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Case Study
Case Study
Case Study
Student-ID: 21241
Module Name: Fundamentals of Business Finance
Tutor Name: Collins Okonkwo
Academic Year/Group Bubble: September 2021
Location: Manchester – Leeds.
Introduction
In order to build a business it is required to understand the main steps that are required to
follow. It is an elaborate process that involves time, knowledge, creativity and capital.For
starters a business is like a house it need a solid foundation, that is financial informations, it
requires walls for support that is the management team and a roof that is the company itself. If
the foundation is solid and the financial informations are strong enough, established from the
beginning and understood the company is solid. “But what really is the financial
informations? “ Financial informations are a report about how the company is handling itself,
how the company is preforming and provides a roadmap of the company. It helps the
shareholders to understand the company and convince or discourage them to invest in the
company. The purpose of this case study is to put into practice the financial informations and
create a framework, also to determine the performance of the company Marriot Inn Ltd.
Financial informations
In order to establish the efficacy of the business it is necessary to calculate the representative
values such as the Return on Capital Employed = EBIT / (Total Assets – Total current
liabilities)= EBIT/ net current assets= 22.47%, the Asset turnover ratio= total sales/ net assets
= 1.2 times, the debtors collection period within 100 days. For profitability ratios the
represent is the net profit margin with 7,72%. The liquidity ratio represents the current ratio
with 1,31 :1 and the Acid test ratio with 1,19: 1 ( cash plus debtors/ current liabilities). The
debt equity ratio or gearing ratio is 53% (loan capital/ total capital employed *100) . Labour
cost % of sales is 18.93 %. Operating cost % of sales is 88.18%. Room maintenance costs %
of sales is 9,24%. Administration costs % of sales are 4.09%.
In comparison with the average ratios for Hoteliers federation members for 2021, it can be
stated that there are slightly different ratios, but not far apart. For instance the profitability
ratio is lower than the average, it can be considered a negative assessment for the company.
As it is known Return on capital employed represents the amount of money invested in the
firm and and looks upon the return on the long term providers of funds. It is an important
ratio, being considered the primary ratio. The asset turnover or sales revenue to capital
employed is a ratio that establishes if the business has produced revenue, being used to
measure the size of the company; compared to the average variables the ratio is high, that
does not mean that is a favorable outcome, in other order of words it may be considered that
the firm has an abnormal balance between net assets and and non current assets. The net profit
margin in very low compared to the average values, it may be because the firm uses an
inefficient cost/structure or poor pricing strategy, it may be necessary an more detailed
analysis of the company’s performance, as prices for rooms, occupancy rates and maintenance
costs. The current ratio raises concerns regarding payments, debt and liabilities. But the value
is not as low as to expect a immediate problem in payments. As for acid test ratio considering
to be a liquidity variable as the current variable is itself slightly lower than the average, been a
sign of alarm for potential short terms payments, or on the other hand it can mean that the
firm has not been reinvesting the money owned. For the debtors collection period it can be
shown that there is a long grace period, longer than the average, therefore it can be considered
essential to maintain a stable balance between output and input money. The gearing ratio is
higher than the average, it seem that the company has a large amount of debt versus equity,
but a long period of debt. The labor costs are slightly higher than the average, with a
difference of 0.83 percent, as is rising the idea that the cost of labor is rising from year to year
and that might change the outcome of the company. The operating cost are higher than the
average, making another in need for improvement on the operating management of the
company, in order to improve and lower the costs, or looking for a strategy for managing the
costs implications. The room maintenance costs and administration costs are slightly lower
than the average, being a good point for the company.
In conclusion,from Marriot Inns Ltd ‘s financial report it appears that the company needs to
invest in the modernization of the business, and take into consideration the challenges facing
from future payments and financing growths through labor, equipments and services.
Rapport on the Marriot Inns Ltd performance in terms of profitability and liquidity
Conclusion
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