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HFR603 Hotel Finance And Revenue

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HFR603 Hotel Finance And Revenue

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HFR603 Hotel Finance And Revenue

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Course Code: HFR603
University: Blue Mountains International Hotel Management School is not sponsored or endorsed by this college or university

Country: Australia

In this assignment choose any one hospitality industry can be choose, try to Choose one of restaurant which is near sydney or anywhere. Based on that hospitality we need to provide information.

All industries have different modes of operations, functions and thereby give different statistics. The company operating in that industry generates the result which is similar to or is at par with the result which has been envisaged by that particular industry norm. In case the results are deviated then there is the need of analyzing the operations and the reasons as to why the same have been happened. In the report the industry of hotel has been selected and out of that Hyatt Company has been chosen. The report has started with the details of the company as to when the company has been formed and how it operates and related other details. Then the financial ratios have been calculated for the three consecutive different years along with the movement year wise in each of the head of the balance sheet of the company and the statement of the profit and loss for all the years. The analysis have been done horizontally and simultaneously the areas which are prone to the financial risks have been identified and detailed as to how the same will affect the business of the company in near future years to come. Apart from the identification of the risks and the ways to mitigate the same, the detailed analysis of the capital structure of the company has been done along with the reference to the figures as stated in the financial statement of the company. Then the discussion has been made on the overall profitability of the company as to whether the company is in the profitable situation or is incurring the losses and whether the company has incorporated all the measures relating to the creation of adequate capital structure and profitability. The report has then ended up with the conclusion and the appropriate recommendation. The data for the report has been collected from the reliable sources and the necessary diagrams and charts are given as an appendix along with the separate excel sheet containing all the calculations.       
Details Of The Company
Out of the list, for the purpose of the report, the company – Hyatt Company has been chosen. The company name is Hyatt Hotels Corporation and it is the hospitality company which is multinational. The company has luxury hotels, luxury resorts and other vacation properties not only in Sydney but across the globe. The company is in operation for the last seventy plus years and has established the brand under which each passenger or the tourists want to enroll. Recently the company has received an award for one of the best employers in the year of 2018. In order to enhance the report the annual report of the company has been downloaded for the three years ending 2014, 2015 and 2016 and also for the year of 2013 wherever it is necessary as per the format given in excel.   
Horizontol Analysis Of Financial Ratios
Financial ratios are the tools which help in understanding the financial position and the financial health of the company in the better and best manner. It is because these ratios not only considers the value of the assets, liabilities, sales and profits in broader manner but also takes into account the detailed figures like sales, debtors, creditors and so on (Harris, 2013). Further the necessary calculations for the movement in each of the figures of the financial statements on year on year basis has further enhanced the importance of the analysis of the financial statements of the company and thus, the analysis have been done in clear manner with the figures mentioned in the excel worksheet.
Following financial ratios have been calculated and the analysis thereon has been mentioned below:
Liquidity Ratios – These ratios helps in assessing the ability of the company to convert the assets into the cash in the short term period. The three ratios have been calculated and have been detailed below:

Current Ratio – It is calculated by dividing the current assets by the current liabilities of the company as on date.  The company has been able to achieve the ratio of 2.34 in the year of 2013, 1.02 in the year of 2014 and 1.23 in the year of 2015. As per the industry norms, the current ratio shall not be lower than the 1.32 and if it is lower than that it will be considered as the short term insolvent situation  for the company and the same have been interpreted from the above ratios (Legohérel, Poutier & Fyall, 2013).
Quick Ratio – It is calculated by dividing the quick or liquidassets by the current liabilities of the company as on date. These assets are the current assets but excluding the prepaid expenses. It again has been deteriorating which ensures that the company is surely in the situation of the short term insolvency which may pose the bigger threat to the working of the operations of the company.
Accounts Receivable Turnover – Since the ratio has been decreased from 1.20 in the year ending 2015 to 0.41 in the year of 2016, it can be interpreted that the company is not good in the cash collection from the customers.

The liquidity ratios have brought the negative image of the company towards the shareholders as well as other stakeholders of the company.
Solvency Ratios – These ratios helps in assessing the solvency of the company as to whether the company is solvent as per the current financial data or has come under the situation it will be declared as insolvent. Following three ratios have been detailed:

Debt to Equity Ratio – It helps in finding the relationship between the debts which has been used to finance the assets of the company and that too in relation to the equity capital of the company. Higher debt ratio carries the high amount of debt which in turn will carry the high amount of the risk (Tranter, Stuart-Hill, & Parker, 2008). The debt ratio has been increased considerably from 2013 to 2015 which carries the equivalent increase in the amount of the interest expense and thus there is presence of the insolvency risk.  
Interest Cover – It ensures as to how much interest expense shall be covered by the net profits earned by the company. It has been in approximately the equivalent percentage for last three years and thus it is interpreted that the interest coverage is at par with the requirement of the company.
Total Liabilities / Total Assets – The higher the ratio there will be lesser chances that the company will be in the situation of the insolvency. This ratio has been increasing from 43.1% in the year of 2013 to 49.6% in the year of 2015. It interprets that the company is in the position of the solvency.

Profitability Ratios – These ratios helps in understanding the financial performance of the company as to whether the company is in profitable situation or in the loss situation. These are detailed below:

Net Margin – It denotes the relation of the net profit of the company with the sales. The higher the net margin, higher will be the probability of profit in the company and otherwise lower will be profitability of the company. The net margin has been decreased from 4.95% in the year of 2013 to 2.87% in the year of 2015 which denotes that the company is neither in the situation of loss nor in the situation of the profitability.
ROA – It is defined as the Return on Assets and details about the effective utilization of the assets for the generation of the revenue. It has also been decreased from 2.5% in the year of 2013 to 1.6% in the year of 2015 which entails that the company’s asset is not generating the required revenue for the company (Hayes & Miller, 2011).
ROE – It is return which is achieved on the equity invested by the shareholders. Higher the return, higher will be the chances of attracting the potential stakeholders. As it has been decreased from 4% in the year of 2013 to 3% in the year of 2015, it is considered as negative for the company’s health.                  

Apart from the financial ratios analysis, the horizontal movement has also been done in the excel sheet which has detailed the following:

30% decrease in the cash and cash equivalents for the period 2014-16.
11% increase in the accounts receivable for the period 2014-16.
44% decrease in the investments for the period 2014-16.

The above interpretation lay down that the company shall improve its policies and procedures to ensure the timely and effective correction of the deficiencies.
Analysis Of Financial Risk
One of the major financial risk that the company has been facing is the lack of assets that can be readily convertible into cash as envisaged by the current and quick ratio of the company and the other risk is from the decrease in the net profit margin with the considerable percentage which further states that the company is neither managing its funds nor managing its operations across the organization (Shy, 2008). Thus, this risk shall be mitigated or reduced so as to ensure the smooth operations of the company.
Analysis Of Capital Structure
The company’s capital structure is not adequate with reference to the debt equity ratio as calculated in the sheet for the last three years. It is because the debt component in the company is much higher which in itself carries high amount of the risk along with the higher interest expense. On the other hand the net profit margin has been decreasing which will further affect the interest coverage limit of the net profit generated by the company. Therefore, the capital structure shall be adequate with reference to the benchmarks of the industry and the operations of the company.   
Analysis Of Profitability
The profitability of the company shall be good so as to attract the new and potential investors. But as per the current financial statements of the company and the analysis that has been currently made details that the company is not in a position to generate the higher profits and instead has been deteriorating from the earlier year benchmarks which will be the alarming situation for the company in the future years to come (Sodhi & Sodhi, 2008)
Conclusion And Recommendation
The company – Hyatt Company has been selected for the purpose of the report and the financial data for the immediate three years have been considered for whole of the report and the necessary calculations have been done which includes the horizontal movements across the three different years and the financial ratios. These calculations have been the basis of the analysis that has been done in the report. The financial risk that the company is currently facing is the decrease in the cash and cash equivalents and decrease in the Net profit margin with increase in the level of the accounts receivable. Along with risk the capital structure and the profitability of the company has been detailed. To conclude the report, the analysis has been done in very detailed manner.
It is recommended for all the companies to have the regular monitoring of the performance of the operations of their company. It may be related to the sales or purchase or any other operation. It will help in rectifying the deficiencies in future which otherwise will be detrimental to the health of the organization.   
Harris, P. (2013). Profit planning: for hospitality and tourism, Oxford, UK: Goodfellow Publishers.
Hayes, D. K., & Miller, A. A. (2011). Revenue management for the hospitality industry. Hoboken, NJ: John Wiley.
Legohérel, P., Poutier, E. &Fyall, A. (Eds).(2013).Revenue management for hospitality and tourism.Woodeaton, Oxford: Goodfellow Publishers.
Shy, O. (2008). How to price: a guide to pricing techniques and yield management. New York, NY: Cambridge University Press.
Sodhi, M., &Sodhi, N. (2008).Six sigma pricing: improving pricing operations to increase profits. Upper Saddle River, NJ: Financial Times Press.
Tranter, K. A., Stuart-Hill, T., & Parker, J. (2008).An introduction to revenue management for the hospitality industry: principles and practices for the real world. Upper Saddle River, NJ: Pearson Prentice Hall.

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