Vertical And Ratio Analysis Of Crystal Hotel Pty Ltd

About the company

There are various tools to analyze the financial statements. Vertical analysis, Horizontal Analysis and Ratio Analysis are some of the tool that enables to analyze the overall financial health of an entity (Bodie 2013). The purpose of this report is to conduct a vertical and ratio analysis of the financial statements of Crystal Hotel Pty Ltd in order to gain an idea about the overall condition of the company.

Crystal Hotel Pty Ltd is in the hotel industry. It is a privately owned 3.5 star hotel that is located in Paramatta CBD in Sydney. This hotel has 160 rooms that can accommodate a maximum of 350 guests, a room for conducting functions with a capacity of 250 guests, a conference room with a capacity of 200 guests and restaurant having a capacity of 150 guests.

In vertical analysis, all the elements of the financial statements are expressed as a percentage of a chosen base. A vertical analysis of the financial statements of the hotel will done and compared with the results of the vertical analysis of the data of the industry to the get an idea about the position of the company in the hotel industry.

Revenue	Industry data in 2015 (%) Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Industry data in 2014 (%)	Industry data in 2013 (%)	Crystal Hotel Pty Ltd (%)
Rooms	65	65	52	61.88
F&B	25	27	35	14.46
Hall	6	3	5	14.83
Others	4	4	8	8.83
Total Revenue	100	100	100	100

Table 1

Revenue	Industry data in 2015 (%)	Industry data in 2014 (%)	Industry data in 2013 (%)	Crystal Hotel Pty Ltd (%)
Rooms	50	58	47	61.88
F&B	39	34	41	14.46
Hall	7	3	4	14.83
Others	4	4	9	8.83
Total Revenue	100	100	100	100

Table 2

The tables 1 and 2 given above indicate the vertical analysis of the income statement of the industry in which Crystal Hotel Pty Ltd.  The vertical analysis of the industry is conducted by doing the vertical analysis of the income statement of the similar firms operating in the industry.

The vertical analysis of the industry in Table 1 is conducted by  taking the number of rooms as the parameter. The table 2 indicates the vertical analysis of the industry by taking the price of the rooms as the parameter.

When table 1and table 2 is closely observed, it can be seen that the revenue of Crystal Hotel Pty Ltd from letting out rooms falls within the range of the average revenue earned by similar firms within the industry. However, revenue from restaurants is much less than the average revenue from restaurants of similar firms in the industry. The revenue from letting out hall of Crystal Hotel Pty Ltd is more than what the firms in this industry earn on letting out halls for functions. The income from other sources of this hotel falls within the industry range. Therefore, Crystal Hotel Pty Ltd needs improve its performance of the restaurant. It should improve the food served in the restaurants and apply appropriate pricing policy in order to attract customers and maximize its revenue.

Vertical Analysis

Cost of sales	Industry data in 2015(%)	Industry data in 2014 (%)	Industry data in 2013(%)	Crystal Hotel Pty Ltd (%)
Rooms	8	8	7	13.04
F&B	8	9	9	12.47
Other	2	2	2	2.08
Total Cost of sales	18	19	18	27.59

Table 3

Cost of sales	Industry data in 2015 (%)	Industry data in 2014 (%)	Industry data in 2013 (%)	Crystal Hotel Pty Ltd (%)
Rooms	6	7	6	13.04
F&B	11	10	12	12.47
Other	2	2	2	2.08
Total cost of sales	19	20	19	27.59

Table 4

The tables 3 shows the vertical analysis of the cost of sales of the industry on the basis of number of rooms and Table 4 shows the vertical analysis the industry on the basis of the price of the rooms. The vertical analysis of the cost of sales of Crystal Hotel Pty Ltd is done by expressing each element of the cost of sales as a percentage of revenue. On a comparison between the data of the industry and the data of Crystal Hotel Pty Limited, it is clearly evident that the cost of sales this company is more than the cost of sales of other firms in the industry.  This is mainly because of the reason that the cost of sales relating to the rooms is high in comparison to the firms that are in the same industry and incur the same costs as the this company to provide the same services. Moreover, the cost of sales of restaurants and other services of this hotel is also high in comparison to the cost of sales of other hotels in the same industry providing same facilities and having the same capacity. This increases the overall cost of sales this hotel in comparison to the cost of sales of the industry. Crystal Hotel Pty Ltd should evaluate the structure of the cost of sales (particularly of cost of sales of the rooms) so that the costs are reduced and brought within the cost of sales incurred by other hotels in the industry.  This will also enable the company to increase its gross profits.

Personnel Costs	Industry data in 2015 (%)	Industry data in 2014 (%)	Industry data in 2013 (%)	Crystal Hotel Pty Ltd (%)
Rooms	13	12	10	7.60
F&B	11	11	11	7.08
Administrative & General & Personal Costs	4	4	6	4.60
Sales and Marketing	1	1	3	3.43
Property Management & Maintenance	2	2	5	2.67
Total Personnel Costs	30	30	36	25.38

Table 5

Personnel Costs	Industry data in 2015 (%)	Industry data in 2014 (%)	Industry data in 2013(%)	Crystal Hotel Pty Ltd (%)
Rooms	13	14	9	7.60
F&B	15	13	12	7.08
Administrative & General & Personal Costs	4	5	3	4.60
Sales and Marketing	1	1	1	3.43
Property Management & Maintenance	4	2	1	2.67
Total  personnel costs	36	35	26	25.38

Table 6

Tables 5 and 6 present the data of the industry  relating to the personnel costs. Table 5 shows the results of vertical analysis of the firms prevailing in the industry taking number of rooms as the parameter. The vertical analysis of the industry in table 6 is conducted after taking the price of the rooms as the parameter. On comparing the vertical analysis of this company with the vertical analysis of the industry as shown in tables 5 and 6, it can be seen that the overall personnel costs of this hotel is lower than the average personnel costs incurred by other firms in the industry. This because of the reason that this hotel incurs lower personnel costs relating to rooms and restaurant in comparison to other hotels of the industry. However, the administrative and the sales costs of this hotel are slightly higher than other the cost incurred by other hotels for administration and marketing purposes. The net effect is that the overall personnel costs Crystal Hotel Pty Ltd is lower in compassion to the industry costs. The hotel should try to maintain the personnel costs at this level. However, it should also ensure that quality of services is reduced.

Personnel Costs

Unallocated  operating costs	Industry data in 2015 (%)	Industry data in 2014 (%)	Industry data in 2013 (%)	Crystal Hotel Pty  Ltd (%)
Administrative and General	2	2	6	6.77
Sales and Marketing	3	2	5	3.09
Property Management and Maintenance	5	3	8	4.51
Other	4	4	7	3.94
Total Unallocated operating costs	14	12	26	18.31

Table 7

Unallocated  operating costs	Industry data in 2015 (%)	Industry data in 2014 (%)	Industry data in 2013 (%)	Crystal Hotel Pty  Ltd (%)
Administrative and General	2	4	3	6.77
Sales and Marketing	2	2	3	3.09
Property Management and Maintenance	5	4	6	4.51
Other	5	5	5	3.94
Total Unallocated operating costs	14	15	17	18.31

Table 8

Table 7 presents vertical analysis of the unallocated operating costs of the hotel industry by considering number of rooms as the parameter. Table 8 indicates the vertical analysis of the industry by taking into the price of the rooms as the parameter. On a comparison between the industry data and the data of this hotel it can be seen that the unallocated operating costs of this hotel is slightly higher than the unallocated costs of the industry. This because the cost incurred by this hotel is for administration purposes is quite high in comparison to the costs incurred by other by other firms in the industry. Further, the sales and marketing costs are also slightly higher in comparison to the industry costs. The company should focus on reducing the administrative costs and bringing it to a level of the other firms of the industry.  

Particulars	Industry data in 2015 (%)	Industry data in 2013 (%)	Industry data in 2013 (%)	Crystal Hotel Pty Ltd (%)
Total Costs	62	61	80	71.28
Income before fixed charges	38	39	20	28.72

Table 9

Particulars	Industry data in 2015 (%)	Industry data in 2013 (%)	Industry data in 2013 (%)	Crystal Hotel Pty Ltd (%)
Total Costs	70	70	62	71.28
Income before fixed charges	30	30	28	28.72

Table 10

The table 9 and 10 given above presents a comparison between the total costs incurred by other firms in the industry and the total cost of this company. On a close observation it can be seen the total costs of this hotel is slightly higher than the overall cost of the industry.

The ratio analysis of Crystal Hotel Pty Ltd is  done below.

This class of ratios measures the ability of the company, to generate profits with respect to its expenses and other costs during a specified period. Profit margins at different levels of cost are used to measure the profitability of the entity. Profitability ratio includes gross profit margin, operating profit margin, net profit margin, cash flow margin, return on assets, return on equity and cash return on assets (Gibson  2012).

Profitability Ratios	2015 (%)	Industry (%)
Gross Profit Margin	72.41	81
Net Profit Margin	28.72	11
Return on Assets	21.23	8
Return on equity	28.84	9

The table given above shows the profitability ratios of Crystal Hotel Pty and the industry. On a comparison between the data of the industry and the ratios of this hotel, it can be seen that the gross profit margin of the company is lower than the gross profit margin of other firms operating in the industry.  However the net profit of this company, the return on net assets and the return on equity of the company is comparatively more than the other firms operating in the industry.

Efficiency ratio indicates the ability of the company to use its assets and liabilities internally. These ratios include inventory turnover, number of days inventory held, accounts receivable turnover, accounts receivable collection period and other similar ratios (Grant  2016.).

Unallocated Operating Costs

Efficiency Ratios	2015
Inventory Turnover	6.40
Number of days inventory held	53.32
Accounts receivable turnover	3.94
Accounts receivable collection  period	140.52

The inventory turnover ratio of this hotel is lower than the average inventory turnover prevailing in the industry. The accounts receivable collection period indicate there is delay in receiving the payment by the hotel. The hotel should work on this area so that the delay in the payment is reduced.

Liquidity ratio is a means by which the capability of a company to repay its debts is The measured. This includes current ratio, acid ratio and cash ratio.

Liquidity Ratios	2015
Current Ratio	1.86
Quick Ratio	1.46

The table given above shows the liquidity ratios of this hotel. An entity that has current ratio or quick ratio more than 1 is considered to be good. It can be seen that the hotel has strong current and quick ratios. This is an indicator of strong financial health of the company. However, other firms in the industry have current ratio and quick ratio 3.20 and 2.12. Therefore company should put in effort to increase these ratios and bring it a level of the ratios prevailing in the industry.

Solvency ratio indicates the ability of an entity to pay its short term and long term liabilities (Collier 2015). It also indicates the capital structure of the company.

Solvency Ratios	2015 (%)
Debt to Equity Ratio	12.32
Debt Ratio	9.07
Equity Ratio	73.63

The ratios calculated above indicate the capital structure of the company.  The indicates the profitability of the company and the ability of the company to repay its short term and long term liabilities.

  There are other benchmarks for the hotel industry for comparison purposes. Given below are three such benchmarks.

1. Revenue per available room.
2. Average occupancy rate
3. Average Daily rate

Conclusion

It can be concluded from the above analysis that this hotel is doing pretty well. However, it needs to focus on certain areas especially the restaurant in order to improve its overall performance.

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