Crystal Hotel Pty Ltd

Accommodation and Services

Vertical analysis which is also known as the common size analysis is a widespread method of financial analysis which shows every line of item on the financial statement as the percentage of base figure in the statement (Deegan, 2013). While conducting vertical analysis of profit and loss statement sales obtained from revenue is considered as the base figure. Apart from this, the total assets and liabilities from the balance sheet is considered as the base amount for deriving the percentage of each line of items in the financial report. The current report is based on the analysis of financial performance of Crystal Hotel. A vertical analysis and ratio analysis is showed for Crystal Hotel and a comparative analysis with the industry average is carried out to understand the performance for the given period. 

The vertical analysis is useful in reflecting the relative size of the different accounts on the financial statement (Carlon et al., 2015). As evident the revenue derived by Crystal Hotel stands 61.88% while the industry standard stood 57%. Therefore, it can be interpreted that the company has reported greater than the industry standard of 57%. Crystal Hotel has maintained the efficiency of its occupancy and has generated sales revenue greater than the industry average (Macve, 2015). The tabular representation of the vertical analysis provides that Crystal Hotel generates revenue from the Halls with other operating segment of Hotel contributing 8.83% to its revenue as well. 

The overall sum of cost of sales that is reported by Crystal hotel is 27.59% which is greater than the industry standard for the financial year of 2015. This provides an indication that the internal control of Crystal Hotel is not been able to curb down the unnecessary costs and business requires effective application of steps or procedures that would help in reduction of costs (Hoyle et al., 2015). The application of appropriate steps would help in improving the business revenue as well. 

Apart from the costs of sales, Crystal Hotel have reported other business expenses such as personal cost. The personal costs comprise of room expenditure and Food and Beverage expenditure that stands 7.60% and 7.08% for the financial year of 2015. The analysis provides that the figures are less than the industry standards and an interpretation can be bought forward by stating the business has efficient in reducing the personal expenditure that ultimately helps in lowering the overall business cost (Elliott, 2017). 

The percent of total personal costs calculated stands 25.38% which is less than the average industry standards. On the other hand, the overall amount of operational costs for Crystal hotel is operational costs stands 18.31% which is greater than industry standard of 16%. The unallocated sum of operational costs requires an improvement based on the comparative analysis of industry average (Hoskin et al., 2014). The total sum of business costs stands close in proximity with the industry standards of 68% however, the business needs to take up the corrective measures of improving the functional performance and simultaneously improving the profitability as well. 

Challenges and Solutions

Taking into the consideration the vertical analysis carried out above there are certain areas of business that requires corrective actions. The corrective areas are highlighted below for the management of Crystal Hotel so that they can begin action to enhance the overall effectiveness of the business; 

a.The management of Crystal Hotel is required to undertake aggressive promotional activities as this would help in promoting greater level of revenue through its occupancy, Hall and other operational areas (Nobes, 2014). This would enable Crystal Hotel to compete with the other hotels that are operating in the industry. 

b.The analysis evidently provides that business has experienced higher operational costs therefore effective measures should be initiated in the areas of room occupancy, food and beverage (Uechi et al., 2015). The overall reduction in the operational costs would help the business in increasing the sales revenue that would ultimately increase the profitability for Crystal Hotel. 

c.Crystal Hotel has reported higher amount of unallocated costs and personal costs that is associated to its social security that requires improvement as this ultimately pushes the total costs in upward direction. Improving the personal cost and operational efficiency in this area would eventually help in reducing the overall operational costs and the profitability of business would also improve simultaneously.

The figures obtained from the above stated ratio analysis provides that gross margin for Crystal Stands 72.41% whereas the industry standard for gross profit margin stands 81%. The reported gross profit margin for Crystal Hotel is less than the industry which is mainly because of its higher operational costs incurred by the business. More significantly there are other industry players that have reported greater gross profit than the Crystal Hotel which signifies that they have improved functional operations than Crystal Hotel. 

The net profit for Crystal Hotel stands 19.53% and an interpretation can be forwarded in this regard that the net profit for the company is greater than the industry average and the business has effectively managed to produce sufficient level of profit from its fair market share (Miller-Nobles et al., 2016). The return on assets and equity for Crystal Hotel stands 21.23% and 28.84% respectively. Whereas the industry standard figure stands 8% and 9% for return on assets and equity. The figures derived from the return on assets provides the capital intensity of Crystal Hotel and it can be interpreted that company generates greater return from its assets. 

Efficiency ratios measure signifies the ability of the company to use its assets and administer the liabilities effectively. Some efficiency ratios include, the inventory turnover ratio and receivable turnover (Maheshwari, 2015). As evident from the above stated ratio the inventory turnover ratio for the company stands 24.81 for the year 2015 while the industry average stands 8.60. An interpretation can be bought forward by stating that business is has been effective in handling the inventory of its hotel business. 

An important consideration in this regard is that the business follows the aggressive sales policy and provides greater amount of discount for its customer. Additionally, the company provides its customer with credit sales facilities and also reflects its business follows an extended credit policy (Bragg, 2016). As evident from the above stated table it can be stated that Crystal Hotel follows the long term credit policy whereas the industry standards for credit policy stands 35 days. An interpretation can be followed by stating that Crystal Hotel believes in strengthening the customer relationship and the credit policies are in the direction of attracting more customers so that Crystal Hotel can gain business wider market share. 

The liquidity ratio is defined as the ratio between the liquid assets and liquid liabilities of bank or other financial institutions. The current ratio of Crystal Hotel stands 1.86 while the industry averages 3.20. The current ratio despite being lower than the industry standard of 3 the company has the ability of paying out its debt within the span of one financial year out of its current assets (Scarborough, 2016). Crystal Hotel has reported 1.86 and the company can meet its short term liabilities with no such problems of liquidity in future stages as well. However, to remain competitive with the other industry players, Crystal Hotel is required to improve its liquidity as this will help the business in maintaining its competitive strategy within the industry. 
The debt to equity ratio is regarded as one of the financial ratio that helps in indicating that the relative proportion of the shareholder’s equity and the amount of debt that is used to finance the assets of the company. The debt to equity ratio represents the structure of capital for the business and whether Crystal has maintained sufficient capital structure. An important suggestion can be bought forward by stating that more stabilized debt capital has been maintained by the business (Nobes, 2014). Additionally, the equity ratio of Crystal Hotel represents 73.63% and the company has maintained sufficient equity capital structure to generate profits.

The other industry specific benchmark that can be used by Crystal Hotel for measuring the performance of the business is in comparison with other business operation in the industry is given below; 

I.The market valuation of Crystal Hotel is regarded as the vital parameter of measuring business success and conclusively provides an understanding that the hotel has sufficient market share. The basis of market helps in providing an understanding of investors decision in making an investment in the Hotel business or not.

 
II.The consumer feedback plays an important role in reflecting the business reputation in the market. There are several instances where the consumer feedback plays a crucial role and the Crystal Hotel has offered sufficient quality service to its customers. 

III.To judge the business on the non-financial parameters is the consumer satisfaction and feedback. In numerous cases the customer review of Hotel forms the basis of consumer attraction and those feedbacks can be used as the benchmark for Crystal Hotel. 

References: 

Bragg, S. M. (2016). Cost accounting fundamentals. Colorado, CO: AccountingTools, Incorporation.
Carlon, S., McAlpine-Mladenovic, R., Palm, C., Mitrione, L., Kirk, N. & Wong, L., (2015). Financial accounting: Reporting, analysis and decision making. John Wiley and Sons Australia.
Deegan, C., (2013). Financial accounting theory. McGraw-Hill Education Australia.
Elliott, B., (2017). Financial Accounting & Reporting 18th Edition. Pearson Higher Ed.
Hoskin, R.E., Fizzell, M.R. & Cherry, D.C., (2014). Financial Accounting: a user perspective. Wiley Global Education.
Hoyle, J.B., Schaefer, T. & Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Macve, R., (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
Maheshwari, S. (2015). Fundamentals of Accounting.
Miller-Nobles, T. L., Mattison, B., & Matsumura, E. M. (2016). Horngren’s Financial & Managerial Accounting: The Managerial Chapters. Pearson.
Nobes, C. (2014). International classification of financial reporting. Routledge.
Scarborough, N. M. (2016). Essentials of entrepreneurship and small business management. Pearson.
Uechi, L., Akutsu, T., Stanley, H. E., Marcus, A. J., & Kenett, D. Y. (2015). Sector dominance ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421, 488-509.