Discuss About The Various Tools Are Applied On Financial Data.
Financial analysis is a process in which the financial statement of a particular organization is studied and various tools are applied on the financial data to measure the overall performance of the company. This process evaluates all the related factors to measure the changes into the financial performance as well as it is a good base to make the changes into the financial strategy and the policies of the company. The report has been prepared to identify and measure the financial performance of HOTEL GRAND CENTRAL LTD and HOTEL PROPERTIES LTD. In this report, ratio analysis tool has been used on both the companies to identify their performance and the best company for the purpose of the investment. The main objective of the report is to evaluate the best investment company so that the return of the investor could be higher and the risk level could be lower.
HOTEL GRAND CENTRAL LTD operates, owns and manages the hotels. The organization operates in five countries which are Malaysia, Singapore, Australia, New Zealand and china. The company manages all the hotels in a perfect manner. The chain of the hotels has been started in 1883. The current financial and non financial performance of the company is quite attractive and brief about better position of the company in the industry (Reuters, 2018.)
HOTEL PROPERTIES LTD is an investment holding company that operates, owns and manages the hotels. The organization operates through hotel and properties. It owns and operates around 32 hotels. The entire hotels of the company are managed in a perfect manner. The current financial and non financial performance of the company is quite attractive and brief about better position of the company in the industry (Bloomberg, 2018).
Ratio analysis is a financial quantitative method which evaluates the financial statement of an organization. This analysis method is used to identify the operating and financial performance such as the profitability, liquidity, gearing level of the company. It involves in measuring the financial health and performance of an organization by using the data from the current and historical financial statement. The ratio analysis study on both the companies is as follows:
Each firm focuses on the profitability position to measure the performance of the company. Profitability ratio analysis is one of the most common ways to measure the performance and the profitability level of the company. The main ratios to measure the profitability performance of an organization are operating profit margin, gross profit margin and return on capital employed. The profitability analysis of both the companies is as follows:
Return on capital employed is a profitability ratio which measures the total return of the organization in context with the capital employed of the company. The better the return on capital employed of an organization would be the better the profitability position would be.
Return on capital employed of HOTEL GRAND CENTRAL LTD has been measured and it has been found that the return of the company has been improved from last year. The operating profit has been improved from last year and due to it, the profitability level has also been improved. The current ROCE of the company is 2.69% which is lower in the industry. However, the trend explains about better position of the company.
|
Return on Capital employed |
2016 |
2017 |
|
|
Operating profit / |
31,615,000 |
41,072,000 |
|
|
Capital employed (total assets – current liabilities) |
1,580,232,000 |
1,527,880,000 |
|
|
Answer: |
% |
2.00% |
2.69% |
Further, ROCE of HOTEL PROPERTIES LTD has been measured and it has been found that the ROCE has been lowered from last year. The operating profit has been reduced from last year and due to it, the profitability level has also been decreased. The current ROCE of the company is 3.50% which is better in the industry. However, the trend explains about lower position of the company.
|
Return on Capital employed |
2016 |
2017 |
|
|
Operating profit / |
133,520,000 |
105,044,000 |
|
|
Capital employed (total assets – current liabilities) |
2,753,644,000 |
3,002,513,000 |
|
|
Answer: |
% |
4.85% |
3.50% |
Gross profit margin is a profitability ratio which measures the total gross profit of the organization in context with the sales revenue of the company. The better the gross profit margin of an organization would be the better the profitability level would be.
Gross profit margin of HOTEL GRAND CENTRAL LTD has been measured and it has been found that the margin of the company has been improved from last year. Gross profit level of the company has been improved more than the sales revenue from last year and due to it, the profitability level has also been improved. The current gross profit margin of the company is 56.1% which is highest in the industry. It explains that the company is required to maintain the same level to manage the performance.
|
Gross Profit Margin |
2016 |
2017 |
|
|
Gross profit / |
72,964,000 |
91,471,000 |
|
|
Sales Revenue (note used operating revenue) |
151,374,000 |
163,037,000 |
|
|
Answer: |
% |
48.2% |
56.1% |
Further, Gross profit margin of HOTEL PROPERTIES LTD has been measured and it has been found that the margin of the company has been improved from last year. Gross profit level of the company has been improved more than the sales revenue from last year and due to it, the profitability level has also been improved. The current gross profit margin of the company is 25.7% which is lower in the industry. However, the increment rate is better.
|
Gross Profit Margin |
2016 |
2017 |
|
|
Gross profit / |
141,481,000 |
169,560,000 |
|
|
Sales Revenue (note used operating revenue) |
577,616,000 |
659,160,000 |
|
|
Answer: |
24.5% |
25.7% |
The financial manager focuses on the liquidity position to measure the short term debt obligation of the company. Liquidity ratio analysis is one of the most common ways to measure the capability of the company to repay all the short term debts of the company. The main ratios to measure the liquidity performance of an organization are current ratio and quick ratio. The liquidity analysis of both the companies is as follows:
Current ratio is a liquidity ratio which measures the total current liabilities and current assets of the organization in order to identity the short term debt obligation of the company. The level of current ratio must be set by the business on the basis of industry and th requirement of working capital for the company.
Current Ratio of HOTEL GRAND CENTRAL LTD has been measured and it has been found that the company has reduced the current assets in order to manage the liquidity position. The current liquidity position of the company has been reduced but in terms of industry and the cost position, the current level is better. The current liquidity ratio of the company is 3.42 which must be reduced by the company.
|
Current Ratio |
2016 |
2017 |
|
|
Current Assets / |
355,238,000 |
274,388,000 |
|
|
Current liabilities |
60,011,000 |
80,122,000 |
|
|
Answer: |
5.92 |
3.42 |
Further, Current Ratio of HOTEL PROPERTIES LTD has been measured and it has been found that the company has reduced the current liabilities in order to manage the liquidity position. The current liquidity position of the company has been increased and it has reduced the risk level and improved the liquidity position of the company. The current liquidity ratio of the company is 1.48 which is quite better and company should maintain the same level.
|
Current Ratio |
2016 |
2017 |
|
|
Current Assets / |
578,160,000 |
530,586,000 |
|
|
Current liabilities |
426,560,000 |
359,401,000 |
|
|
Answer: |
1.36 |
1.48 |
(Annual report, 2018)
Quick ratio is a liquidity ratio which measures the total current assets (excluding the inventory) and current liabilities of the organization in order to identity the short term debt obligation of the company. The level of quick ratio must be set by the business on the basis of industry and the requirement of working capital for the company.
Quick Ratio of HOTEL GRAND CENTRAL LTD has been measured and it has been found that the company has reduced the quick assets in order to manage the quick liquidity position. The quick liquidity position of the company has been reduced but in terms of industry and the cost position. The quick liquidity ratio of the company is 3.41 which must be reduced by the company more to maintain the cost level.
|
Acid test ratio |
2016 |
2017 |
|
Current Assets – Inventory / |
354,406,000 |
273,554,000 |
|
Current Liabilities |
60,011,000 |
80,122,000 |
|
Answer: |
5.91 |
3.41 |
Further, quick Ratio of HOTEL PROPERTIES LTD has been measured and it has been found that the company has reduced the current liabilities in order to manage the quick liquidity position. The quick liquidity position of the company has been increased and it has reduced the risk level and improved the liquidity position of the company. The quick liquidity ratio of the company is 1.45 which is quite better and company should maintain the same level.
|
Acid test ratio |
2016 |
2017 |
|
Current Assets – Inventory / |
568,738,000 |
521,071,000 |
|
Current Liabilities |
426,560,000 |
359,401,000 |
|
Answer: |
1.33 |
1.45 |
Efficiency ratio is an analysis method which measures the ability of an organization to sue the assets and liabilities effectively. Efficiency ratio measures that how effectively and efficiently an organization uses he assets to generate the revenues and manages the assets of the company. Asset efficiency analysis of both the companies is as follows:
Trade payable payment ratio is an average payable period which measures that how long it takes an organization to pay the credit amount to the creditors.
Trade payable payment ratio of HOTEL GRAND CENTRAL LTD has been measured and it has been found that the payment payable days of the company has been reduced from last year. The current position of the company explains that company has to quickly pay the debts. The analysis explains that the huge working capital is required for the company this year.
|
Trade payable payment period ratio |
2016 |
2017 |
|
|
Accounts payable/ |
26,769,000 |
5,977,000 |
|
|
Cost of sales |
78,410,000 |
71,566,000 |
|
|
Answer: (note the above needs to be x 365) |
# days |
124.61 |
30.48 |
Further, Trade payable payment ratio of HOTEL PROPERTIES LTD has been measured and it has been found that the payment payable days of the company has been reduced from last year. The current position of the company explains that company has to quickly pay the debts. The analysis explains that the huge working capital is required for the company this year.
|
Trade payable payment period ratio |
2016 |
2017 |
|
|
Accounts payable/ |
126,829,000 |
63,383,000 |
|
|
Cost of sales |
436,135,000 |
489,600,000 |
|
|
Answer: (note the above needs to be x 365) |
# days |
106.14 |
47.25 |
(Morningstar, 2018)
Inventory turnover ratio is an average time period which measures that how long it takes an organization to hold up the inventory.
Inventory turnover ratio of HOTEL GRAND CENTRAL LTD has been measured and it has been found that the inventory turnover days of the company have been increased from last year. The current position of the company explains that company could manage the inventory in lesser amount as well.
|
Inventory Turnover (days) |
2016 |
2017 |
|
|
Average Inventory / |
832,000 |
834,000 |
|
|
Cost of Sales |
# days |
78,410,000 |
71,566,000 |
|
Answer: (note the above needs to be x 365) |
3.87 |
4.25 |
Further, inventory turnover ratio of HOTEL PROPERTIES LTD has been measured and it has been found that the inventory days of the company have been reduced from last year. The current position of the company explains that company has to manage more working capital to manage the inventory of the company.
|
Inventory Turnover (days) |
2016 |
2017 |
|
|
Average Inventory / |
9,422,000 |
9,515,000 |
|
|
Cost of Sales |
# days |
436,135,000 |
489,600,000 |
|
Answer: (note the above needs to be x 365) |
7.89 |
7.09 |
(Morningstar, 2018)
Gearing analysis focuses on the capital structure of an organization. It evaluates the debt and equity proportion of the business to evaluate the optimal capital level of the business.
Gearing ratio of HOTEL GRAND CENTRAL LTD has been measured and it has been found that the company has reduced the debt level from last year. Due to which, the gearing ratio of the company has been lowered. The current position of the company explains that company must improve the debt level to manage the leverage level.
|
Gearing Ratios |
2016 |
2017 |
|
|
Gearing ratio |
2016 |
2017 |
|
|
Long term liabilities / |
275,096,000 |
201,333,000 |
|
|
Capital employed |
1,580,232,000 |
1,527,880,000 |
|
|
Answer: |
% |
0.174 |
0.132 |
Gearing ratio of HOTEL PROPERTIES LTD has been measured and it has been found that the company has improved the debt level from last year. Due to which, the gearing ratio of the company has been improved. The current position of the company explains that company must manage the optimal capital structure to reduce the risk and cost level.
|
Gearing Ratios |
2016 |
2017 |
|
Gearing ratio |
2016 |
2017 |
|
Long term liabilities / |
812,068,000 |
922,480,000 |
|
Capital employed |
2,753,644,000 |
3,002,513,000 |
|
Answer: |
0.295 |
0.307 |
(Annual report, 2018)
On the basis of the above study, it has been measured that both the companies are performing well in the industry. The overall current financial performance of the company is quite better and explains about better financial performance of the companies. However, it has been recognized that few changes are required in both the companies to improve their financial performance and operational level at internal as well as external level.
In case of HOTEL GRAND CENTRAL LTD, it has been recognized that the profitability level of the company is quite impressive. The ratios explain about the growing trend. In addition, the liquidity ratio of the company explains that the company is required to current assets level to manage the cost and liquidity level. Further, the gearing ratio suggests to enhance the debt level and asset efficiency ratios add to improve the payment payable days.
In case of HOTEL PROPERTIES LTD, it has been recognized that the profitability level of the company is has been lowered and thus the company must focus on the expenses and other factors. In addition, the liquidity ratio of the company explains about the better position. Further, the gearing ratio suggests managing the optimal capital level and asset efficiency ratios add to improve the payment payable days.
Conclusion
To conclude, the financial performance of HOTEL GRAND CENTRAL LTD and HOTEL PROPERTIES LTD has been evaluated and it has been found that the overall financial performance of both the companies is good. The ratio analysis study has been performed on both the companies to measure the performance as well as the competitor’s level in both the companies. The profitability ratios explain that the overall profitability level of HOTEL GRAND CENTRAL LTD has been better whereas the HOTEL PROPERTIES LTD have faced some reductions in the profit generation capabilities.
Further, the efficiency ratios have been measured and it has been found that the overall performance of HOTEL PROPERTIES LTD is better in the market. In addition, the study has been performed on various other ratios of both the companies and it has been measured that the liquidity level of HOTEL PROPERTIES LTD is better as the company has managed the risk level and cost level efficiently. Lastly, the gearing ratio explains that the performance of HOTEL GRAND CENTRAL LTD is better.
The overall evaluation explains that the overall performance of both the companies is average. It has been found that few changes are required to be done by the both the hotels. These few changes would help the company to improve the performance and the financial level in the industry. The analysis explains that the investment into both the companies would offer great return to the investors of the company only if the investment is done for the longer period. Short term investment could mislead the investment into both the companies. Thus it is required for the investors to check the overall position and performance of both the companies to reach over a better conclusion. On the basis of the study, long term investment is better option.
I have learnt various new techniques and their applying process in real life through this report. Earlier, I Was very much aware about the ratio analysis study but it was a great experience for me to apply these tools and techniques on real companies to measure the investment opportunity in the companies. The application of ratio analysis on HOTEL GRAND CENTRAL LTD and HOTEL PROPERTIES LTD was quite interesting as I get to know that how the profitability, solvency, efficiency and liquidity ratios could be applied on the financial statement of an organization and how these ratios help the financial analyst and other professionals to reach over a conclusion.
Initially, I found it a tough task to identify the financial statement of 2 companies of 2 years but I eventually found it on annual report and the Morningstar (2018). Further, I prepare a template to calculate all the ratios efficiently and I put all the data in the template file to calculate the ratios. After that, according to my knowledge and with the help of some books and journals, I analyzed the meaning of each ratio and apply that knowledge in evaluating the current performance of the company. So finally, I have reached at a point where all the calculations have been done and the analysis on each ratio has also been written.
Now, it was bit tough for me to recommend the investors about the investment into the company. I have again taken the help of the lecture notes and other related books to identify that what actions must be taken by a business in different situations. After identifying it, a recommendation has been written to the investors that they should invest into both the companies but the investment must be for longer period so that the great return could be got by the investors. The overall study was quite interesting and it has improved my knowledge about the financial statement and the evaluation on financial statement of a business.
References
Annual report. (2018). Hotel Grand Central Limited. Retrieved from: https://infopub.sgx.com/FileOpen/Hotels%20Grand%20Central%20Annual%20Report%202016.ashx?App=Prospectus&FileID=31724
Annual report. (2018). Hotel properties Limited. Retrieved from: https://www.hotelprop.com.sg/financial-reports/
Management. (2018). Hotel properties Limited. Retrieved from: https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=878746
Morningstar. (2018). Hotel Grand Central Limited. Retrieved from: https://financials.morningstar.com/income-statement/is.html?t=H18®ion=sgp&culture=en-US
Morningstar. (2018). Hotel Properties Limited. Retrieved from: https://financials.morningstar.com/income-statement/is.html?t=0P0000A67W&culture=en-US&ops=clear
Reuters. (2018). Hotel Grand Central Limited. Retrieved from: https://in.reuters.com/finance/stocks/company-profile/HGCS.SI
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