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Income Statement Analysis

Question:

Discuss about the Accounting Financial Analysis Report for Income Statement.

Accounting financial analysis is a procedure of business which is done by the professionals to identify and evaluate the performance and the position of the company. It briefs about the financial performance of the company and this process suggests the management of the company to make few changes into its financial strategies or the performance to enhance the position of the company (Higgins, 2012). Accounting financial analysis is a common process which is done by the all the companies and financial analyst to evaluate the performance of the company and make a better decision on the basis of that.

In the given case, crystal hotel private limited’s financial accounts have been evaluated. This company is operating its business in Sydney. The capacity and the revenue of the hotel have been evaluated and further the financial performance of the company has been identified which would assist the company to compare the performance with industry and make changes accordingly.

Income statement is one of the crucial final financial statements of an organization. It briefs about the total turnover, operating and non operating expenses, net profit, gross profit etc of the company. Income statement of crystal hotel private limited has been analyzed and it has been compared with the industry data to analyze the performance of the company (Titman and Martin, 2014). The income statement of the company briefs that the financial performance and the position of the company is quite competitive in the industry. The appendix table 1 briefs that the company should work on its total capacity. At this level, the company would be able to earn more profits. Further, it briefs that the current income statement of the company briefs about better position of the company.

According to the case, the room’s revenue of the company should be 51% which is quite higher than the industry benchmark. Further, the F&B revenue, halls revenue and other revenue of industry is 39%, 3% and 7% whereas the company revenue is 14.46%, 14.86% and 8.83%. It briefs that the level of room’s revenue and the functions are quite higher and it is required for the company to focus on food and beverages.

In addition, cost of sales of the company has been evaluated and compared with the industry benchmark. On the basis of analysis, it has been found that the total cost of sales % of industry is 19% in 2015 which is quite lesser than the company’s cost of sales. The company’s cost of sales is 27.59% which briefs that the gross profit level of the comapny is lower and it is required for the company to manage the production cost (Madhura, 2011).

Further, the personal cost, unallocated operating cost and total cost of the company has been evaluated. The total personnel cost of industry is 33% and the company’s cost is 25.38% which briefs about better position of the company. In addition, unallocated operating cost of the company is 18.31% which is 15% in industry benchmark. It explains that the expenses of the company are quite higher (Appendix 2).

Ratio Analysis

The total cost and the net profit level of the industry is 68% and 32% respectively whereas the net income level of the company is 19.53% (Brown, 2012). It briefs that the financial position of the company is not that much strong and it is important for the management of the company to enhance the level of the revenues in comparison of expenses so that the net profit level could be enhanced.

Ratio analysis is a financial analysis process which is conducted by the managers of the company and the financial analysts to evaluate the performance and the position of the company (Brooks, 2015). It briefs about the different positions of the company. Ratio analysis study of Crystal hotel briefs about the profitability level, solvency level, liquidity level and efficiency level of the company.

Profitability ratio of the company briefs the gross profit level, net profit level, return on assets and return on equity level of the company. Gross profit margin of the company is 72.41% which is lower from 81% (industry benchmark ratio). Further, the level of net profit margin is quite higher and on the other hand, the return on assets and return on equity ratio of the company is also higher than the industry benchmark ratio (Gibson, 2011). It explains that the financial profitability position of the company is quite better and thus the company should maintain the same level.

Solvency ratio of the company briefs the equity and debt position of the company to manage its capital structure and the cost and risk of the company. Debt to equity, debt ratio, equity ratio and interest coverage ratio has been evaluated. All these ratios brief the debt level of the company is quite lower from equity level and thus the cost of the company is quite lesser but on the other hand, risk level of the company is quite higher. It explains that the financial solvency position of the company is not good and it is suggested to the company to manage the optimal capital structure.

Liquidity ratio of the company briefs the position of the company to pay its short term current debt through current assets of the company. Current ratio and quick ratio of the company has been evaluated. Current ratio of the company is 1.86 which is lower from 3.2 (industry benchmark ratio). Further, the level of quick ratio is also lower than the industry ratio. It explains that the financial liquidity position of the company is not good and it is suggested to the company to enhance the level of current assets so that better liquidity position could be maintained (Brigham and Houston, 2012).

Efficiency ratio of the company briefs the position of the company to manage its long term debt as well as the working capital management. Inventory turnover ratio and accounts receivable turnover ratio of the company has been evaluated. Inventory turnover ratio of the company is 0.15 which is lower from 8.6 (industry benchmark ratio). Further, the level of accounts receivable collection period is quite higher than the industry ratio. It explains that the efficiency position of the company is not according to the industry so it is suggested to the company to manage the efficiency level.

Further, the industry’s performance has been compared with the company’s performance on the basis of various other benchmarks such as the total price of the rooms, employee’s turnover and credit policies of the company. The total price of the rooms has been evaluated firstly and it has been found that the average price per room of the company is $ 148 whereas the industry is charging different rates on the basis of hotel ratings and other facilities. The total profitability position of the company on the basis of total price per room is quite different to the industry ratio. It briefs the company is managing the cost and revenue at different level (Brigham and Ehrhardt, 2013).

Further, the employee turnover of the company has been evaluated and it has been recognized that the performance of the company is quite lower in terms of motivating and retaining the customers. The industry’s employee turnover level is quite lower than the company and thus it becomes important for the company to look over the issue and resolve it at serious level (Brigham and Daves, 2012). In addition, the credit policy of the company has also been evaluated and t has been found that various issues are faced by the company due to its credit policies which are required to be changed. So, the performance and the position of the company could be better.

These changes would assist the company to manage the better position in the industry as well as it would also assist the company to reduce the level of expenses and enhance the level of the cash inflows of the company. These changes would make the company more competitive.

Conclusion:

To conclude, crystal hotel private limited’s financial accounts are quite different to the final financial accounts of the industry. This company is using the different strategies to maintain the financial performance and the position. The capacity and the revenue of the hotel have been evaluated and further the financial performance of the company has been identified and it has been found that the financial performance of the company is required to be better in terms of solvency position and the liquidity position. Further, the company is also required to reduce the level of the undistributed operating cost and the personnel cost.

References:

Brigham, E. and Daves, P., 2012. Intermediate financial management. Nelson Education.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage Learning.

Brooks, R., 2015. Financial management: core concepts. Pearson.

Brown, R., 2012. Analysis of investments & management of portfolios. Pearson Higher Ed.

Gibson, C.H., 2011. Financial reporting and analysis. South-Western Cengage Learning.

Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Madura, J., 2011. International financial management. Cengage Learning.

Titman, S. and Martin, J.D., 2014. Valuation. Pearson Higher Ed.     
Cite This Work

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My Assignment Help. (2019). Financial Analysis Of Crystal Hotel Private Limited In Sydney - Essay.. Retrieved from https://myassignmenthelp.com/free-samples/accounting-financial-analysis-report-income-statement.

"Financial Analysis Of Crystal Hotel Private Limited In Sydney - Essay.." My Assignment Help, 2019, https://myassignmenthelp.com/free-samples/accounting-financial-analysis-report-income-statement.

My Assignment Help (2019) Financial Analysis Of Crystal Hotel Private Limited In Sydney - Essay. [Online]. Available from: https://myassignmenthelp.com/free-samples/accounting-financial-analysis-report-income-statement
[Accessed 18 July 2024].

My Assignment Help. 'Financial Analysis Of Crystal Hotel Private Limited In Sydney - Essay.' (My Assignment Help, 2019) <https://myassignmenthelp.com/free-samples/accounting-financial-analysis-report-income-statement> accessed 18 July 2024.

My Assignment Help. Financial Analysis Of Crystal Hotel Private Limited In Sydney - Essay. [Internet]. My Assignment Help. 2019 [cited 18 July 2024]. Available from: https://myassignmenthelp.com/free-samples/accounting-financial-analysis-report-income-statement.

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