Injibara University

College of Business and Economics

Program- Master of Business Administration (MBA)
Course - Financial and Managerial Accounting
An assignment of comparative financial statements ratio analysis

Individual Assignment

Alemu Amsalu Addis

Email [email protected]

ID NO IUPGW/54/14

Section A

Submitted to: Getaneh Y (ASS.PROF)

A Comparative Study on Financial Performance of Hotel Industry

in Dangla Hahu Hotel & Agunta Hotel

ABSTRACT
The aim of this research is to analyze the financial performance of two big names of Hotel
industry of Dangal(Hahu Hotel and Agunta Hotel). Specifically, the study seeks to analyze both
hotels using financial ratios.
Firstly, a review of the literature on the financial performance of Hotel Industry and use of Ratio
analysis is done in order to understand its use for analysis. Financial statements of Hotels are
mainly used to conduct this research. Overall, the findings show that both hotels have performed
better in 2013 than previous years. It is also seen that both hotels are not maintaining sufficient
assets with respect to liabilities (Liquidity ratios). Hahu profit margin ratio is higher than that of
Agunta Hotel. Given the importance of understanding the ratio analysis with need to fill the
niche of research on the topic in our country.
Keywords: Financial Statements, Ratio analysis, Liquidity ratio, Profit margin ratio

1. INTRODUCTION
1.1 Background:
The hotel industry is one of the most important components of the wider service industry
catering for customers who require overnight accommodation. It is closely associated with the
travel industry and hospitality industry although there are notable differences in scope. The hotel
industry is the servicing business conducting anther significant branch in the economic
development of the country.
1.2 Financial Statement Analysis:
Finance is the life blood of an organization that helps the organization in running its operations
Smoothly. We can define the competitiveness and potential of an organization by its financial
performance. Every industry prepares some statements to understand their financial status and
these statements are known as financial statements. These Financial Statements are;
Balance Sheet
Income Statement
These financial statements provide the information about the financial position and financial
Performance of industry to many users, which are; Managers, Shareholders, Investors, Financial
Institutions, Suppliers, Customers, Employees, Competitors, General Public and Government
Sectors. The understanding of these financial statements is very important for the managers, so
that managers can assess the information from these statements that makes control possible.
(Jonathan A. Hales, 2011). With the help of these information managers can easily evaluate the
worth of Hotel and its level of sales, costs and profitability (Rocoo M.Angelo& Andrew N.
Valadimir, 2011).
Due to the some limitation on financial statements like lack of precision, incomplete information
&lack of comparability, a proper analysis of financial statement is required to identify the
financial strength and weakness of business. In this study, the primary objective is to financially
compare the two major hotels within the Hotel industry of Dangla, Hahu Hotel and Agunta Hotel
by using ratio analysis of each hotel’s consolidated Balance Sheet and Income Statements to
derive the financial position of these hotels.
The aim of this study is to analyze the information from the financial statements
-To assess the Liquidity & Profitability Ratio analysis of hotels,
-To assess the progress of the hotels. 1
2. LITERATURE REVIEW
The comparison that shows the relationship between two amounts is basically known as ratio.
The major financial information of a business brought out from the balance sheet and income
sheet. so that this statements are the principal sources that are mainly used to calculate the
financial ratios (Dong Jin Kim, 2006).Andrew and schmidgall (1993) categorized the financial
ratios into different types for the hospitality industry; Solvency ratios, Liquidity ratios,
Profitability ratios and Operating ratios. Jangels & Ralston (2006) argue that the managers of
internal operations, the shareholders of organization and current creditors are those groups who
are interested in the financial ratio analysis. Financial ratios permit analysis the right of use not
just the absolute value of the relationship and also measure the variance within the relationship
(Lawder, 1989). From the management point of view the justification for the use of financial
ratio analysis is that we express many figures in the form of ratios, and that information which is
missed will be revealed after the individual members are observed (Thomas & Evanson, 1987).
And then that information can be used by the managers for the improvement of their operations.
Auditors can also use ratios for conducting an analytical review of their clients (Gardiner, 1995).
We get numerous amount of information from the balance sheet and income statement, it is also
possible to develop an infinite number of ratios and items related to income statement and to
each other, also items of balance sheet to each others, and as well as with the items of one
statement to the items of other statement.
3. METHODOLOGY
In this study the approach used for the analysis have following steps;
Sample Identification and Data Collection,
Categorization and Selection of Financial Ratios
3.1 Sample Identification:
Hahu Hotel and Agunta Hotel are the samples which were used in this study for the analysis. The
primary factor of using these hotels for analysis as sample is that these hotels are the main and
well reputed hotels in Dangla. These hotels covered a broad spectrum of the hospitality industry.
3.2 Data Collection:
To have a best result the Quantitative method and Qualitative method have been used. As a
secondary data the financial data of these hotels is used and this financial data later calculated
with the help of MS Excel. To know about the performance of these hotels a comparative study
is done, here the study also identified the performance of an individual hotel. As a financial data
the income statement and Balance sheet is used to compute the different financial ratios.
4. ANALYSIS OF FINANCIAL PERFORMANCE
4.1. HAHU HOTEL:
The Hahu hotel is a collection of 10 luxury bed rooms, internet café, parking, bank service and
hotels, which are located in Awi zone specifically Dangla town.
4.2 Agunta hotel
Agunta hotel is a collection of bed rooms, internet café, parking, bank service and hotels, which
are located in Awi zone specifically Dangla town.

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 Hahu Hotel
Balance sheet for three years

Item/year 2013 2012 2011

cash 31586125 46598002 57220211

Account Receivable 3971870 3396124 3667213
Inventories 3379324 2766580 2655112
Total current asset 38937319 52760706 63542536
Fixed asset 47445680 30456840 24354240
Total asset 86382999 83217546 87896776
Current liability 26973546 27004682 27194120
Long term liability 38310480 39153906 41725210
Total liability 65284026 66158588 68919330
Total equity 21098973 17058958 18977446
Total equity and liability 86382999 83217546 87896776

Hahu hotel
Income statement for three years
sale 37266546 31856012 35410102
Cost of goods sold 14619232 11770112 13256020
GP 22647314 20085900 22154082
OP &ADM exp 2248426 2952102 10638212
EBIT 20398888 17133798 11515870
Net income 14279222 11993659 8061109

Liquidity ratio of Hahu hotel

Ratio/year 2013 2012 2011
Current ratio 1.45 1.95 2.33
Quick ratio 1.31 1.85 2.23
Cash ratio 1.17 1.72 2.10
 Hahu hotel Liquidity ratio in graphically

90000000

80000000

60000000 Key

40000000 2013
20000000

10000000 2012
5000000

1000000 2011

00 Notion
TCUA TNCUA TA TCUL TNCUL TL TE&L
TCUA-total current assets

TNCUA- total non-current assets

TA- total assets

TCUL-total current liability

TNCUL- total non-current liability

TL- total liability

TE&L-total equity and liability

Agunta Hotel
Balance sheet for three years

Item/year 2011 2012 2013

cash 1096752 310862 2380357

Account Receivable 15115 263998 566263
Inventories 10011 204686 456879
Total current asset 1121878 779546 3403499
Fixed asset 816169 979859 1278200
Total asset 1938047 1759405 4681699
Current liability 612496 552490 4612005
Long term liability -- ---- ---
Total liability 612496 552490 4612005
Total equity 1325551 1206915 69694
Total equity and liability 1938047 1759405 4681699

Agunta hotel
Income statement for the past three years

sale 5307721 4868794 7456962

Cost of goods sold 3960280 3632595 6050028
GP 1347441 1236199 1406934
OP &ADM exp 1110285 1086610 1106706
EBIT 237156 149589 300228
Net income 166009 104712 210160

Liquidity ratio of Agunta hotel

Ratio/year 2011 2012 2013
Current ratio 1.83 1.41 0.73
Quick ratio 1.81 1.04 0.63
Cash ratio 1.79 0.56 0.51

500000
0
4
300000 Agunta
0 hotel
200000 Liquidity
0 ratio in
graphical
100000
0

800000

600000

400000

200000

80000

60000

TCUA TNCUA TA TCUL TL TE&L

Key
2011

2012 notion
TCUA-total current assets
2013 TNCUA- total non-current assets
TA- total assets
TCUL-total current liability
TNCUL- total non-current liability
TL- total liability
TE&L-total equity and liability

Finding
Balance Sheet of Hahu Hotel shows the current assets over total assets are 72% in 2011, 63% in
2012 and 82% in 2013. And shows the current liabilities over total liability are 39% in 2011,
40% in 2012, and 41% in 2013.
Balance sheet of Agunta Hotel shows the current assets over total assets are 57% in 2011, 44% in
2012 and 72% in 2013. And shows the current liabilities over total liability are 1% in 2011, 1%
in 2012, and 1% in 2013.
Hahu hotel current assets and current liabilities both are decreased from 2011 , 2012, and 2013.
5
Within Hahu current assets cash decreased 12%, 14% and 18% from 2011, 2012and 2013. There
is an increase of 19% in the fixed assets from 2011to 2013.
Agunta hotel current assets are increased in 2011 and 2013 but 2012 decreased and the current
liabilities are decreased from 2011 and 2012, but increased faster 2013.
Within Hahu current assets cash decreased 12%, 14% and 18% from 2011, 2012and 2013. There
is an increase of 19% in the fixed assets from 2011to 2013.
RATIO ANALYSIS OF FINANCIAL STATEMENTS
- Results of Ratio Analysis of Balance Sheet & Income Statement
Hahu Hotel Agunta Hotel
2011 2012 2013 2011 2012 2013
Liquidity Ratios
Current Ratio 2.33 1.95 1.45 1.83 1.41 0.73
Quick Ratio (Acid Test Ratio) 2.23 1.85 1.31 1.81 1.04 0.63
Cash ratio 2.10 1.72 1.17 1.79 0.56 0.51
Accounts Receivable Turnover 9.65 9.38 9.38 351.15 18.44 13.16
Profitability Ratios
Net Profit Margin 0.22 0.70 0.38 0.03 0.02 0.02
Activity Ratios
Inventory Turnover (times) 4.99 4.25 4.32 395.59 17.74 13.24
Leverage Ratios
Equity Ratio 0.21 0.20 0.24 0.68 0.06 0.01
 Financial Liquidity:
Current Ratio matches current assets with current liabilities of the studied hotels and the values
showed whether the current assets are enough to settle current liabilities
Quick Ratio value describe that how well the studied hotels can meet their short term financial
liabilities.
 Profitability Ratio:
Net Profit Margin point outs that after subtracting out all the expenses how well the studied
hotels convert their sales into profits.
 Activity Ratio:
Inventory Turnover helps to measure the efficiency of managing and selling of inventories of
these hotels. In2011 Hahu hotel inventory turnover ratio was 4.99 times which show high
inventory turnover means the company is efficiently managing and selling its inventory and it
also shows that the company’s funds are less tied up. But Company has to be careful if they have
a high inventory turnover as they are subject to stock outs. In 2012Hahu inventory turnover ratio
was 4.25 times which was slightly lesser than the previous year and in 2013 Hahu inventory
turnover was 4.32 times which was garter than the second year.
In 2011 Agunta inventory turnover was 395.59 times which show very high inventory turnover
means the company is efficiently managing and selling its inventory so that fewer funds are tied
up but they also facing the problem of stock outs. In 2012 Agunta inventory turnover was 17.74
times which shows fewer ratios than the previous year, and in 2013 Agunta inventory turnover
was 13.24 times which shows fewer ratios than the previous year.

6
 Leverage Ratio:
Equity Ratio helps to indicate that how much assets of these hotels are financed by debt. In
2011Hahu debt to equity ratio was 0.21 means approx low and considered well, the companies
which has a low amount of debt and is therefore exposed to less risk in terms of interest rate
 increasing or credit rating. In 2012Hahu debt to equity ratio was 0.20 slightly high from the
previous year. In 2013Hahu debt to equity ratio was 0.24 mean higher with the previous year.
Equity Ratio helps to indicate that how much assets of these hotels are financed by debt. In
2011Agunta debt to equity ratio was 0.68 means approx low and considered well, the companies
which has a low amount of debt and is therefore exposed to less risk in terms of interest rate
increasing or credit rating. In 2012 and 2013 debt to equity ratio was 0.02slightly high from the
previous year.

CONCLUSION
This study was conducted to analyses the financial performance of two big hotels; Hahu Hotel
and Agunta Hotel by using different financial ratios. The analysis of both hotels was not an easy
task, because the format of financial statement of both hotels was different. The inspection of
balance sheet shows that the financial positions of Hahu Hotel is seem better than in 2013 and
Agunta Hotel’s is seem better in 2012 than the previous year .
Analysis of liquidity based on balance sheet showed that both studied hotels had problems in
current ratio and Quick ratio. But the analysis results of both ratios of Hahu Hotel are better than
the Agunta Hotel. However, the other types of financial liquidity were at acceptable levels.
Profitability of studied hotel was satisfied.

REFERENCES
 Andrew, W. P. (1993). Capital structure in the hospitality industry. In Andrew, W. P., &
Schmidgall, R. S.(Ed.), Financial management for the hospitality industry. (pp. 240-242).
 Andrew, W. P., & Schmidgall, R. S. (1993). Financial management for the hospitality
industry.
 Dong Jin Kim. (2006). “A Comparative Study of Financial Ratios between Hotels and
Restaurants”.
 International Journal of Tourism Science, 6(1). (pp. 95-106).
 Publish book in the hotel like brusher and folder.
 Annual accounting register in the revenue authority dangla town