BIZ201: Analyzing Crystal Hotel's Financial Position and Performance

This report provides a comprehensive financial analysis of Crystal Palace Pty Ltd, evaluating its financial standing to inform a decision on hotel renovation. The analysis employs vertical analysis of the income statement and statement of financial position, alongside an examination of profitability, efficiency, liquidity, and solvency ratios. The findings reveal weaknesses in profitability, efficiency, and liquidity, while highlighting a strong solvency position. The report also recommends additional industry-specific benchmarks such as RevPAR, ADR, and occupancy rate. The overall financial performance indicates areas for improvement, especially in revenue generation and cost management. The analysis aims to guide the management's decision-making regarding the proposed renovation plan, emphasizing the need to address identified financial weaknesses.

Running head: ACCOUNTING FOR DECISION MAKING
Accounting for Decision Making
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Author’s Note

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Executive Summary
This report aims at analyzing the income statement and statement of financial position of Crystal
Palace Pty Ltd with the intention to assess their current financial standing before proceeding with
the decision to increase the hotel star by renovating the hotel while improving the services. The
main techniques used for this analysis purpose are vertical analysis of income statement and
statement of financial position and the analysis of four types of financial ratios which are
profitability ratios, efficiency ratios, liquidity ratios and solvency ratios. Findings of the vertical
analysis shows that Crystal Palace Pty Ltd has not been able in registering increase in revenue in
2018, but the expenses have been increased as compared to the industry standards. This
demonstrates that the financial performance of the hotel has not been as effective as per the
industry standard. On the other hand, findings of the ratio analysis point towards the weakness of
Crystal Palace Pty Ltd in profitability, efficiency and liquidity position which demonstrates the
ineffective financial position of the hotel as compared to the industry standards. The positive is
that Crystal Palace Pty Ltd has less reliance on debt capital which has strengthened its solvency
position. In case the management of Crystal Palace Pty Ltd wants to take a major decision about
the plan to renovate the hotels, the above-mentioned areas need to be considered as this may
affect the decision to implement the plan.

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Table of Contents
Part 1: Excel Workbook Calculations..............................................................................................3
1. Vertical Analysis.....................................................................................................................3
Requirement (a).......................................................................................................................3
Requirement (b).......................................................................................................................4
2. Ratio Analysis..........................................................................................................................5
Part 2: Business Report....................................................................................................................6
Introduction..................................................................................................................................6
Income Statement Comparative Analysis....................................................................................6
Ratio Analysis..............................................................................................................................8
Recommendation on Three Additional Industry Specific Benchmarks......................................9
Conclusion.................................................................................................................................11
References......................................................................................................................................12

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Part 1: Excel Workbook Calculations
1. Vertical Analysis
Requirement (a)

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Requirement (b)

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2. Ratio Analysis

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Part 2: Business Report
Introduction
Crystal Hotel Pty Ltd (Crystal Hotel) is considering a plan to upsurge the star rating of
the hotel by modernizing it and this requires the management to assess their present financial
performance and financial standings as compared to the industry. Using the financial analysis
tools like vertical analysis, ratio analysis and others help the companies helps the managements
of the companies to assess their businesses’ current financial position and performance.
Therefore, the main aim of this report is the analysis of the current financial performance and
position of Crystal Hotel through conducting vertical analysis on its income statement and
statement of financial position along with the analysis of certain key financial ratios. This report
also suggests other performance indicators for the business of Crystal Hotel.
Income Statement Comparative Analysis
Revenue – Crystal Hotel has earned 50.42% of total revenue from rooms which is lower than the
industry standard that is 65%; but its revenue from foods and beverages that is 28.92% of the
total sales is higher than the industry average that is 27%. Since the key source of revenue of the
hotel is rooms, it has not performed well in 2018 as compared to the other hotels in the same
industry (Robinson, 2020).
Cost of Sales – The hotel’s cost of sales for rooms that is 9.32% is higher than the industry
standard; and the same can be seen in case of the cost of cost of goods sold of foods and
beverages and others. It demonstrates the inefficiency of managing costs of its services as
compared to the industry; and this has negative impact on the hotel’s profitability (Robinson et
al., 2015).

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Personnel Costs –Crystal Hotel’s personnel costs for rooms, food and beverages, and sales and
marketing are higher than the industry standards which demonstrates that the hotel is providing
higher salaries, wages and compensation to their personnel and all these are higher than the
industry standard. Its personnel expenses in the areas of administration and general, and property
management and maintenance are lower than when compared it to the industry standard (Easton
&Sommers, 2018).
Unallocated Operating Costs – The unallocated operating costs of Crystal Hotel in
administrative and general and property operation and maintenance are higher as compared to
the industry standards and it indicates towards incurring higher expenses by Crystal Hotel in
these areas than the other hotels in the same sector. Expenses of the hotel in the other areas like
information system, sales and marketing, security and transportation are lower than the industry
standards (Gad, 2015).
Total Costs Proportions – The total costs of Crystal Hotel in costs of sales, total personnel costs
and total unallocated operating costs are higher than the proportions of industry standards.
Therefore, the hotel has incurred higher expenses in every aspect while has registered less
revenue as compared to the other companies in the industry. This shows ineffective business
performance of Crystal Hotel as compared to the industry as the revenue has become lower
where the expenses have become higher (Welc, 2017).
Recommendations – Some recommendations are made for Crystal Hotel based on the above
analysis:
1. It is recommended to Crystal Hotel to increase its revenue from rooms by increase the
number of rooms and renovating them as it is the main revenue source for Crystal Hotel.

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2. Crystal Hotel is recommended to implement effective financial strategies for decreasing
the costs of sales as this will help the company to increase overall profitability.
3. The recommendation to Crystal Hotel is to decrease the costs like personnel costs and
unallocated operating costs as they are higher than the industry standards.
Ratio Analysis
Profitability – The gross profit ratio of Crystal Hotel is lower than the industry standard and the
prime reason for decrease in this ratio is the increase in cost of sales. Net profit margin is higher
than the industry standards which demonstrate the company’s ability to effectively manage the
expenses for making profit. Since return on assets of Crystal of the hotel is lower than the
industry standard, this demonstrates the inefficiency of the hotels in using its assets for
generating profit as compared to other companies in the same industry. Crystal Hotel has also not
been able in generating adequate profit from the investment of equity shareholders as this ratio is
less than the industry standard (Satryo, Rokhmania&Diptyana, 2017). The recommendation to
the hotel is to reduce its cost of sales while ensuring effective utilization of its assets and equity
investments.
Efficiency – Inventory turnover ratio of Crystal Hotel is significantly lesser than the industry
standard which demonstrates issues like unnecessary accumulation of stock, inefficient use of
investments and over-investments in inventories. This increase the number of days in inventory.
Moreover, the collection period of accounts receivable is significantly higher than the industry
standards and this indicates towards the issues like high collection period allowed to customers
and ineffective credit policy within the hotel. These aspects indicate towards the high financial
inefficiencies in Crystal Hotel (Havidz&Setiawan, 2015). The recommendations to Crystal Hotel
are to increase inventory turnover and decrease the collection period for accounts receivable.

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Liquidity –Both the liquidity ratios that are the current ratio and quick ratio of Crystal Hotel are
lesser than the industry standard which indicates towards major liquidity issues within the hotel.
Significantly lower current ratio than industry demonstrates the presence of key working capital
issues within the hotel. Moreover, the quick ratio is also lower than the industry standard where
it is also less than 1:1; this means the hotel does not have sufficient quick assets for paying off its
current business obligations (Hiran, 2016). Therefore, the recommendation to Crystal Hotel is to
improve its overall liquidity position by increasing the amount of current and quick assets in the
business.
Solvency –The debt to equity ratio of Crystal Hotel is lower than 50% and it means the hotel has
less reliance on the funds of the creditors as it raises majority portion of the capital from
shareholders. The same reflects from the debt ratio of the hotel as low debt ratio shows minimum
overall dependency on the debts. Moreover, Crystal Hotel has high equity ratio shows that the
hotel is worth investing as the business is more sustainable as well as less risky for future loans.
Lastly,Crystal Hotel has an interest coverage ratio of 55 times which makes the hotel able in
paying interests for 55 times in a year from its operating profit. Overall, Crystal Hotel has a good
solvency position (Laskina, 2017).
Recommendation on Three Additional Industry Specific Benchmarks
The presence of many additional industry specific performance indicators can be seen in
the hotel industry that Crystal Hotel can use for their comparative analysis. Three of these
benchmarks are discus reresed below:

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1. RevPAR – Revenue per available room, commonly known as RevPAR, is a key industry-
specific benchmark that is used in the hotel industry for comparing performance with other
hotels. The formula for calculating RevPAR is shown below:
RevPAR = (The combined total of all revenue ÷ Total available rooms during the period)
The main utilization of this benchmark can be seen in the hotel in order to assess its ability of
filling its available rooms at an average rate (Nieto-Garcia et al., 2019).
2. ADR – Average Daily Rate or ADR is considered as one of the most popular industry specific
benchmarks for hotels for measuring as well as comparing the performance of the hotels. The
formula for calculating ADR is as below”
ADR = (Room revenue ÷ Rooms sold)
ADR helps the hotels in ascertaining the average rate of the rooms sold over a particular period
of time. This duration can be considered as a quarter, a month or a year. Utilization of ADR
provides the hotels with an indication of the overall generated income from every paid and
occupied room for that particular duration (Oses, Gerrikagoitia & Alzua, 2016).
3. Occupancy Rate – Occupancy rate is a key industry specific benchmark that can be used by
the hotels for assessing their performance and comparing the same with other hotels. The
formula for calculating occupancy rate is as below:
Occupancy Rate = (Number of occupied rooms ÷ Total number of available rooms)
This is considered as a major key performance indicator in the hotel industry that assists in
highlighting how much of the available space in a hotel is actually being utilized (Ginindza &
Tichaawa, 2019).

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Conclusion
The main aim of this report is to assess the financial performance and financial position
of Crystal Hotel. The outcome of the vertical analysis shows that Crystal Hotel does not have
effective financial performance in 2018 as its revenue decreased in that year where the overall
expenses increased. The outcome of the profitability ratio analysis shows that Crystal Hotel does
not have higher profitability ratios as compared to the industry standard except the net profit.
Crystal Hotel does not have efficiency in managing its inventory and receivable as these ratios
are less than the industry standard. The same negative aspect can be seen in case of liquidity
position as Crystal Hotel does not have adequate current and quick assets for paying off its short-
term business obligations. However, Crystal Hotel has an effective solvency position due to the
less dependency of Crystal Hotel on creditors’ funds which makes the company less risky.

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References
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.
Ginindza, S., & Tichaawa, T. M. (2019). The impact of sharing accommodation on the hotel
occupancy rate in the kingdom of Swaziland. Current Issues in Tourism, 22(16), 1975-
1991.
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.
Nieto-Garcia, M., Resce, G., Ishizaka, A., Occhiocupo, N., & Viglia, G. (2019). The dimensions
of hotel customer ratings that boost RevPAR. International Journal of Hospitality
Management, 77, 583-592.

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Oses, N., Gerrikagoitia, J. K., & Alzua, A. (2016). Modelling and prediction of a destination’s
monthly average daily rate and occupancy rate based on hotel room prices offered
online. Tourism Economics, 22(6), 1380-1403.
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.