Managerial Finance

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Business Finance

Managerial Finance

Dublin institute of technology

Description

  • Discuss the factors that must be taken into account when providing a context for analysing the financial performance of a business.
  • The following are extracts from the 2019 published financial statements of City-Hotels Group Plc., an international hotel and leisure company.
  • Required:
    (a) Calculate, for each year, 18 ratios under the headings of profitability, Use of assets, capital structure, liquidity and investment
    (b) Based on (a), comment on the company's performance and position over the two years
    (c) Apply the Taffler & Tisshaw model of business failure prediction and calculate a z-score for the business for both 2019 and 2018
    (d) Comment on your answers to (c)
    (e) Accounting statements are often accused of presenting a limited picture of a business. In the context of this statement discuss the limitations of ratio analysis.

City-Hotel Group Plc.

Consolidated Income Statement for year ended 31 December 2019

2019

2018

€'000

€'000

Revenue

112,200

93,400

Cost of sales

(51,300)

(44,700)

Gross profit

60,900

48,700

Selling and administrative expenses

(25,400)

(21,500)

Depreciation and amortisation

(6,400)

(5,600)

Operating profit

29,100

21,600

Loan interest

(8,400)

(5,400)

Profit before tax

20,700

16,200

Corporation tax

(2,500)

(1,800)

Profit for the year

18,200

14,400

Dividends paid

(7,600)

(5,400)

City-Hotels Group Plc.

Consolidated Balance Sheet at 31 December 2019

2019

2018

€'000

€'000

ASSETS

Non-current assets

Property, plant & equipment (net book value)

301,300

240,600

Intangible assets

17,500

10,400

318,800

251,000

Current assets

Inventories

2,900

2,400

Accounts receivable

5,600

4,900

Prepayments

4,400

4,100

Cash and Bank

9,800

7,800

22,700

19,200

Total assets

341,500

270,200

EQUITY

Issued share capital (note 1)

7,200

6,500

Share premium

39,100

17,700

Revaluation reserve

84,500

84,500

Other reserves

2,600

2,200

Retained earnings

47,500

36,900

180,900

147,800

LIABILITIES

Non-current liabilities

Loans and borrowings

130,900

96,700

Current liabilities

Trade payables

5,700

4,400

Accrued expenses

9,200

8,900

Bank overdrafts

2,700

2,600

Short term loans and borrowings

10,700

8,700

Corporation tax liabilities

1,400

1,100

29,700

25,700

Total Liabilities

160,600

122,400

Total equity and liabilities

341,500

270,200

Additional Information, note 1:

Nominal (par) value per share in €cent

25

c

25

c

Market price / share, year-end, €cents

930

c

750

c


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a) Discuss the factors that must be taken into account when providing a context for analysing the financial performance of a business. (15 marks) b) The following are extracts from the 2019 published financial statements of City-Hotels Group Plc., an international hotel and leisure company. City-Hotel Group Plc. Consolidated Income Statement for year ended 31 December 2019 2019 2018 €'000 €'000 Revenue 112,200 93,400 Cost of sales (51,300) (44,700) Gross profit Selling and administrative expenses 60,900 48,700 (25,400) (21,500) Depreciation and amortisation (6,400) (5,600) Operating profit 29,100 21,600 Loan interest (8,400) (5,400) Profit before tax 20,700 16,200 Corporation tax Profit for the year (2,500) (1,800) 18,200 14,400 Dividends paid (7,600) (5,400) City-Hotels Group Plc. Consolidated Balance Sheet at 31 December 2019 2019 2018 €'000 €'000 301,300 240,600 17,500 10,400 318,800 251,000 Inventories 2,900 2,400 Accounts receivable 5,600 4,900 Prepayments 4,400 4,100 Cash and Bank 9,800 7,800 22,700 19,200 341,500 270,200 ASSETS Non-current assets Property, plant & equipment (net book value) Intangible assets Current assets Total assets EQUITY Issued share capital (note 1) 7,200 6,500 Share premium 39,100 17,700 Revaluation reserve 84,500 84,500 2,600 2,200 Other reserves Retained earnings 47,500 36,900 180,900 147,800 130,900 96,700 Trade payables 5,700 4,400 Accrued expenses 9,200 8,900 LIABILITIES Non-current liabilities Loans and borrowings Current liabilities Bank overdrafts 2,700 2,600 10,700 8,700 1,400 1,100 29,700 25,700 Total Liabilities 160,600 122,400 Total equity and liabilities 341,500 270,200 Short term loans and borrowings Corporation tax liabilities Additional Information, note 1: Nominal (par) value per share in €cent 25 c 25 c Market price / share, year-end, €cents 930 c 750 c Required: (a) Calculate, for each year, 18 ratios under the headings of profitability, Use of assets, capital structure, liquidity and investment (60 marks) (b) (c) (d) (b) Based on (a), comment on the company's performance and position over the two years (70 marks) (c) Apply the Taffler & Tisshaw model of business failure prediction and calculate a z-score for the business for both 2019 and 2018 (20 marks) (d) Comment on your answers to (c) (10 marks) (e) Accounting statements are often accused of presenting a limited picture of a business. In the context of this statement discuss the limitations of ratio analysis. (25 marks)
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Explanation & Answer

Attached.

1

Financial Ratios
Student’s Name
Institution / Affiliation
Date of Submission

FINANCIAL RATIOS

2
Financial Ratios
Question a.

One of the issues to consider when carrying financial analysis performance of a firm is
the various matrices such as the profitability, the growth in sales revenues and the ability to
efficiently utilize its assets in increasing the shareholders equity. The management structure and
how it relates to other stakeholders such as creditors suppliers and the shareholders also helps in
the depiction of the performance of a business. In many cases, the role of regulators is to ensure
that these companies comply with the set regulations of the industry. The ability to adhere to
such business regulations are considered to be performance metrics which allow investors to
gauge how they firm would fair amidst various economic challenges. In understanding the strict
financial performance, a firm, financial ratio analysis is usually carried to know the profitability,
the liquidity, asset management, valuation of the stocks as well the understanding of the
operational efficiency within the firm.
Question b. (a)
1. Liquidity Ratios
The three sets of ratios for liquidity are the current ratio quick and cash ratios as
calculated in the table below.

Liquidity Ratio = Current Asset /Current Liability
Current Asset

Year

Quick Ratio = (Current Asset - inventory) / Current Liabilities

Current Liability

Year

Current Asset

Current Liability

Inventory

2018

19,200

25,700

2018

19,200

25,700

2,400

2019

22,700

29,700

2019

22,700

29,700

2,900

Cash ratio = Cash and equivalents /Current Liability
Year

Cash

Current Liability

2018

7,800.00

25,700.00

2019

9,800.00

29,700.00

FINANCIAL RATIOS

3

Liquidity Ratios
Current Ratio

2018
0.75

2019
0.76

Quick Ratio

0.65

0.67

Cash Ratio

0.30

0.33

2. Asset Management
Inventory Turnover = Sales Revenue / Inventory

Account Receivable = Sales Revenue / A/R
Year

Sales Revenue

A/R

Year

Sales Revenue

Inventory

2018

93,400.00

4,900

2018

93,400

2,400

2019

112,200.00

5,600

2019

112,200

2,900

Asset Turnover = Sales Revenue / Average Assets
Year

Sales Revenue

Average Assets

2018

93,400

135,100

2019

112,200

170,750

Asset Management Ratios
Account Receivable Turnover
19.06

20.04

Inventory Turnover Measure

38.92

38.69

Asset Turnover

0.69

0.66

2018

2019

3. Profitability Ratios
Net Profit Margin = Net profit after taxes / Sales Revenue
Year

Net profit after taxes

Sales Revenue

2018

14,400

93,400

2019

18,200

112,200

Return on Assets = Net profit after taxes / Total assets
Year

Net profit after taxes

Total assets

2018

14,400

270,200

2019

18,200

341,500

Operating Margin = Operating profit / Sales Revenue
Year

Operating Profit

Gross profit margin = Gross profit/total sales

Sales Revenue

Year

Gross profit

Total Sales

2018

21600

93,400

2018

48700

270200

2019

29,100

112,200

2019

60,900

341500

P/E = Price of common stock / EPS

p/b Ratio = Stock's market price / book price

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