Discuss the benefits and limitations of using ratio analysis to aid decision making within the hotel and tourism industry.

Task 1
Analysis of the Financial Statements (100% of total marks overall)

Jurys Inn is a hospitality company that manages a portfolio of hotels within the United Kingdom and Northern Ireland. As one of the Company Accountant for the UK region, you have been tasked to produce a report for the Chief Executive addressing the following:

Calculate suitable ratios for 2019 and 2020 to aid the analysis of the financial information included within the attached financial statements. You should discuss the trends seen in these ratios in detail, and draw appropriate conclusions about the profitability, liquidity and gearing of the hotel chain.

Discuss why an understanding of ratios and their fluctuations is essential for Hotel management in analysing the information seen in their financial statements.

Discuss the benefits and limitations of using ratio analysis to aid decision making within the hotel and tourism industry.
(2000 words)

 

PROFIT AND LOSS ACCOUNT
2019 2020
£000 £000 £000 £000

Sales 9000 9500

Less: cost of goods sold
Opening stock 1100 700
Purchases 6500 7700

Less: Closing Stock (700) (750)

6900 7650

Gross Profit 2100 1850

Less: Expenses
Rent 500 500
Rates 175 180
Motor Expenses 90 95
Advertising 82 84
Light and Heat 100 100
Depreciation 75 70
Insurance 10 11
Repairs 92 107
Bad Debts 33 17
Salaries 310 370
Loan Interest 10 9
1477 1543
Net Profit for the Year 623 307

Balance Sheet at 30th May
2019 2020
£000 £000 £000 £000
Fixed Assets (at net book value) 1700 1750

Current Assets
Stocks 700 750
Debtors 649 870
Cash at Bank 480 522
Cash in Hand 10 10
1839 2152
Current Liabilities
Trade Creditors 660 690
Accruals 45 48
Bank Overdraft 150 150
855 888

Net Current Assets 984 1264

Total Assets Less Current Liabilities 2684 3014

Long – Term Liabilities
Bank Loans 150 150

2534 2864

Represented by:
Capital 2100 2700
Profit for the Year 623 307
Less: Drawings 189 143
2534 2864