are number of information that is required by decision maker so that higher level of
profitability & sustainability can be obtained. Financial statement like cash flow, income, change
in equity, etc. all presents distinct kinds of information which are highly required to gain greater
level of understanding of processing of company. Income statement presents details related with
income & expenditure conducted for the particular duration of the time for conduction of
operational practices (Brigham and Houston, 2021). It helps users analyze how firm is focusing
on making its practices effective in order to gain profitability. Balance sheet depicts data insights
regarding equity, capital, fixed, current assets & liabilities. Presents summary of overall financial
information of the firm so that relevant decision can be taken.
Cash flow statement indicates data related with actual cash in & out flows so that liquidity
can be ascertained to forecast its ability to overcome obligations. Change in equity reflects
comprehensive income including profit or loss for the particular duration. These all provided
information should be reliable, relevant, timeliness, comparable, understand ability, etc. Having
these features in financial statement allow make significant decision by accurate evolving
liquidity, ability to overcome obligation, efficiency to utilize resources to generate revenue, etc.
so that accomplishing specific objective can become possible.
Discussing three financial statements of income financial position and cash flows and which is
most interest to loan or trade creditors
There are number of information which is provided by each statement and highly taken into
consideration so that greater amount of flexibility & efficiency in decision-making can become
possible. There are three crucial financial statement which are formulated & published by
companies in order to increase profitability & sustainability by creating trustworthiness among
stakeholders.
Loan creditors are considered to be the person or institutions that lends credit to the
organization to the organization. The loan creditors pay attention on the tree of the financial
statement so that evaluating overall performance of the company can become possible. The much
emphasis is provided on the balance sheet as it comprises the information regarding possessing

liabilities and assets. The assets side aids the loan creditor to gain the information related with
their actual its actual ability to optimize resources and capabilities to pay off the prevailing debt.
It as well contribute in assessing that company's ability to overcome the debts so that surety
regarding recovering of the debt can be obtained. Loan creditors as well pay attention on
assessing the income & expenditure so method of utilizing funds to generate revenue (Shapiro
and Hanouna, 2019). The loan creditors required to concentrate on achieving insights from the
income statement in order to have effective data so that formulating decision to give loan or not
can be made by comparing the earnings sources as compared to expenditure. Cash flow income
statement as well play crucial role in helping loan creditor to take the strategic decision by
focusing on the activities like operating, investing and financing in order to have significant
information. Cash flow statement provides the insights related with inflows from operating,
investing and financing sources so that overall information in respect to the liquidity can be
obtained.
From the evaluation of the provided information it can be said that loan credit needs all the
mentioned financial statements in order to get the depth insights of company financial position.
The stated income statement is useful in having data regarding company's actual stability to
forecast its overall functioning (Apte and Kapshe, S., 2020). These all aid in making significant
evaluation to assess that particular firm is capable of overcoming specific loan.
Trade creditors are associated with the bills that company has not paid yet. It might be the
suppliers of raw material which are purchased by the company on the credit. Trade creditors are
basically the suppliers of goods that has been obtained by the enterprise but not yet paid. It is
recorded on the current liabilities side in the balance sheet. Trade creditor basically concentrate
on obtaining the information from the financial position statement as allows giving insights
respect to current, quick and trade payable ratio in turn better evaluation of its current position
can be assessed. The trade creditors as compared to loan focuses on evaluating information of the
current performance. The major concentration is provided on balance sheet so that formulation of
decision can become possible.
On the basis of this information it can be said loan & trade creditor has the same person. In
addition to this, loan creditor focuses on both the long and short run performance of the company
so that taking decision by assessing its depth solvency situation. On the other side trade creditors

have emphasis on the information comparatively for short run in turn getting deeper insights to
make significant decision can become possible.
Describing the components that supplement the financial statements in an annual report and
financial reporting concepts
Financial statement plays significant role in making strategic decisions that accomplishing
business objectives can become possible. The components of financial statements are basically
building blocks that helps in understanding financial health of enterprise. There are several
components that supplements financial statements in annual report includes income statement,
balance sheet, cash flow and change in equity statement. The common components that are
included by financial statements involve assets, liabilities, equity, revenue an expense.
In order to gain significant insights regarding company’s monetary position it becomes essential
on mentioned components in turn higher level of accuracy & efficiency in decision can be
obtained. Financial reporting involves all these statements in turn relevant, reliable and
significant insights can be provided (Ross and et.al. 2019).
Income statement provides overview of the company’s total sales, earnings and expenditure
conducted for the purpose of operation. In this first section presents the profit or loss that is
obtained by deducting cost of goods sold from the sales. In the second subsection there is
involvement of net profitability that has been derived by deducting indirect expenses regrading
administration selling, etc. from gross profit. The formulated income statements complement
annual report by showing all gains & expense.
Balance sheet is concerned with focusing on portrays the ability of a business honor the debt
obligations. It basically summarizes the details regarding assets and liabilities. It leads to
breakdown the information related with maintaining significant segregation among liabilities
equities and assets in turn annual report can present the complex information in summarized
form.
Statement of cash flow is the inward and outward of the movement of the cash in business.
Cash flow generate from the operating activities are funds obtained from the day to day
practices. Funds obtained from investing part indicates cash generated from the long term
projects (Broyles, 2020). The financial cash flow tracks the changes in the capital position of the
business due to the sale of shares, payment of debt, etc. it supplements the annual report as

allows to have significant information which is largely useful in form of increasing effectiveness
of information.
On the basis of the obtained information regarding mentioned three statements plays
significant role in supplementing annual report. Annual report as well includes change in equity
statement that leads to information related with comprehensive income that include profit and
loss for the period.
Financial reporting is concerned with communicating the published financial statement &
related with influencing stakeholders in order to allow them to take strategic decision in respect
to have reliable data insight (What is an Annual Report? 2021). It is the duty of the company to
publish the information to users in order to make achieve the position of attaining & retaining
proper level of trustworthiness & credibility.
Calculating ratios for evaluation performance
Net profit Ratio
It is one of the significant ratio is associated with assessing the ability of the company to
generate net profit from revenue (Palepu and et..al., 2020).
Particular
s Formula 2018 2019
Net profit 167914 185370
Sales
revenue 5732145 7123189
NP ratio
Net
profit /
sales *
100 3% 3%
From the evaluation it can be said that company has equal amount of net profitability margin for
the two specified period. It indicates constant trend in the performance of Sm ar t R es or t L td
(S RL ).
Return on equity
This is widely taken into consideration by investors, competitors, etc. to evaluate firms
efficiency of generating return from the provided equity. It helps stakeholders to take decision
regarding investment.
Particular
s Formula 2018 2019

Net profit 167914 185370
shareholder
s equity 1094485 1656886
Return on
equity
Net profit
/shareholder
s equity *
100 15.34% 11.19%
From the assessment it can be said that there is declining trend which is negative indication
of the performance of company. It can adverse effect the decision-making criteria of
investors.
Return on assets
The ratio indicates how effectively enterprise uses assets to generate net profitability.
There are number of stakeholders like suppliers, competitors, etc that uses this ratio to make
decision.
Particular
s Formula 2018 2019
Net profit 167914 185370
Total Assets 2638862 3179266
Return on
assets
Net profit
/total
assets*100 6.36% 5.83%
From the evaluation it can be interpreted that there is downward falling indication of using assets
to obtain profitability. It tends to result in lack of availability of liquidity that has negative impact
on the financial health.
Current Ratio
This is used to measure efficiency of the firm to utilize current assets to overcome short term
obligations.
Particular
s Formula 2018 2019
Current
assets 1786140 2064100

Current
liabilities 982480 1265332
Current
ratio
Current
assets /
current
liabilities
1.8179912
1
1.6312714
8
The above table articulates that the ideal ratio for this include 1.2-1.5 times. From the analysis it
can be said that company's efficiency has reduced to overcome short term liabilities in turn good
financial position can be maintained.
Quick Ratio
It is concerned with using cash & equivalent resources for overcoming current liabilities. This
helps lenders, creditors, etc to ascertain position of the company to meet obligations in effective
manner.
Particular
s Formula 2018 2019
Current
assets 1786140 2064100
Inventory 1124642 1340432
Current
liabilities 982480 1265332
Quick
ratio
Current
assets -
(stock
)/Current
liabilities
0.6732941
1
0.5719194
6
The above illustrated table shows efficiency of the organization to handle the prevailing financial
liabilities of short term that has declined as compared to previous year 2018.
Debt to Equity Ratio
This is take n into the consideration for analyzing financial leverage of the company by paying
attention on debt and equity.

Particulars Formula 2018 2019
Long-term
debt 561897 257048
Shareholder
's equity 1094485 1656886
Debt-
equity
ratio
Long-term
debt /
shareholde
rs equity
0.513389
4
0.1551392
2
The presented details show that risk associated with specified firm has declined as compared to
the year 2018. This can increase the investors decision in favor of the enterprise.
Inventory Turnover Ratio
Inventory turnover ratio indicates how effectively company is replacing its stock.
Particula
rs Formula 2018 2019
COGS 4377690 5396923
inventory 1124642 1340432
Inventory
Turnover
Ratio
COGS/
Inventory
3.8925186
86
4.0262564
61
By comparing the above presented information it can be said that there is upward movement of
the derived outcomes. This is one of the favorable sign of the liquidity.
Times Interest Earned (Coverage) Ratio
It allows to understand the ability of the organization to overcome outstanding liabilities.
Particular
s Formula 2018 2019
EBIT 277662 323631
Interest 21955 17370

Interest
coverage
ratios
EBIT/
interest
12.6468685
9
18.6316062
2
It is indicating upward trend in the capabilities to overcome the specified debt.
Average Collection Period
Particular
s Formula 2018 2019
Account
receivable
turnover
Account
receivable /
sales *365 12.935 11.367
Average
collection
period
365/
account
receivable
turnover
artio
28.2180131
4
32.1104952
9
It aids in assessing the detail regarding number of days taken by firm to obtain payments form
the customers.
Accounts Receivable Turnover
This shows efficiency of the company to collect due payments from the traders.
Particular
s Formula 2018 2019
Account
receivable 203143 221836
Sales
revenue 5732145 7123189
Account
receivable
turnover
Account
receivable /
sales *365
12.9353313
6
11.3671194
2

From the determination of the presented information it can be said that it is decreasing trend
which is favourable sign.
Explaining the financial performance of the company
From the evaluation of the calculated ratio it can be said that there i requirement to improve the
performance of the company. Th e ne t pr of it ab i li t y is co ns ta nt tr en d whi ch r eq ui re d
to be i mp ro ve d by d ec li ni ng co st . R et ur n o n eq ui ty & a sse ts , c ur re nt a nd
qu ic k ra ti o i s m ov in g in d ec li ne d ir ec ti on s w hi ch n ee d to be m od if ie d b y
ta ki ng c ru ci al ac ti on s ( Easton and et.al., 2018.). T hi s c an ad ve rs el y a ff ec t
pos it io n o f t he br an d i ma ge of SR L an d i n tu rn st ak eh ol de rs ca n ge t af fe ct ed
fr om i t. T he re ar e fe w o th er r at io s whi ch i nd ic at e s t ha t c om pa ny is
pe rf or mi ng qu it e w el l. I t co mp ri se s ac co un t r ec ei va bl e t ur no ve r, a ve ra ge
co ll ec t io n p er io d, in ve nt or y tu rn ov er ra ti o, d eb t t o E qu it y Ra ti o, e tc . ar e
re fl ec t in g t ha t i nc li ne d e ff or ts ar e t ak en t o im pr ov e th e p os it io n of sp ec if ie d
en te rp ri s e . F ro m th e asc er ta in m en t of t he pr es en te d in fo rm at io n i t c an be
s a id t ha t to b e suc ce ss fu l in th e i nd us tr y t he re is re qu ir em en t to p ay a tt en ti on
on t ak in g im pr ov em en t ac ti on s t o e li mi n at e ad ve rs e i mp ac t.
CONCLUSION
From the above report it can be concluded that financial resource management becomes essential
to have significant growth. The current report has involved accounting principles like
consistency, etc as well different users like government, management, etc. present study has
involved information related with loan & trade creditors for decision-making. Case study has
comprised components of financial statements an annual report. From the calculated ratio it can
be said that company require making few courses of action so that performance can be improved.

REFERENCES
Books and journal
Apte, P.G. and Kapshe, S., 2020. International Financial Management|. McGraw-Hill
Education.
Brigham, E.F. and Houston, J.F., 2021. Fundamentals of financial management. Cengage
Learning.
Broyles, J., 2020. Financial management and real options.
Easton, P.D. and et.al., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Kembauw, E. and et.al., 2020. Strategies of Financial Management Quality Control in
Business. TEST Engineering & Management. 82.pp.16256-16266.
Palepu, K. G. And et..al., 2020. Business analysis and valuation: Using financial statements.
Cengage AU.
Ross, S. A. and et.al., 2019. Corporate finance (pp. 312-13). McGraw-Hill Education.
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John Wiley & Sons.
Online
Users of financial statements. 2021. [Online]. Available through:
<https://www.accountingtools.com/articles/users-of-financial-statements.html>
What is an Annual Report? 2021. [Online]. Available through:
<https://corporatefinanceinstitute.com/resources/knowledge/finance/annual-report/>