Analysis of Financial Resources Management at Smart Resort Ltd

This report provides an analysis of financial resource management within the hospitality industry, focusing on Smart Resort Ltd. It covers Generally Accepted Accounting Principles (GAAP) and their application, different users of financial statements, and the types of financial statements that are of interest to loan creditors and trade creditors. The report also describes the components that supplement financial statements, such as cash flow statements, profit and loss accounts, balance sheets, and notes to financial statements, along with the concept of financial reporting. Furthermore, it includes a calculation and interpretation of financial ratios to assess Smart Resort Ltd.'s financial performance, comparing data from 2018 and 2019, including net profit margin, return on assets (ROA), return on equity (ROE), current ratio, quick ratio, and debt-to-equity ratio.

Managing financial
resources in hospitality
industry

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................3
TASK 3............................................................................................................................................4
TASK 4 ...........................................................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
Finance is related to sources of funds that are used within an organisation for operating
its business activities. The process of finance provides assistance to company in capital
formation and also helps in taking better business decisions. Financial resources facilitate
company in obtaining the funds which is required to finance its existing activities, investment
and capital. Generally, an organisation acquire its funds from three resources, that are, capital
markets, capital stock and financial institutions (Alananzeh and et.al, 2017). Within present
report, Smart Resort Ltd. is taken into consideration which is a hotel in hospitality industry. In
this report, things which are going to be covered are generally accepted accounting principles
along with different users of financial statements. Various kinds of financial statements will also
be discussed to state that which is more interested to a trade creditor and a loan creditor.
Furthermore, various components of financial statements will also be described along with the
concept of financial reports. Addition to it, calculation of financial ratios will be done to interpret
financial statements by comparing the performance of both years.
MAIN BODY
TASK 1
Generally Accepted Accounting Principles and different users of financial statements:
GAAP is set of accounting standards and rules that are generally followed by an
organisation for making the financial reports. The functioning of principles of GAAP is to
improve the transparency in financial statements but they do not give guarantee regarding the
errors or omissions in financial statements of company which tends to mislead capitalists. The
main motive of Generally Accepted Accounting Principles is to makes sure that financial
statements of an organisation are consistent, complete as well as comparable. It tries to
standardize and control the methods and assumptions that are used in the process of accounting
across all types of industries throughout the world (Kara and et.al, 2018). There are ten general
principles of GAAP that are described as follows:
Principle of Continuity: This principle of GAAP states it should be supposed that the business
will be continue to operate at the time of valuation of assets.
Principle of Sincerity: According to this principle, the accountant within an organisation
endeavours to offer a proper as well as impartial presentation of financial position of company.
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Principle of Regularity: From point of view of this principle, the accountant within the firm has
followed the rules as well as regulations of GAAP by considering them as a standard.
Principle of Materiality: As per this principle, the financial accountants of company must try to
completely discover all the financial information or data as well as accounting information in the
fiscal reports of the company.
Principle of Consistency: This principles states that accountants of the organisation must apply
those standards which are identical throughout the process of reporting from one term to the next
for ensuring financial comparability between the time periods (Kheybari, Rezaie and Farazmand,
2020). Those financial accountants are supposed to completely show as well as state the reasons
behind any updated or altered standards in regard with financial statements.
Principle of Utmost good faith: This principle of GAAP is used in the insurance industry and
pre-expected that the parties outside the industry remain honest in all types of transactions.
Principle of Prudence: According to this principle, the representation of financial information
or data is emphasised to be fact-based which is not overcasted by speculation process.
Principle of Permanence of Methods: As per the principle, the methods or procedures that are
used within financial reporting must be comparable and consistent for financial data of the
company.
Principle of Periodicity: This principle expresses that the entries of the business transactions
should be properly organised as well as coordinated across appropriate time periods.
Principle of Non-Compensation: According to this principle, both positive as well as negative
aspects should be reported with complete and clear information without expecting any debt
compensation.
There are several users of financial statements demanding various information and things
to make better business decisions. Some of them are described as below:
 Investors: The individuals who invest their money in different businesses have keen
interest to ascertain the divided that is declared by the company (Malek, Kline and
DiPietro, 2018). They have desire to know and understand that the investment made by
them is earning sufficient level of profits or not for giving the returns on shares.
 Competitors: There are several competitors who want to know the financial records or
information about the financial statements of the company so that they can formulate the
strategies for their won business. By having a look on fiscal statements of competitors,
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the firm accumulates the financial information in regards with financial structure of the
organisation. It also makes attempt to search out the way through which it can perform
better in its performance as compared to competitor.
 Lenders: They are the persons who give the amount or loan on credit to the firm. Before
giving them the facility of credit, lenders have keen interest to determine that whether the
organisation is having the capacity to repay the liabilities or not (Mariani and Visani,
2019). Lenders make an eye on the cash flows and accounts payable ratio of the company
to take business decisions.
 Company management: The management within the organisation desires to gather the
data or information regarding the viability as well as liquidity of the business. Therefore,
they are more interested in entire financial statements of the company.
 Government: The government of a particular country is interested in then accounts and
financial records of the organisation so that it can generate the information regarding tax
which is to be paid by the company. The government also desires to make a check on
accounts of the firm whether it has deceit of tax or not.
 Employees: They are the human resources within the organisation who are having a
common goal to achieve and mainly concentrates on the bonus earning. Employees of the
company also makes sure that the business in which they are working is enough capable
to pay them salaries on a regular basis. Workforce within the firm also ensures that
company must provide them better working environment.
TASK 2
Different types financial statements and discussing which is of more interest to following
persons:
Financial statements are those statements in which business operations are recorded and
accounted to analyse the financial performance of an organisation. There are generally three
types of financial statements that an accountant use within a business to make financial reports at
the end of an accounting period (Mulet-Forteza and et.al, 2019). These financial statements are
income statement, balance sheet and cash flow statement. In context to a loan creditor and a trade
creditor, these financial statements are described as under:
 Loan Creditor: These persons are interested in determining whether the organisation is
having the capacity to repay the obligations within a set period of time or not. For
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determining this fact, they are desirous to make a check on assessment of credit risks of
the company on the basis of cash flows, viability as well as liquidity position of the firm.
The loan creditors are having keen interest in ascertaining the regular functioning of the
business (Shin, Perdue and Kang, 2019). All such informations are generated from the
cash flow statement of the company and then the creditors gather all the data regarding
the monetary value available within the firm. It provides assistance to loan creditors in
determining the volume of cash that is carried by company and where it is applied by the
business.
 Trade Creditor: Those persons who avail products and services to the organisation on
the basis of trust without accumulating the payment from them at that particular time. To
do this, the trade creditors ensure that the organisation is having the capacity to clear its
all the debts and liabilities in a short-period of time. They also ensure that there is no
defaults or errors from company's side. Trade creditors can de this with the help of
balance sheet of the company and the ratio of creditors turnover where all the information
regarding to this is provided.
TASK 3
Components that supplement financial statements and the concept of financial reporting:
There are several components that supplement the financial statements of the company
and some of them are explained as follows:
 Cash flow statement: The financial statement in which the transactions related to cash
inflows and cash outflows are included is termed as cash flow statements. It includes
three different activities from which the cash flows and they are operating, financing and
investing activities (Sönmez and et.al, 2017). It examines how well an organisation
manages its cash to pay debt obligations and operating expenses.
 Profit and loss account: This type of account consists of the summarisation of all
revenues as well as expenditures of the present financial year and is prepared at the end
of an accounting year. Profit and loss account helps in checking and maintaining the level
of profitability of the company.
 Changes in equity: This is a statement which is explained in detail expressing the
amount invested by the investor and it also considers how the structure of capital of the
organisation is changing.
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 Balance sheet: This statement consists of balances of all assets, capital and liabilities and
ensures that the sum of assets must be balanced with the sum of liabilities along with the
capital (Torres and Mejia, 2017). With the help of balance sheet, the organisation can
evaluate the financial performance of the business by comparing the present year values
from the values of previous year.
 Notes to financial statements: This is the another component of financial statement that
provides the detail of all the perspectives that are associated with financial statements and
are mentioned in the financial records of the company.
Concept of Financial reporting:
Those reports that provide information to stakeholders of company for making better
business decisions are termed as financial reports. Financial reporting is a summarised form of
financial statements and its purpose is to present a wider image of the company rather than
stating specific financial numbers. It explains the strategies and procedure to be followed by a
company for its growth. These reports are needed within an organisation because it helps
company in tracking the activities of business (Kularatne and et.al, 2019). Financial report is
important as it helps in managing the debts of company through which company gets benefited.
Another importance of financial report is that it helps in making better business decisions by
analysing the financial position of the business.
TASK 4
Interpretation of the financial performance of Smart Resort Ltd. with the help of financial
ratios:
The ratios that facilitates in generating the relationship among several balance sheet's
values as well as income statement are defined as financial ratios. With the help of calculation
opf financial ratios, the stakeholders of the organisation can easily analyse the performance of
business and it also helps them in making better business decisions.
Calculations of Financial Ratios for Smart Resort Ltd.:
Net Profit Margin Ratio = Sales – COGS / Sales
For year 2018: 5732145 – 4377690 / 5732145 = 0.236
For year 2019: 7123189 – 5396923 / 7123189 = 0.242
ROA = Net Income / Total Assets
For year 2018: 167914 / 2638862 = 0.064
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For year 2019: 185370 / 3179266 = 0.058
ROE = Net Income / Shareholders equity
For year 2018: 167914 / 1094485 = 0.153
For year 2019: 185370 / 1656886 = 0.112
Current ratio = Current Assets / Current Liabilities
For year 2018: 1786140 / 982480 = 1.817
For year 2019: 2064100 / 1265332 = 1.631
Quick ratio = Quick Assets / Current Liabilities
For year 2018: 661478 / 2638862 = 0.673
For year 2019: 723668 / 1265332 = 0.057
Debt to Equity ratio = Debt / Equity
For year 2018: 561897 / 1094485 = 0.513
For year 2019: 257048 / 1656886 = 0.155
Time Interest Earned (Coverage) ratio = Earnings Before Interest, tac and depreciation /
Interest Expenses
For year 2018: 277662 / 21955 = 12.65
For year 2019: 323631 / 17370 = 18.63
Inventory Turnover Ratio = COGS / Average Inventory
For year 2018: 4377690 / 1124642 = 3.89
For year 2019: 5396923 / 1340432 = 4.03
Average Receivables Turnover Ratio = Net Credit Sales / Average Receivables
For year 2018: 5732145 / 203143 = 28.22
For year 2019: 7123189 / 221836 = 32.11
Average Collection Period = 365 / Average Receivables Turnover Ratio
For year 2018: 365 / 28.22 = 12.93
For year 2019: 365 / 32.11 = 11.36
Interpretation of Financial Performance:
From the calculations of Financial ratios, it has been interpreted that the performance of
the company is well and bright. However, in comparison to previous year, it is analysed that the
firm is not functioning up to the mark. The profitability within the organisation has been raised
but in comparison to sales of the company, they got declined. The interest is to be paid on the
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debts of the long-term has been reduced and along with it the net profit margin also got declined.
It is also analysed that returns on equity as well as assets has also been decreased. Overall, the
performance of the company was good in the year 2018 with 6% as well as 15% respectively but
it got decreased in 2019. The position of liquidity within the company is not good ans it got
deteriorated in the following years (DiPietro and Bufquin, 2018). It is interpreted that the current
ratios of the company shows that the business has the capacity to pay its short-term debts and
would still carry some part of the assets after making all the payments. It is very clear from the
Quick ratio of the organisation, that almost part of the current assets include inventory and it the
fact is removed, then the respective firm would have the capacity to make payments to creditors
up to the extent of 50% to 60% only.
It displays that liquidity of Smart resort is poor and contrary to it, the profitability within
the company is extending. The operating income is enough with the organisation to pay off its
interest. Inventory turnover ratio has been increased in comparison to 2018 and shows that sales
of the firm is increasing in 2019. the average collection period of the company is start declining
in 2019 and indicates a good sign to recover policy. The respective organisation has the capacity
and is able to accumulate the debtor's amount within 11days only.
Thus, the overall performance of Smart Resort is not bad and there are some facts that are
requiring attention. For example, the organisation has to more concentrate on recovering the
assets.
CONCLUSION
From above explanation, it is concluded that financial statements of the organisation are
very essential to know the financial position of the business. The financial statements are also
helpful for users like investors, employees, government, etc. to take better decisions within the
company. GAAP plays an important role in making all the financial statements appropriate and
authentic and with the help of these principles, the company has calculated the financial ratios.
By calculation of various ratios, the financial position of the company is ascertained and it helps
the organisation in taking better business decisions.
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REFERENCES
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turnover intentions. Journal of Hospitality and Tourism Insights.
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application to the hospitality sector. International Journal of Hospitality
Management. 80. pp.1-12.
Mulet-Forteza and et.al, 2019. Bibliometric structure of IJCHM in its 30 years. International
Journal of Contemporary Hospitality Management.
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managerial perspective. Tourism Management. 74. pp.310-318.
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simulation modeling to advance immigrant worker health. International Journal of
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Torres, E. N. and Mejia, C., 2017. Asynchronous video interviews in the hospitality industry:
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Kularatne and et.al, 2019. Do environmentally sustainable practices make hotels more efficient?
A study of major hotels in Sri Lanka. Tourism Management. 71. pp.213-225.

DiPietro, R. and Bufquin, D., 2018. Effects of work status congruence and perceived
management concern for employees on turnover intentions in a fast casual restaurant
chain. Journal of Human Resources in Hospitality & Tourism. 17(1). pp.38-59.
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