BIZ201 Accounting for Decision Making - Free Samples to Students

try which is shown in total to be 57%. This shows the efficiency of the rooms of Crystal hotel is more appropriate and therefore the sales from the rooms is more than the industry average. The vertical analysis also shows that the revenues which the business earns from other sources such hall and other function of the hotel is also significant which is shown to be 8.83%. The total cost of sales which represents the cost which is incurred by the business in providing the services is computed to be 27.59% which is much more than the industry average for the same for the year 2015 (Weygandt, Kimmel & Kieso, 2015). This is an indicator that the internal control of the business is not that strong and therefore, the business needs to improve the same so as to reduce the overall costs and thereby increase the revenue of the business. While considering the personal costs which are incurred by the business, the room expenses and Food and Beverages expenses are computed to be 7.60% and 7.08% as per the analysis for the year 2015. The figures are less than that of the industry average which is a good sign and it signifies that the business has effectively cut down on the personal expenses in order to reduce the total costs which is associated with the business (Needles, Powers & Crosson, 2013). The percentage for total personal cost is computed to be 25.38% which is lower than the industry average. The total unallocated operating cost of Crystal Hotel is much more than the estimates of industry average which is shown to be 16% and the former is computed as 18.31%. The unallocated operating cost needs improvement in comparison to industry averages (Kim, Kraft & Ryan, 2013). The total cost of the business is shown to be 68% in the industry average and the figure which is computed for Crystal Hotel is close proximity of the industry average but the same needs to be reduced in order to improve the operational performance of the business and also increase the profitability of the business.

As per the analysis, the following areas of improvement can be suggested to the management of Crystal Hotel which can further improve the overall efficiency of the business:

• The management needs to promote the food and beverage services which is provided by the hotel so as to earn more revenue from such a source so that the business can effective compete with other hotels in the industry in this area (Needles, Powers & Crosson, 2013).
• The management needs to reduce the costs which are associated with rooms and food and beverages which can be done by changing the menu or bring about change in the kitchen department. The management needs to reduce the costs so that the overall revenue of the business can be further increased.
• The unallocated costs and the personal costs which relates to social security also needs to improve as this are adding to the total costs of the business and if improvement in such an area can be achieved not only the efficiency of the area will increase but also the overall costs will reduce. It is also recommended that the unallocated operating costs items need to be evaluated in order to ascertain whether such costs are necessary in nature or not.

Ratio Analysis

As shown in figure 1, significant ratios are calculated for the purpose of establishing the performance of the business and also comparing the same with the industry average. The gross profit margin for Crystal Hotel is shown to be 72.41% which is lower than the industry average which is shown to be 81% which shows that there are hotels which have a better operational performance than Crystal Hotel which can be due to cost minimization policies and other factors. The net profit of the company is shown to be 19.53% which is significantly more than the industry average which shows that the business is fairly successful in the market (Carraher & Van Auken, 2013). The return on assets and return on equity of the Hotel is significantly more than the industry average which is a positive sign for the business and it also suggest that the business is a developing one. Both Return on Assets and Return on Equity is considered to be financial Indicators of success for the business and both of these estimates show positive sign for the Crystal Hotel (Vuckovic, Veselinovic & Drobnjakovic, 2016). The efficiency ratio mainly comprises of inventory turnover ratio and receivable turnover ratio which is shown in the above figure. The inventory turnover ratio of the business is shown to be 24.81 which is significantly more than the industry average which suggest that the business is effectively handling the inventory of the business. This also implies that the business follows aggressive sales policy and also offers large discounts in order to promote the overall sales of the Hotel. The debtor turnover ratio is also an important indicator of the efficiency of the business in handling the credit sales of the business and also reflects the credit policy of the business (Delen, Kuzey & Uyar, 2013). As shown in the table the business allows long periods as credit policy while the industry average is only 35 days. This signifies that either the business has trust on the customers and offers such credit policies to regular and loyal customers or the credit policy of the business is inappropriate.

The liquidity ratio of the business shows the ability of the company to meet the day to day expenses of the business in order to smoothly run the operations of the business. The current ratio of the Hotel is computed to be 1.86 and the acid test ratio is computed to be 1.63 which is lower than the estimates of the industry average which is shown in table above. The ratios are ideal which shows that the business has no liquidity problems but comparison shows that in the industry businesses exist which have a better liquidity position than Crystal Hotel. Therefore, it can be recommended that the management of Crystal Hotel needs to improve the liquidity position further in order stay competitive in the industry.

The debt equity ratio is considered to be a financial indicator of the success of the business and therefore the same are considered by the potential investors before making any investment in the business. The debt equity ratio shows the capital structure of the business and whether the same has balance or not. The debt equity ratio is computed to be 12.32% which means that the business is more depended on equity sources of capital rather than debt capital of the business. The suggestion which can be given to the business is to utilize more debt capital so as to attain a perfect capital structure which can improve the potentials of the business further. The equity ratio of the company is shown to be 73.63% which is natural due to the utilization of more equity capital in the capital mix of the business.

Additional Industry Specific Benchmarks for Hotels

The additional industry specific benchmarks which can be used by Crystal Hotel for measuring the performance of the business in comparison to other business operating in the Industry:

1. The market valuation of the business is an important indicator of the success of the business and also provides an image of the reputation of the company in the market. On the basis of the market valuation of the business, potential investor decides whether to invest in the business or not (Maimbo & Melecky, 2014).
2. Then there is the star rating which the is also a sign of the efficiency and reputation of the business in the market. In many situations, business with high star ratings are preferred by customers even though the same are expensive. Star ratings signifies the quality of services which is provided by the business.
3. Customer satisfaction and feedbacks are also indicator the business performance. In many cases customer leaves review of the hotel in websites on the basis of which potential customers select their perfect hotels. This can also be a basis on which business can be benchmarked to ascertain the techniques used.

Reference

Carraher, S., & Van Auken, H. (2013). The use of financial statements for decision making by small firms. Journal of Small Business & Entrepreneurship, 26(3), 323-336.

Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), 3970-3983.

Edmonds, T. P., McNair, F. M., Olds, P. R., & Milam, E. E. (2013). Fundamental financial accounting concepts. New York, NY: McGraw-Hill Irwin.

Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Kim, S., Kraft, P., & Ryan, S. G. (2013). Financial statement comparability and credit risk. Review of Accounting Studies, 18(3), 783-823.

Maimbo, S. M., & Melecky, M. (2014). Financial sector policy in practice: benchmarking financial sector strategies around the world. The World Bank.

Needles, B. E., Powers, M., & Crosson, S. V. (2013). Financial and managerial accounting. Cengage Learning.

Needles, B. E., Powers, M., & Crosson, S. V. (2013). Principles of accounting. Cengage Learning.

Vuckovic, B., Veselinovic, B., & Drobnjakovic, M. (2016). Analysis of profitability of selected agricultural enterprises in the autonomous province of Vojvodina, Republic of Serbia. Aktual'ni Problemy Ekonomiky= Actual Problems in Economics, (176), 147.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.