Importance of Financial Ratios

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Report on analysis of the importance of financial performances and comparison of financial ratios of Chancellors Hotel with another business in the same industry and industry averages.

BA (Hons) 1st Year International Hospitality Management

Dmitrijs Sokolenko
Student ID: 12110023

Supervisor: Amanda White

Hollings Faculty
Manchester Metropolitan University
Old Hall Lane
Manchester
M14 6HR

January 2013
Executive summary

The Report below is about analysis of the importance of the financial ratios of the Chancellors Hotel and Conference Centre. Hotel is owned by The University of Manchester and it is located in Fallowfield, Manchester, United Kingdom. Ratio analysis helps to identify problem areas and opportunities within the business. Report includes explanations of the most important financial ratios, such as Profitability Ratios, Liquidity Ratios and Working Capital Management Ratios. To see how well Chancellors Hotel operates, it is compared with another business and with Average Industry ratios. Moreover, report includes areas of good and bad practice. In conclusions are given recommendations on how to improve performance of the Hotel.

Contents
Executive summary2
Introduction4
Main Body4
Profitability ratios4
Gross profit ratio5
Net profit ratio5
Return on Capital Employed5
Liquidity ratios5
Current ratio6
Acid Test ratio6
Working Capital Management Ratios6
Stock Turnover Days7
Debtor Collection Days7
Creditor Payment Period7
Comparison of the Financial Ratios7
Conclusions and recommendations9
References:10

Introduction

The main purpose of this report is to analyse importance of different types of financial performances and to compare financial ratios of Chancellors Hotel and Conference Centre with another business in the same industry and industry averages. It is owned by The University of Manchester and it is located in Fallowfield, Manchester, United Kingdom, which is close both to Manchester City Centre and Manchester Airport. Thus, it is situated conveniently and the prices for accommodation are lower than in the city centre. It is a three star AA rated hotel with excellent transport links to all key Manchester shops and attractions, which offers a lot of facilities such as on-site parking places for customers, 70 en-suite bedrooms, conferences and meeting rooms, first class restaurant, lounge and bar, free wi-fi and internet access. Moreover, the Hotel provides different events, including Garden Parties, Barbecues, Family Celebrations, Corporate Events, Dinner Parties, Sunday lunch, Afternoon Tea, Christmas Parties, Exhibitions and etc. [3] .

Main Body

It is essential to analyse the nature and importance of financial ratios, because financial ratios picturize the strengths and weaknesses of a business. Ratio analysis helps to identify problem areas and opportunities within the business. Financial analysis could help in forecasting and drafting future plans for the company and it allow managers to set particular goals and to readily track progress of those. Financial ratios are significant in a variety of areas, particularly in the hospitality industry. Moreover, ratios help to compare different companies between each other. There are vast amounts of financial ratios available, below are explanations of the most important financial ratios [2]. Profitability ratios

These types of ratios illustrate how well a business is performing. Profitability ratios display a company's overall productivity and effectiveness. We can divide profitability ratios into three main types: 1. Gross Profit Ratio

2. Net Profit Ratio
3. Return on Capital Employed (ROCE)

Gross profit ratio

Gross profit ratio expresses relationship between gross profit and sales. Usually Gross Profit ratio is expressed as a percentage. Gross Profit Ratio % = (Gross profit/sales)*100
This ratio shows how efficiently a company is using its...
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