University Financial Analysis Report: Crystal Hotel Decision Making

This report provides a comprehensive financial analysis of Crystal Hotel Pty Ltd, assessing its current financial standing to aid management in expansion planning. The analysis involves a vertical analysis of the statements of profit or loss and financial position, along with an examination of profitability, efficiency, liquidity, and solvency ratios. The analysis reveals that Crystal Hotel has struggled to generate sufficient revenue from rooms and food and beverage sales compared to industry standards, with associated costs also being higher. The report highlights inefficiencies in asset and equity utilization, slow inventory turnover, and delayed receivables collection, impacting overall efficiency. Furthermore, the analysis indicates liquidity issues due to inadequate current and quick assets. Despite these challenges, Crystal Hotel maintains a lower reliance on debt due to its significant equity capital. The report concludes with recommendations for improvement in revenue generation, cost reduction, and efficiency enhancement, along with suggestions for additional industry-specific benchmarks like ADR, RevPAR, and occupancy rate to facilitate comparative analysis and better decision-making.

Running head: ACCOUNTING FOR DECISION MAKING
Accounting for Decision Making
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The report involves in the analysis of the financial statements of Crystal Hotel Pty Ltd for the
assessment of its current financial standing for facilitating its management to take decision
regarding the expansion plan. This financial statements analysis is done through vertical analysis
of the statements of profit or loss and statements of financial position and analysis of four
categories of ratios. Outcome of the financial statements analysis demonstrates that Crystal Hotel
Pty Ltd has not been able to generate adequate amount of revenues from selling rooms and foods
and beverages in the recent years when compared to the other hotels in the same industry. At the
same time, the costs associated with the rooms and foods and beverages are also higher than the
other hotels. This indicates towards an inferior performance and position of Crystal Hotel Pty
Ltd in the industry. Outcome of the analysis of ratios demonstrate that the profitability position
of Crystal Hotel Pty Ltd has been affected with the less efficient use of assets and equity
investors for generating profit. Slow clearance of inventory as well as slow collection of the dues
from the debtors is affecting its overall efficiency. Moreover, the liquidity position has been
affected by the lack of adequate current and quick assets. Even in the presence of all these
negatives, Crystal Hotel Pty Ltd has been able in maintaining its less reliance on debt capital for
financing the business because of the large use of equity capital. These are the key aspects
associated with the present financial standing of Crystal Hotel Pty Ltd highlighted from the
analysis of financial statements.

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Table of Contents
Part 1................................................................................................................................................3
1. Vertical Analysis.....................................................................................................................3
a. Vertical Analysis of Statement of Profit or Loss.................................................................3
b. Vertical Analysis of Statement of Financial Position..........................................................4
2. Ratio Analysis..........................................................................................................................5
Part 2................................................................................................................................................6
1. Introduction..............................................................................................................................6
2. Comparative Analysis of Income Statement...........................................................................6
3. Analysis of Ratios....................................................................................................................8
4. Additional Industry Specific Benchmarks.............................................................................10
5. Conclusion.............................................................................................................................11
References..................................................................................................................................12

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Part 1
1. Vertical Analysis
a. Vertical Analysis of Statement of Profit or Loss

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b. Vertical Analysis of Statement of Financial Position

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2. Ratio Analysis

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Part 2
1. Introduction
New business plans for expanding the business operations require significant inclusion of
capital; and therefore, the managements of the firms should asses the businesses’ present
financial standing before proceeding with the plans. This is the case with Crystal Hotel Pty Ltd
(Crystal Hotel) as the management of the hotel is considering assessing their present financial
standing before making any major decision for improving the hotel. The main aim of this report
is the analysis of the financial statements of Crystal Hotel for providing insight on its present
financial situation including the areas that require improvement and further investigation. The
analysis is done based on the outcome of vertical analysis of Crystal Hotel’s statement of profit
or loss and statement of financial position along with the outcome of profitability, efficiency,
liquidity and solvency ratios.
2. Comparative Analysis of Income Statement
Out of total revenues, 50.42% of revenue of Crystal Hotel came from rooms and this
below the industry standard both in terms of number of rooms and average room price range.
28.92% of the total revenue came from foods and beverages which is higher than the industry
standard in terms of number of rooms, but lower in terms of average room price range. However,
revenue from functions and other sources of Crystal Hotel is higher than the industry standard.
Therefore, earning revenue from rooms requires improvement (Weygandt, Kimmel & Kieso,
2019).
Cost of sales of Crystal Hotel for rooms and foods and beverages in 2018 are 9.32% and
9.16% of the total cost of sales respectively and they are higher than the industry standards in

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terms of rooms that are 8% and 9% respectively. However, the cost of sales for food and
beverage in terms of average room price range is lower than the industry standard that is 10%.
Thus, rooms cost of sales is an area of Crystal Hotel that requires improvement (Hasibuan &
Syahrial, 2019).
Personnel costs for rooms and foods and beverages of Crystal Hotel out of the total
personnel cost are higher the industry standard for both number of rooms and average room price
range. Since this is affecting the hotel’s profitability, this area requires improvement. Other
personnel costs of the hotel are same as or lower than the industry standard (Schroeder, Clark &
Cathey, 2019).
Administrative and general unallocated operating cost of Crystal Hotel out of the total is
higher than the industry standard; and this needs to be improved since this largely affects the
profitability. Sales and marketing unallocated operating cost is lower than the industry standard
which is a positive for the hotel. Property operations and maintenance is higher than the industry
standard in terms of number of rooms; and this area needs to be considered for further
improvement (Manea, 2017).
When the total cost proportion is considered, Crystal Hotel has higher cost proportion for
each section as compared to the industry standard for both number of rooms and average room
price range. Only unallocated operating costs under average room price range is lower than the
industry standard. It implies that Crystal Hotel is incurring more expenses in every business
aspect than the industry standard. Further analysis needs to be done for assessing the reasons for
the same (Manea, 2017).

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It can be seen that revenue and costs from the rooms and foods and beverages are major
areas of concern for Crystal Hotel. It is incurring higher costs for the room and foods and
beverages, but revenue and income from these two sources are lower than the industry standard.
Therefore, the recommendation for Crystal Hotel is to further investigate in revenues from these
two sources, especially from the rooms for the reasons of the same as the existence of it is
largely dependent on it. At the same time, it is also recommended to ensure decrease in the costs
associated in these two areas as this is required for increase net income of the hotel.
3. Analysis of Ratios
Profitability ratios – Crystal Hotel’s net profit margin is superior to the industry standard which
is a positive aspect and the reason might be lower indirect and direct cost as compared to the
industry. The gross profit margin is less than the industry standard; the reason might be decrease
in revenue or increase in cost of sales as compared to the industry. Lower return on assets and
return on equity than the industry standard is negative for the profitability of Crystal Hotel; it
implies the hotel is not effective to properly utilize its assets and equity investments for
generating profit. Since majority of the profitability ratios are lower than the industry standard,
profitability position of Crystal Hotel is not effective (Svitlík & Poutník, 2016).
Efficiency ratios – Crystal Hotel is highly inefficient in converting its investments in inventory
into sales as the ratio is significantly inferior to the industry standard. Since the number of days
in inventory held is 260 days, it implies the hotel is able in selling its inventory only once in a
year. It is also inefficient in collecting the dues from debtors as accounts receivable collection
period is significantly higher than the industry standard. This shows lack of inefficiency of
Crystal Hotel in its business operations (Olesen, Petersen & Podinovski, 2015).

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Liquidity ratios – Crystal Hotel has key problems in its liquidity position as both the current
ratio and quick ratio is significantly inferior to the industry standard. It means there is not
adequate amount of current and quick assets in the business of Crystal Hotel for repaying the
current liabilities. This demonstrates poor liquidity condition of Crystal Hotel (Goel, Chadha &
Sharma, 2015).
Solvency ratios – Crystal Hotel is less dependent on borrowed money from outside parties as
both the debt to equity ratio and debt ratio is lower than 50%. This is a favorable condition for
external parties as it increases the company’s safety margin. As the equity ratio is also high that
is 77.67%, it implies the use of equity capital for financing its assets. Less amount of debt leads
to less amount of interest payment; and thus, Crystal Hotel has a higher interest coverage ratio
(Laskina, 2017).
Based on the above discussion, the following recommendations are made for Crystal
Hotel:
1. Crystal Hotel is recommended to use its assets and equity investments efficiently so that
they can be used for generating profit. This will enhance its overall profitability.
2. Effective inventory management strategies need to be implemented for clearing the
inventories in quicker manner. Moreover, dues from the debtors also needs to be
collected on quicker manner for increasing overall efficiency.
3. It is recommended to Crystal Hotel to increase the current assets and quick assets for
improving the liquidity position.

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4. Additional Industry Specific Benchmarks
There are additional benchmarks for hotel industry that can be used for measuring as well
as comparing the performance of the hotel.
1. It is recommended to Crystal Hotel to use ADR (Average Daily Rate) as a benchmark for
the purpose of comparative analysis. With the use of this benchmark, the hotel will be
able to determine the average rate of the rooms sold for a specific period. This can be
measured on monthly, quarterly or daily basis. Crystal Hotel will be able to obtain the
idea of the overall income generated from each of the occupied and paid rooms for a
specific time. ADR can be obtained by dividing revenue of rooms by number of rooms
sold (Chen et al., 2016).
2. Another recommendation to Crystal Hotel is to use RevPAR (Revenue per Available
Room) as a benchmark for the purpose of comparative analysis. The management of
Crystal Hotel can use this benchmark for the assessment of its capability to fill its
available rooms at an average rate. The hotel can obtain revenue by dividing the total
amount of revenue from the rooms by the total number of available rooms for the specific
period (Dogru, Mody & Suess, 2019).
3. Lastly, it is recommended to the management of Crystal Hotel to use Occupancy Rate as
a benchmark for the purpose of comparative analysis. The management of Crystal Hotel
can use the occupancy rate for obtaining idea on the fact that how much of the available
space has been utilized in the hotel. Crystal Hotel can obtain this occupancy rate by
dividing number of rooms occupied by total number of rooms available (Ginindza &
Tichaawa, 2019).

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5. Conclusion
Vertical analysis of the statement of profit or loss of Crystal Hotel demonstrates the issue
associated with the revenue and costs of rooms and foods and beverages. These two areas are
consuming increased costs, but are not able in generating that much revenue. Moreover,
profitability, liquidity and efficiency are three major issues in Crystal Hotel. It is not able to use
its assets and equity investments effectively, does not have adequate current and quick asses, and
is inefficient in clearing its inventories and collecting dues from the debtors. However, Crystal
Hotel has a strong solvency position in the presence of less debts and more equity capital. These
are the crucial areas that need to be considered by the management of Crystal Hotel for the
expansion plans.

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References
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial accounting. Wiley.
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Manea, L. (2017). How to use financial statements within the global economic analysis
trend. Internal Auditing & Risk Management, 12(1), 16-24.
Svitlík, J., & Poutník, L. (2016). Relationship between liquidity and profitability: empirical study
from the Czech Republic. European Financial and Accounting Journal, 11(3), 7-24.
Olesen, O. B., Petersen, N. C., & Podinovski, V. V. (2015). Efficiency analysis with ratio
measures. European Journal of Operational Research, 245(2), 446-462.
Goel, U., Chadha, S., & Sharma, A. K. (2015). Operating liquidity and financial leverage:
Evidences from Indian machinery industry. Procedia-Social and Behavioral
Sciences, 189(14), 344-350.
Laskina, L. Y. (2017). Enhancing the analytical potential of cash flow-based solvency ratio
analysis. Ekonomicheskii analiz: teoriya i praktika= Economic Analysis: Theory and
Practice, 16(11), 2145-2162.
Chen, C. M., Lin, Y. C., Chi, Y. P., & Wu, S. C. (2016). Do competitive strategy effects vary
across hotel industry cycles?. International Journal of Hospitality Management, 54, 104-
106.

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Dogru, T., Mody, M., & Suess, C. (2019). Adding evidence to the debate: Quantifying Airbnb's
disruptive impact on ten key hotel markets. Tourism Management, 72, 27-38.
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.
Hasibuan, R. P. S., & Syahrial, H. (2019, August). Analysis Of The Implementation Effects Of
Accrual-Based Governmental Accounting Standards On The Financial Statement
Qualities. In Proceeding ICOPOID 2019 The 2nd International Conference on Politic of
Islamic Development (Vol. 1, No. 1, pp. 18-29).