Banyan Tree Analysis

Topics: Revenue, Generally Accepted Accounting Principles, Balance sheet Pages: 48 (2872 words) Published: February 27, 2014


Table of Contents

Introduction
Banyan Tree Holdings manages and develops resorts, hotels and spas. They have been listed on the Singapore Stock Exchange since 2006. Banyan began in 1994 with a single resort in Phuket and currently manages and has ownership interests in over 20 resorts and hotels, 60 spas, 70 retail galleries, and 3 golf courses. Refer to Appendix A for an overview of Banyan Tree’s global presence. The company is best known for its Banyan Tree and Angsana brands. In this paper, we consider the operations of the Banyan Tree Group. Here on, Banyan Tree Group will be referred to as “Banyan Tree”. Banyan Tree ends its fiscal year on 31st December each year. Financial Analysis

Principal Activities
Banyan Tree’s revenue is generated from three core business segments: Hotel Investments, Property Sales and Fee-based. Hotel Investments
Banyan Tree main Hotel Investments were in Thailand, Maldives, China and Morocco. Investments in Thailand suffered a 24% dip in revenue due to reasons such as political instability and economic downturn in the Eurozone. On the same note, Morocco suffered a 29% dip in revenue per available room (RevPAR). On the other hand, investments in China and Maldives showed increases due to increasing demand from affluent travellers in China and successful marketing in Maldives. Property Sales

Hotel Residences1 has earned $S12 million, a 50% drop from last financial year. Sales of Laguna property2 has earned $S17.9 million, a 12% dropped from last financial year. Development project/site sales3 has earned $S36.4 million. In 2011, Banyan Tree made a change in stance for their revenue recognition method, from the “percentage of completion” method as construction progresses, to the “completion” method. Hence, the overall property sales revenue was S$66.3 million, up 49% from last year’s S$44.4 million. For development project/site sales, there has been a general increase in interest in the closing months of the year, and we are hopeful of a stronger high season than in recent years. For Laguna property sales, the peaceful mid-year elections in Thailand led to an increase in sales activity, which offset the impact of the global economic downturn. Therefore, there was a 2% increase in sales in year 2011. Fee-based

The Fee-based segment4 comprises Hotel/Fund/Club Management, Spa/Gallery Operations, Design Fees & Others. With the exception of club management, all fee-based units registered year on year increased in revenue, resulting in overall revenue growth of 14%. But there was a lower club membership rate of 33%. This was due to the ongoing global economic uncertainty as well as political unrest in Thailand, which adversely affected investor confidence, particularly in higher-priced hotel residences. Analysis of Financial Ratios

Current Ratio
Banyan Tree possesses adequate resources to address an immediate crisis. Banyan Tree is able to comfortably payoff its current liabilities with its current assets. This is reflected by an increasing current ratio of 1.25 since the 2008 economic crisis to 1.76 in 2011. Competitors such as Stamford land had a current ratio of 1.72 in 2011, Based on this comparison, Banyan Tree remains competitive. Debt Ratio

Banyan Tree’s debt ratio for 2008 was 0.62. However, this number has been gradually decreased to 0.603 in 2011 indicating that less of the company’s assets are financed by debt. Competitors in the industry, such as Stamford Land Pte Ltd displayed debt ratios of 0.538 in 2011, indicating an area where Banyan Tree can improve on. Taking into account Banyan Tree’s strong current ratio, a majority of Banyan Tree’s debt is long term. RevPAR

RevPAR (Revenue per Available Room) measures a hotel’s profitability. By multiplying a hotel’s room-rate with the hotel’s occupancy rate, RevPAR measures profitability based on the number of available rooms. RevPAR improved from $179 in 2010 to $181 in 2011. Compared to...
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