HOTEL CHAIN FINANCIAL ANALY SIS
A1. ELEMENTS OF THE BUSINESS EQUITY OF A COMPANY The elements of financial statements are the general groupings of line items contained within the statements. These elements are as follows:
ASSETS:
LIABILITIES:
These are items of economic benefit that are expected to yield benefits in future periods. Examples are accounts receivable, inventory, and fixed assets.
These are legally binding obligations payable to another entity or individual. Examples are accounts payable, taxes payable, and wages payable.
Noncurrent assets are company longterm investments where the full value will not be realized within the accounting year. Examples of noncurrent assets include investments in other companies, intangible assets such as goodwill, brand recognition and intellectual property, and property, plant and equipment. Noncurrent assets appear on the company's balance sheet.
Noncurrent liabilities are long-term financial obligations listed on a company’s balance sheet that are not due within the present accounting year, such as long-term borrowing, bonds payable and long-term lease obligations. Investors are interested in a company's noncurrent liabilities because they want to see that it does not have too much debt relative to its cash flow. Current liabilities, which is the other major classification of liabilities, are those due within the present accounting year, such as accounts payable, customer advances, taxes payable and any payments due that year on a long-term loan.
Current assets are balance sheet accounts that represent the value of all assets that can reasonably expect to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.
Current liabilities are a company's debts or obligations that are due within one year, appearing on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts. Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities.
EQUITY: This is the amount invested in a business by its owners, plus any remaining retained earnings. REVENUE: This is an increase in assets or decrease in liabilities caused by the provision of services or products to customers. It is a quantification of the gross activity generated by a business. Examples are product sales and service sales EXPENSES: This is the reduction in value of an asset as it is used to generate revenue. Examples are interest expense, compensation expense, and utilities expense. Of these elements, assets, liabilities, and equity are included in the balance sheet. Revenues and expenses are included in the income statement. Changes in these elements are noted in the statement of cash flows.
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A2. BALANCE SHEET PLEASE GO TO THE VIDEO, TEACHER!
PLEASE GO TO THE VIDEO, TEACHER! ASSETS Non current assets Current assets Total
2391802 824372
LIABILITIES Total neto equity 1267984 Non current liabilities 527913 Current liabilites 1420276
3216173
Total
ASSET = OWNER'S EQUITY + LIABILITY 3,216,173 = 1,267,984 + (527,913+1,420,276)
3216173
B1. FINANCIAL ANALYSIS OF THE HOTEL (liabilities) (G1, G2, H1, H2) Financial analysis refers to an assessment of the viability, stability and profitability of a business. LIABILITIES Total neto equity
1267984
Non current liabilities
527913
Current liabilites
1420276
Total
3216173
The company has a long-term debt of €527.913, and a short-term debt of €1.420.276. The total of the debt is €1.948.186 The equity is €1.267.984. 16.41% Non current liabilities 44.16% Current liabilities 39.43% Equity
G.1 RATIOS THAT ALLOW TO CALCULATE THE LEVEL OF INDEBTEDNESS OF A COMPANY (all ratios) *Debt Ratio = Liabilites / Assets (max, btwn 0,6 and 0,7) *Debt to equity ratio = Liabilities / Equity (max, btwn 1,5 and 2,00) *Quick Ratio = (Current Assets – Inventories) / Current Liabilities (over 0,8) *Debt to Assets (Debt Ratio) = Liabilities / Assets (% leverage) *Working Capital = a) Current Assets / Current Liabilities (The larger the better if under 1) b) Current Assets – Current Liabilities (Under 0)
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Now, four more formulas:
G2. RATIOS THAT ALLOW US TO KNOW THE LEVEL OF INDEBTEDNESS OF THE HOTEL CHAIN This are solvency ratios:
· Debt Ratio = Liabilites / Assets (max, btwn 0,6 and 0,7) 1,984,189 / 3,216,173 = 0,61 This means that the hotel chain has a big debt.
· Debt to equity ratio = Liabilities / Equity (max, btwn 1,5 and 2,00) 1,984,189 / 1,267,984 = 1,56 The company has a lot of credit, so the debt that it has is not remarkable.
· Debt to Assets (Debt Ratio) = Liabilities / Assets (% leverage) 1,984,189 / 3,216,173 = 0,61% leverage, this is that the asset is financed by loan banks.
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H.1 THE HOTEL CHAIN LIQUIDITY RATIOS This are the liquidity ratios:
· Quick Ratio = (C. Assets – Inventories) / Current Liabilities (824,372 – 710999) / 1,420,276 = 752,373 / 1,420,276 = 0,53 Over 0,8, this means that there's not enough money to pay the debt.
· Debt to Assets (debt ratio) =Liabilities / Assets 1,984,189 / 3,216,173 = 0,61% leverage This means that the 61% of the Assets is being funded by the bank loans.
· Working Capital a) Current Assets / Current Liabilities (The larger the better if under 1) 824,372 / 1,420,276 = 0,58 As the result is under 1, the company doesn't have money enough to afford. b) Current Assets – Current Liabilities (Under 0) 824,372 – 1,420,276 = -595,904 As the result is under 0, there is an issue.
H2. THE HOTEL CHAIN SOLVENCY RATIOS There are solvency ratios:
· Debt Ratio = Liabilites / Assets (max, btwn 0,6 and 0,7) 1,984,189 / 3,216,173 = 0,61 This means that the hotel chain has a big debt.
· Debt to equity ratio = Liabilities / Equity (max, btwn 1,5 and 2,00) 1,984,189 / 1,267,984 = 1,56 The company has a lot of credit, so the debt that it has is not remarkable.
· Debt to Assets (Debt Ratio) = Liabilities / Assets (% leverage) 1,984,189 / 3,216,173 = 0,61% leverage
B2. ECONOMIC ANALYSIS OF THE HOTEL CHAIN (ASSETS) The hotel chain is a company that produces services. Its Current Assets (824,372) is under its Fixed(no current) assets (2,391,802). The hotel needs the Fixed Assets to be able to produce services.
ASSETS Non current assets Current assets
2391802 824372
Total
3216173
To be able to measure the Equity Patromony it's needed to use the formula.
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C1. ANALYSIS OF THE BUSINESS BALANCE OF THE HOTEL CHAIN
CAPITAL - Share Capital : 39.811 - Treasury shares : -51.968 - Share premium: 865.21 - Other Equity: 108.730
OTHER ELEMENTS -Reserves: 316.025 - Retained earnings: 259.764 - Translation Differences: -344.381 - Other measurement: -10.346 - P&L: 30.406 - Share premium: 865.213 - Non controlling: 54.730 shareholdings
The company counted at the begining with a capital of €961.786, and it has gotten €1.171.411.
C2. ANALYSIS OF PROFIT AND LOST OF THE HOTEL CHAIN When realising the losses and profits ananlysis, we can place that the company has a lot of loss. This losses are due to the staff salaries (man hours) and the different facilities offered. We agree that the biggest spent are the staff salaries because the company counts with a wide employees list needed for the right hotel functioning and it's needed a proper salary to keep the staff motivated. On December the 31st 2014, the company has an income of €1.464.284. Not counting the production costs, which are the staff costs, supplies and other expenses, the company has €354.042 profit. Removing the restructuring, amortization and depreciation (these is not the real spent, but accounting expensses) and goodwill and negative consolidation difference, the company has a smaller benefit than last year, being €132.407, (money that stays in the company). Removing the inerests and the taxes, we get a NET BENEFIT OF €31.864. From this quantity, €30.406 are attributed to parent company (accionistas y socios) and €1.458 are attributed to minority interests.
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F1. CONCEPT OF INVESTMENT An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.
F2. USUAL SOURCES OF FINANCE FOR A COMPANY There are intenal and external sources of business financing:
E1. TYPES OF INVESTMENT The most common terms that are related to different types of investments:
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E2. METHODS OF INVESTMENT
To carry on these methods it's needed to follow the next steps:
1. Review your needs and goals 2. Consider how long you can invest 3. Make an investment plan 4. Diversify! 5. Decide how hands-on to be 6. Check the charges 7. Investments to avoid 8. Review periodically – but don’t ‘stock-watch’
D1. INVESTMENT SUITABILITY The suitability of an investment for a particular person is at the very heart of the investment process. This concept is a fundamental one, both from a legal perspective and in terms of putting an inestor's money to work both sensibly and prudently. When money is invested unsuitably, there is a high probability of unaccaptable losses (or conversely, very low) and considerable distress for the investor. An investment is appropriate in terms of an investor's willingness and ability (personal circunstances) to take on a certain level of risk. It is essential that both these criteria be met. If an investment is to be suitable, it is not enough to state that an investor is risk friendly.
Further complicating the matter is the fact that excessively low-risk investment can be just as damaging to an investor's portfolio as those that carry unsuitable levels of risk. Therefore, suitability demands investments that are neither to risk friendly nor to risk averse for a particular investor Both the law and good investment practice prohibit anybody being advised into an asset allocation that does not make sense for that particular person at that particular time. An investor's portfolio must be appropriately diversified so as to generate a reasonable level of returns at a sensible level of risk.
I.1 ADVANTAGES AND DISADVANTAGES OF EXTERNAL INVESTMENTS An advantage of the external financing is that it allows to use the internal one for other purposes. If the company finds an investment with a higher interest than a bank loan, it would be better to keep the capital and put them into that investment, using the external financing for the company operations. Another advantage is that this financing may help to those companies which need to expand their space, runned to keep, for example, the products that the company requires. In this case, it would be more profitable to enlarge the space that don't produce extra to solve the demand.
The disadvantages that may present this type of financing is that, in ocations, the inversor could ask for some responsibility over the company, what could affect to the decisions taken, and it could compromise the company vision. And another disadvantage that may be present is about the interests that the investors could demand when asking for the money, and this could be too expensive at the end.
I.2 ADVANTAGES AND DISADVANTAGES OF INTERNAL INVESTMENTS The advantages that present the internal financing are several, as well as the disadvantages. Positively we can say that the capital is available straight away, this means, we don't have to wait for the banks to give us the money. We don't have to pay the interests and there aren't control procedures, as spares credit line, it doesn't have third party influence, as it occurs with the external one, where the investors may ask for responsibility over the company and take decisions about it. In addition, this financing is more flexible and it gives more freedom to the owners, as they don't have to give the money back month by month.
The disadvantages that interna financing has are: It is expensive, as it's not taxdeductible, and it happens the same with the losses; this means that we would lose that tax deduction in the same time. It there's not a capital grow, but a decrease of this one. And for last, it is needed to mention that it is limited in volume; it happens the same with the external financing, but there is more capital available outside the company that inside.
J1. MOST SUITABLE FINANCING SELECTION METHODS Financing a business is always a challenge. Here we've compiled 10 techniques, from the tried-and-true to the experimental.
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J2.FINANCING METHODS MOST SUITABLE FOR THE HOTEL CHAIN
Hotels Chain has a very big debt but the company has also enough money to face it. We consider that the company have to carry out the following methods of financing: 路Attract an Angel Investor: This is a good option for the company in case that in a future there are economic problems. It is important rely on a person who support the company and who will be willing to help if needed. 路Get a bank loan: Being the hotel chain a huge chain, the bank doesn't have worries about the loan return that the chain ask. 路SBA: This is to ask for bank loans of small quantities. It can pay the short-terms debts.
Both are acceptable as the company has a small margin debt. 路Considered factoring: As it has several charge rights. The chain hotel can use it to raise funds.
K1.COSTS OF FINANCING SOURCES CHOSEN We have choose these types of interests: - Consider Factory:
-Get a bank loan:
TAE
-SBA (Pymes):
K2. CALCULATION OF COSTS OF FINANCING SOURCES
CONSIDERING FACTORY
GET A BANK LOAN
SBA (PYMES)
Webgraphy http://www.dwmbeancounter.com/tutorial/coabal.html http://www.investopedia.com/terms/n/noncurrent-assets.asp http://www.thecalculatorsite.com/finance/calculators/loancalculator.php http://www.gedesco.es/ http://www.expansion.com/
ANA ISABEL CHICA MIRANDA LUZ MARÍA DELGADO MELGUIZO MARI CRUZ FERNÁNDEZ GÓMEZ MARTA JIMÉNEZ CRISTINA ROMERO PADIAL 2º GAT