Crystal Hotel Pty Ltd Case

The hotel consists of 160 rooms which can fit 350 guests, the company restaurant has a capacity of 150 guests. The hotel function room and conference room have a maximum of 250 and 200 guests respectively. The average price of a room per night is $150. The hotel finds it difficult to maintain good staffs. The owners of the hotel are thinking of expanding its services by building a wellness center on the rooftop of the hotel which would include a massage treatment room, gym, spa, sauna and an outdoor pool. Rooms generate more revenue to the hotel than the other sources of revenue. Percentage of cost of sales of rooms on total revenue is 13. 04%, Percentage of cost of sales of food and beverage on total revenue is 12.

47%, and Percentage of other cost of sales on total revenue is 2. Rooms incurred higher cost of sales to the hotel than food and beverages. 09%, percentage of cost of security on total revenue is 0. 83%, property operations and maintenance on total revenue is 4. 51% and utilities takes 1. 80% of the total revenue. Percentage of total undistributed operating costs on total revenue is 18%. Financial ratios Profitability ratios Gross Profit Margin The ratio calculates the percentage of sales that exceeds the cost of goods sold. The ratio measures how efficiently the hotel uses its materials to sell its products profitably. Gross profit margin in 2015 is 72. 41%, lower than industry average of 81%. The company should reduce its cost of sales further so as to attain the industry average. This shows that the company is utilizing its owners’ fund effectively to support its operations and grow the company.

Return on Assets Return on assets measures the amount of net income generated from every coin of resources used. Return on assets is much higher than the industry average. Return on assets for the company during the year is 22. 55%, higher than the industry average of 8%. Current Ratio The ratio measures the ability of the company to pay off its current debts using quick assets. The optimal quick ratio is 1, it implies that the company can pay off its current debt fully (Brigham). Quick ratio of the company is 1. 86, lower than the industry average of 3. 20; this implies that the hotel can settle its current liabilities fully when they fall due. As a result, it translates to less cash in the company that can be used to finance its operations.

The hotel should re-evaluate its credit policies to make changes that can help improve its financial performance. It is the best interest of the company have the lowest possible debtors’ collection period considering the time value for money. Days sales outstanding of the company is generally good. The averagely low Days Sales Outstanding is due to the high accounts receivables turnover of the company. Creditors of the company use this ratio to determine the company ability to pay. Crystal Hotel Pty is most likely to be considered by a bank for loans since it has low debt ratio, hence a minimal risk of default. Equity Ratio The ratio calculates the percentage of total owners’ fund on total assets. Equity ratio of the company is 73.