Financial Resources Management: Smart Resort Ltd. Case Analysis

This report provides an analysis of financial resource management within the hospitality industry, focusing on the application of Generally Accepted Accounting Principles (GAAP) and the interpretation of financial statements. It identifies key users of financial statements, such as investors, governments, employees, management, competitors, and customers, highlighting their specific interests. The report discusses the significance of income statements, balance sheets, and cash flow statements for loan and trade creditors in assessing a company's financial health. It also examines the components of financial statements in annual reports, including balance sheets, income statements, statements of changes in equity, and cash flow statements, emphasizing the concept of financial reporting and its importance for external stakeholders. Furthermore, the report includes a financial analysis of Smart Resort Ltd., calculating and interpreting various financial ratios to evaluate the company's performance. The analysis covers net profit margin, return on equity, return on assets, current ratio, quick ratio, debt-to-equity ratio, times interest earned ratio, inventory turnover ratio, and accounts receivable turnover ratio, providing insights into the company's profitability, liquidity, and solvency. The report concludes with an overall assessment of Smart Resort Ltd.'s financial performance based on the calculated ratios and trends.

Managing Financial Resources in the
Hospitality Industry

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Generally accepted accounting principle.....................................................................................1
Discussing about the statements of income, financial position and cash flows and which of
them is most interest to loan creditor and trade creditor..............................................................2
Components in the financial statements in annual report and concept of financial reporting. ...3
Interpreting financial statements of Smart resort ltd....................................................................5
CONCLUSION................................................................................................................................7
REFERENCE...................................................................................................................................8

INTRODUCTION
Managing financial resources is important thing which every organisation should have done
properly. If company will manage its financial resources properly than they can easily achieve
their objectives. This report will discuss about accounting principles and also will identify users
of financial statement. Further it will evaluate loan creditor and trade creditor needs for financial
statement. It will also discuss financial statement components in the annual report and also
financial ratios.
MAIN BODY
Generally accepted accounting principle
GAAP or the accounting principles are the set of rules and standards of the financial reports or
statements. The purpose of this principle is to make sure that financial reports and statements are
transparent and it also helps in maintaining consistency from one company to other. Although
gaap provides transparency and its the principle but they does not take guarantee that the
financial statements of the company is free from omissions or mistakes which can even mislead
their investors (Plaskova and et.al., 2020). GAAP is not the government regulated function but it
came into existence because of the mixed efforts of the business. There are components in
GAAP which helps in consistent accounting so that investors can evaluate the financial position
of the company.
Users of financial statements-
investors: they require financial statements in order to take their investment related decisions. As
they will become business owners so that is why they needed financial statements.
Governments: they are interested in financial statements in order to check that the organisation
has paid the tax which is expected from them or not.
Employees: company provide information of financial reports to their employees and also
explain its elements. Employees are interested in the reports because this report will give them
information about company's profitability and if company will make good profit than salary of
employees will also increase.
Management: financial reports are required by the management of the company because
company wanted to know about the profitability and calculate cash flow of every month
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(SOLOMON and NWAFOR, 2018). Company takes financial decisions by using the financial
statements.
Competitors: competitors are interested in the financial statements of company in order to know
their competitive strategy. If competitor wanted to attain competitive advantage than it is
important to know their competitive strategy.
Customers: for the customer it is important to access that from which company they need to
purchase. They check financial reports of the company in order to find out their financial ability
so that they can decide that they want to be with with for longer time or not.
Financial accounting records, reports and summarize the financial transactions which is used by
the management of the company for making various decisions. Financial statements which
consists of income statements, balance sheet etc. helps company in determining its financial
position and liquidity (Azami, 2018). For taking important decisions financial reports or
statements are required because by determining those statements only important decision can
take place. As financial statements consists of important information which require every
organisation in order to take decisions or making various strategies.
Discussing about the statements of income, financial position and cash flows and which of them
is most interest to loan creditor and trade creditor.
With the help of financial statements creditors can get knowledge about the financial health of
the company. Financial statements provides various information like income, profit, debt
obligations, expenses etc. creditors use the financial statements of the company to check that
business have the capabilities to pay debt or not. If any business reaches to the financial
institution for loan than it is important to provide financial statements to their creditor (Wei,
2018). Financial institution or loan creditor will analyse or study financial statements carefully
before they grant loan to the company.
Three statements which are used by loan creditor and trade creditor are as follows:
Income statement-
income statement is the first thing which is considered by the trade creditor or loan creditor.
Before granting any loan to the company, loan creditor checks the income statement of the
company. With the help of income statement, creditors can check the business performance of
the company with the time period. As the element which is there at the top of income statement
is important and it is considered before granting loan. With the help of this statement, gross
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profit can be easily calculated by deducting cost of goods sold. With the help of income
statement, lenders comes to know about the revenues and expenses of company.
Balance sheet-
balance sheet shows the assets and liabilities of the business. It is the common saying that the
assets and liabilities of the business should have equal. At the asset side of the balance sheet
cash balance can be seen. There can be also seen adjustments in the balance sheet which can
help trade creditors or loan creditors in making various decisions. Net income can be also seen
in the balance sheet which is flow within the income statement (Сосновська and Житар, 2018).
With the help of balance sheet investor or creditor can determine that they should have invest in
the business or not. As balance sheet draws the clear picture of the company in front of trade
creditors and loan creditors. Balance sheet is made with three sections which are assets,
liabilities and shareholders equity.
Cash flow statement-
this statement is also used by the company which shows cash related adjustments. Basically this
statement shows the changes in the cash within the period. It will also shows the ending and the
beginning balance of the cash. By seeing the cash flow statement also trade creditors can decide
that they should give or lend money to the business or not. As it will show changes in cash in
terms of increase or decrease in the cash.
Components in the financial statements in annual report and concept of financial reporting.
Financial statements-
financial statements are the formal reports which shows all the financial activities and also the
financial position of the business (Components of Financial Statements., 2020). The components
which comes under financial statements are balance sheet, income statement, cash flow
statement and statement of changes in equity.
Balance sheet-
it is the financial statement which is used to see the financial position of the company. It exactly
shows company's financial position. On the one side it shows assets of the business and on the
other side it shows liabilities of the business. In short balance sheet is used to check the amount
of money business is actually holding. Balance sheet have three elements which are assets,
owners equity and liabilities (van Der Graaf, 2018). Asset side include current and fixed assets
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of the company which are plant and machinery, buildings etc. and liability side involves non
current liability and current liability, which is trade payables, creditors etc.
income statement-
this statement represents the financial performance of the company. By reviewing this report and
individual can come to know about the financial performance of any company. It includes
revenue and expenses. It also comprises of the losses or gains of the business. More revenue
over the expense is the profit condition for the business and if the expenses are more than the
revenue will show the loss of the business.
Statements of changes in equity-
this is one of the important financial statement which represents the changes in the equity
shareholders investment in the company. It further shows any changes in the reserves and capital
equitable to the equity holders of the business over the time period. So it is important to adjust
the increase or decrease of the year (Sova and et.al., 2021). This statement represents the
transaction of the shareholders which involves retained earnings, paid in capital and capital
stock. This statement also states changes in equity, reserves and share capital.
Cash flow statement-
this statement represents any changes in the financial position of the company by viewing the
changes in cash of the company. The main objective of preparing the cash flow statement is that
to give supplement to the financial position and income statement as these two statements do not
provide sufficient information in regards of the cash balance. Shareholders gets help from cash
flow statement n order to understand cash utilization and cash sources. Cash flow have three
major sections which are cash flow from operating activities, cash flow from investing activities
and the cash flow from finance. Cash flow operating activities begins with the operating profit
and do reconsilation of operating profits. Whereas investing activities comprises of purchase of
long term assets and also the sale of long term assets. It further involves the information which is
related to the investments. Cash flow from finance shows changes in the equity capital. It also
contain dividends of shareholders (Sukharev, 2019). Investors view this statement before taking
their investment decisions.
Financial reporting-
financial reports gives the financial results of the company which are released by the company
for the public and stakeholders. Financial reporting consists of the components which are cash
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flows, income statements and balance sheet. It is the annual reports which is released by the
company so tat their external users can use it.
In simple language financial reporting is the system when enterprise communicate the financial
information to the external users which includes public, government, consumers, investors etc.
this information is important to communicate to the external or internal users so that they can
decide that they want to invest in the company or not. While creditors can also decide by
reviewing the statements that they want to lend money to the business or not (Borisova,
Samoshkina, Rybina and Shumkova, 2020).
Interpreting financial statements of Smart resort ltd.
a) Calculation of financial Ratios of Smart Resort Ltd.
Particular Formula Calculations
2018 (£) 2019 (£)
Net Profit Margin Net Profit or Income /
Sales* 100
167914/ 5732145*
100
= 2.93%
185370/ 7123189*
100
= 2.60%
Return on Assets
(ROA)
Net Income / Total assets*
100
167914/ 2638862*
100
= 6.36%
185370/ 3179266*
100
= 5.83%
Return on Equity
(ROE)
Net Income / Shareholders
equity* 100
167914/ 1094485*
100
= 15.34%
185370/ 3179266*
100
= 5.83%
Current Ratio Current Assets / Current
Liabilities
1786140/ 982480
= 1.82
2064100/ 1265332
= 1.63
Quick Ratio (Current Assets -
Inventory) / Current
Liabilities
(1786140 -
1124642)/ 982480
= 0.67
(2064100 -
1340432)/ 1265332
= 0.57
Debt to equity Ratio Total Liabilities /
Shareholders Equity
1544377/ 1094485
= 1.41
1522380/ 1656886
= 0.92
Times Interest Earned Earning Before Interest 277662/ 21955 323631/ 17370
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(coverage) ratio and Tax (EBIT) / Interest
Expenses
= 12.65 = 18.63
Inventory Turnover
Ratio
Cost of Goods sold /
Inventory
4377690/ 1124642
= 3.89
5396923/ 1340432
= 4.03
Average collection
Period
365 days / Average
receivable collection
365 days/ 28.22
= 13 days
365 days/ 5.31
= 69 days
Accounts receivable
turnover
Sales / Accounts
receivable
5732145/ 203143
= 28.22
7123189/ 1340432
= 5.31
B. company performance
from the above calculation it can be interpreted that net income of the company has grown as £
18 million has increased in the year 2019 as compared to 2018. gross profit and operating profits
of the company has also rises in the year 2019 when compared with the year 2018. if we
properly see the above table then it can is said that current assets have also increased the
difference in the current asset in the year 2018 and 2019 is £ 278. it means that company can pay
their current liabilities easily because they are having the capacity to do so. Sales of the business
has also increased in 2019 as than 2018. so it can be said that if sales of the company has
increased than profit and revenue of the company has also increased (Korepanov and et.al.,
2020). So it can be said that Smart resort ltd is the profitable company. Whereas there is other
scenario also current liabilities of the company have also increased and this is the time when it
has seen that company have witness decline in their business.
Equity investment of the company has also increased which means that company is having more
capital which they can invest in expanding the business. Inventory turnover ratio in the year
2019 is 4% and in the year 2018 it was 3.8% which means that company is doing good. When
the inventory turnover ratio is high then it is good for the company because it means that they
are selling goods rapidly and fast. There is demand for the products of the company in the
market (Quaglia and Spendzharova, 2021). The accounts receivable turnover ratio of company
in year 2018 was 28.88 and in the year 2019 it was 5.3. the reason behind less receivable
turnover ratio can be inadequate collection process, low creditworthiness or bad credit policies
of the company. So it is important that smart resort ltd should have revise their credit policies so
that receivables can be collected at time.
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Average collection period of the company was 13 days and it grows to 69 days. The growth is
bad for the company because normally low average collection period is preferred by the
company and not high collection period (van der Graaf, 2018). When the collection period is
low which means that company has the ability to collect their payments fast.
CONCLUSION
Through this report it can be concluded that GAAP has discussed in this report. There are
external and internal users of the financial statement which are customers, government,
investors, employee, owners, management, public, media etc. investors are interested in the
financial statements so that they can decide that they want to invest or not. Trade creditors are
interested to see financial reports so that they can take their decision of lending money to the
company or not. Report has also discussed about components of the financial statements in
detail which are income statement, balance sheet and cash flow. Report has also discussed in
detail about the company performance of smart resort ltd.
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REFERENCE
Books and Journals
Azami, Z., 2018. Review of the Performance of Marketing Media in Managing Financial
Markets (Case Study: Private banks).
Borisova, V., Samoshkina, I., Rybina, L. and Shumkova, O., 2020. Financial Mechanism for
Managing the Environmental Innovation Development of the Economy in
Ukraine. Journal of Environmental Management & Tourism. 11(7). pp.1617-1633.
Korepanov, G. and et.al., 2020. Managing the Financial Stability Potential of Crisis
Enterprises. International Journal of Advanced Research in Engineering and
Technology (IJARET). 11(4).
Plaskova, N.S. and et.al., 2020. Improving Information and Analytical and Methodological
Support for Managing the Structure of Financial Resources of the Organization. Talent
Development & Excellence. 12.
Quaglia, L. and Spendzharova, A., 2021. Regime complexity and managing financial data
streams: The orchestration of trade reporting for derivatives. Regulation &
Governance.
SOLOMON, E.D. and NWAFOR, S., 2018. STRATEGIES FOR MANAGING NON-
FINANCIAL RESOURCES FOR ENHANCED PEACEFUL LEARNING
ENVIRONMENT IN PUBLIC UNIVERSITIES IN RIVERS STATE,
NIGERIA. African Journal of Educational Research and Development (AJERD). 11,
p.1.
Sova, O.Y. and et.al., 2021. The mechanism for managing the financial and economic security
of an enterprise in the context of instability. Studies of Applied Economics. 39(6).
Sukharev, O.S., 2019. Managing the technological development structure: Risk and “interest
portfolio”. Upravlenets. 10(1). pp.2-15.
van Der Graaf, A., 2018. Managing financial risks: protecting the organisation (Doctoral
dissertation, Institut d'études politiques de paris-Sciences Po).
van der Graaf, A.E.A., 2018. Managing Financial Risks (Doctoral dissertation, Sciences Po).
Wei, S.J., 2018. Managing financial globalization: Insights from the recent literature (No.
w24330). National Bureau of Economic Research.
Сосновська, О.О. and Житар, М.О., 2018. Financial architecture as the base of financial safety
of the enterprise. Baltic Journal of Economic Studies. 4(4). pp.334-340.
Online
Components of Financial Statements., 2020. [Online]. Available through:
<https://www.wallstreetmojo.com/components-of-financial-statements/>
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