OCEAN BLUE HOTEL

Financial Ratio Analysis: Ocean Blue Hotel

Financial Ratio Analysis: Ocean Blue Hotel

Rationale behind Ratio Analysis

In order to asses any organization, financial statement analysis in general and ratio analysis in particular are the first step in the process. These ratios are calculated and compared to some benchmark figures which can be forecasted results, historical ratios, direct competitors performance and industry averages. Financial ratio analysis forms the relationship between different parts of the financial statements; two key financial statements of any hotel is income statement and balance sheet. Income statement measures the performance of the hotel during the particular period while balance sheet shows the financial position of the hotel at a particular point. Majority of the ratios can be calculated by deriving out data from these two financial statements. This ratio serve as a guide for the various decision makers (in our case, board of directors) when analyzing different dimensions of the business. The purpose of these ratios is to point out areas which need to be considering while making any decision. The ratio analysis can be categorized into five dimensions; profitability, efficiency, solvency, liquidity and investment. As the title, of each category suggests, ratios falling under each of these categories measure respective aspect of the business.

Profitability

The purpose of profitability relates to a firm's ability to produce a reasonable profit so that the shareholders and investors will keep providing capital to it for its operations. A firm's profitability is connected to its liquidity for the reason that earnings eventually produce cash flow. For these rationales, profitability ratios are imperative to both potential investors and shareholders.

Profitability

April

May

June

Gross Profit

66.69%

63.51%

72.05%

Operating Profit Margin

47.47%

46.35%

56.55%

ROCE

1.28%

1.12%

1.89%

Gross Profit Margin

Goss profit (GP) margin is a profitability ratio defined by gross profit over revenue.

GP Margin =

For our calculation, we have taken Gross profit and Revenue from the income statements of the hotel.

Interpretation

During the last two months, Ocean Blue revenue has increased from 929,123 to 1283,550 which is an improvement of approx 38% has shown some improvement in operating profit margin. In April, the gross profit margin was 47.47%, which declined to, 46.35% and during the month of June, it improves to 56.55%. During the last two months, the revenue has increased by 38% while cost of revenue has increased by 64%. Even though, the cost of revenue has increased by a greater proportion than revenue turnover, gross margin has still improved.

Operating Profit Margin

Operating Net Profit Margin is a measurement of hotel's financial ability to absorb its fixed cost which includes interest on debt. It is determined after deducting the variable cost from the gross margin. It is calculated by dividing the operating profit (EBIT) by revenue.

Operating Profit Margin =

Both figures are available on the hotel's financial s statement.

Interpretation

During the last two months, Ocean Blue has shown some improvement in operating profit margin. In April, the operating profit margin was 47.47%, which declined to, 46.35% and during the month of June, it improves to 56.55%. During the last two months, the revenue has increased by ...