Analysis of Managing Financial Resources in Hospitality Industry

This report provides a comprehensive analysis of financial resource management within the hospitality industry. It begins by discussing Generally Accepted Accounting Principles (GAAP) and their importance in maintaining transparent and consistent financial reporting, outlining the ten core principles and their relevance to various stakeholders like owners, customers, suppliers, managers, lenders, and the government. The report then examines the significance of the income statement, balance sheet, and cash flow statement, detailing which statement is most useful for loan creditors and trade creditors, respectively. Furthermore, it identifies and explains the roles of auditor reports, notes to the financial statements, and management discussion and analysis (MD&A) in supplementing the financial position in annual reports. Finally, the report includes a calculation and interpretation of key financial ratios, such as net profit margin, return on assets, return on equity, current ratio, and quick ratio, using data from Smart Resort Ltd. to assess the company's financial performance and stability. Desklib offers a wide range of solved assignments and study resources for students.

Managing Financial Resources
in the Hospitality Industry
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Table of Contents
INTRODUCTION...........................................................................................................................3
Main Body.......................................................................................................................................3
Question :1..................................................................................................................................3
Question 2...................................................................................................................................5
Question 3...................................................................................................................................6
Question 4...................................................................................................................................7
Question 5.................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERNCES:................................................................................................................................13
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INTRODUCTION
For a successful business it is very import to manger their financial resources. Financial
management plays a very important role for the organization to run effectively and efficiently. In
a hospitality industry the finance is directly link with their function. In each and every
department of the hotel a strong link exists between them. Financial management in the industry
includes preparing budgets, designing financial model of tracking, analysing audits and many
more. It is true in the case of hospitality industry that if they want to earn higher profits then they
need to mange their financial resources smoothly and in a productive way. A powerful financial
hospitality industry can take the business into a next stage. In short the financial resource and the
hospitality industry are the backbone of each other. This report is been prepared so that a proper
understanding could be gained that why financial management is important for proper
functioning of a hospitality industry.
Main Body
Question :1
Solution:
Generally Accepted Accounting Principle (GAAP)
GAAP is the collection of all the rules and standard that a company need to follow to maintain
their accounts. These are those principles which are used in making the financial report of any
organization((Kolomytseva, Medvedeva and Kolomiets, 2019). It was issued in the favour of
Financial Accounting Standard Board (FASB). The aim of the concept of GAAP is to provide a
clear, transparent, consistent sharing of financial information. There are total ten principles that
were adopted in GAAP.
1) Principle of Regularity 6) Principe of Periodicity
2) Principle of Sincerity 7) Principle of Non- Compensation
3) Principle of Consistency 8) Principle of utmost good faith
4) Principle of Prudence 9) Principle of Materiality
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5) Principle of Continuity 10) Principle of Permanence of methods
Various users of financial statements and the information needs by then to make decision:
Owners: They are those people of the organization who is actually incurred their capital in the
business. They are the title holder of the company. The information needed by them to make
decision is about the financial performance of the company (Sotiriadis, 2018). Information like
investment made in the company, what is the profit percentage and many more data is needed by
them to make the policies and plans according to the condition.
Customers:The person who buys the goods and services of the company for their own
consumption is called as customer. The information that they look with the help of financial
statement is that what is the company financial position i providing the product so hat there
needs and wants cab be fulfilled.
Suppliers:Suppliers are those party in the business who actually provide the raw material to the
company so that final goods and service can be manufactured. Information like the debt paying
capacity of the firm there sales margin so that they can make decision whether to supply the raw
material or not.
Managers : Managers are the people who act as an agent between the owner and the employee.
They are responsible for data to data functioning. The decision made by them is based upon the
operation(Merianos and Gotsis, 2018). They need information about the daily expenses
incurred, operational cost etc. This is required by them so that they can cut the unnecessary cost
and can attain the goal of the firm in efficient and effective manner.
Lenders:People who provide financial support to the organization is known as lender. They help
the business by granting loans. Information that they need from financial statement is debt
capacity, assets that they have to make them liquid etc.
Government :Judicial authority of the country is known as government. They need information
like shares of the company, earning before tax paid and many more so that they can charge fair
tax from the organization.
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There are many more users of the financial statement made by the organization rest of the users
are Competitor, Investors, Unions , Financial analyst and General public
Question 2
Solution:
Income statement is that part of the overall financial statement of the company which
shows the organization revenue and expense of a particular financial year.
Financial position helps the organization by showing the leftover assts, liabilities and equity of
the company in a specific year(Lee, 2020 )
Cash flow statement is that part of financial statement which deal with the cash and cash
equivalent. It is used to show the inflow and outflow of the cash and cash equivalent.
Out of the three which one is good for:
a) A loan creditor:
A loan creditor is that person who provides financial support to the company by granting
loans. They help the organization by providing monetary support. Out of the three
financial statements the loan creditor is much more concerned in seeing the balance
sheet of the company. It is because it provides the overall performance of the company’s
assets, liability and the equity. Financial position of the company is actually seeing by
looking in it(Clikeman, 2019). It shows a detailed summary in terms of short term and
long term resources that company had. It is used by the loaner so that a proper analysis is
made that if they should grant loan or not. And if they are granting the loan then what
will be the time period in which there amount can be recovered. Before providing the
loan by the creditor they see that which asset they can use as a mortgage to recover their
amount. It also shoe that what companies hold within the organization and what are the
liabilities that they are need to pay. It also provides a insights to the equity side. The
shares the organization has, there market rate and many more.
b) A trade creditor:
Trade creditors are the account payable of the organization. They are those people to whom
the company needs to pay the amount for the purchase that they made. The financial
statement in which they are more interested is the income statement. The account payable
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is more found to see this because through this they can found the debt paying capacity of
the firm. Inn income statement company income and expenses are recorded and the traders
are more interested in seeing the revenue the company earns in a single financial
year(Aifuwa and Saidu, 2020 ). This is useful because by seeing this they can make the
prediction that whether they should supply raw material to the company or not. This is
done so that they can be sure that amount can be recovered within the year. Trade creditor
analysis the income statement very deeply so that they can be sure that the company hold
enough income to pay their purchase amount. One of the most important usefulness of this
is that it help them to know the past paying capacity of the business.
Question 3
Solution:
Auditor reports, Notes to the financial statement and Management discussion and
analysis (MD&A) are three component that supplement the financial position in the annual
report of the company.
Auditor report: It is a written letter of thee auditor of the company. This letter contains
the opinion made by the auditor by seeing the annual report. This letter is being made so
that it can be clear that the company follow the generally accepted accounting principle in
their financial statement or not (Haji-Abdullah and Wan-Hussin, 2009). This report is
important for the banks and other creditors who lend money to the organization.
Independent and external audit report is generally written within the audit report of the
specific company. If the audit report is clear that means the company follow the principles
but if it is unclear and disqualified then the company do not follow the rules made in
GAAP.
Note to the financial statement: This report is being prepared by the accountants of the
company. It contain the detailed assumption of income statement, balance sheet etc. It is
used to tell what accounting Methods Company uses to make their financial
statement(Ayemere and Elijah, 2015). In notes to financial statement the basic purpose for
the company to be built is been mentioned, what they produce, who they are etc., are being
noted. They also tell us about the value of the inventory of the business, depreciation
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method they use. Consolidate financial statement is also been provided in this section. Any
intangibility or contingent liability that venture have is also been noted there for future
reference.
Management discussion and analysis (MD&A): this is the part of public company. This
is made by the business that is operated by the government. It is used to know the
organization performance. Company’s mangers and executive prepare this part in the
annual report. With their proper skills and Knowledge Company performance is analyzed
and then written in it. Performance of the business is measured either in quantitative or
qualitative way(Caylor, Chambers and Mutlu, 2021). Here prediction about the venture
future is also been discussed. Their vision, mission and objective are clearly defined. This
is important for the investor who wants to know the fundamental financial performance of
the organization.
Financial reporting concept:
It is defined as the published statement which is used by the business to communicate to
the third party. This is the financial result of the enterprise. They are released in front of
stakeholder and to the general public. This is been prepared so that the investment decision
of the company can be made easy. If the investor and creditor look at the financial
reporting concept then they can make a sound decision for themselves (Hatefi, 2019). This
report also publish the mangers accountability which show how properly the companies
resources are been utilized and allocate in the organization.
Question 4
Solution:
a) Calculation of ratios:
 Net Profit Margin:
(Net profit / Net sales )* 100
Basis 2018 2019
Net Profit 167914 185370
Net Sales 5732145 7123189
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Net Profit 2.93% 2.60%
Smart Resort Ltd. Net profit percentage is 2.93 in 2018 as compared to 2.60 percent in
2019. This indicate that the overall profit of the company during 2019 decreases little bit. Net
profit shows the remaining profit of the company by paying all it's expenses. This means that in
2019 the company cost of production is more.
 Return on Assets:
(Net Income / Total Assets ) *100
Basis 2018 2019
Net Profit 167914 185370
Total Assets 2638862 3179266
ROA 6.36% 5.83%
Return on assets is calculated by the company to know the amount of profit the organization can
generate from there assets. In 2018 the profit margin the company can get is 6.36 and in 2019
they can earn 5.83 percent. This means that in 2018 company can get more profit from the sale of
their assets then In 2109.
 Return on Equity:
(Net Income/ Shareholder's equity)
Basis 2018 2019
Net Income 167914 185370
Shareholder's Equity 1094485 1656886
ROE 0.15 0.11
It is used to know the return a company can acquire from the investment made by the
shareholder. In Smart Resort Ltd. the percent in 2018 is 15 and in 2019 is 11%. It means that
return is more in 2018.
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 Current Ratio:
(Current Assets / Current Liability)
Basis 2018 2019
Current Assets 1786140 2064100
Current Liability 982480 1265332
Current Ratio 1.82 1.63
Company calculated their current ratio to know their ability to convert their current assets into
cash so that they can pay their short term liability. Smart Resort Ltd. Position to convert their
assets are good in 2018 as there obligation is 1.82 times as compared to 2019 which is 1.63
times.
 Quick Ratio:
(Quick Assets / Current Liability)
Basis 2018 2019
Quick Assets 458355 501832
Current Liability 982480 1265332
Quick Ratio 0.47 0.4
Quick ratio tells the company about how they can settle their inventory without selling their
inventories or by allocating additional finance. In 2018 it is 0.47 and in 2019 0.40 times. It
means that Smart Resort Ltd. cannot settle their liabilities without selling inventories.
 Debt to Equity Ratio:
(Total Liability / Shareholder Equity)
Basis 2018 2019
Total Liability 1544377 1522380
Shareholder Equity 1094485 1656886
Debt to Equity Ratio 1.41 0.92
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In the above table it is been noted that in 2018 the ratio is 1.41 and in 2019 it is 0.92, which
means that in 2019 the risk to leverage to the shareholder is less as compare with in previous
year.
 Times Interest Earned Ratio:
(EBIT/ Interest Expense )
Basis 2018 2019
EBIT 277662 323631
Interest Expense 21955 17370
Times Interest Earned Ratio 12.64 18.63
Smart Resort Ltd., calculate this ratio show that they can know that what is their ability to pay
their debt obligation from the current income they have. So the company has high chance in
2019 to pay their debt as compared to 2018 because in 2018 the coverage ratio is 12.64 which
increases in 2109 and become 18.63.
 Inventory Turnover Ratio:
(Net profit / Net sales )
Basis 2018 2019
Net Sales 5732145 7123189
Average Inventory 1124642 1340432
Inventory Turnover Ratio 5.09 5.31
In 2018 Smart Resort Ltd., can replace or sell their good in 5.09 times as compared to 2019 were
they can sell in 5.31 times which is more then past year.
 Average Collection period:
(Average Receivable /Net Sales) * 100
Basis 2018 2019
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Average Receivable 203143 221836
Net Sales 5732145 7123189
Average Collection period 3.54 3.11
It is used by the company to know the average time period in which clients can pay there money.
In 2019 it is 3.11 and in 2018 it is 3.54 which means in 2018 clients can pay their bills in less
months.
 Average Receivable Turnover Ratio:
(365 / Average Collection period )
Basis 2018 2019
Average Collection period 3.54 3.11
365 365
Average Receivable
Turnover Ratio
103.10 days 117.36 days
The amount of Smart Resort Ltd., will be recovered from the creditors in 103 or in 104 days and
in 2019 it can be get between 117 to 118 days.
Question 5
Solution: This report is been written for the CEO of Smart Resort Ltd the overall
performance of the company in 2018 is slightly low as compared to 2019. The current income of
the company increases by approximately to £18 million(Gou and et. Al, 2021). Sales of the
organization has also enhance by £1.4 billion in 2019 but the net sales of the company slightly
decreases because of increase their cost of production. Company current assets enhance by £278
million but in other hand current liabilities also increased by £283. shareholders equity also
increase but the return on investment is slightly low and a report is also written to the CEO of the
industry about their condition.
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CONCLUSION
From the above report it is been concluded that financial resources plays important role in
hospitality industry. The company need to proper analyse and make their accounts clear with
using all the rules and principles that are being adopted by GAPP. The various decision maker
like government, employee, owner and many more are interested in knowing financial statement.
In this report the different ratio of Sara resort Ltd is also being identify so that company can
know what current assets current liabilities and equity they hold in 2019 as compared to 2018.
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REFERNCES:
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financial reporting in Nigeria. Accounting and Finance. 88(2). pp.115-124.
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Evidence from Nigeria. International Journal of Business and Social Research. 5(4).
pp.14-23.
Caylor, M. L., Chambers, D. J. and Mutlu, S., 2021. Financial reporting uniformity: Its relation to
comparability and its impact on financial statement users. Available at SSRN 3221183.
Clikeman, P. M., 2019. Called to Account: Financial frauds that shaped the accounting
profession. Routledge.
Gou, Y. and et. Al, 2021. A new strategy for quality evaluation and control of Chinese patent
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model of managing the budgetary financial resources in targeted programs. In AIP
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Merianos, G. and Gotsis, G., 2018. Managing Financial Resources in Late Antiquity: Greek
Fathers' Views on Hoarding and Saving. Springer.
Sotiriadis, M., 2018. Managing Financial Matters. In The Emerald Handbook of
Entrepreneurship in Tourism, Travel and Hospitality. Emerald Publishing Limited.
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