Financial Performance Analysis of Gatsby Grange Hotel Chain

This report presents a comprehensive financial analysis of Gatsby Grange, a boutique hotel chain, using ratio analysis. The report delves into key financial metrics, including profitability, liquidity, and gearing ratios, providing a detailed understanding of the company's financial health. It calculates and analyzes various ratios, such as net profit margin, gross profit margin, current ratio, quick ratio, debt-equity ratio, and equity ratio, to assess the company's performance. The analysis further discusses the importance of understanding these ratios and their fluctuations for effective hotel management, highlighting their role in measuring financial solvency, trend analysis, and forecasting. The report also explores the benefits and limitations of ratio analysis in the context of the hotel and tourism industry, concluding with an overview of the company's financial position and performance, and its gradual decline. The report includes references to academic sources for credibility and further reading.

International hotel management

TABLE OF CONTENT
• INTRODUCTION
• Calculating and analysing financial ratios
• Discussing why an understanding of ratios and their fluctuations is essential
for Hotel management
• Benefits and limitations of ratio analysis in decision making within hotel and
tourism industry
• CONCLUSION
• REFERENCES

Introduction
Financial management is a procedure of managing the financial performance
and position of an organisation (Ahrendsen and Katchova, 2012). This
procedure is the combination of various activities including procuring and
utilization of funds, recording and transacting financial records and many more.
The main aim of this report is to build an understanding about the financial
management in hotel and tourism industry. For this purpose, the organisation
which has been given is operating in hotel industry and named as Gatsby
Grange. This organisation is a small chain of Boutique within the region of
United Kingdom and Northern Ireland.

Calculating and analysing financial ratios
Ratio analysis is a financial technique to identify the true financial performance
and position of a business organisation (Mathuva, 2015). These ratios are
calculated using the financial statements of a company which are income
statement, balance sheet and cash flow statement. In the present case of Gatsby
Grange, the ration analysis has been conducted for three ratio families which are
profitability, liquidity and gearing.

Continue..
Profitability ratios
This family for the ratios is associated with the profit making ability of an
organisation (Olson and Groves, 2012). The ratios of profitability are the
metrics which helps in analyse the relative income of an organisation against the
revenue, costs and assets. Ratios which are selected to compute profitability of
Gatsby Grange are net and gross margin.
• Net profit margin
• Gross profit margin

Continue..
Liquidity ratios
This family of ratios includes metrics which helps in analysing the ability of an
organisation to pay off its debts by its earnings and capital (Ramesh, Berger and
Loo, 2012). Liquidity is a concept which represents the liquid asset of an
organisation that can be used in order to pay off emergency debts at any point of
time such assets are inventory. The metrics of liquidity ratio which are being used
for Gatsby Grange are current and quick ratio (Schroeder, Clark and Cathey, 2019).
• Current ratio
• Quick ratio

Continue..
Gearing ratios
This is the third and last ratio family which has been considered for analysis of
Gatsby Grange (Singh, Kumar and Colombage, 2017). Gearing ratios are the
financial metrics that helps in comparing the shareholder’s equity from the debts of
the company. These ratios are calculated with the aim of identifying the leverage of
the company (Camilleri, 2015). The ratios of gearing selected for Gatsby Grange
are dent equity and equity ratio.
• Debt equity ratio
• Equity ratio

Discussing why an understanding of ratios and their fluctuations is
essential for Hotel management
Hotel management is a procedure in which operations and financials of a hotel
are analysed (De Simone, 2016). In this case, Gatsby Grange is given as the
organisation in hotel industry. For hotel management, it is important to
understand ratios and its fluctuation due to various reasons mentioned below:
• Measure of financial solvency
• Trend analysis
• Forecasting and planning

Benefits and limitations of ratio analysis in decision making within
hotel and tourism industry
Similar to any other analytical technique, ratio analysis also has few merits and demerits
which can be used as the aid for decision making within the hotel and tourism industry in
which Gatsby Grange operates.
Benefits of ratio analysis
• Simplifies complex financial statements
• Helps to compare inter and intra firm
Limitations of ratio analysis
• Ignores qualitative aspects
• Ignores inflation

Conclusion
From the above PPT, it has been analysed that ratio analysis is a technique that
helps an organisation to summarise their financial position and performance in
order to compare with past year’s performance. The organisation considered in
above report was Gatsby Grange which is a financially stable organisation but
the financial performance of this company is decreasing gradually.

References
• Da Gbadji, L. A. G., Gailly, B. and Schwienbacher, A., 2015. International analysis of
venture capital programs of large corporations and financial
institutions. Entrepreneurship Theory and Practice. 39(5). pp.1213-1245.
• Hudson, A., 2017. The law on financial derivatives (No. 6). Sweet and Maxwell Ltd.
• Revelli, C. and Viviani, J. L., 2015. Financial performance of socially responsible
investing (SRI): what have we learned? A meta‐analysis. Business Ethics: A European
Review. 24(2). pp.158-185.
• Schroeder, R. G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory
and analysis: text and cases. John Wiley & Sons.

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