Rose Garden Hotel Pty Ltd Ratio and Vertical Analysis Report - Click

Question: Discuss about the Rose Garden Hotel Pty Ltd. Answer: Introduction Rose Garden Hotels Pty Ltd is 3.5 star hotels and its management want to increase its rating by adding various facilities but before that the owner want to know the current financial position of the company. Ratio analysis is one of the best to analyze the financial position of any company which is extensively used in below report. Vertical analysis of the financial statement is another recognized tool to evaluate different component of the financial statement with respect to parent factor. Vertical Analysis of Income Statement and comparison with industry Statement showing Vertical analysis an comparison with industry Rose Garden Hotel Pty Ltd Vertical Analysis Industry Std As per Room of 160 Industry Std As per Price of 148 Income Statement for the period ended 30-Jun-15 Revenues Rooms Revenue 61.88% 65.00% 50.00% Food and Beverage Revenue 14.46% 25.00% 39.00% Functions 14.83% 6.00% 7.00% Other Revenue 8.83% 4.00% 4.00% Total Revenues 100.00% 100.00% 100.00% Cost of Sales Rooms Cost of Sales 13.04% 8.00% 6.00% Food and Beverage Cost of Sales 12.47% 8.00% 11.00% Other Cost of Sales 2.08% 5.00% 2.00% Total Cost of Sales (excluding personnel cost) 27.59% 21.00% 19.00% Gross Profit 72.41% 79.00% 81.00% Personnel Costs Rooms 7.60% 13.00% 13.00% Food and Beverage 7.08% 11.00% 15.00% Administrative and General 4.60% 4.00% 4.00% Sales and Marketing 3.43% 1.00% 1.00% Property Management and Maintenance 2.67% 2.00% 4.00% Total Personnel Costs 25.38% 31.00% 37.00% Date Interpretation and comparison Revenue It is to be noted that the Revenue of the Hotel industry have four component majorly Revenue from Rooms , revenue from Food and Beverages , Revenue from Functions, Revenue from Other sources. Revenue from Rooms revenue Rose Garden Hotel Pty Ltd have room revenue of 61.88% which is near to industry standard revenue for 160 room which is 65%. Of course company has far better result in room revenue if we compare the same with industry standard revenue based on price range of $148 per night which is 50%. Revenue from food and Beverage Revenue from Food and Beverage is 14.65% of the total revenue is lower than industry standard of 25% for 160 rooms and 39% for $148 price range. Company can focus for increasing the share of Food and Beverage Revenue. Revenue from Function Revenue from function is higher than industry of 6% for 160 rooms and 7% for 148 Price range . It has shown good result. Other Revenue The other revenue is 8.83% which is double than the industry standard of 4%. Cost of Sales Cost of sales of the company is 27.59% which far more than the industry standard of 21% for 160 rooms and 19% for price range of $148. The cost of sales for Rooms is very high for Rose Garden Hotels Pty Ltd ,13% in compare to 6 to 8% of the industry standard . The company should introduce a mechanism to control the cost of sale for rooms. Also the cost of sales for beverage is 12.47% of the total sales against 14.46% of the total revenue for beverage . However, as per industry standard the cost of sale for food and beverage is 8 to 11% as against 25% to 39% of the total revenue. The company can improve considerably in this area . As company has less than 2% of the gross profit in this area. Personnel Cost Rose Garden Hotel Pty has shown strong control over personnel cost. It is 25.38% of the total revenue , however as per the industry standard for 160 rooms it is 31% and for price range of $148 it is 37%. Company is doing good in this area and seems to have good control. Unallocated Operating Costs and Total Costs proportions. The unallocated operating cost is 18.48% of the total sales as against the industry standard of 14%. The variation is due to higher expenditure on Administrative and general expense, which can be controlled by avoiding unnecessary and unproductive overhead expense. Overall Recommendation After considering and analysis all above area of profit and loss account, I can say that company is behind industry standard in the area of controlling cost of sales. Others areas are almost nearer to industry standard. For controlling cost of control company can implement alternative option for raw material purchase, good facility for preserving food for longer period and minimum waste approach. Comments on ration Analysis of the company and comparison with Industry Standard Profitability ratio As far as profitability ratio is concern, the company has shown strong result in comparison with industry standard. Gross profit ratio is lower of 72.41% as against the industry ratio 81%. However the net profit margin is on higher side of 19.36% as against the industry standard of 11%. The return on asset and Return on equity have shown higher ratios of 21.88% and 30.89% as compare to industry standard ratio of 8% and 9% respectively. Overall profitability position of the company is very strong as compare to industry standard. Efficiency Ratio The inventory turnover ratio is 6.24 times which is lower than the industry standard of 8.60 time, This is due to high cost of sales in the company as compare to the industry ratio. The Accounts receivable collection period is much more of 94.84 day as compare to industry standard of 35 days. Company can improve in this area. Strong credit policy control can be implemented for the same. Overall efficiency in handling of creditors and debtors is below industry average and there is a room for improvement Liquidity Ratio The current ratio and quick ratio of the company is 1.86 and 1.46 for respectively for the year 2016. The same is above 1 some we can say the company is good liquidity position. However if we compare it against industry standard it is underperformed. The current ratio for industry is 3.2 times almost double than the company and quick ratio for industry is 2.12. Though the liquidity of the company is not in danger but still its far below than industry standard Solvency Ratio The company has relied more on owners fund rather than debt fund . The capital structure has only 26.82% of debt and 73.18% of equity. We can say the company is playing on safer side by placing reliance on equity . As the company has lower debt in its capital structure obviously interest coverage ratio is also strong. The interest coverage ratio is 59.62 times which can allow the company to trade in equity by introducing more debt for expanding the proposed project . Additional benchmarks for Hotel Industry Hospitality of Customer It is to be noted that Hospitality of the customer is the most valuable factor for success in Hotel industry. The company can benchmark good rated Hotels in the near cities for better hospitality management. Company can increase the absolute number of customer due to this area. Though it is Qualitative measure but still very crucial for increasing quantities numbers. Staff Welfare We have seen in above analysis that the company has spent lower amount for staff welfare as against the industry standard. It is to be noted that providing good facilities and reward can increase the personnel satisfaction which will reduce the employee turnover ratio. The same can help in better service smooth management of the company in long run . Overall profitability of the company can be surly impacted and improved. Trading on Equity We have seen that there are no industry standard given for capital structure of the company . However , I can say that the profitability of this industry is far better than the other industry and hence the stable company can introduce debt in its capital structure upto 50%. The company should benchmark company having rating above 3.5 start and should try to follow that capital structure for opting new expansion and strategies Conclusion Rose Garden Hotel Pty Ltd After considering the result of two analysis too names ratio and vertical analysis, I can say that companys existing situation is moderate in comparison to industry overall. But yes if company will focus on reduction of cost f sales, it will surely outperform the industry standards. As the component cost of sales affect many other ratios for the company. Also the company has good space for the introducing debt fund in the capital structure , same can be used for expanding a new facilities of the company for increasing the rating. 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