Managing Financial Resources in the Hospitality Industry

This report discusses GAAP, financial statements, stakeholders, and ratio analysis in the context of the hospitality industry. It covers topics such as generally accepted accounting principles, users of financial statements, supplement components of financial statements, and financial reporting concepts. It also includes a detailed analysis of Smart Resort Limited's financial ratios. Course code, course name, and college/university are not mentioned.

MANAGING FINANCIAL
RESOURCES IN
HOSPITALITY INDUSTRY

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Q1................................................................................................................................................3
Q2................................................................................................................................................4
Q3................................................................................................................................................5
Q4................................................................................................................................................6
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting refers to the process that is considered with the recording of transaction related
with the business. It is the base that would lead to the preparation of the financial statement
(Elliott and Elliot, 2017). With the making of analysis of the financial statement the financial
health of the company would be analysed. It is to be noted that while preparing the financial
statement the companies would need to consider the GAAP. This report would discuss the
concept of GAAP, the major financial statement of the company in the context of the use of
various stakeholders. Likewise, a detailed analysis of the financial statement through ratio
analysis would also be a part of the report.
MAIN BODY
Q1
Generally accepted accounting principles:
It refers to a common set of accounting principles, procedures, standards which are issued
by the Financial Accounting Standards Board. Every company need to follow the accounting
standards and the principles while preparing the financial statements and the accounts. GAAP is
an integration of various standards and the accepted ways of recording and reporting of
accounting information (Baker and Persson, 2021). It includes the approved accounting practices
and the methods that would be used by the companies. It includes various principles including
the regularity that is related with the adherence of rules and regulations, principle of consistency
which states that the companies need to be consistent with the use of accounting standards,
principle of sincerity which is related with the maintaining of accuracy and impartiality,
performance of method that is related with the following of consistent procedures for the making
of the financial statements, principle of prudence that would not allow the speculation in relation
with the financial data and many more.
Users of financial statements:
It includes the owners, managers, Customers, Competitors, Government, Suppliers,
lenders, employees, investors and various other (Ariana, Bagiada and Sukayasa, 2018). These are
considered as major stakeholders of the company that may have an interest in the organization
and also have power that they may affect the organization. They are main users because they

need to make decision with the company and they have an interest within the company
performance.
Need of information for decision makers:
As per the decision maker’s various information would be needed by them. This can be
understood with an example of decision maker i.e. Investor. With refers to an investor the
information that would be needed would include the income statement and financial position
statement. This is because with the help of these financial statement and its contained
information it would be able to make them analysis of the financial health and the performance
of the organization and accordingly they would make the decision of investment.
In the same way with the analysis of the information of the financial statement including the
profit and loss account or the balance sheet the company’s managers or the management would
also able to make decision related with the making of any change in the organization’s policies
and rules (Lee and Tweedie, 2020). Likewise, the statement of equity the shareholder of the firm
would be able to take decision regarding their binding with the firm or not. This would be right
to states that as per the need and use of various financial statement the concerned user would
take the information and make decision in relation with the firm.
Q2
Statement of income, financial position and cash flow statement:
Income statement:
This is one of the major financial statement that is related with the determination of the
profit and loss of the company (Guerard, Saxena and Gultekin, 2021). With the help of analysis
of this statement, it would be easy to determine that whether the company has earned profit and
incurred loss.
Statement of financial position:
This statement is related with the making of analysis of the financial position of the
company. With the help of this statement the financial position of the company in terms of the
position of assets and liabilities would be analysed (Bareja, Gawart and Giedroyc, 2017). It is
based on accounting equation i.e. Assets = Liabilities+ equities.
Statement of cash flow:

This statement is related with the analysis of the cash inflows and outflows of the
company (Donelan and Liu, 2021). With the help of this statement the company would be able to
make analysis of the cash position in terms of its inflows and outflows from the company.
Loan creditors:
These includes those creditors from which the money is owned by the organization. This
means they make demand of money from the firm (Okolelova and et.al., 2019). In simple words
those creditors which offer loan to the company would be considered as trade creditors. They are
mostly interested in income statement and financial position of the company. This is because if
the company is incurring loss then it would be a point to notice by the loan creditor. Likewise,
earning of profit by the firm would be considered as positive aspect for the loan creditor because
it gives assurance that they would be able to get recovered of the loan. Likewise, with the
making of analysis of the financial position the loan creditor would be able to determine the
financial position of the company in the market that would enable them to make adequate
decision towards the company in terms of giving them loan or not.
Trade Creditors:
These are those individuals to whom the company need to make payment. These would
include the suppliers from whom the organization has owned raw material and now need
payment. In other words, trade creditors are the bills that an organization need to pay. They are
highly interested in the statement of income and cash flow. This is because with the analysis of
the cash flow the firm’s position related with the cash would be able to get analysed. This would
enable them information related with the cash availability that whether the company has
adequate cash or not. Likewise, with the analysis of the income statement they would analysis of
the financial position of the company that whether the company have capacity that they can
make repayment or not.
Q3
Component that supplement the financial statement:
There are various supplement components of the financial statement that would enable
the user to understand the financial statement. These supplement component would include the
notes to financial statements, auditor’s report, management discussion and analysis and various
other. With the making of understanding of these supplement it would be easy to make an

analysis of the financial statement and its related information. This can be understood as the
notes to the financial statement would enable the information related with the financial statement
including the information which would assist the user to understand the financial report. All the
supplementary and essential information would a part of notes to account (Telles, 2018).
Likewise, with the analysis of the auditor’s report the comment on the financial structure and
information would be able to understand. This is because the auditor’s report would contain the
information related with the financial position and performance of the company. In the same way
as the auditor report contain the opinion of auditor regarding the aspect that whether the
company would comply with the GAAP or not. This would enable the user to determine that
how well the company is performing and whether it is compiling with the required laws and
regulations or not. This shows that the auditor report is an important supplement of financial
statement because it would enable the company’s internal information and its working (Smith,
2019).
In the same way the management discussion report would also include the information
that is based on the analysis of the management towards the company. This is because it includes
the management report and information that is based on the internal analysis of the company
which would enable the user to have more knowledge and information towards the company and
its financial position and performance.
Financial reporting concepts:
Financial reporting refers to the concept that would assist the organization to make
communication of its financial information to the third party. This is an important concept that
would assist the organization to make informed the third party regarding its performance and
position. With the aspect of financial reporting the financial statement would be disclosed to the
user and the third party so that the performance of the company and its financial position would;
be enable to the users. This is usually made at the end of the financial year. This disclosure
would be made by the organization with the consideration of the stakeholders including the
customers, investors, shareholders, creditors, customers and various other.
Q4
Ratio analysis:

This is one of the important concept that would enable the company and its stakeholder to
make an analysis of the financial health and performance of the company.
NAME OF RATIOS FORMULA 2018 2019
Net profit margin Net profit before tax/
sales revenue *100
=
255707/5,732,145*100
= 4.46%
=
306261/7,123,189*100
= 4.29%
Return on assets Earning after tax/Total
assets*100
=
167914/2,638,862*100
= 6.36
=
185370/3,179,266*100
= 5.83
Return on equity Net
earnings/shareholder’s
equity*100
=
167914/1094485*100
= 15.34%
=
185370/1656886*100
= 11.18%
Current ratio Current assets/current
liabilities
= 1,786,140/982,480
= 1.81
= 2,064,100/1,265,332
= 1.63
Quick ratio Current assets-
Inventories/current
liabilities
= 1,786,140-
1,124,642/982,480
= 0.67
= 2,064,100-
1,340,432/1,265,332
= 0.57
Debt to equity ratio Total
liabilities/shareholder
Equity
= 1,544,377/1,094,485
= 1.4
= 1,522,380/1,656,886
= 0.91
Interest coverage ratio Earning before interest
and tax/interest
expenses
= 277,662/21,955
= 12.64
= 323,631/17,370
= 18.63
Inventory turnover
ratio
COGS/Average
inventory
= 4,377,690/1,124,642
= 3.89
=
5,396,923/(1,124,642+
1,340,432/2)
= 5,396,923/1232537

= 4.37
Debtors collection
period
Trade receivables/
credit sales*365
=
203,143/5,732,145*36
5
= 12.93
=
221,836/7,123,189*36
5
= 11.36
Account receivable
turnover
Net credit
sales/average account
receivables
= 5,732,145/203,143
= 28.21
= 7,123,189/221,836
= 32.11
Net profit margin:
As pert this financial ratio the profitability of the company would be able to get analysed
(Nariswari and Nugraha, 2020). While making an analysis of the net profit margin of Smart
Resort Limited it can be analysed that the ratio in 2018 was 4.46 which decline in 2019 and
become 4.29. This shows that the profitability of the resort is declining while making it
compared it with the previous year. This decline in the profitability can be caused with the aspect
of raising of expenses of the resort. This can be further corrected with the aspect of focus over
cost cutting and expenses so that the profitability would be raised.
Return on assets:
This is also an important ratio that measure the earning of the company with respect to
putting the asset into use (Husna and Satria, 2019). In case of Smart Resort Limited the ROA is
declining because the ration in 2019 was 6.36 while in 2020 it become 5.83. This shows the
inefficiency of the resort because with the pace of time the ROA is declining which also shows
that the resort is not able to make generation of adequate earning from the assets. This can be due
to poor quality and condition of the assets which would be minimised with the upgradation and
changing the assets.
Return on equity:
This ratio measure the profitability of the resort that how well it is generating profit that
would be available to the shareholder (Jati, 2020). While making an analysis of the Smart Resort

Limited it is found that the ratio in 2018 was 15.34% while in 2019 it become 11.18%. this
shows a decline in ratio i.e. the resort capability of earning the profit. It can be corrected with the
aspect of making more sales and raise the profitability.
Current ratio:
This ratio measures the liquidity of the company that how efficient the company is in
terms of making payment of its short term liability (Nuryani and Sunarsi, 2020). As the current
ratio of Smart Resort Limited in 2018 was 1.81 which decline in 2019 and become 1.63. This
shows that the Smart Resort Limited’s capability of making a repayment of its short term
liability is declining. This would be corrected with effective recovery of the cash so that adequate
funds would be available for the payment of liability.
Quick ratio:
It refers to the measurement of the company’s liquidity without making a sales of the
inventory. In case of Smart Resort Limited the quick ratio is declining because it was 0.67 in
2018 which decline and become 0.57 in 2019. This shows that the liquidity of the Smart Resort
is declining with reference to making a payment of its short term liability. This can be improved
with the aspect of making a raise in sales, improvisation of collection period and with various
other method too.
Debt to equity ratio:
It is used to make analyse the company’s leverage that analyse its financial structure in
terms of determining the proportion of debt and equity. While analysing the debt equity ratio of
Smart Resort Limited it is seen that the ratio in 2018 was 1.4 which decline in 2019 and become
0.91. this shows a decline in the ratio and leverage of the resort. This occurs because of the
raised proportion of shareholder equity which would be corrected through a focus on maintaining
a balance between the debts and equity.
Interest coverage ratio:
This ratio measure the proportionate amount of income that can be used to cover the
interest coverage in the future. in case of Smart Resort Limited the ratio is increasing because in

2018 it was 12.64 while in 2019 it become 18.63. this means that the resort is earning an
adequate percentage of income that would be used to make deal with the interest expenses. This
shows the positive performance of the resort.
Debtor collection period:
It refers to the period that would be required by the company to make a recovery of the
debt from the debtors. In case of Smart Resort Limited the ratio is declining i.e. from 12.93 of
2018 to 11.36 of 2019. This shows the efficiency of the resort in terms of making recovery of
dues from its debtor. With such ratio it would be abler to make faster recovery.
Account receivable turnover:
This ratio measures the efficiency of the company that how efficiently the company
would make recover its accounts receivables. This shows the number of time the company would
make the collection of average accounts receivable. While making an analysis of the Smart
Resort Limited it is found that the ratio was 28.21 in 2018 which become 32.11 in 2019. This
shows a rise in ratio which would further explained that the resort is performing well in terms of
making a recovery of its dues.
Performance of the resort:
While making an analysis of the performance of the Smart Resort Limited it can be said
that the financial performance of the resort is not well and it would be considered as moderate.
This is because while making a comparison of 2018 and 2019 it was found that the performance
of the resort is declining because of the poor results in the calculated ratio. At the same time this
can also be interpreted that certain ratio of the resort in the collection period, interest coverage
and various other would shows a positive result. But overall the financial performance of the
Smart Resort Limited is moderate.
In addition of this it would be made recommended to the resort that it need to make focus
over the marketing and other aspect that would lead to raise the sales of the resort so that its
profitability and various ratio would raise and improves.

CONCLUSION
From the above report it can be concluded that financial statement are important statement
of the company that would enable the financial information about the company. With the
analysis of eth financial statement, the financial health of the company would be able to get
evaluated. Likewise, ratio analysis would enable the determination of financial health of the
company in terms of measuring the performance of the company.

REFERENCES
Books and journals
Ariana, I.M., Bagiada, I.M. and Sukayasa, I.K., 2018, October. User satisfaction on technical and
operational performance of spreadsheet-based financial accounting application. In 1st
International Conference on Social Sciences (ICSS 2018) (pp. 450-454). Atlantis Press.
Baker, C.R. and Persson, M.E., 2021. Principles Versus Rules-based Accounting Standards.
In Historical Developments in the Accountancy Profession, Financial Reporting, and
Accounting Theory. Emerald Publishing Limited.
Bareja, K., Gawart, M. and Giedroyc, M., 2017. Evolution of Intangible Assets Recognised in a
Statement of Financial Position. In Management Challenges in a Network Economy:
Proceedings of the MakeLearn and TIIM International Conference 2017 (pp. 481-481).
ToKnowPress.
Donelan, J.G. and Liu, Y., 2021. Using the Accounting Equation for Preparing the Statement of
Cash Flows. In Advances in Accounting Education: Teaching and Curriculum
Innovations. Emerald Publishing Limited.
Elliott, B. and Elliot, 2017. Financial Accounting and Reporting, 18th ed, Harlow: Pearson.
Guerard, J.B., Saxena, A. and Gultekin, M., 2021. The Annual Operating Statements: The
Income Statement and Cash Flow Statement. In Quantitative Corporate Finance (pp.
53-77). Springer, Cham.
Husna, A. and Satria, I., 2019. Effects of return on asset, debt to asset ratio, current ratio, firm
size, and dividend payout ratio on firm value. International Journal of Economics and
Financial Issues. 9(5). p.50.
Jati, W., 2020. Effect of Current Ratio and Return on Equity on Dividend Payout Ratio
Policy. Jurnal Ilmiah Ilmu Administrasi Publik. 10(1). pp.63-74.
Lee, T.A. and Tweedie, D.P., 2020. Shareholder Use and Understanding of Financial
Information (Vol. 38). Routledge.
Nariswari, T.N. and Nugraha, N.M., 2020. Profit Growth: Impact of Net Profit Margin, Gross
Profit Margin and Total Assests Turnover. International Journal of Finance & Banking
Studies (2147-4486), 9(4), pp.87-96.
Nuryani, Y. and Sunarsi, D., 2020. The Effect of Current Ratio and Debt to Equity Ratio on
Deviding Growth. JASa (Jurnal Akuntansi, Audit dan Sistem Informasi Akuntansi). 4(2).
pp.304-312.
Okolelova, and et.al., 2019, April. The essence of loan capital and the model of effectiveness of
its turnover. In Institute of Scientific Communications Conference (pp. 825-837).
Springer, Cham.
Smith, K., 2019. Tell me more: a content analysis of expanded auditor reporting in the United
Kingdom. Available at SSRN 2821399.
Telles, S.V., 2018. Readability and understandability of notes to the financial
statements (Doctoral dissertation, Universidade de São Paulo).
1

2