Financial Position & Performance: Hospitality Industry Report

This report provides a financial analysis of leading hospitality companies including PPHE Hotel Group, Whitebread Plc, and Millennium and Copthorne Hotels Plc, comparing their financial performance and position based on key financial ratios. The analysis covers gross profit margin, net profit margin, return on capital employed, return on equity, current ratio, quick ratio, day debtors, interest coverage ratio, assets turnover, interest-bearing debt-to-equity, earnings per share, and price-earning ratio. The findings indicate varying strengths among the companies, with PPHE showing strong profit performance, MP demonstrating impressive liquidity, and Whitebread Plc exhibiting better gearing. Recommendations include minimizing operational costs and maximizing current assets. The report also emphasizes the importance of qualitative assessments alongside quantitative analysis to account for external market volatility, particularly in multinational operations. The references provided offer additional resources for further research.

FINANCIAL PERFORMANCE AND
POSITION OF A COMPANY

PPHE Hotel Group
• PPHE Hotel Group is the biggest company which is engaged in hospitality
industry. It is headquartered in Netherlands and also it is listed on London
Stock Exchange.
• It has broad brand portfolio and having partnership with another leading
hospitality brand Radisson Hotel Group.
• It has earned 325 billion of revenue in euros at the end of 2017 financial
year.
• It has exclusive rights in nearly 56 countries. It has highly exotic hotels in
many countries including Germany, Europe and other nations.

Whitebread Plc
• Whitebread Plc is another biggest hospitality company listed on London
Stock Exchange (LSE).
• It is headquartered in UK. It is one of the oldest hospitality organization
operating in UK and is primarily engaged in coffee shop, restaurant and
hotel business.
• Organization has earned 2.921 billion at the end of 2016 financial year.

Millennium and Copthorne Hotels Plc
• MP Plc is the largest hospitality industry headquartered in UK. It is real
estate hospitality industry managing, franchising and leasing hotels in
various countries.
• It also offers hotel management consultancy to hotel owners.
• Its vision statement is to become the leading hospitality real estate
company by offering effective and unique assets management services to
people.

Academic and sector literature related to appropriate theory
• The objective behind this research is to provide clarity about importance of
financial ratios' analysis which is required in the company so that financial
condition may be easily ascertained.
• In this context, author has said that computation of financial ratios is quite
important for the company to assess position with reference to its
competitors.
• Income statement and balance sheet provides way to carry out financial
ratios which are helpful for company and various stakeholders.

Cont.
• In contrary to this, author argued that financial ratios does not provide
qualitative information regarding performance of the company as it is
purely based on quantitative information.
• This is the greatest disadvantage of calculating financial ratios.
• This is required as there are various qualitative aspects which are
essentially required for assessing performance of the company.

Cont.
• In relation to this, author says that financial performance help to assess
effectiveness of firm and as such, structured decisions can be made so that
organisation may be able to enhance customer satisfaction in a better way
and help to generate desired revenue with much ease.
• Financial statements such as balance sheet, income statement assists in
carrying out financial ratios so that performance of company may be easily
ascertained.

Gross profit margin
• Above graph clearly highlights that in all the years, Millennium and
Copthorne Hotels Plc’s GM of 57.05%, 59.69%, 58.68% and 57.34% is
significantly greater than Whitebread and PPHE.
• Although MP indicates high profit yielding firm still, since 2014, it shows
downward trend as fallen to 58.68% and 57.34% because of economic and
political uncertainty and changing global landscape.

Net profit margin
• Looking to the trend, it is noticed that MP’s net profit shows a significant
decline from an attractive return of 24.9% to 18.28%, 11.45% and 10.58%.
• Likewise, other companies experienced profit volatility still, in 2016,
PPHE shows highest return of 14%

Return on capital employed
• Whitebread shows highest return on its capital employed of 14.36% higher
than that of earlier year 14.22%.
• However, MP shows regular decrease in ROCE from 9.03% to 5.85%,
3.56% and 3.03% whilst PPE shows fluctuating trend as in 2014, gone up
to 5.98%, then fallen to 5.28% and gone up to 5.49%.
• As per the annual report, company had successfully achieved its target
ROCE of 13%-18% with actual ROCE of 14.22% .

Return on equity
• ROE results show that Whitebread is in strong position that is generating
impressive profit of 16.68% on the total equity investment greater than that
of MP with 2.92% and PPHE with 11.72%.
• Internationalization strategy of Whitebread Plc by 3816 new Premier Inn
rooms, 1585 Costa Express Machines and 110 new stores maximized
revenue from £2921.8m to £3106m.

Current ratio
• This ratio represents the relationship between current assets and current
liabilities of the entities for the reporting year.
• From 2013 to 2016, MP’s CR came down from 2.18:1 to 1.55:1 whereas
PPHE ratio increased from 0.99 to 1.13 and Whitebread Plc’s ratio came
down from 0.42:1 to 0.40.

Quick ratio
• Quick ratio demonstrates the ability of an organization to meet their
liabilities towards creditors without having inventory balance in the
business itself.
• Considering the outcome of ratios, it determined that MP and PPHE’s
quick ratio is in favorable position because their ratio of 1.54:1 and 1.12:1
goes beyond the standard ratio of 1:1.
• Greater quick ratio is a clear indicator that both these firms are strongly
able to meet their deferred short-term obligations on a right time without
any delay.

Day Debtors
• It can be interpreted from ratios that PPHE has 16.85 days at the end of
2016, while Whitebread Plc has 19.23 days and MP Plc has 37.45 days at
the end of 2016 year.
• It clearly implies that highest day debtors is regarded as much efficiency of
the firm to quickly collect money from debtors.

Interest coverage ratio
• In FY 2013, MP has highest interest bearing ratio of 16.21 which over the
period came down to 4.16 times shows that the ability of the company to
make payment of interest to the creditors considerably fallen.
• On the other side, Whitebread Plc shows favorable improvements in the
interest coverage ratio as it was 8.66 times in 2013 increased to 14.70
times by the end of FY 2016.

Assets turnover
• This ratio is another essential one which measures efficiency of
company in generating sales while utilizing assets up to maximum
possible extent.
• It can be analyzed that assets turnover ratio of Whitebread Plc is
0.81 in 2016 year, PPHE has 0.24 and other company has 0.21.

Interest bearing debt-to-equity
• It can be interpreted that Whitebread Plc has 0.27 %, PPHE has 0.70 % and
MP Plc has 0.25 % of debt equity ratio.
• The ideal debt-to-equity is considered to be less than 0.4 % which is
recommended by market experts.
• This means that company is fairly using debt and equity to generate sales
in effective way.
• Revenue is earned by perfectly financing debt and equity in good
proportion.

Earnings per share
• It is another important part of financial ratios which shows earnings
of company in effective way.
• It measures profitability aspect of organization.
• It can be interpreted that PPHE has 0.83%, while Whitebread Plc
has 2.31, MP Plc has 0.24 at the end of 2016 financial year.

Price Earning Ratio
• It can be interpreted that price earnings ratio of Whitebread Plc is
16.60, PPHE has 19.18 and MP Plc has 8.16 at the end of 2016
financial year.
• It shows that ratio of PPHE is quite high as compared to Whitebread
Plc and much more than MP Plc.

Conclusion
• In contrast, PPHE shows strong profit performance with maximum return.
• However, on the other side, liquidity performance of MP is quite impressive which
found that company is strongly able to meet their short-term obligations on a
correct time without any delay.
• Efficiency ratio determined that PPHE is promptly receiving money from their
trade debtors to manage cash.
• Gearing position of Whitebread Plc is found better as it is able to bear more long-
term debt to satisfy its long-term capital requirement.

RECOMMENDATIONS
• By minimizing its operational cost, firm will be able to maximize its net
yield and perform better in future.
• In despite of this, liquidity analysis suggests all the undertakings to
maximize its current assets to increase the availability of short-term funds
called working capital to pay creditors and other short-term deferred
payments at right time.

IMPLICATIONS FOR THE
FUTURE
• Considering the limitation of ratio analysis, it is better to suggest all the
companies to not just dependent on the ratio analysis for quantitative
assessment but also conduct qualitative assessment to consider the impact
of external volatility on their performance.
• As in current times, companies operates at multinational level therefore,
the managerial team must keep track of the outside market volatility and
assess the impact of external market forces on the future performance to
make decisive actions.

REFERENCES
Cassell, C. A., and et.al., 2012. Seeking safety: The relation between CEO inside debt
holdings and the riskiness of firm investment and financial policies. Journal of
Financial Economics. 103(3). pp.588-610.
Katchova, A. L. and Dinterman, R., 2018. Evaluating financial stress and performance
of beginning farmers during the agricultural downturn. Agricultural Finance
Review.
Patel, M.P. and Ranjith, V.K., 2018. Moderating Influence of Efficiency on Variables
of Hospital Financial Performance: Evidence from Indian Multi-Specialty Private
Sector Hospitals.Indian Journal of Finance, 12(1), pp.9-23.

THANK YOU