Financial statements and financial indicators are the indicators to the performance and summary of the company. Through analyzing the financial reports and indicators, Managers can spot the weakness of company and then improve it. For investors, the value of the investment is reflected on the price of the share. Long term speaking, the good performance of the company can increase the price of the share. This report is going to analyze the financial condition of Hotel Holiday Garden with its financial statements and financial indicators.
The Leofoo Development Co. Ltd. is employed here as a bench mark to help in analyzing the Hotel Holiday Garden Company for it is in the same hotel industry. This report will analyze the financial indicators of Hotel Holiday Garden for the year period of 2012, 2013 and 2014 to see its own performance and trends. Then it will be compared to the financial indicators of Leofoo Development Co. Ltd. to have a horizontally comparison in terms of performance.
For liquidity risk of Hotel Holiday Garden, from 2012 to 2014, current ration and quick ration has been keep declining. Both of them have dropped to 0.93 in 2014 from 2.39 in 2012. The working capital also has been declining. This trend shows that the use efficiency of money has been increasing. While it also shows that there is high risk of not being able to pay debt. When compared to Leofoo, the current ratio and quick ratio are at the same level as Leofoo. This may explain that the liquidity risk in hotel industry is relatively high. Still it is recommended that the manager pays some attention to the liquidity risk by increasing current asset in case any unexpected situations.
In terms of turnover ratios of Hotel Holiday Garden, inventory turnover ratio have been increasing from 5.51 to 7.04. This is a good trend. The higher the inventory here, the quicker the inventory turn into current. In this way, it can increase the use efficiency of money and lower the risk of liquidity risk. When compared to Leofoo whose inventory turnover ratio is 4.75, the turnover ratio of Hotel Holiday Garden is much higher which may indicates that the inventory turnover is in the good condition. The asset turnover ratio remains at the same level from 2012 to 2014. When compared to Leofoo, they are both at 0.28. This indicator is pretty low which means that sales capacity is not good enough. The turnover of total asset is too low. The manager should consider use the asset more efficiently to increase the asset turnover ratio.
The solvency ratios of Hotel Holiday Garden remains at a stable level in general from 2012 to 2014. The debt ratio stays at 0.55. The debt to equity ratio has a slightly increase from 1.07 in 2012 to 1.23 in 2014. These two ration are at normal level. The times interest earned has a little decaling from 12.60 in 2012 to 10.75 in 2014. Plus the times interest earned is only 4.39 which may indicate that the ability of paying interests of Holiday Garden is good compared to the industry. It is still at a manageable level and wouldn’t impair the company’s ability to pay debt. It is recommended that the company borrow more money to fund investment. The managers can take the advantage of financial leverage to generate more profit for the company. The debt ratio and debt to equity ratio of Leofoo is 0.52 and 1.07. The solvency ratios of Hotel Holiday Garden is at normal level in the industry.
The P/E ratio of Hotel Holiday Garden has been declined abruptly from 48.05 in 2013 to 25.82 in 2014. The manager should look into this and figure out the reason behind it. Compared to Leofoo Development Co. Ltd., the P/E ratio of Leofoo is 27.14 which is a little better than Hotel Holiday Garden but basically they are at the same level.
From the financial ratio above, it is recommended that Hotel Holiday Garden could invest in more projects since its internal performance looks well. There is not much room for improvement internally. Make more investment would be much helpful to generate profit.
In conclusion, the finance condition of Hotel Holiday Garden is good. There is no risk foreseen that the company cannot handle and it performs a little better than its peer company in some aspects. It is recommended to take a more aggressive position to make more investment, but at the same time manage liquidity risk.