Financial data and information are essentially a collection of various financial data and information that may be used to assess a company's performance and expansion. It offers a thorough examination of numerous financial aspects, such as revenue, costs, profit, assets, liabilities, and cash flow. In addition to traditional financial statements like profit statements, balance sheets, and cash flow statements, it also provides additional performance indicators. Financial information needs to be studied in order to determine a company's profitability, liquidity, solvency, and overall financial health.
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Pauline Marriot, the director of Marriot Inns Ltd., is the subject of the case study. The company's performance has declined overall despite a rise in turnover. This failure is due to the company's failure to launch new product lines and underfunding of new product development. Pauline Marriot wants to increase management control by establishing a system of responsibility accounting in response to these problems.
This case study report seeks to assess the financial performance of Marriot Inns Ltd. over a three-year period, identify areas that could be strengthened, and make recommendations for how to do so. By conducting a detailed financial analysis and considering industry benchmarks, the case study aims to help Marriott Inns Ltd. in making strategic decisions.
1. b. Identification of the qualities of quality financial information and an explanation of the purpose of financial information
Purpose: In a company setting, financial data has several important applications. It offers a thorough understanding of a company's financial performance, position, and cash flows so that stakeholders may make educated decisions. These are some of the main applications for financial data:
Making decisions: Management, investors, lenders, and other stakeholders can make wise choices using financial information. In order to analyse investment opportunities, examine risks, and efficiently manage resources, it gives stakeholders information about the profitability, liquidity, solvency, and efficiency of the business (Dewi et al. 2019).
Financial information makes evaluating a company's performance over time much easier. Stakeholders can spot trends, evaluate the effectiveness of plans, and ascertain whether the business has succeeded in reaching its goals by comparing data.
Financial Planning and Forecasting: The basis of financial planning and forecasting is financial information. It aids in creating practical budgets, establishing financial goals, and forecasting future cash flows (Mosteanu and Faccia, 2020). Businesses may more accurately estimate future financial results and create effective plans by studying historical financial data.
Providing proper financial information is necessary to notify stakeholders about a company's financial performance and situation. Transparency and trust are promoted through facilitating efficient communication with investors, shareholders, lenders, regulators, and other interested parties. Financial reports give stakeholders a consistent structure for information presentation, such as yearly reports and financial statements (Molina et al. 2021).
Financial data needs to meet a number of criteria in order to be trustworthy and valuable. The following are the main attributes of accurate financial information:
Relevance: Financial data should be pertinent to decision-makers' needs. It ought to offer reliable information that can affect decisions in a timely manner. It is possible to make poor judgements and to infer the wrong conclusions from out-of-date or irrelevant information (Jia et al. 2020).
Reliability: Reliable financial information accurately and objectively depicts a company's financial position and performance. It is produced in conformity with pertinent accounting standards or principles, is substantiated by facts, and is based on information that is factual.
Comparability: It is important to offer financial data to enable accurate side-by-side comparisons. To enable stakeholders to evaluate changes and performance in comparison to industry benchmarks, consistent accounting practices and assessment methodologies should be used across multiple eras and organisations (Chahrour et al. 2020).
Readability: Financial data should be presented in a clear, succinct manner using language and terminology that the intended readers may easily comprehend. To make the material simple to understand, technical jargon and complex financial concepts should be explained.
Consistency in financial reporting guarantees that accounting principles and measuring techniques are used consistently over time. Users can use this to precisely predict trends and performance by comparing financial data from various time periods.
Completeness: Financial data must be reliable and thorough when used to make judgements. A skewed perception of the financial status and performance of the company may result from omissions or insufficient disclosure.
Objectivity: Financial data should be presented in an unbiased, preconceived manner. It should be supported by verifiable facts, be based on trustworthy information, and be the creation of knowledgeable, trustworthy people (Arsyad et al. 2021).
A company's financial performance and condition can be better understood by stakeholders, helping them make wise decisions, and promoting corporate success, if financial information upholds these criteria.
2. a. Calculation of the ratios for the Marriott Inns Ltd and comparison of them with budgetary targets
1. Return on capital employed
In calculating Return on Capital Employed (ROCE) for Marriott Inns Ltd, it is needed to use the below formula,
ROCE = (Operating Profit before Tax / Capital Employed) * 100
Using the data provided in the profit statements and balance sheets:
In calculating the Asset Turnover ratio for Marriott Inns Ltd, it is needed to divide the Sales by the Average Total Assets. The formula is as follows:
Asset Turnover Ratio = Sales / Average Total Assets
Using the sales figures provided in the profit statements and the average total assets calculated from the balance sheets:
Average Total Assets = (Opening Total Assets + Closing Total Assets) / 2
Here, Average total assets= (0.31+0.35+0.59)/3= 0.42
Sales= (4.90+5.30+6.60)/3= 5.60
Hence, Asset Turnover Ratio= 5.60/0.42= 13.33
3. Net profit margin
In calculating the net profit margin for Marriott Inns Ltd., it is needed to divide the profit after tax by the sales and then multiply by 100 to express it as a percentage.
Net Profit Margin = (Profit after tax / Sales) * 100
So, in the below, the net profit margin for each year has been calculated:
The projected net profit margin for Marriott Inns Ltd. is 7.7% in 2021, down from 10.0% in 2019. As can be observed, profitability during the last three years has declined. It implies that more investigation is required to pinpoint the causes of the company's performance decline and that it isn't up to par with former levels.
4. Current ratio
By dividing current assets by current liabilities, Marriott Inns Ltd. can get its current ratio. The current ratio evaluates a company's ability to cover its short-term obligations.
Current Assets / Current Liabilities equals the current ratio.
The current ratio can now be computed using the formula above as shown below.
2019: Current Ratio = 1.66 / 1.35 = 1.23:1
2020: Current Ratio = 1.91 / 1.56 = 1.22:1
2021: Current Ratio = 2.49 / 1.90 = 1.31:1
The current ratio for Marriott Inns Ltd. is expected to have greatly grown from 1.23:1 in 2019 to 1.31:1 in 2021. This demonstrates that while the company's capacity to meet its short-term obligations is steadily improving, its liquidity situation is largely constant.
5. Acid test ratio
Marriott Inns Ltd.'s acid test ratio, sometimes referred to as the quick ratio, must be computed by deducting the value of inventory (stocks) from current assets. Because inventory is not included in the acid test ratio and could be more difficult to convert to cash, it offers a more accurate assessment of the company's capacity to meet short-term obligations.
(Current Assets - Inventory) / (Current Liabilities) is the acid test ratio.
Let's calculate the acid test ratio for each year:
2019: Acid Test Ratio = (1.66 - 0.09) / 1.35 = 1.21:1
2020: Acid Test Ratio = (1.91 - 0.12) / 1.56 = 1.16:1
2021: Acid Test Ratio = (2.49 - 0.15) / 1.90 = 1.28:1
Calculations reveal that during the course of the three years, Marriot Inns Ltd.'s acid test ratio fluctuated but remained largely consistent, with values of 1.21:1, 1.16:1, and 1.28:1. This suggests a manageable capacity to complete urgent tasks without substantially relying on inventory.
6. Debtor’s collection period
The debtors’ collection period, as can be seen from the given data, is 83 days.
7. Gearing ratio
For the calculation of the Gearing ratio for Marriott Inns Ltd., we need information on the company's long-term borrowings (bank loans) and capital and reserves. Based on the provided summary balance sheets, we have the following figures:
Capital and reserves: £0.5m (2019), £0.91m (2020), £1.26m (2021)
Bank loans: £2.21m (2019), £2.21m (2020), £2.21m (2021)
The Gearing ratio is calculated by dividing the long-term borrowings by the sum of long-term borrowings and capital and reserves, and then multiplying by 100 to express it as a percentage.
Gearing ratio formula: (Bank loans / (Bank loans + Capital and reserves)) * 100
Hence, the calculation for the Gearing ratio for Marriott Inns Ltd. for each year has been given below:
2019: (2.21 / (2.21 + 0.5)) * 100 = 81.6%
2020: (2.21 / (2.21 + 0.91)) * 100 = 70.8%
2021: (2.21 / (2.21 + 1.26)) * 100 = 63.7%
8. Labour cost as % of sales
For the calculation of the Labour cost as a percentage of sales (Labour cost % of sales) for Marriott Inns Ltd., we need the information on Labour costs and Sales. Based on the provided detailed breakdown of costs, we have the following figures:
Labour costs:
2019: £0.93m
2020: £0.98m
2021: £1.25m
Sales:
2019: £4.9m
2020: £5.3m
2021: £6.6m
Labour cost % of sales is calculated by dividing the Labour costs by Sales and multiplying by 100 to express it as a percentage.
Labour cost % of sales formula: (Labour costs / Sales) * 100
Hence, the Labour cost % of sales for Marriot Inns Ltd. for each year has been calculated below:
2019: (0.93 / 4.9) * 100 = 18.98%
2020: (0.98 / 5.3) * 100 = 18.49%
2021: (1.25 / 6.6) * 100 = 18.94%
9. Operating costs as % of sales
In calculating the Operating costs as a percentage of sales (Operating cost % of sales) for Marriott Inns Ltd., we need the information on Operating costs and Sales. Based on the provided detailed breakdown of costs, we have the following figures:
Operating costs:
2019: £4.17m
2020: £4.43m
2021: £5.82m
Sales:
2019: £4.9m
2020: £5.3m
2021: £6.6m
To determine operating cost as a percentage of sales, divide operating costs by sales and multiply the result by 100.
Formula for operating cost percentage of sales: (Operating Costs / Sales) * 100
Therefore, Marriot Inns Ltd.'s operating cost as a percentage of sales for each year is:
2019: (4.17 / 4.9) * 100 = 85.10%
2020: (4.43 / 5.3) * 100 = 83.58%
2021: (5.82 / 6.6) * 100 = 88.18%
10. Room Maintenance costs as % of sales
In calculating the above-mentioned cost, details on both room maintenance costs and sales in order to calculate the room maintenance costs for Marriott Inns Ltd. as a percentage of sales (room maintenance costs% of sales). According to the comprehensive cost breakdown that was provided, we know the following:
Costs for room maintenance:
2019: £0.44m
2020: £0.49m
2021: £0.61m
Sales:
2019: £4.9m
2020: £5.3m
2021: £6.6m
Room maintenance costs are calculated as a percentage of sales by dividing by sales and multiplying by 100 to show as a percentage.
Room maintenance costs expressed as a proportion of sales: (Room maintenance costs/sales) * 100
In order to calculate the Room maintenance expenses% of sales for Marriott Inns Ltd. for each year, the following formula has been used:
2019: (0.44 / 4.9) * 100 = 8.98%
2020: (0.49 / 5.3) * 100 = 9.25%
2021: (0.61 / 6.6) * 100 = 9.24%
11. Administrative costs as % of sales
To determine the administrative expenses for Marriott Inns Ltd. as a percentage of sales (Admin costs% of sales), we need information on both administration costs and sales. Based on the thorough cost breakdown that was supplied, we have the following information:
Administration costs:
2019: £0.19m
2020: £0.22m
2021: £0.27m
Sales:
2019: £4.9m
2020: £5.3m
2021: £6.6m
To calculate administration costs as a percentage of sales, divide administrative costs by sales and multiply the result by 100.
Using the following formula, determine the administrative costs as a percentage of revenue: Sales * 100 * (Administration costs)
The following formula has been used to get the admin costs% of sales for Marriott Inns Ltd. for each year:
2019: (0.19 / 4.9) * 100 = 3.88%
2020: (0.22 / 5.3) * 100 = 4.15%
2021: (0.27 / 6.6) * 100 = 4.09%
2. b. A thorough analysis of the company's profitability and liquidity over the period in comparison to the sector average
The profitability and liquidity performance of Marriott Inns Ltd. over a three-year period will be thoroughly examined in this section along with a comparison to the sector's average performance. The objective is to assess the company's financial situation and identify any strengths or weaknesses (Sari et al. 2022). Balance sheets, industry performance metrics, and summary profit statements are just a few examples of financial data.
Profitability analysis:
Operating profit before taxes for the business was generally steady over the course of the three years, coming in at £0.73 million in 2019, £0.87 million in 2020, and £0.78 million in 2021. It's crucial to remember that, despite the fact that revenues increased from £4.9 million in 2019 to £6.6 million in 2021, operating costs also increased, which had an effect on total profitability.
More information would be required to determine Marriot Inns Ltd.'s return on capital employed (ROCE), which can be used to compare the company's profitability to industry averages. Unfortunately, the information does not include this information. It is therefore impossible to completely assess profitability in light of sector averages.
Liquidity analysis:
The net current assets of Marriott Inns Ltd. have exhibited a positive trend in terms of liquidity over the last three years. From £0.31 million in 2019 to £0.59 million in 2021, the net current assets grew. The corporation has a favourable liquidity situation since its current assets—including its shares and debtors—exceed its current liabilities.
Calculating important liquidity ratios like the current ratio and the acid test ratio is necessary in order to further assess the liquidity condition. Unfortunately, the information required for these calculations—such as the split of current assets and current liabilities—is not given. Without these numbers, it is impossible to fully assess Marriot Inns Ltd.'s liquidity situation in relation to industry norms (Arsyad et al. 2021).
To better understand its total financial performance, Marriott Inns Ltd. must conduct a more thorough financial analysis, which includes the computation of key performance ratios and comparison with industry benchmarks. Management will be able to make informed decisions and take the required actions to increase profitability and liquidity thanks to the knowledge gathered from this research about the company's benefits and drawbacks.
2. c. Conclusion
In conclusion, it can be stated that the Marriott Inns Ltd. case study places focus on the need for strategic adjustments and tighter managerial control to address the declining profitability and ensure ongoing growth. The key findings indicate that a lack of financing for new product development and a failure to launch new product lines were to blame for a drop in overall performance.
To boost profitability, Marriott Inns Ltd. should focus on cost control, consider opportunities for diversification, and invest in new product development. In addition, the company should be concerned with managing its liquidity by monitoring its liquidity ratios and ensuring enough cash flow.
Given the data's gaps, there wasn't much room for comparison with sector averages. To find areas for improvement and maintain its competitiveness, it is advised that Marriott Inns Ltd. collect more financial data and routinely evaluate its performance against industry norms.
By putting the recommended adjustments into practice and keeping up its proactive financial management methods, Marriott Inns Ltd. can maintain its current development trajectory, boost profitability, and achieve long-term success in the competitive hospitality sector.
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