Chancellors Hotel Case

This report will analyze the financial performance of the Chancellors Hotel Manchester by evaluating its financial statements such as income statement and balance sheet for the period ended 2011. The report will also cover the financial ratios calculated on the basis of financial statements. Different financial ratios show different aspects of the company. It also helps to compare the company with its own performance, with the performance of the industry and with the performance of other companies which are related to the same industry. Liquidity ratios deals with all ratios which determine the ability of a company to pay off its short term debts. This shows that the company is / is not capable enough to pay off its short term debts. Asset Management Ratios are use by the companies to measure its success in managing the assets to generate revenue and sales. The report also presents the forecasted cash flow statements for six months of period from April 2013 to September 2013.

Chancellors Hotel Manchester

Introduction

This report will analyze the financial performance of the Chancellors Hotel Manchester by evaluating its financial statements such as income statement and balance sheet for the period ended 2011. The report will also cover the financial ratios calculated on the basis of financial statements of the said period. The report will analyze the financial performance of the company by comparing it with financial performance of other hotels which are Britannia Hotel located at Manchester City Centre and Mercure Manchester Piccadilly Hotel. The report also presents the forecasted cash flow statements for six months of period from April 2013 to September 2013. All of these hotels are three star hotels.

The report is totally based on performance indicators which were derived from the analysis of the income statement and balance sheet. The income statement is prepaid as per requirements. In income statement, the sales and costs of the departments are clearly shown under the title of the respective departments. Then sales and costs figures of each department were accumulated to get the final and total amount. It helped in analyzing the department's effectiveness as in the income statement it is clearly shown that how much each department contributes in term of sales and gross profit. The costs such as direct labour and direct expenses of each department are mentioned under the head of that department. While the generals expenses are applied to the whole business as company's overhead. The bad debt and depreciation expenses were deducted from current and fixed assets. The cash flows are forecasted according to the requirements. The cash from sales of current month is 60 percent of the total sales and the rest 40 percent cash will be received in next month. Therefore, forecasted cash flow statement of every month is comprised of 60 percent of current sales and 40 percent of previous month's sales. On the other hand, only 25 percent of the purchase of every month is paid in cash in the same month and the rest of 75 percent will paid in next month. These requirements are clearly visible in the forecasted cash flow statement. On the basis of above mention terms and conditions, it is expected that the debtors will stand at £ 6,400 whereas the creditors will stand at £ 3,000.

Discussion

Importance of Financial Ratios

There are different financial ratios depicting different circumstances of the company. It not only helps the management of company to analyse the performance and position of a company but it also helps to determine whether or not the company is going towards its objective. It also helps the shareholders to determine the performance of the company. On the basis of result of financial ratios shareholders decide whether to invest in a company or withdraw the invested amount from the company. Different financial ratios show different aspects of the company. It also helps to compare the company with its own performance, with the performance of the industry and with the performance of other companies which are related to the same industry. Profitability ratios is that class of financial ratios that is used to determine the strength of an organization to generate earnings while comparing itself with the expenses the company made throughout the year or defined time period (Wood & Sangster, 2008, pp. 35).

Liquidity ratios deals with all ratios which determine the ability of a company to pay off its short term debts. This shows that the company is / is not capable enough to pay off its short term debts. Higher liquidity ratios show that a company is more capable to pay off the debts that have to be paid within a year (Dyson, 2010, pp. 40). Asset Management Ratios are use by the companies to measure its success in managing the assets to generate revenue and sales. It helps an organization to verify its ability to generate revenue from the available resources (Dyson, 2010, pp. 40).

Analysis of Performance Indicators

According to the analysis, data showed that the gross profit percentage stood at 53.06 percent which is quite attractive. This showed that the