Financial Analysis Report: Evaluating Hotel 5 Performance in 2016-2017

This financial analysis report provides a comprehensive evaluation of Hotel 5's performance, comparing financial ratios from 2016 to 2017. The report utilizes DuPont Decomposition to assess return on assets, profitability, and asset utilization, revealing improvements in key areas. It examines profitability ratios like net profit margin and operating profit margin, and turnover ratios, including accounts receivable and inventory turnover, to determine operational efficiency. The analysis also assesses short-term and long-term financial stability through various ratios. Furthermore, the report identifies and discusses trending performance measures specific to the hospitality industry, such as room rental performance and customer behavior, offering a holistic view of the hotel's financial health and operational strategies. The analysis is supported by relevant references and a bibliography.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting Financial Analysis Report
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
a) Commenting on the change of the ratios from one year to the other interpreting the
implications of the results:.........................................................................................................2
b) Identifying and discussing other trending performance measures that are specific to the
hospitality industry:....................................................................................................................3
Reference and Bibliography:......................................................................................................5

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a) Commenting on the change of the ratios from one year to the other interpreting the
implications of the results:
The evaluation of Du-Pont Decomposition relevantly indicates a positive attribute of
return on assets, which has improved from 6.71% to 14.09% with an increment in the overall
operating PM from 10.38% from 2016 to 20.23% in 2017. In addition, the asset utilization
composition of the company has relatively improved from the level of 0.65x in 2016 to 0.70x
2017. The financial position of the company has mainly improved over the period, due to the
high profits and low expense incurred by the company over the period.
The ratios evaluated on the basis of Shareholder’s Perspective depicts a positive
attribute of the organisation, as return on equity, return on assets, Net PM, Total assets
turnover and equity multiplier has increased from 2016 to 2017. The high values obtained by
ratios focusing on Shareholder’s Perspective is due to the improvement in net income and
low expenses incurred by hotel 5 from 2015 to 2017. The combination of the ratios in
Shareholder’s Perspective depict a positive attribute about hotel 5, where the organisation to
generate high rate of return from investment over the period of time.
The evaluation of Profitability ratio relatively indicates a rising value of Net profit
margin from 9.01% to 13.81% with increasing operating profit margin from 10.38% to
20.23%. The exponential increment in the value of net profit margin and operating margin
mainly indicates the reduction in administrative expenses and finance cost incurred by the
company from 2016 to 2017. However, the gross profit margin has inclined from 83.53% to
83.59%, as cost of sales remained same for the hotel from 2016 to 2017, as no further decline
in expenses in possible by the hotel.

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From the evaluation of Turnover ratio, the account receivable turnover improved,
while decline is seen on inventory turnover ratio from 2016 to 2017. The account receivable
turnover ratio has mainly declined from levels of 17.36 day to 17.12 day, which indicates that
the hotel will receive payment earlier from its debtors. On the other hand, the inventory held
days relevantly increased from 9.99 days to 10.40 days, which indicates inefficiency of the
management in clearing the overall stock in time. Therefore, it could be understood that
turnover ratio of the hotel remained on the same level.
The evaluation of Short-term financial stability relevantly indicates the positive
attributes of the company, where it rose from 2016 to 2017. Short-term financial stability
holds ratios such as current ratio, quick ratio and working capital of the hotel, which
increased exponentially from 2016 to 2017. This increment in the overall valuation mainly
states the high accumulation of current asses, which is conducted by the hotel in comparison
to current liabilities.
The section Long-term financial stability mainly comprises of debt/asset ratio,
equity/asset ratio, debt/equity ratio and times-interest earned. The debt/asset ratio, debt/equity
ratio and times-interest earned has increased from 2016 to 2017, while equity/asset ratio
declined during the period. This relevantly indicates that the hotel has increased its debt
accumulation, while reducing the equity capital used in the operations. However, the
increment in times earned ratio from 15.66 to 39.70 indicates the incremental position to
support additional loans for complying with the financial needs to be hotel.
b) Identifying and discussing other trending performance measures that are specific to
the hospitality industry:
There are other trending performance measures that could be evaluated for identifying
the performance of hotel 5 such as room rental performance, customer behaviour

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performance and Room maintenance performance, which could help in understanding the
financial prospects of the hotel. Moreover, the valuation also helps in understanding the level
of financial performance and customer satisfaction that will have effect on revenue
generating capability of the hotel. The use of room rental performance could help in
understating the level of minimise rents that needs to be maintained by the company to
generate profits from the operations (Warren & Jones, 2018).

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Reference and Bibliography:
Kothari, S. P., Mizik, N., & Roychowdhury, S. (2015). Managing for the moment: The role
of earnings management via real activities versus accruals in SEO valuation. The
Accounting Review, 91(2), 559-586.
Loughran, T., & McDonald, B. (2016). Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), 1187-1230.
Ribeiro, A. M., Carmo, C. H. S. D., Fávero, L. P. L., & Carvalho, L. N. (2016). Manager's
discretionary power and comparability of financial reports: an analysis of the
regulatory transition process in Brazilian accounting. Revista Contabilidade &
Finanças, 27(70), 12-28.
Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.