Analysis of Capital Structure of Ihg

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  • Topic: Generally Accepted Accounting Principles, Balance sheet, Finance
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Title

Analysis of the Capital Structure of InterContinental Hotel Group (IHG) Company

Student Numbers;
307473
307540
307576
308254

A dissertation in report form submitted in partial fulfillment of the requirements for Financial Management II of the Higher Diploma in Events, Hotel and Tourism Management

IMI
International Hotel Management Institute, Switzerland

October 2010

Abstract:

This report is illustrated about the capital structure of Inter Continental Hotel Group Company. The IHG Company is a large hotel company with a spectacular number of rooms plus owns a portfolio of well recognized and respected famous brands in over the world. During process of the company, they have used several methods of finance to clarify about their financial statement. In this report, the authors explained single statement of finance of this Company which this company has applied. By researching information and literature review, survey questions and analysis, the operation of company is demonstrated and confirmed. Besides that, the author would like to give their recommendation as advices.

Contents

TABLE OF CONTENTS3
CHAPTER 1: INTRODUCTION
Aim and Objectives5
Background5
CHAPTER 2: LITERATURE REVIEW
Introduction6
2.1 Debt Equity Ratio6
2.2 Return on Equity (ROE)7
2.3 Financial Leverage7
2.4 Operating Leverage8
2.5 Cash Flow8
2.6 Optimal Capital Structure9
2.7 The Modigliani & Miller Theorems (MM Theorems)9
2.8 Pecking Order Theory10
2.9 Trade-off Theory10
CHAPTER 3: METHODOLOGY
Introduction11
Secondary Research11
Primary Research11
CHAPTER 4: ANANLYSIS
Introduction12
Primary Research12
4.1 Total Liabilities13
4.2 Debt-equity ratio14
4.3 Return on Equity15
4.4 Pecking Order Theory16
4.5 Financial Crisis17
4.6 Economic Risk18
CHAPTER 5: CONCLUSION
Conclusion19
Bibliography / references20
Appendices21

CHAPTER 1 INTRODUCTION
Aims and Objectives
The main objective of this project is to prepare an analysis of the capital structure of a given company: IHG (Intercontinental Hotel Group). Capital structure is referred by Andrew, Damitio, and Schmidgall (2007: 603) as: The type and amount of financial capital (debt and equity) used to finance the hospitality firm’s assets; the right hand side of the balance sheet. The group will approach to this matter with theoretical study of finance specified in hospitality in order to gather relevant information and analyse the gathered information. Group will be using annual reports for real finance numbers of IHG and professional analysis for referencing. Although there have been reports for analysing the financial report, the group will be focusing on applying capital structure, leverage, and optimal capital structure to IHG finances with secondary and primary researches done by group members. Methodology of research will be given between research and analysis. Conclusion will include summarizing analysis that group came up with, and also recommendation to the company’s financial decisions. Background

Intercontinental Hotels Group, IHG, is the world’s largest hotel operator by number of rooms (646,679 rooms) and they have 4,438 hotels in over 100 countries worldwide (Smith Travel Research as at 1 January 2010). IHG operates 7 hotel brands, which are: Intercontinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Hotel Indigo, Holiday Inn, Holiday Inn Express, Staybridge Suites, Candlewood Suites. IHG’s business model focuses mainly on ‘franchising’ and ‘managing’ hotels, which generates 85% of their profit. CHAPTER 2 LITERATURE REVIEW

Introduction
Chapter 2 is focused on definition and terminology reviews to help authors and readers to have more clear understanding of capital structure before analyzing IHG. Authors were encouraged to be aware and keep in mind of understanding following terms in relation to...
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