Accounting for Decision Making: Crystal Hotel Case Study Analysis

This case study analyzes the financial performance of Crystal Hotel Pty Ltd, focusing on key financial ratios and their implications. The analysis reveals that the hotel's revenue from rooms is below industry standards, while costs across various departments are higher. The study examines profitability, efficiency, liquidity, and solvency ratios, highlighting areas of concern such as low inventory turnover and high accounts receivable collection periods. The report suggests recommendations for improvement, including strategies to increase revenue, decrease costs, and optimize asset utilization. The analysis includes comparative data against industry standards, offering a comprehensive overview of the hotel's financial position and providing insights for better decision-making. The assignment utilizes financial statement analysis and ratio analysis to evaluate the overall financial position and performance of the business.

ACCOUNTING FOR
DECISION MAKING
CRYSTAL HOTEL PTY LTD

 Revenue from rooms of Crystal Hotel Pty Ltd which is the main source
of income is lower than the industry standard (Robinson, 2020).
 Costs of sales of every aspects like rooms, foods and beverages and
others are higher than the industry standard which is a negative
aspects (Robinson et al., 2015).
 Personnel costs for the main items like rooms, foods and beverages,
sales and marketing and others are higher than the industry standard
which is a matter of concern for the management (Easton
&Sommers, 2018).
 The unallocated operating costs in the areas like administrative,
property maintenance and others are higher than the industry
standard (Gad, 2015).
 On a proportionate basis, total costs of the hotel is higher than the
industry standard while revenue is lower the industry standard (Welc,
2017).
INCOME STATENENT COMPARATIVE
ANALYSIS

PROFITABILITY RATIOS – The Gross Profit ratio of Crystal Hotel Pty
Ltd is lower than the industry standard because of higher cost of
sales and the Net Profit ratio is higher than the industry standard.
Both Return on Assets and Return on Equity ratios are lower than
the industry standards. Overall, Crystal Hotel does not have a
good profitability position (Satryo, Rokhmania&Diptyana, 2017).
EFFICIENCY RATIOS – Inventory Turnover ratio is way lower than
the industry standard which is an area of concern. Accounts
Receivable Collection Period is much higher than the industry
standard which is also a matter of concern for the hotel. On the
overall basis, the efficiency position of the hotel is not effective
when compared to the industry (Havidz&Setiawan, 2015).
RATIO ANALYSIS

LIQUIDITY POSITION – Since the liquidity ratios of Crystal Hotel
Pty Ltd that are Current Ratio and Quick Ratio are lower than the
industry standards, this indicates towards the shortage of current
and quick assets to the firm for paying off the present business
obligations. This demonstrates the ineffective liquidity position of
the hotel (Hiran, 2016).
SOLVENCY POSITION – Crystal Hotel Pty Ltd is an effective
solvency position as the organization is less dependent on debt
capital; majority portion of the required capital and fund of the
hotel comes from equity investors as both the Debt to Equity Ratio
and Debt Ratio are lower than 50%. High Equity Ratio makes the
hotel attractive for investing for the equity investors (Laskina,
2017).
RATIO ANALYSIS

 Crystal Hotel should increase its revenue from rooms by increase the
number of rooms and renovating them as it is the main revenue source for
Crystal Hotel.
 It is recommended to implement effective financial strategies for
decreasing the costs of sales as this will help the company to increase
overall profitability.
 The recommendation is to decrease the costs like personnel costs and
unallocated operating costs as they are higher than the industry standards.
 The hotel needs to ensure that the assets and equity investments are
properly utilized for increasing the overall profitability.
 Inventory turnover should be increased by effectively managing the
inventory for improving the overall efficiency.
 It should increase the trade receivables by reducing the credit period
allowed.
 Both current assets and quick assets should be increased for improving
liquidity.
RECOMMENDATIONS

 Easton, M., &Sommers, Z. (2018). Financial Statement Analysis & Valuation, 5e.
 Gad, J. (2015). Components of Comprehensive Income and Statement of Changes in Equity: An
Analysis of Public Companies’ Reporting Practices in Poland and Germany. Journal of
Management and Business Administration. Central Europe, 23(3), 71-88.
 Havidz, S. A. H., &Setiawan, C. (2015). Bank efficiency and non-performing financing (NPF) in
the Indonesian Islamic banks. Asian Journal of Economic Modelling, 3(3), 61-79.
 Hiran, S. (2016). Financial Performance Analysis of Indian Companies Belongs to Automobile
Industry with Special Reference to Liquidity & Leverage. International Journal of
Multidisciplinary and Current Research, 4, 39-51.
 Laskina, L. Y. (2017). Enhancing the analytical potential of cash flow-based solvency ratio
analysis. Ekonomicheskiianaliz: teoriyaipraktika= Economic Analysis: Theory and
Practice, 16(11), 2145-2162.
 Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.
 Robinson, T. R., Henry, E., Pirie, W. L., &Broihahn, M. A. (2015). International financial statement
analysis. John Wiley & Sons.
 Satryo, A. G., Rokhmania, N. A., &Diptyana, P. (2017). The influence of profitability ratio, market
ratio, and solvency ratio on the share prices of companies listed on LQ 45 Index. The
Indonesian Accounting Review, 6(1), 55-66.
 Welc, J., 2017. Impact of Non-controlling Interests on Reliability of Consolidated Income
Statement and Consolidated Balance Sheet. American Journal of Business, Economics and
Management, 5(5), pp.51-57.
REFERENCES