Fundamentals of Business Finance Case Study Sample

Introduction OfAnalysis of Marriott Inns Ltd Financial

Financial information is an essential part of the business worldwide, serving as the lifeline of decision-making procedures among companies and stakeholders. It includes information on an organization's cash flows, financial position, and performance. Financial data is primarily used to promote informed decision-making, evaluate a company's financial health, and improve transparency and accountability (Gao, 2022). The reportwillanalyzethe financial performance of Marriot Inns Ltd. having an emphasis on assessing profitability and liquidity parameters. The purpose of the report is to compute these ratios and then contrast them with predetermined financial goals. The purpose of the report is to compare Marriot Ltd.financial results over a specified time period to industry averages. The ultimate objective of this report is to offer insightful information about the company's financial situation and its position relative to its competitors within the industry. Such an assessment will help in determining the business's advantages and any areas that may require attention, assisting in the making of well-informed decisions for long-term growth and sustainability.

Explaining the purpose and characteristics of good financial information

The purpose of financial information for Marriot Inns Ltd is enumerated below:

• Easy availability of credit: financial information helps us to avail credit from the market or outsiders as it acts as evidence showing companies' profitability in past and present scenarios. Loans are given after evaluating the information present in the financial statements which shows the company's profitability and solvency position.
• Gaining investors: financial information helps in gaining investors as it clarifies the per-share price of the company upon which they could decide whether to invest or not.
• Help in investing decisions: financial information helps the company to identify whether they have excess funds which could be used for investing or kept as retained earnings (Schroeder, Clark and Cathey, 2022).
• Provide a base for management decisions: financial information provides a base for the manager of the company to make various investment and dividend decisions. Managers analyze financial statements before making any decision.
• Help in operational decisions: Efficiency and effectiveness of business operations could be identified by evaluating the financial information and adjustments could be made based on that only.
• Assists in finding differences: financial information helps the manager in identifying deviations in the current and past year position of the company (Tettamanzi, Venturini and Murgolo, 2022). Past year information acts as a base from which current year data is compared.
• Help in identifying potential growth: Forecasting and preparing a budget can be done easily through this. Strength, weakness, profitability, liquidity and solvency position are identified through this information which makes forecasting easy.
• Creating trust among suppliers: financial information depicts the current liquidity and creditworthiness of the company which helps in gaining the trust of suppliers to the extent of credit.

Characteristics of good financial information

• Relevance: Financial information should be relevant to what a customer or potential investor is interested in. It should include information which a customer or investor used to decide whether to invest in a particular company or not. It should include data which could help in the decision-making process (Narayanaswamy, 2022). Information should depict both past position and future estimated growth of the company.
• Reliability: Information provided should not be affected by the biases of the manager. The information provided should be error-free and complete. There is no use of information which is not reliable and trustworthy (Qualities of Information, 2023). All material facts should be disclosed to make it more reliable and to gain the trust of interested parties.
• Understandability: While providing financial information it has been assumed that users have basic knowledge of accounting and finance. Thus, information should be in a form which could be easily understood by them. Easy understandability does not include avoiding the facts which are important but difficult to understand.
• Comparability: Financial information should be provided in a way by which easy comparison between sseveral periods of data could be done. Comparability of data will lead to trend analysis and will help in a better understanding of the finances of the company (Kimmel, Weygandt and Kieso, 2020). If the financial statement needs changes in accounting policies before comparison users should be made aware of the same.
• Verifiability: The financial information provided should have some verifiable documents available to gain the faith of the users.

Calculating ratios for Marriot Inns Ltd and comparing them with budgetary targets

Ratio analysis of Marriot Inn Ltd for the period of 2019, 2020 and 2021 is enumerated below:

(i) Return on capital employed

Return on capital employed is calculated to know how effectively and efficiently the fund has been utilized in the organization (Hassan and Marston, 2019). There is a decline in the ROCE in 2021 as compared to the year 2019 which means investments done by companies are not proving the profit that they should yield. To increase ROCE organizations should do proper research before investing so that it will end up generating more profit.

(ii) Asset turnover ratio

The asset turnover ratio indicates how efficiently companies' assets have been utilized in generating revenue (Tettamanzi, Venturini and Murgolo, 2022). A ratio above 1 is always considered to be good, in all 3 years ratio is above 1 which indicates that the company's assets have been optimistically utilized. In the year 2020, deduction in the ratio has been recorded because of the underutilization of fixed assets or slowing down of sales of the organization. In 2021 it is less than the average ratio of the industry it may be because of a poor inventory management system or issues with surplus production capacity. Management could take measures such as decreasing the assets of the company by selling it or focusing on an inventory management system.

(iii) Net profit margin

Net profit margins indicate how much net income has been generated after paying various expenses from the revenue. It indicates whether a company's operating costs and other expenses are under control or not (Narayanaswamy, 2022). There was an increase in net profit in the year 2020 because of effective control by management which led to a decrease in cost. In 2021 it has decreasing because of ineffective cost strategies or poor pricing strategies. Decreasing net profit shows the incapability of management in making their decision. Profit in the year 2021 is much less than the average of the industry so to increase net profit proper cost strategies need to be prepared. They need to increase the price of their product or focus on reducing costs by finding alternatives.

(iv) Current ratio

The current ratio indicates the ability of the firm's current asset to pay off all current liabilities (Velickovic, Stanojevic and Veselinovic, 2023). In all years, the company's assets are enough to pay liability but it is not the ideal ratio as after paying off it is left with little current assets only. In 2021 it is been found less in than average so to cope with this they need to reduce their expense and streamline the recovery time from their debtors.

(v) Acid test ratio

The acid test ratio measures the ability of the company to pay current liabilities through cash. It indicates company assets to be converted into cash in a short period of time (Kimmel, Weygandt and Kieso, 2020). In 2019 and 2020 the company's acid ratio was below 1 which is not an indicator as it does not have enough liquid assets to fulfill its obligations. In the year 2021, it is more than the average which means the company's liquidity position has been improving leading to gaining the trust of their creditors.

(vi) Debtors collection period

This ratio measures how many days cash has been recovered from debtors. This ratio has been increasing from year to year which is a negative sign for the organization as it hampers its liquidity position (Lubis, 2023). It is much higher than the industry average which means companies should take measures for fast recovery of their funds.

(vii) Gearing ratio

This ratio indicates how much company assets have been financed by debt (Hassan and Marston, 2019). This is decreasing over a year which indicates the company has fewer obligations on it. It is much less than the industry average indicating less

(viii) Labor cost as % of sales

This has been almost constant over a year which indicates management has been successful in keeping the cost constant (Maghfiroh, Asandimitra and Hartono, 2023). These ratios are more than the industry average. Management took measures such as reducing turnover or improving the efficiency of labor which could lead to reduced labor costs.

(ix) Operating cost as % of sales

This ratio indicates the percentage of sales which have been used to pay operating costs. This ratio decreased by 1% in 2020 but in 2021 it again increased which means there is an increase in operating costs which leads to a decrease in the profit of the organization. Proper planning and strategies should be implementing in the organization to control cost.

(x) Room maintenance cost as % of sales

This ratio indicates how much sales percentage has been invested in room maintenance. This has been kept constant which indicates effective planning and strategies of management (Kozhamzharova, et. al, 2022). This cost has been less than the average cost which indicates the efficiency of the management in controlling cost.

(xi) Administration cost as % of sales

This ratio measures how much total sales % has been incurred in fulfilling administration costs (Apasya, Machmuddah and Sumaryati, 2023). There has been no change in the past three years which indicates that the company has effective planning for administration cost. In 2021 it have been less than the average ratios which means company have not have invested much on cost and cost been kept under controlled.

Drafting a detailed report on the company's performance in terms of profitability and liquidity as compared with the industry average

To,

Higher Management, Marriot Inn Ltd

Date: 26th September, 2023

Respected sir,

By doing ratio analysis, it has been identified that companies' profitability positions have decreased in the year 2021. There is an increase in operating and labor costs of the firms leading to a decrease in net profit margin and return to capital employed. There is no change in administrative and room maintenance cost which means no measures have to be taken to reduce them. An increase in expenses and ineffective planning led to a decrease in profit over the years (Jiang, 2023). The company should take various measures to boost up profit of the firm. The Financial manager should prepare a new budget for the company. Budgetary control measures should be undertaken; standards should be set well in advance according to which employees need to work. Proper controlling mechanisms need to be followed in a short period of time which will help us identify deviations and corrective measures that could be applied for them.

The gearing ratio depicts the solvency position of the organization. The company's solvency position is good as the ratio keeps on declining over a period of time. It was 4.42 in year 2019, 2.43 in 2020 and 1.75 in 2021. This means the company has less financial risk as the company assets are mainly financed by equity which means in the long term company is not going to face a major obligation to face on. To improve the solvency position we could focus on improving debtor management as we are not recovering company funds on a regular basis (Radivojevi?, Dimovski and Miti?, 2023). The time between the sales and money recording has been increasing over a period of time. Solvency position would be improved by focusing on ways of increasing the profit of the company and decreasing the operational cost of firms.

The liquidity position of the company, in the long run, is sound as it has current assets available to finance all current liabilities. The company could fulfill all its obligations by selling off its current assets. The quick asset ratio was not impressive till last year but this year it has moved to 1.07 from 0.95 in the previous year which shows an improvement in the liquidity position of the organization. There is an increase in the time period of the debtor collection ratio which acts as a negative factor in the liquidity of the organization (Rice, et. al, 2023). Funds are staying for a long time with our debtors hampering the liquidity position of the organization. Cash requirements for a short period are affected by this. It has increased from 84 days in 2019 to 90 days in 2020 and 102 days in year 2021. Liquidity position could be increased by increasing the revenue of the company which could be done by controlling overhead expenses. We can reduce investment in surplus business equipment and focus on keeping cash for fulfilling working capital requirements.

Get Extra 10% OFF on your WhatsApp order!

use my discount

On comparing the ratios of our company with the industry average it has been identified that the return on capital employed is 4% less. The industry average is 26% whereas ours is 22% only which means our funds are not utilized in the way they should be. Our net profit margin is 8% only as compared to 14% in the industry average which means our expenses need to be reduced and profit needs to increase to cope with our competitors. Our company is behind in collecting funds from the debtors as the average industry ratio is 83 days whereas it is 102 days of organization which is declining our liquidity position. Companies operating costs have increased over a period of time leading to a decrease in the overall profitability of the company (Velickovic, Stanojevic and Veselinovic, 2023). Management should take various measures to keep up with the industry averages.

Conclusion

In conclusion, the evaluation of Marriot Inns Limited financial performance gave important information about the company's advantages and weaknesses throughout the given time frame. It places a focus on qualities such as relevance, dependability, understandability, and comparison that characterize effective financial data. This report offers useful insights into the position of the firm in the market by analyzing Marriot financial performance while contrasting it to industry standards. These insights are crucial for making well-informed decisions, guaranteeing long-term success, and maintaining a reputable name in the industry at large. First, a falling trend in ratios emerged between 2019 and 2021. This suggests that the business could not be using its money efficiently, highlighting the requirement for more careful investment choices to produce greater returns. The business should concentrate on maximizing the use of its assets, maybe by addressing concerns with inventory management and manufacturing capacity.

References

Books and Journals

• Apasya, T., Machmuddah, Z. and Sumaryati, A., 2023. The Effect of Financial Ratios on Financial Distress Conditions is Moderated by Profitability Ratios.Jurnal Penelitian Ekonomi dan Bisnis,8(2), pp.67-79.
• Gao, J., 2022. Analysis of enterprise financial accounting information management from the perspective of big data.International Journal of Science and Research (IJSR),11(5), pp.1272-1276.
• Hassan, O.A. and Marston, C., 2019. Corporate financial disclosure measurement in the empirical accounting literature: A review article.The International Journal of Accounting,54(02), p.1950006.
• Jiang, B., 2023. Analysis of Marriott's Financial Position under the Epidemic.Highlights in Business, Economics and Management,10, pp.122-126.
• Kimmel, P.D., Weygandt, J.J. and Kieso, D.E., 2020.Financial accounting: tools for business decision-making. John Wiley & Sons.
• Kozhamzharova, G., Omarbakiyev, L., Kogut, O., Zhumasheva, S., Saulembekova, A. and Abdrakhmanova, G., 2022. Banking risks and lending to tourism and hotel businesses amid the COVID-19 pandemic.Journal of Environmental Management and Tourism,13(2), pp.427-437.
• Lubis, S.S., 2023. Identify Financial Ratios to Measure The Company's Financial Performance.Journal of Economics Business Industry,1(1), pp.1-10.
• Maghfiroh, R.D., Asandimitra, N. and Hartono, U., 2023. Moderation Analysis of Good Corporate Governance on the Effect of Financial Ratio and Market Ratio on Financial Distress.International Journal of Professional Business Review: Int. J. Prof. Bus. Rev.,8(7), p.115.
• Narayanaswamy, R., 2022.Financial accounting: a managerial perspective. PHI Learning Pvt. Ltd..
• Radivojevi?, V., Dimovski, J. and Miti?, G., 2023. Quantifying the financial impact of COVID-19 on the largest global companies in the hotel industry.Hotel and Tourism Management,11(1), pp.165-176.
• Rice, J., Raziq, M.M., Martin, N., Fieger, P. and Rice, B., 2023. The debt crisis and the adoption of Asset-Light and Fee-Orientated (ALFO) arrangements at Marriott: 1980-1995.Journal of Tourism, Heritage & Services Marketing (JTHSM),9(1), pp.58-66.
• Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2022.Financial accounting theory and analysis: text and cases. John Wiley & Sons.
• Tettamanzi, P., Venturini, G. and Murgolo, M., 2022. Sustainability and financial accounting: A critical review on the ESG dynamics.Environmental Science and Pollution Research,29(11), pp.16758-16761.
• Velickovic, G., Stanojevic, J. and Veselinovic, M., 2023. Managing Financial Performance toward Achievements in Sustainability Prospects: Comparative Analysis of the e-Commerce and Hospitality Industries.Journal of Risk and Financial Management,16(9), p.395.
• Velickovic, G., Stanojevic, J. and Veselinovic, M., 2023. Managing Financial Performance toward Achievements in Sustainability Prospects: Comparative Analysis of the e-Commerce and Hospitality Industries.Journal of Risk and Financial Management,16(9), p.395.

Online

• Qualities of Information. 2023. Online. Available through: < https://www.opentextbooks.org.hk/ditatopic/25233#:~:text=Those%20discussed%20above%20and%20included,%2Caccuracy%2C%20and%20completeness).>.