Fundamentals of Business Finance Case Study Sample

Introduction Of Fundamentals of Business Finance

Valuation of a company's financial report to analyze the financial performance of the company ratio analysis is one of the effective methods. Accordingly, a financial statement of a company is taken into consideration by both external and internal stakeholders to identify the company's financial position and also to recognize the future growth of the organization. However, this report is made to shed light on the current financial performance of the company Marriot Inns Ltd is being analyzed in this report. Based on the current financial position of the company the frequencies in the desire and actual performance of the company are also discussed here. Moreover, the requirement of the proper financial analysis to identify the actual performance of a company and the purpose of the financial information to evaluate the company's position is also considered in this report.

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Purpose of financial information

The goal of financial information is to deliver relevant and trustworthy data about the financial activities and implementation of an individual, company or organization. The financial report helps in creating informed judgments regarding resource distribution, investment options, and financial systems. It delivers insights into the economic health, profitability, and risks associated with various opportunities, enabling people and organizations to make sound financial judgments (Yanto et al. 2021). Financial information permits the assessment of the financial implementation of a business or institution. It delivers key metrics like revenue, costs, earnings, and financial balances, which help assess the efficiency, profitability, and sustainability of processes. It enables comparison with enterprise models, recorded data, and contenders to determine areas of progress or victory (Kadim et al. 2020). Financial data help in financial planning and forecasting also it assists in developing realistic financial objectives, budgeting, and launching future earnings, expenses, and cash flows. This allows people and institutions to anticipate financial markets, identify possible gaps, and make required adjustments to reach their objectives. Financial information is necessary for compliance with lawful and regulatory conditions. It helps in drafting financial information, tax recoveries, and other financial information as required by analysis standards and rules (Husain and Sunardi, 2020). Proper financial information enables clearness and responsibility, allowing stakeholders like investors, and creditors to assess the financial status and implementation of an entity.

The financial report functions as a tool of contact with various stakeholders, including investors, employees, and suppliers. It delivers a complete view of the financial condition and opportunities of a commodity, investing confidence, drawing acquisition, and promoting practical negotiations and connections (Ascani et al. 2021). Financial information helps in determining, evaluating, and managing financial hazards. It assists in assessing the liquidity situation, debt classes, and vulnerability to market instabilities, allowing assertive risk mitigation standards. Convenient and real financial information helps businesses to determine potential economical openness and take reasonable actions to mitigate hazards (Hiromoto, 2019). However, the goal of financial information is to give a clear and trustworthy presentation of the financial situation, implementation, and opportunities of a business, or organization. It helps in judgment-making, implementation evaluation, planning, observation, stakeholder contact, and risk control, all of which are necessary for attaining financial strength and victory.

Characteristics of good financial information

Qualitative characteristics are attributes that make up business news that is of value to consumers. Subjective characteristics of business news can be classified as basic (activity and authentic similarity) or positive (correspondence, verifiability, usefulness, and understandability) based on their impact on the usefulness of business information, increase

• Relevance- Relevant financial news captures facts and influences the decision-making ability of consumers and shareholders (Xolmirzaev, 2020). Information on business-related issues can help consumers make decisions when it involves consent or consent to anticipate or obtain benefits.
• Predicted value: Where shareholder benefits can help infer a particular asset, the information can predict profits that are concerned with the future. Absolutely certain and unavoidable information has a predictive advantage (Mahdi and Khaddafi, 2020). For example, depreciation of long-term assets using direct route patterns may occur annually, but may not be useful for assessing computer network cash flow.
• Confirmed benefits: Information has secondary benefits when it reinforces the veracity of past beliefs or punishes the ruling class according to past assessments (Hasanaj and Kuqi, 2019). If you have habitual past beliefs in the news, the outcome will be the same as before, but if you cling to past expectations, the outcome can be reversed.
• Accuracy: Useful business news should be not only relevant, but credible. The financial reporting news included features that were complete, fair and free of material errors, believed to accurately reflect the financial miracle (Zhou et al. 2021). The sole publication of an annual report touches on a wide variety of business-related topics. For example, long-term assets presented in connection with obtaining a permit relate to all long-term assets owned by the system.
• Completion: Full financial reporting facts must contain all the unavoidable news that is beneficial to decision-making and should be free of material realities and concerns that mislead the economic report.
• Neutral: Neutrality in reporting commercial facts should be an empty prejudice that established facts do not favor the described group through additional interesting features (Leistritz and Barnard,2021). To receive non-binding news, the facts must be real and honest, not volatile, and it must be expected to encourage one's attitude.
• No errors: A series of commercial newsgathering messages is said to be expected to be genuine if the news is empty and false (Wahlen et al. 2022). Low passivity and skepticism about the development of savings prevents us from deriving clear value from financial reporting, which is completely wrong. Therefore, different kinds of judgments and beliefs are required when evaluating economic news gathering.

Explanation of financial terminologies

The computation of the “Return on capital employed” ROCE has been using the formula “Operating Profit x 100/Long-term loans + Equity”. This states the total amount of profit that has been generated by the firm with each capital generated. Based on the research work of (Nejad, 2022), the higher the ROCE the better the financial valuation of the firm is indicated to be. The “Asset Turnover Ratio” is the measurement of how effectively the firm is using its resources for generating income. Based on the views of Svatošová, (2019), the higher the ratio the better the financial overview is analyzed. The companies usually prefer that the average collection period needs to be lower than the higher period as it indicates that the firm is efficient in collecting its receivables (Ginting, 2021).

Analysis and interpretation of financial performance

The above table has represented the analysis of the ratios computed for the estimation of the overall financial overview and understanding. There have been 11 different types of ratios that have been computed for analyzing the entire view of the performance of the company during the past three years.

ROCE-

The overall performance states that there has been an increase in the ROCE from the year 2019 to 2021 from 0.73 to 0.78. However, the ROCE has decreased since the year 2020 when the value of ROCE was 0.87.

• Asset Turnover ratio: It can be seen that the firm's performance has increased over the years computed with the help of the formula “Net sale/Average total asset”. The ratio has increased from 1.21 to 1.31. The net sales of the firm have increased over the years from 4.9 billion to 6.6 billion from 2019-2021.
• Net profit margin: The “net profit margin” ratio has been computed for the firm which indicates whether there has been an increase in the firm or not. Thus, it can be observed that the firm has faced a decrease in the NPM over the years from 10% to 7.73%.
• Current ratio: The “current ratio” has been calculated as “Current Asset /Current Liabilities” which determines the liquidity positioning of the firm in the forthcoming years (Sagala, 2019). It can be seen that the liquidity performance of the firm has increased over the years from 1.23 to 1.31 from the year 2019 to 2021.
• Acid test ratio: The computation of the ratio using the formula “Current Asset-Inventories/current liabilities” indicates the liquidity performance of the company. It has been seen that the ratio has increased over the years and it indicates a higher ability of the firm in the dynamic environment from 0.81 in 2019 to 0.99 in 2021.
• Debtors collection period: The “Debtors collection period” has increased over the years which indicates that the firm had comparatively lower ability to collect the payments from the creditor. The total number of days has increased from 83 days to approximately 87 days.
• Gearing ratio: The gearing ratio has decreased from 4.42 to 1.75 approximately which indicates the financial position of the firm is at a lower rate of risk. The improvement in the ratio has been indicated effectiveness in the overall financial management and operational effectiveness.
• Labour cost: The computation of the level cost with sales has been evaluated with the formula “Labour cost/total sales”. It has been constantly similar for three years at the 18.98%.
• Operating costs as % of sales: The operating cost as sales percentage has been computed using the formula “Operating cost/totals sales”. It has been observed that the ratio has increased over the years from 85.10% to 88.18%.
• Room Maintenance costs as % of sales: The ratio has been evaluated using the formula “Room Maintenance costs /Total sales” which has increased from 8.98% to 9.24%.
• Administrative costs as % of sales: The administrative cost in terms of sales is represented by an increase in the ratio of 3.08% from 4.09%.

Conclusion

It indicates that the company has faced a decrease in financial gainings with the net income decreasing over the years. “Marriott Inn”, is a full-service business, home management and manufacturing company. Common sense would dictate that financiers "must use the wealth of documentation and financial aspects of contracts to support the bureaucracy associated with risk-designating financial institutions." Financial information helps in determining, evaluating, and managing financial risks. It assists in assessing the liquidity situation, debt classes, and vulnerability to market instabilities, allowing assertive risk mitigation standards. It can be imagined that the liquidity ratio has increased significantly over the past four years as this period has passed. This suggests that Marriott International has more cash on hand to push new businesses forward and pay down attractive debt. “Marriott's” net profit margin is over 1.4%. Return on equity is also well above the average misstatement rate of 2.7%. However, this reason, and also because “Marriott” deducts similar bills in times of financial difficulty.

References

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