Professional Documents
Culture Documents
2 Ibis Hotel-New
2 Ibis Hotel-New
Financial Management and Decision Making in SMEs: A Case Study of IBIS styles
Southwark hotel Limited
2
Table of Contents
Introduction................................................................................................................................3
Sources...............................................................................................................................3
Liquidity Ratios:................................................................................................................6
Activity Ratios:..................................................................................................................6
Profitability Ratios:............................................................................................................7
Task Five: Concept of Ethics and Social Responsibility and its Potential Impact on Decision
Making in SME’s..............................................................................................................11
Summary..................................................................................................................................12
References................................................................................................................................14
3
Introduction
Accor's design economy ibis Styles London Southwark - near Borough Market is near Borough
Market. The hotel is in London's South Bank, a tourist and local culinary and cultural hub. The 154-
room hotel contains eight suites and a bar. The hotel features free WiFi, air conditioning, continental
On September 9, 2014, ibis Styles Southwark Hotel Limited acquired the hotel's property portfolio
from an independent third party. The company leases the hotel to a fellow group company that does
its trade on the same terms as the third party and the fellow group company1. The Accor invest
Group owns and operates hotels. The Accor invest Group renovates and builds economy and
The COVID-19 epidemic hit the hospitality business, causing losses during 2020–2021. Following
UK government limitations, the hotel closed in March 2020, resulting in no rental income. Hotel
Dvorsky (2019) postulates equity financing entails raising capital by selling company
shares. SMEs can raise equity capital from individual investors or venture capitalists. This
4
type of financing does not require debt repayment, and investors receive returns via dividends
or capital appreciation. However, SMEs that choose equity financing may have to cede
control of their business to investors, and the process of raising equity capital can be time-
consuming and costly.
The IBIS styles Southwark hotel Limited manages multiple accommodations in the
United Kingdom. The financial position of the company for the years 2020 and 2021 reveals
that it has utilized a variety of financing sources to fund its operations. In terms of equity
financing, the company has issued £8,000 worth of share capital, which represents the entire
value of its issued shares. The company did not issue any new shares between 2020 and 2021.
This indicates that the company did not seek to raise additional equity capital during this time
frame (IBIS styles Southwark hotel Limited, 2021).
Regarding debt financing, the organization has relied on bank loans to fund its
operations. The company has obtained a £5,000,000 long-term loan, which represents a
5
significant portion of its total liabilities. The company has also taken out short-term loans and
borrowings totaling £2,422,000, including overdrafts and credit lines. These loans and
borrowings have aided the company's cash flow and enabled it to meet its daily expenditures
(IBIS styles Southwark hotel Limited, 2021).
To fund its operations, the company has also utilised alternative financing options,
such as finance leases. The company has engaged into a number of properties, plant, and
equipment finance leases totaling £4,528,000. These leases give the company access to the
equipment it requires to operate without requiring it to purchase the assets outright. However,
the company must make periodic lease payments throughout the lease term, which can
increase its financial obligations (Rao et al., 2021).
IBIS styles Southwark hotel Limited has utilised a variety of financing options,
including equity financing, debt financing, and alternative financing, to sustain its operations.
The company's use of debt financing, such as bank loans and borrowings, has allowed it to
gain access to the capital it needs to fund its operations, while its use of finance leases has
allowed it to acquire the necessary equipment without making substantial up-front
investments. However, the company's reliance on debt financing may increase its financial
risk and expose it to fluctuations in interest rates and credit availability (IBIS styles
Southwark hotel Limited, 2021)
Liquidity Ratio:
Liquidity Ratio (Ibis Styles Southwark Hotel Limited, 2021):
6
Between 2020 and 2021, the company's current ratio fell, signaling a slight decline in
its ability to meet short-term obligations with its most liquid assets (Husna & Satria, 2019).
The company's capacity to satisfy its short-term commitments with its most liquid
assets somewhat declined from 2020 to 2021, as measured by the current ratio and the quick
ratio.
The inventory turnover ratio is 7.28 for both years, which indicates that the
corporation has maintained a consistent level of inventory management efficiency in 2020
and 2021.
The company's accounts receivable turnover ratio increased from 6.54 in 2020 to 6.86
in 2021. This shows that in 2021 compared to 2020, the corporation is managing its credit
policies more effectively.
The activity ratios, comprising inventory turnover and accounts receivable turnover,
reflect the company's efficiency in managing inventory and credit rules. The inventory
turnover ratio grew from 2020 to 2021, showing that the corporation was managing its
inventories more successfully in 2021 than in 2020. The accounts receivable turnover ratio
likewise increased from 2020 to 2021, showing that the firm was managing its credit policies
more successfully in 2021 compared to 2020 (Kurniani, 2021).
In 2020, the company's gross profit margin was 52.56%, and in 2021, it fell to 51.4%.
This suggests a minor decline in the company's profitability.
The company's net profit margin decreased from 3.12% in 2020 to 2.80% in 2021.
This suggests a minor decline in the company's profitability.
The return on assets ratio assesses the profitability of a company's use of its assets
(Gibran & Armansyah, 2023). In 2020, the company's ROA was 1.23%, and in 2021, it fell to
1%. This indicates a minor decline in the company's ability to generate profits from its assets.
The debt-to-equity ratio shows how a corporation finances its assets (Gibran &
Armansyah, 2023). The company's debt-to-equity ratio increased from 1.21 in 2020 to 1.28 in
2021, making it more leveraged and riskier. The company's debt-to-equity ratio is greater
than the industry average of 0.8, suggesting it may have trouble meeting its debt obligations.
To increase solvency and credibility, the corporation should lower its debt-to-equity ratio to
0.5.
A greater percentage shows that operating income covers interest payments. The
company's interest coverage ratio dropped from 4.05 in 2020 to 3.66 in 2021. This means that
in 2021, the company's running income won't be able to cover its interest costs as well as it
did in 2020. Lenders may worry about this because it shows that the company's finances have
gotten worse and it may be more likely to stop paying its debts. (Gibran & Armansyah,
2023).
The payback period—the time it takes to repay the initial investment from cash flows
—can be calculated first. Payback period (Baum, 2021):
The initial investment will be returned in 2 years and 8 months. This method
simplifies calculating the time it takes to repay an investment, but it ignores time value of
money.
The payback period is a second approach for evaluating an investment. This method
determines how long it will take for the project to generate sufficient financial flows to
recoup its initial investment. In this situation, the payback period can be determined by
aggregating the cash flows for each period until the initial investment is recovered (Baum,
2021).
Using the provided capital flows, the following is the payback period:
Year 0: -£220,000, Year 1: £100,000, Year 2: £80,000, Year 3: £60,000, Year 4: £50,000, Year
5: £40,000.
To determine the repayment period, it must add the cash flows until it reaches a total
of £0. The total revenue inflows in the first three years amount to £240,000 (£100,000 +
£80,000 + £60,000), meaning that the initial investment is recovered in the third year.
Therefore, the repayment period is three years (Ibis Styles Southwark Hotel Limited, 2021).
The advantage of the repayment period method is that it is simple to calculate and
comprehend. However, it does not account for the time value of money, which is the fact that
money received in the future is worth less than money received in the present (Bazaluk et al.,
2022). Consequently, it is not always the most appropriate method for evaluating investment
opportunities.
The net present value (NPV) method is another investment evaluation technique that
takes the time value of money into consideration. Using a discount rate that reflects the cost
of capital, this method determines the present value of all cash inflows and outflows
associated with the undertaking investment (Bogataj et al., 2019). If the NPV is positive, it is
expected that the project will generate a return that is greater than the cost of capital;
therefore, it is a sound investment.
11
To determine the project's NPV, it must discount each cash flow to its present value
using a 10% cost of capital. Calculating the present value of each financial flow is as follows:
Since the NPV is positive, it is expected that the project will generate a return that
exceeds the cost of capital; therefore, it is a favorable investment.
acquisition possibilities. The value of a business relies on many things, such as its financial
performance, industry trends, and the state of the market. The asset-based and income-based
12
approaches are two ways to figure out how much a business is worth. The ibis Styles Southwark
Hotel Limited is part of the Accorinvest Group, which owns and runs a collection of hotels.
The asset-based method says that a business's value is equal to the sum of its assets minus its
debts. This method works for businesses that have real assets like land, buildings, and machinery.
The asset-based method figures out a business's net asset value (NAV) by figuring out the fair market
value of its assets and liabilities and taking that number away (Krulick, 2020). This method is easy
and fair, but it might not consider the value of intangible assets that aren't listed in the financial
The income-based method believes that a business's value is based on how much money it can
make in the future. This way works for businesses that have things like goodwill, patents, and
intellectual property that can't be seen or touched. The income-based method figures out the
present value of the cash amounts a business can expect to get in the future. The discount rate used
to figure out the present value shows the cost of capital, or the minimum return that buyers expect
from putting money into the business. The discounted cash flow (DCF), capitalization of earnings, and
multiplier methods are often used in the income-based model (Xu, 2021).
The DCF method uses the cost of capital to determine the current value of a business's expected
future cash flows. The capitalization of earnings method divides a business's projected future
earnings by the reciprocal of the cost of capital, which is called the capitalization rate. The multiplier
method takes a financial metric, like earnings or revenue, and times it by an average factor for the
business. Using the expected future rental income that ibis Styles Southwark Hotel Limited can get
from leasing its hotel to a group company and discounting it to its present value is an example of
how the DCF method is used to figure out how much a company is worth.
In the end, valuing a business is a difficult and subjective process that needs a number of
methods and assumptions. Both the asset-based method and the income-based method can be used
to figure out the value of ibis Styles Southwark Hotel Limited, which owns and runs a hotel.
13
Task Five: Concept of Ethics and Social Responsibility and its Potential Impact on
Decision Making in SME’s
Ethics and social responsibility can alter SMEs' cost structure, revenue streams, risk
exposure, and stakeholder connections, affecting their financial decisions. To cut costs and
carbon emissions, ibis Styles Southwark Hotel Limited may invest in renewable energy or
energy-efficient appliances. To improve its image and consumer loyalty, it may donate part of
its income to local charities or social causes. These decisions may involve trade-offs between
short-term profitability and long-term sustainability and between stakeholder interests. Thus,
SMEs must balance ethical and social obligations with financial goals and constraints.
Ethical and socially responsible practices could help ibis Styles Southwark Hotel Limited
in several ways. Huang et al. (2022) show that ethical and socially responsible hotel
management can attract and keep like-minded consumers. This can provide the hotel a market
advantage. Ethical and socially responsible practices can also attract investors who want to
invest more in organizations that do business responsibly (Huang et al., 2022). If it focuses
ethics and social responsibility, the ibis Styles Southwark Hotel may attract more investors
Ethical and socially responsible business practices can also maintain the hotel. The hotel
can cut costs and gain favor with environmentally conscious consumers by reducing its
environmental effect (Thanh et al., 2021). Ethical and socially responsible practices boost
employee satisfaction and productivity. When people think their boss shares their values,
employees work harder. This improves performance and reduces turnover (Thanh et al.,
2021).
14
Ethical and socially responsible practices assist the hotel avoid legal and reputational
concerns. Unethical behavior might cost the hotel money and tarnish its reputation. The hotel
can avoid these issues by doing business ethically and socially (Thanh et al., 2021).
The hotel may have a consequentialist or deontological approach to ethics and social
Armansyah, 2023). The hotel and its stakeholders would examine an ethical or social issue
would justify investing in renewable energy sources if it boosts hotel profits or customer
the environment.
Summary
This study analyses the financial performance of IBIS Styles Southwark Hotel
Limited from 2020 to 2021 and provides findings and recommendations. In order to pay for
its operational costs, the company relied on a number of different financing strategies,
including equity financing, bank financing, and debt financing. The report used ratio analysis
to evaluate the company's financial success. The analysis revealed that while certain ratios
improved, others worsened, resulting in a mixed outcome for the evaluation of the company's
financial success. In particular, decreases were seen in the liquidity and efficiency ratios,
whereas increases were seen in the income ratios.
In its final section, the paper investigated the impact of ethics and social responsibility
on the decision-making processes of SMEs using Ibis as an example, as well as the ways in
15
which these factors can have an effect on a business's reputation, the loyalty of its customers,
and the support it receives from the community. When it comes to making choices about their
companies, owners of SMEs should give significant weight to these criteria.
References
Abdelhady, S. (2021). Performance and cost evaluation of solar dish power plant: sensitivity
analysis of levelized cost of electricity (LCOE) and net present value (NPV). Renewable
Energy, 168, 332-342.
Awan, U., Khattak, A., & Kraslawski, A. (2019). Corporate social responsibility (CSR)
priorities in the small and medium enterprises (SMEs) of the industrial sector of Sialkot,
Pakistan. In Corporate social responsibility in the manufacturing and services sectors,
(pp. 267-278), Springer.
Baker, H. K., Kumar, S., & Rao, P. (2020). Financing preferences and practices of Indian
SMEs. Global finance journal, 43.
Baum, A. E., Crosby, N., & Devaney, S. (2021). Property investment appraisal. John Wiley
& Sons.
Bazaluk, O., Zhykharieva, V., Vlasenko, O., Nitsenko, V., Streimikiene, D., & Balezentis, T.
(2022). Optimization of the equity in formation of investment portfolio of a shipping
company. Mathematics, 10(3), 363.
Bogataj, D., & Bogataj, M. (2019). NPV approach to material requirements planning theory–
a 50-year review of these research achievements. International journal of production
research, 57(15-16), 5137-5153.
Gibran, D. M. C., & Armansyah, R. F. (2023). The effect of liquidity ratio, solvability ratio,
activity ratio and ownership structure to the company profitability of consumer goods
industry in Indonesian capital market. Enrichment: Journal of Management, 12(6),
4895-4903.
16
Huang, X., Chau, K. Y., Tang, Y. M., & Iqbal, W. (2022). Business ethics and irrationality in
SME during COVID-19: does it impact on sustainable business resilience. Frontiers in
Environmental Science, 10.
Husna, A., & Satria, I. (2019). Effects of return on asset, debt to asset ratio, current ratio, firm
size, and dividend payout ratio on firm value. International Journal of Economics and
Financial Issues, 9(5), 50-54.
IBIS STYLES SOUTHWARK HOTEL LIMITED. (2021). Annual Report and Financial
Statements for the Year Ended 31 December 2021.
Krulický, T., Machová, V., & Rowland, Z. (2020). DETERMINING CARRYING AMOUNT
OF INTANGIBLE ASSETSS USING MODIFIED INCOMEBASED AND ASSETS-
BASED VALUATION METHOD DIFFERENCE. Journal of Interdisciplinary
Research, 10(2).
Kurniani, N. T. (2021). The effect of liquidity ratio, activity ratio, and profitability ratio on
accounting profit with firm size as a mediation. Journal of Economics and Business
Letters, 1(3), 18-26.
Rao, P., Kumar, S., Chavan, M., & Lim, W. M. (2021). A systematic literature review on SME
financing: Trends and future directions. Journal of Small Business Management, 1-31.
Thanh, T. L., Huan, N. Q., & Hong, T. T. T. (2021). Effects of corporate social responsibility
on SMEs’ performance in emerging market. Cogent Business & Management, 8(1),
1878978.
Wang, H. (2022). Application of Discounted Cash Flow Model in Company Valuation-A Case
Study of Netflix. In 2022 2nd International Conference on Economic Development and
Business Culture (ICEDBC 2022) (pp. 1808-1815). Atlantis Press.
Wijaya, D. P., & Sedana, I. B. P. (2020). Effects of quick ratio, return on assets and exchange
rates on stock returns. American Journal of Humanities and Social Sciences Research,
4, 323-329.
17
Xu, Y. (2021). Complete the Valuation Analysis with Discounted Cashflow Valuation and
Multiple Valuations of Enterprise Value Mutiple, Price to Earning, and Pricing to Book
Value Take the Woolworth Group under Epidemic as an Illustration. In Proceedings of
the 2022 International Conference on mathematical statistics and economic analysis
(MSEA 2022). Atlantis Press.