Business Finance: A Case Study Of Marriot Inn Ltd Sample

Business Finance: A Case Study Of Marriot Inn Ltd Assignment

1. A. Introduction: Defining financial information and overview of the aims and objectives of the case study

Financial information is the data about the monetary transactions of a business. Briefly said the financial activities and even the business performance is financial information (Rokhayati et al. 2019). This study is about the fundamentals of Marriott Inn and its business finance data calculating its financial performance and liquidity. The aim of this report is to provide an extensive performance evaluation by taking into consideration its financial performance by calculating its ratios and capabilities and assisting them into the future growth of the company. This report will also advise Pauline Marriot, the director of Marriot Inn, on the financial information analysis based on the preceding three years’ financial information. The balance sheets and financial statements will be used to calculate the ratios and financial performance and this will guide the company in overcoming its obstacles to further growth and a better market position in the hospitality industry.

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B. Explaining the purpose of financial information

Financial information is the pieces of information that are mostly the data about the monetary transactions of a company for a certain period. The financial information is related to all the activities of finance and the performances of that certain company (Hasan, 2021). The financial information is collected generally from the financial statements and balance sheets. Financial performance helps in calculating and measuring a company's profitability and cash flows (Günay and Fatih, 2020). The usage of financial information is majorly concerned with the aspects of measuring a company's performance. This helps in understanding the required position of a company at a specific time and place. The financial information also helps in analysing the company's financial position, cash flows and others (Gardi et al. 2021). The adequate use of financial information helps an analyst of finance in calculating a company’s financial position in the industry and also helps the reader of the financial information to comprehend a brief implication on the better good of the company and see if the allocated resources are conducting profitable outcomes or not.

The financial information takes into consideration each minor and major detail of the company’s financial information to better evaluate a company’s position in the market (Taliento et al. 2019). These aspects support in reflecting an adequate picture of the company’s financial data to make an understandable statement and provide insights to take people's actions at stages. As per a research by Napier and Stadler (2020), the accounting changes in a company’s financial data have a real effect on all the entities of accounting and can have a consequence of accounting change. An equitable distribution of the resources of a company alters the growth of a company in the short term and long term (Borodin et al. 2019). These financial data are thus used to calculate the liquidity profitability, long term and short-term obligation of a company.

The aim of this report is to present a thorough financial state of Marriot Inn by analysing its financial statements, balance sheets and cash flows. The application of these financial data is to be used and allocated. Based on this information, the management will take legitimate decisions for the future growth of the company

The characteristic of a good financial statement are as follows:

• Relevance: The financial information that is used in the critical analysis is relevant as these are used in decision-making for the company. The relevance of the financial data helps in the effective evaluation of the company’s data for a specific period of time (Krizanova et al. 2019). For instance, the financial data about Marriot Inn will help with its effective evaluation of the company’s financial structure.
• Comprehensive: The financial information is the crucial factors of a company that must be understood by the financial analyst in order to suggest effective recommendations. In this scenario, the critical data derived from Marriot Inn will help the company to understand its financial position and obtain a clear understanding of its financial data.
• Comparability: The financial advisors of the company must be able to provide comparable financial information about Marriot Inn in order to make a judgement on the decision-making on the better option. For instance, it will allow the company to analyse the last three years’ data and find out the most profitable strategy applied in a year. It is crucial for the company to make informed decisions based on “key accounting policies” to facilitate improvement measures.
• Reliability: The financial data used in the decision-making and understanding the financial position of the company needs to be reliable in order to make legitimate and profitable decisions for the company (Gardi et al. 2021). In addition, that will require flawless and accurate data to avoid further financial loss.

2. A. Calculating ratios for Marriott Inns Ltd

Ratios are typically calculated by considering different financial variables of an industry in order to identify different aspects of a company. Calculation of ratios are a major part of calculating a company's financial position and provide greater insight on profitability, liquidity, efficiency and other aspects (Güleç and Bekta?, 2019). In this case, the profitability and liquidity of the companies will be analysed using the financial information received from the cash flows, financial statements and balance sheets. The Marriot Inn has provided some valuable financial information consisting of its last three years’ financial data. This data will be used to calculate a total number of 11 ratios, which will describe the financial position of the Marriot Inn, accumulate outcomes, and help the director and management of Marriott to make informed decisions. The figures will depict in billion-pound currency. From the financial information received from Marriot Inn, it was found that the total assets of the company for the last three years were 4.9, 2.58 and 3.39 billion in 2019, 2020 and 2021 respectively. Similarly, it was also found that the current assets were 2.31, 3.2 and 4.21 for the preceding years and the current liabilities were 2.39, 3.36 and 2.8 billion. These were used to calculate the current ratio of the company and it was found by dividing the current assets by current liabilities. The current ratio for the last three years of Marriot Inn was 0.97, 0.95 and 1.50. Similarly, the quick ratio was also calculated by subtracting the inventory from current assets for the last three years which were found to be 0.49, 0.55 and 0.6 billion respectively. The decisive test ratio or quick ratio measured to be after the calculation is 1.40, 0.41 and 0.89.

The ROCE or “return on capital employed” was calculated by multiplying the operating profit by 100 and then dividing it with capital employed. The ratios were calculated to be 12.15%, 14.85% and 16.48% respectively. The asset turnover ratio was also calculated by dividing the net sales and average total assets of Marriot Inn for 2019, 2020 and 2021. The net sales of the period were 5.32, 2.36 and 5.94 billion and the average assets were 4.98, 3.74 and 2.985 billion. The asset turnover ratio was measured to be 1.07, 0.63 and 1.99. The “Net profit margin” for the period was 6.77%, 5.08% and 6.57%. This ratio was calculated by dividing the net income for the period (0.36, 0.12 and 0.39) by net sales (5.32, 2.36 and 5.94) and multiplying it by 100.

Similarly, the debtor’s collection period was calculated by dividing the average receivables and dividing with the net sales of the period and then multiplying it by the number of days in a year. The collection period for the 2019, 2020 and 2021 were 69.30, 125.28 and 53.15 times. The gearing ratio is also an important ratio needed to be calculated for Marriott Inn by dividing the total debt of the company by the total equity. The ratios were calculated to be 3.68, 3.20 and 1.67. The labour cost percentage of the company organisation was 7.35%, 4.72% and 14.85%. The operating costs as the sales percentage were also calculated by dividing the operating costs by total sales. The operating costs for the period were 3.57, 4.36 and 5.96 billion pounds. In addition, the total sales were 4.96, 5.3 and 6.6 billion pounds. Hence, the operating costs as a percentage of sales were 72.86%, 82.26% and 90.30%. In order to compare with its budgetary targets, other two calculations also needed to be made. Room maintenance cost as a percentage of sales was 7.35%, 3.96% and 10.15%. The administrative costs as a percentage of sales were 4.29%, 6.79% and 12.73%.

B. Detailed report on the company's performance

Figure: 1 A detailed financial ratio measurement for “Marriott Inns Ltd”

(Source: Self-developed)

From the above section of ratio calculation in order to measure the performance and evaluate it, much financial information was derived and helped this analysis to guide in making informed decisions. The same ratios that are calculated are presented in the above-mentioned figure in detailed format for better understanding. This company's performance will help the management of the company to make informed decisions. The industry average of hospitality in terms of “return on capital employed” is 15%. In addition, the ROCE of the Marriot Inn is for 2021 were 16.48%, which is a good remark. The value of “Net profit margin” for the year 2021 was 6.57%. In addition, the industry average in terms of NPM is 12% on an average (Nariswari and Nugraha, 2020). This indicates that the industry is making a significantly less amount of “net profit margin” and needs to identify its flaws immediately to identify and resolve the reason for this significant decrease.

The cost of operation is also calculated for the period and it is found to be high which is an indication of operating loss which is a negative factor in the profitability of the “Marriot Inn''. The High operational cost is also an indication of flaws in the company’s operational structure (Zhu et al. 2020). The turnover from the assets of “Marriot Inn” is higher than the industry average, which is 0.25 to 0.5 internationally. The “asset turnover ratio” of “Marriot Inn '' in 2021 was 1.99 as found from the above calculations. However, the operating cost of the company signifies that the operational cost structure of the company is not effective and needs to be restructured (Agrawal, 2021). In addition, the “Cost-effectiveness strategy” of “Marriott Inn ''. The company is suggested to reduce its operations costs and a strategy needs to be implemented to effectively boost its profits. The current ratio of the company has been found to be 1.50:1 and the quick ratio of the company was 0.89:1 in 2021. These financial data from the calculations indicate that the company is having enough assets to gain more profitability.

Conclusion

In conclusion, this report is on the fundamental understanding of the company’s liquidity and profitability based on financial information. These figures have helped in the understanding of the company’s financial capabilities. Based on its financial data and calculations, it can be stated that the company is in a profitable position. However, the cost structure of the company is highly cost-effective and needs to be restructured. The characteristics of the financial information are also needed to be considered while making an effective strategy to deal with the situation.

References:

Journals:

Agrawal, A., 2021. Sustainability of airlines in India with Covid-19: Challenges ahead and possible way-outs. Journal of Revenue and Pricing Management, 20(4), pp.457-472.

Borodin, A., Shash, N., Panaedova, G., Frumina, S., Kairbekuly, A. and Mityushina, I., 2019. The impact of the publication of non-financial statements on the financial performance of companies with the identification of intersectoral features. Entrepreneurship and sustainability issues, 7(2), p.1666.

Gardi, B., Abdalla Hamza, P., Sabir, B.Y., Mahmood Aziz, H., Sorguli, S., Abdullah, N.N. and Al-Kake, F., 2021. Investigating the effects of financial accounting reports on managerial decision making in small and medium-sized enterprises. Bawan Yassin and Mahmood Aziz, Hassan and Sorguli, Sarhang and Abdullah, NabazNawzad and Al-Kake, farhad, Investigating the Effects of Financial Accounting Reports on Managerial Decision Making in Small and Medium-sized Enterprises (April 28, 2021).

Güleç, Ö.F. and Bekta?, T., 2019. Cash flow ratio analysis: The case of Turkey. MuhasebeveFinansmanDergisi.

Günay, F. and Fatih, E.C.E.R., 2020. Cash flow based financial performance of Borsa ?stanbul tourism companies by Entropy-MAIRCA integrated model. Journal of multidisciplinary academic tourism, 5(1), pp.29-37.

Hasan, B.M., 2021. Activities of Finance Department of Sheba Platform Ltd (Doctoral dissertation, Sonargaon University (SU)).

Krizanova, A., L?z?roiu, G., Gajanova, L., Kliestikova, J., Nadanyiova, M. and Moravcikova, D., 2019. The effectiveness of marketing communication and importance of its evaluation in an online environment. Sustainability, 11(24), p.7016.

Napier, C.J. and Stadler, C., 2020. The real effects of a new accounting standard: the case of IFRS 15 Revenue from Contracts with Customers. Accounting and Business Research, 50(5), pp.474-503.

Nariswari, T.N. and Nugraha, N.M., 2020. Profit growth: impact of net profit margin, gross profit margin and total assests turnover. International Journal of Finance & Banking Studies (2147-4486), 9(4), pp.87-96.

Rokhayati, H., Nahartyo, E. and Haryono, H., 2019. Effect of financial information and corporate social responsibility disclosure on investment decision: Evidence from an experimental study. Asian Journal of Business and Accounting, 12(1), pp.129-164.

Taliento, M., Favino, C. and Netti, A., 2019. Impact of environmental, social, and governance information on economic performance: Evidence of a corporate ‘sustainability advantage’from Europe. Sustainability, 11(6), p.1738.

Zhu, G., Chou, M.C. and Tsai, C.W., 2020. Lessons learned from the COVID-19 pandemic exposing the shortcomings of current supply chain operations: A long-term prescriptive offering. Sustainability, 12(14), p.5858.

Website:

Marriott, 2021, 2021 ANNUAL REPORT. Accessed on 23/05/2023, Accessed from: https://marriott.gcs-web.com/static-files/33ba0a19-8a68-4f3f-9f73-fef2c458c22e