Você está na página 1de 53

ACCOUNTING RATIO ANALYSIS TO ASSESS THE Profitability, Liquidity, Capital Structure and Solvency in Hotel Three Sri Lankan

Holding Companies.

2010

Preface
Business has never been as competitive as it stands today, we have witnessed the fall of many industry giants within the last decade than ever before. Industry experts and scholars put this down to many reasons, not forecasting or adapting to possible changers. Not been proactive enough but reactive are few to name. A major area which attracted the lime light was the Accounting sector mainly many critics pointed out that the reason for Financial Giant to collapse was due to lack of correct (Legal) and ethical accounting practices, reflecting their true financial picture/status to the public. Following the fall of many Industry giants their respective annual reports and audit reports were heavily criticized (by media largely) and many others as it had fabricated actual figures yet made up to the general financial standards. Financial reports at a glance provide the profit and loss stance of a company, but to get the maximum leverage or insight knowledge one should be able to read between the lines in accounting terms in an annual report. This is the point where we can use the ratio analysis as a vital tool. Not only to analyze the profit / loss but many other important factors. Understanding the cost effectiveness, capital and liability structure in long term and short term perceptive, effectiveness of assets management, income turnover of assets, etc this will give an comprehensive insight via ratio analysis for the management to make viable strategies, ensuring the prevail and prolonged success. We as a group had many ideas and views to approach this task, to show the effectiveness of the ratio analysis and at the end we commonly agreed to focus our study on the Hotel / tourism Industry where we picked three major (five star) hotels holding companies and the year 2009 as the year to conduct the study, based on their annual reports. There were many reasons behind this selection, as 2009 was a historical year for all Sri Lankans in which we as a nation had to face the peak of the civil war and with a sign of relief saw the end to the 30 year hard fought civil war, three major elections, flood, initiation of major investments, increase in tourists, etc. In a country like Sri Lanka though the share market does not reflect the true picture of the business functions, we have been able to loop the business and financial fluctuations logically and strategically to reflect the original purpose of the

study. We hope that this comprehensive and descriptive ratio analysis will be able to give an in-depth insight to the industry and much other functionality in a more coherent and an accountable manner.

Introduction
Background Industry
Sri Lanka is well-known around the world as being an attractive destination for travel and tourism, offering a wide range of experiences. The sector is a significant contributor to national income and has emerged as the 4 th highest foreign exchange earner in the country. Gross earnings from tourism stood at US $ 384 million in 2009 an increase of 12.3 percent over 2008 making itself as the fast emerging growth industry in the economy. Recently New York identified Sri Lanka as the number one destination out of 31 to visit in the world in year 2010. The Sri Lankan tourism sector is gearing up for increased arrivals and higher average daily expenditure per tourist. It is also focusing on increasing room capacity and generating additional direct employment. The industry is currently investing to upgrade existing hotels and enhance the product range on offer.

of

Selected

Company profiles

Asian Hotels and Properties PLC.

Coroporate Structure

The Asia Hotels and Properties plc is engaged in hoteliering and property development. Its corporate structure consist with three main subsidiary companies namely Cinnamon Grand Hotel, Cinnamon Lake Hotel and Crescat Boulevard.

Performance Overview During the financial year ended March 31st 2010, the Group achieved revenues of Rs. 3.8 billion with a net profit after tax and minority interest of Rs. 606 million, these being increases of 7 per cent and 19 per cent respectively. Stated Capital Rs. 3.3 billion Market value per share is Rs. 131.50 Earning per share is Rs. 2.84
Share Capital as at 31-03-2010 Rs. 208,754,321.

Amaya Leisure PLC.

Coroporate Structure

The Amaya Leisure Plcs principal activities and its subsidiaries included in the consolidation consist of the following: Operators of star class hotels, providing services for management research and development of the hotel chain of the Group. Servicing the MICE (Meetings, Incentives, Conferences and Exhibition) market. Promoting and providing facilities relating to Ecotourism. Operators of high class Wellness and Spa outlets.

Performance Overview During the financial year ended March 31st 2010, the Group achieved revenues of Rs. 4.9 million with a net profit after tax and minority interest of Rs. 3.2 million, It is a increment of 196% compare to the year of 2009 Stated Capital Rs. 466 million

Market value per share is Rs. 73.00 Earning per share is Rs. 1.65 Share Capital as at 31 -03-2010 Rs. 39,502,389.

Galadari Hotel .

Coroporate Structure

The hotel Galadari is situated in the heart of Colombo's business district, and accomplishes with 450super luxury rooms, that overlooks the Indian Ocean and is adjacent to leading Banks and the World Trade Center, with easy access to the shopping areas in Colombo. The Galadari Hotel offers a rich blend of service and quality in five star luxury living. Hotel ensure and meticulous about maintaining the privacy of its guests has drawn in many an elite personality from around the world such as heads of government, prime ministers of leading nations, royalty, well known sports & music personalities over the past two and half decades. With a range of room and suite types, and a comprehensive list of facilities, the hotel is able to cater to the requirements of both business and family travelers, and is especially geared to handle the needs of Muslim clients, with Halal food in all restaurants.

Performance Overview During the financial year ended March 31st 2009, the Group achieved revenues of Rs. 730 million with a net loss after tax and minority interest of Rs. 351 million, It is a increment of 78.73% compare to the year of 2008. (Year 2008 loss 629 million) Stated Capital Rs. 1.8 billion Market value per share is Rs. 15.00 Earning per share is Rs. (1.93)
Share Capital as at 31 -03 -2009 Rs. 153,024,739.

Introduction

to

Financial

Analysis

of

three leading hotels


This study is for examine specific characteristics in the financial analysis of three leading hotels in Sri Lankan, that are listed in the Colombo Stock Exchange (CSE). The analysis is based on the following selected areas to identify whether the three companies assessed and carrying out their financial activities up to standards and also to evaluate and analysis the financial strengths and weaknesses of a firms by establishing meaningful relationships between the elements of financial statements . Selected areas are as follows; Profitability Ratio

Liquidity Ratio Solvency Ratio Activity Ratio Market Ratio

The selected companies for the study are Asian Hotels and Properties PLC (AHP PLC), Amaya Leisure PLC (AL PLC) and Galadari Hotel. All the three companies are listed in Colombo Stock Exchange (CSE). The three companies are mainly operated well in Hotel industry by showing high performance continuously. The analysis of financial operation evaluations in relevant to Sri Lankan Accounting Standards are carrying base on 2009-2010 financial year in all the three companies. The analysis has mainly focused on financial ratio analysis to evaluate financial strengths and weaknesses of firms by establishing meaningful relationships between the elements of financial statements. .

ACCOUNTING RATIO ANALYSIS


Ratio Analysis: is a process of identifying and analyzing of financial strength and weaknesses of a firm by establishing meaningful relationship between the elements of the financial statements. Few advantages and disadvantages of ratio analysis are listed below, Advantages of Ratio Analysis Assist investors to make effective investment decision. Facilitates inter-firm comparison Assist organization planning and forecasting Limitations of Ratio Analysis Effect of price changes Limitations of financial statements Comparative study required:

Profitability Ratios

Profitability ProfitabilityRatio Ratiomeasures measuresthe theresults resultsof ofthe theorganization organization operations, performance and effectiveness. operations, performance and effectiveness. Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company's bottom line. Profitability measures are important to company managers and owners alike. Profitability ratios show a company's overall efficiency and performance. These measures indicate whether the company is performing satisfactorily. They are used to measure the performance of the management, to identify whether a company may be a worthwhile investment opportunity and to determine a companys Performance relative to its competitors.

Classifications of profitability ratios


Profitability Ratios

Gross Profit Ratios

Net Profit Ratios

Return on Asset Ratios

Return on Equity Ratios

Return on Capital Employe d Ratios

to pay fixed costs and profits, are generated from revenues. to payRatio fixed costs and profits, are generated from revenues. 1. Gross Profit Indicates Indicateshow howmuch muchof ofeach eachsales salesrupee rupeeis isavailable availableto to meet expenses and profits after merely paying for the meet expenses and profits after merely paying for the goods goodsthat thatwere weresold soldof ofan anorganization. organization.

Gross indicates the amount of earnings, required GrossProfit ProfitRatio Ratio indicates the amount of earnings, required

The gross profit margin looks at cost of goods sold as a The gross profit margin looks at cost of goods sold as a percentage of sales. This ratio looks at how well a company percentage of sales. This ratio looks at how well a company controls the cost of its inventory and the manufacturing of its controls the cost of its inventory and the manufacturing of its products or services and subsequently passes on the costs to products or services and subsequently passes on the costs to its customers. The larger the gross profit margin, the better its customers. The larger the gross profit margin, the better for the company. for the company.

Formula Gross Profit Ratio Profit 100 = Gross

Net Sales Calculation and comparison of Gross Profit Ratios for three companies

Asian Hotels and Properties PLC.


Gross Profit = Gross Profit 100 Ratio Net Sales

Amaya Leisure PLC.


Gross Profit = Gross Profit 100 Ratio Net Sales

Galadari Hotel PLC.


Gross Profit = Gross Profit 100 Ratio Net Sales

Rs. 000
Gross Profit = 1,663,977 100 Ratio 3,833,158

Rs.
Gross Profit = 4,981,460 100 Ratio 4,981,460

Rs.
Gross Profit = 577,378,333 100 Ratio 730,093,065

43.41%

100%

79.08%

According to the definition of gross profit ratio, the company who has generated the highest value of gross profit is best/ preferred, because gross margin should be adequate to cover-up other expenses of the company. According to the above analysis, Companies can be rank as below, Best
Amaya Leisure PLC

Second Highest
Galadari Hotel PLC.

Third
Asian Hotels and Properties PLC.

Net Profit Ratio shows how much of each sales rupee 2. Net Profit shows Ratio up as net income after all expenses are paid. The
net profit margin measures profitability after consideration of all expenses including taxes and interest.

Formula Net Profit Ratio and tax 100 = Earnings after interest Net Sales

Calculation and comparison of Net Profit Ratios for three companies

Asian Hotels and Properties PLC.


Net Profit = 100 Ratio EAIT

Amaya Leisure PLC.


Net Profit = 100 Ratio EAIT

Galadari Hotel PLC.


Net Profit = 100 Ratio EAIT

Net Sales

Net Sales

Net Sales

Rs. 000
Net Profit = 100 Ratio 606,288

Rs.
Net Profit = 100 Ratio 3,228,598

Rs.
Net Profit = (351,985,121) 100 Ratio 730,093,065

3,833,158

4,981,460

15.82%

64.81%

(48.21)%

Interpretation of Profitability Ratios for three companies

Gross Profit & Net Profit Ratio


The second highest gross profit recorded from hotel Galaradi and it indicates higher amount of sales and low cost of sales, but it has the lowest and negative net profit ratio. The reason was the hotel Galadari has extremely high administration, financial and other operating expenses amounting Rs.864, 466,721 due in efficiency of operations.

Administration Expenses 100 = 62.61% Sales

100 =

457,126,776 730,093,065

Other Operating Expenses 100 = 40.63% Sales Financial Expenses 100 = 15.16% Sales

100 =

296,637,708 730,093,065

100 =

110,702,231 730,093,065 864,466,721 100 =

Three main expenses as a percentage to sales = 118.40% 730,093,065

According to the above analysis shows, Hotel Galadari has been utilized, its large portion of income to pay off three main expenses due to in efficiency of their internal operational issues and high interest payments for bank overdraft, financial leases and bank term loans due to current financial crisis. According to these figures Amaya Leisure Plc has highest gross profit ratio (i.s. 100%) and highest net profit ratio compared other two hotels. A higher gross profit ratio is good for a company because it indicates higher sales and zero cost of sales this is unusual situation in business.

Administration Expenses 100 = 242.67% Sales

100 =

12,088,612 4,981,460

Financial Expenses 100 = 512.38% Sales

100 =

25,523,896 4,981,460

Amaya Leisure Plc has hazardous satiation than the hotel Galaradi in the facts of high financial and administration cost due in lack of operational and management in efficiencies and high interest payment but Amay Leisure Plc able maintain good net profit ratio due to have high other income source amounting Rs.35.86 million . Asian hotels Plc has lowest gross profit ratio and second highest net profit ratio. Their administration, financial and other expenses were low. Comparing with other two hotels, Asian Hotels PLC was performed well during the year 2009.

Administration Expenses 100 = 26.52% Sales Other 100 Expenses = 14.95%

100 =

1,299,530 4,899,671

100 =

732,699 4,899,671

Sales

According to the above analysis shows, Asian Hotels Plc has been utilized small portion of its income to pay off their administration, finance and other expenses due efficiency of their management and operational efficiencies.

3. Return on Assets Ratio Return on Assets Ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets.

Net Income is taken from the income statement and total assets are taken from the balance sheet. The higher the percentage is the better, because that means the company is doing a good job using its assets to generate sales.

Formula Return on Assets Ratio after Tax 100 = Net Profit

Average or Total Assets

Calculation and comparison of Return on Assets Ratios for three companies Asian Hotels and Properties PLC. Amaya Leisure PLC.
ROA = Net Profit after tax 100 Ratio Total Assets

Galadari Hotel PLC.


ROA = Net Profit after tax 100 Ratio Total Assets

ROA = Net Profit after tax 100 Ratio Total Assets

Rs. 000
ROA 100 Ratio = 606,288 ROA = 100

Rs.
3,228,598

Rs.
ROA = (351,985,121) 100 Ratio 8,081,784,320

12,796,177

4.74%

Ratio 1,111,175,529

0.29%

(4.35)%

Interpretation of Profitability Ratios for three companies Return on Assets Ratio


Asian Hotels Plc has the best return on assets ratio when compare to other two hotels (i.s. 4.74%). They have managed its investments on assets and utilized them to generate disenable profit as well. They have done well in using its assets to generate sales comparing to other two hotels. Amaya Leisure Plc generate very poor return on assets ratio due lack of supervision on their investment projects and some projects are loss making. There

fore Amaya Leisure Plc is unable to generate sufficient return on assets and generate attractive profits. Hotel Galadari has negative ratio value and they are in bad position in using their assets to generate the profits due to having huge loss making investment project under financial crisis situation as well as their profits are heavily affected from exchange losses.

4. Return on Equity Ratio

Return on Equity Ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company.

Net income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage is the better; it shows that the company is doing a good job using the investors' money.

Formula Return on Equity equity holders 100 = Net Profit available for

Average or Total Equity

Calculation and comparison of Return on Equity Ratios for three companies Asian Hotels and Properties PLC.
ROE = Net Profit available 100 Ratio Holders for equity

Amaya Leisure PLC.


ROE = Net Profit available 100 Ratio Holders for equity

Galadari Hotel PLC.


ROE = Net Profit available 100 Ratio Holders for equity

equity ROE 100 Ratio

Rs. 000
=

Average or total equity ROE = 100 Ratio 606,288

Average or total

Rs.

Average or total equity

Rs.

3,228,598

ROE = (351,985,121) 100 Ratio 1,346,063,925

10,933,594

577,326,607

5.54%

0.56%

(26.15)%

Interpretation of Profitability Ratios for three companies Return on Equity Ratio


Asian Hotels Plc has the highest return on equity ratio among the other two groups of hotels. (i.s. 5.54%). Management of the Asian Hotels Plc is able to utilize investors money more effectively and efficiently to generate adequate profits to pay off fair retunes to their investors and done a good job using the investors money. Therefore the investors of Asian Hotels PLS have taken the highest return on the capital that they have invested in to the company. Amaya Leisure Plc has very poor return on equity ratio. There are unable to generate sufficient profits to pay off fair retunes to their investors mainly due heavy out flow of financial expenses based on interest payments for bank overdrafts, financial leases and term loans and administration expenses. Therefore we can say Amaya PLC is not in that much of good position and they have not done a good job for their investors money.

Hotel Galadari is in worst position regarding the return on equity. There are unable to generate single cense of profits to pay off fair retunes to their investors and they are unable to utilized the investors money, mainly due heavy out flow of administration, other operating and financial expenses based on interest payments for bank overdrafts, expenses.

5. Return on Capital Employed Ratio Return on Capital Employed : The ratio compares the profit earned (usually before interest and tax) to the funds used to generate that return (often the total of share holders funds at the beginning of the accounting period plus long term creditors most simply defined as total assets minus current liabilities). In theory, the higher the ratio, the more profitably the resources of the company have been used. Formula Return on Capital Employed = Interest and tax 100 Earnings before

Equity + Debt Capital

Calculation and comparison of Return on Capital Employed Ratios for three companies

Asian Hotels and Properties PLC.


ROCE = 100 Ratio Capital EBIT

Amaya Leisure PLC.


ROCE = 100 Ratio Capital EBIT

Galadari Hotel PLC.


ROCE = 100 Ratio Capital EBIT

Equity + Debt

Equity + Debt

Equity + Debt

Rs. 000
ROE 100 = 732,574 ROE = 100

Rs.
28,753,794

Rs.
ROE = (240,666,403) 100 Ratio1,346,063,925+6,35 0,658.682

Ratio 10,933,594 +624,566

Ratio 577,326,607 +1,667,318

6.34%

4.97%

(3.13%)

Interpretation of Profitability Ratios for three companies Return on Capital Employed Ratio
Asian Hotels Plc has the highest return on capital employed ratio among the other two groups of hotels. (i.s. 6.34%). The generated profits / earnings are sufficient of the management of Asian Hotels Plc to settle the payments for all fund providers of the business. We can say The Asia Hotel Plc is financially stable company any low risk company and good for investment Amaya Leisure Plc Even though they have very poor return on equity ratio due to heavy out flow of financial expenses based on interest payments for bank overdrafts, financial leases and term loans and administration expenses. Company is able to manage good return on capital employed ratio by generate sufficient profits to settle payments for all fund providers of the business. This strength received them due to have heavy cash inflow from other sources of income to the business amounting Rs.35.8 million. Hotel Galadari is in worst position regarding the return on capital employed. There are unable to generate sufficient profits to pay off their external fund providers of the business, mainly due heavy out flow of administration, other operating expenses. We can say this is high risk business and there might be possibilities for future bankruptcies

LIQUIDITY RATIOS
A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Liquidity ratios is one of the important measures which a company undertakes in measuring its ability to meet short term obligations. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern. In general, the greater the coverage of liquid assets to short-term liabilities the better as it is a clear signal that a company can pay its debts that are coming due in the near future and still fund its ongoing operations.

Classifications of Liquidity ratios


Liquidity Ratios

Current Ratios

Acid Test (Quick) Ratio Ratios

Debtors collectio n Period

Cash Ratios

1. Current Ratio

Thecurrent ratio isa popular financial ratio used to test a company'sliquidity (also referred to as its current orworking capital position) by deriving the proportion of current assets available to cover current liabilities. It is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. The current ratio is used extensively in financial reporting. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cashequivalents, marketable securities, receivables and inventory) are readily available to pay off its shortterm liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). The higher the current ratio,
the better.

Formula Current Ratio = Current Assets Current Liabilities Calculation and comparison of Current Ratio for three companies Galadari Hotel 2008/2009 Current Assets Current Liabilities 2009/2010 Current Assets Current Liabilities 203,107,674 316,724,410 239,416,915 347,183,942 Amaya PLC. Leisure Asian Hotels and Properties PLC. 1,229,249 1,146,221 1,359,907 1,293,705

57,495,207 563,874,921 37,633,237 528,324,511

Current Ratio Year 2008/2009 2009/2010

Galadari Hotel 0.64 0.69

Amaya Hotels PLC 0.1 0.07

Asian Hotels and Properties PLC. 1.072 1.051

Interpretation of Liquidity Ratios for three companies

Current Ratio A current ratio equal to or near 2: 1 is considered as a standard or normal or satisfactory. Hotel Gladari and Asian Hotels Plc current ratio do not significantly vary in both comparable years. Though Amaya Hotels Plc has a slightly decrease in the financial year 2009/2010. Thus decrease in the current ratio represents that there has been deterioration in the liquidity position of the firm. Asian Hotels Plc has a relatively high current ratio both in the financial years 2008/2009 and 2009/2010 which is an indication that the company is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, Amaya Hotels PLC in 2009/2010 has a relatively low current ratio. Which represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties.. 2. Acid-Test (Quick) Ratio

The quick ratiomeasuresa company'sability to meetits short-term obligations withits most liquid assets. It is a more well-known liquidity measure, because itexcludes inventory from current assets. Thequick ratio or theacid-test ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the mostliquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position. Formula:

Calculation and comparison of Acid Test (Quick) Ratios for three companies Galadari Hotel 2008/2009 Cash and Cash Equivalents Marketable securities Accounts receivable Current liabilities 2009/2010 Cash and Cash Equivalents Marketable securities Accounts receivable Current liabilities 104,913,173 64,552,851 98138418 347,183,942 260666 35980906 528324511 1037997 995376 176942 1293705 93,687,036 34,510,654 75940670 316,724,410 453746 55347200 563874921 666867 645372 175444 1146221 Amaya Hotels Asian PLC PLC Hotels

Quick Ratio Year 2008/2009 2009/2010

Galadari Hotel 0.64 0.77

Amaya Hotels PLC 0.09 0.06

Asian Hotels PLC 1.297 1.708

Interpretation of Liquidity Ratios for three companies Quick Ratio Quick ratio is used as a complementary ratio to the current ratio. This ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. Galadari Hotel and Amaya Hotels Plc Quick ratio do not show significant changes compared to the financial years 2008/2009 and 2009/2010. Thus, Asian Hotels Plc Quick ratio turns up to be about 0.5 increase compared to year 2009. And compared to those two companies Galadari hotel has a higher quick ratio than the other. Asian Hotels Plc among the other companies has a higher quick ratio which is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time. On the other hand Amaya Hotels Plc compared to other two hotel companies has a low liquidity ratio which represents that the firm's liquidity position is not good. As a convention, generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory. Although liquidity ratio is more rigorous test of liquidity than the current ratio , yet it should be used cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity

position of the firm if all the debtors cannot be realized and cash is needed immediately to meet the current obligations.

3. Debtors Collection Period Debt collection period is the period over which the debtors are collected on an average basis. It indicates the rapidity or slowness with which the money is collected from debtors. This ratio designates how quickly and efficiently the debts are collected. Although no standard period is prescribed anywhere, it depends on the nature of the industry. Formula: Debtors Collection Period = Trade debtors 365

Sales Revenue

Calculation and comparison of Debtor Collection Period for three companies Galadari Hotel 2008/2009 Trade debtors Sales revenue 2009/2010 Trade debtors Sales revenue 55,473,998 701,389,170 82,153,535 730,093,065 Amaya Hotels PLC 6721843 4786781 11273890 4981460 Asian Hotels PLC 42879 3424956 52357 3833158

Debtors Collection Period Year Galadari Hotel 2008/2009 2009/2010 28.8 41

Amaya Hotels PLC 512 826

Asian Hotels PLC 4.56 4.98

Interpretation of Liquidity Ratios for three companies Debtors Collection Period The normal period for collecting debts will differ between industries. The figure measures in number of days how long on average it has taken the company to collect its debts. Compared to the companies Amaya Hotels Plc has a huge debtors collection perid which seems to be worryingly high. This may be because mostly it deals with services in the hotel industry and most payments are done through credit card payments. Therefore lot of business on credit though will have much higher debt collection periods. And in 2009/2010 it has driven more high than in 2008/2009. Galadari Hotel has a debtors Collection period of 28 days in 2008/2009 and 41 days in 2009/2010. Thus it shows an increase in the collection period and it implies and signals of increasing bad debts rather than the previous financial year 2008/2009. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. And that means your accounts receivables aren't as liquid or aren't being converted to cash as quickly. Asian hotels Plc seems to have a shorter collection period which implies prompt payment by debtors. It reduces the chances of bad debts. It is difficult to provide a standard collection period of debtors.

The cash ratio is the most stringent and conservative of the three short-termliquidity ratios (current ratio,quick ratio and cash ratio). 4. Cash Ratioare those that can be most easily used to pay off current which
obligations. Cash ratio ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities. It only actions the ability of a firm's cash, along with investments that are easily converted into cash, to pay its short-term obligations. It only looks at the most liquid short-term assets of the company,

Formula:

Calculation and comparison of Cash Ratios for three companies Galadari 2008/2009 Cash and cash equivalents Current liabilities 2009/2010 Cash and cash equivalents Current liabilities 93,687,036 316,724,410 104,913,173 347,183,942 Amaya PLC 453746 563874921 260666 528,324,511 Hotels Asian Hotels PLC 666867 1146221 1037997 1,293,705

Cash Ratio Year 2008/2009 2009/2010

Galadari 0.29 0.3

Amaya PLC 8.0 4.9

Hotels Asian Hotels PLC 0.58 0.8

Interpretation of Cash Ratios for three companies Cash ratio measures the immediate amount of cash available to satisfy short-term liabilities. A cash ratio of 0.5:1 or higher is preferred. This is used by creditors when deciding how much credit, if any, they would be willing to extend to the company.

Among the three companies Amaya Hotels Plc has a considerably higher cash ratio compared to the other ratios. In 2008/2009 it is 8.0 and in 2009/2010 cash ratio is 4.9. Along with the quick ratio, a higher cash ratio generally means the company is in better financial shape. Though it has been decreased in the financial year 2009/2010 though it is higher compared to the other two companies. The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities. Because being that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns. Therefore providing an interesting liquidity perspective, the usefulness of this ratio is limited.

LEVERAGE RATIO ANALYSIS


Leverage of a business to meet LeverageRatio Ratiomeasures measuresthe theability ability of a business to meet its itslong-term long-termfinancial financialobligations. obligations.

Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. Investors and lenders often look closely at the solvency ratio as a means of evaluating the credit rating of a business and assessing the degree of default risk that is currently present.

Classifications of Leverage ratios

1. Debt Financing Ratio

The TheDebt Debtfinancing financingratios ratiosinvolve involvethe themeasuring measuringof ofthe the extent to which the firm has used debt as their source of extent to which the firm has used debt as their source of finance. finance.

Formular Formular: : Debt DebtRatio Ratio(Debt (Debtto toAsset AssetRatio) Ratio) = = Long-term Long-termdebt debt Total Totalassets assets

Long-term Long-termDebt Debtto toTotal TotalCapitalization Capitalization= = term debt term debt Long-term Long-termdebt debt+ + stockholder's equity stockholder's equity

LongLong-

Debt Debtto toEquity EquityRatio Ratio= =

Long-term Long-termdebt debt

Stockholder's Stockholder'sEquity Equity

Each of the three debt ratios measures the extent of the firm's financing with debt. The amount and proportion of debt in a company's capital structure is important to the financial analyst because of the tradeoff between risk and return. Use of debt involves risk repayment. Failure to satisfy the fixed charges associated with debt ultimately results in bankruptcy. A lesser risk is that a firm with too much debt has difficulty obtaining additional debt financing when needed or finds that credit is available only at extremely high rates of interest. Although debt implies risk, it also introduces the potential for increased benefits to the firm's owners.

The debt ratio considers the proportion of all assets that are financed with debt. The ratio of long-term debt to total capitalization reveals the extent to which long-term debt is used for the firm's permanent financing (both longterm debt and equity). The debt to equity ratio measures the overall riskiness of the firm's capital structure in terms of the relationship between the funds supplied by creditors (debt) and investors (equity). The higher the proportion of debt, the greater the degree of risk because creditors must be satisfied before owners in an event of bankruptcy. The equity base provides, in effect, a cushion of protection for the suppliers of debt. Because debt carries a fixed commitment in the form of interest charges and principal.

Calculation and comparison of Debt Financing Ratios for three companies. Financial Data Galadari Hotel Ltd Amaya Leisure Plc Asian Hotels and Properties

PLC
Non Current Liabilities Equity Capital Total Assets Interest Bearing Debt 6,388,536,453 1,346,063,925 8,081,784,320 6,350,658,682 5,524,411 577,326,607 1,111,175,529 1,667,318 568,878 10,933,594,000 12,796,177 490,866

Ratio
Debt to Equity Ratio Debt to Total Asset Ratio Debt to Total Capitalization Ratio Interest bearing Debt to Equity Ratio

Galadari Hotel Ltd


4.75 0.79 0.83 4.72

Amaya Leisure Plc


0.01 0.005 0.01 0.003

Asian Hotels and Properties PLC


0.05 0.04 0.05 0.04

Interpretation of Debt Coverage Ratios for three companies There is difference of opinions on what constitutes an acceptable or good leverage ratio. This is because profit margins will vary from one industry to another. It is necessary to adjust the evaluation of the outcome to conform with the standards that apply to a given industry. On average, a solvency ratio that is more than 20% or .02 is considered a strong sign that a business is financially healthy and very likely to honor all long-term debt obligations. Should the ratio fall below that percentage, which is an indication that there is some additional risk of either slow

payments or total default on a portion of those debts. As the leverage ratio sinks lower over time, this is an indication that the company is undergoing some type of financial distress and is not considered a good credit risk. Debt to Equity Ratio In this specific study four debt financing ratios has been calculated to evaluate the financial stability in terms settling its long term debt. First when comparing the Debt to Equity Ratio of the three companies. Galadari Hotel Plc (GHP) is in a very crucial & risky financial situation because its debt capital is significantly higher than its equity capital. GHP debt capital is approximately 4 times bigger than its equity capital. The company is working in a very thin edge and the risk collapsing down due to the insolvency is very high. If debt terms are deeply analyzed GHPs borrowings are from government and related parties yet that would not reduce the risk which effect to the companies long term survival. Compared to this company debt to equity ratio of Amaya Leisure Plc (ALP) and Asian Hotels and Properties Plc (AHPP) is much satisfactory which results in only 10% and 50% of debt capital from its equity respectively. Though ALP have able to reduce the financial risk whether they are managing their financial structure effectively because higher equity capital indicates higher cost to the company in terms of required rate of return of fund providers.

Debt to Total Asset Ratio Debt total asset ratio shows in which financial source the company has financed its assets. The ratios shows that the 79% of the debt is financed by the debt capital of the company. This gives a hint that the total assets should be utilized very effectively to make sure that it will generate a higher returns to pay off the fixed interest charges. The ratios of the two companies are marginal which the majority of the assets are financed by equity capital.

Debt to Interest Baring Borrowings Ratio The motive of calculating an additional ratio which is Interest bearing debt to equity ratio is because to identify pure effect of debt capital to the companys financial position. The debt capital figure used to calculate the debt to equity ratio consist interest bearing loans and borrowings, other deferred liabilities. retirement benefit liability. Latter two are the liabilities which has arise during the cause of business may be due to tax and legal purposes not with the intension of financing the business. Only the interest bearing borrowings are the debt raised for the purpose of financing the business. With regard to GHP and AHPP their isnt significant difference between this ratio and Debt to equity ratio because in these two companies the long-term debt other than interest bearing are marginal. But ALP the ratio is far more lower than the debt to equity ratio because from the total noncurrent borrowing 70% is retirement benefit liability. There utilization of debt capital by the ALP is lower as .0003.

Considering the debt financing ratios the company can be ranked as follows,

Best
Amaya Leisure PLC

Second Highest
Asian Hotels and Properties PLC.

Worst
Galadari Hotel PLC.

2. Coverage Ratios

Coverage Coverageratios ratiosmeasure measurethe thedegree degreet twhich whichthe thefirm firmis iscable cableof of paying its fixed interest charges of the period out of the operating paying its fixed interest charges of the period out of the operating profit profitor orcash cashflows flowsgenerating generatingduring duringthe thesame sameperiod. period. Formular Formular: :

Interest InterestCover Cover = =

Operating Operatingprofit profit(EBIT) (EBIT)

Interest Interestexpense expense


a b Cash CashInterest InterestCoverage Coverage= =CFO CFOa+ +interest interestpaid paid+ +taxes taxespaid paidb Interest Interestpaid paid

Cash CashFlow FlowAdequacy Adequacy= = activities activities

Cash CashFlow Flowfrom fromoperating operating

Capital Capitalexpenditures expenditures+ +Debt Debt Repayments + dividends paid Repayments + dividends paid
a

Cash flow from operating activities (CFO ) Cash flow from operating activities (CFO )

The amounts for interest paid and taxes paid are found in the b The amounts for interest paid and taxes paid are found in the supplemental disclosures of the statement of cash flows. supplemental disclosures of the statement of cash flows.

In order for a firm to benefit from debt financing, the fixed interest payments that accompany debt must be more than satisfied from operating earnings. Generally the higher the interest cover ratio, the better the firm's

situation; however, if a company is generating high profits but no cash flow from operations, this ratio is misleading. It takes cash to make interest payments. The cash interest coverage ratio measures how many times interest payments can be covered by cash flow from operations before interest and taxes. The cash flow adequacy ratio measures how well a company can cover annual payments of items such as debt, capital expenditures, and dividends from operating cash flow. ash flow adequacy is generally defined differently by analysts and credit rating agencies; therefore, it is important to understand what is actually being measured. It is desirable for companies to generate enough cash flow from operations to cover repayments of debt, some new capital expenditures, and any cash dividends paid.

Calculation and comparison of Coverage Ratios for three companies.


Galadari Hotel Ltd 110,7 02,231 (240,6 66,403) 15,1 54,808 Amaya Leisure Plc 25,52 3,896 28,75 3,794 (16,83 6,660) Asian Hotels and Properties PLC 118,59 6,000 732,57 4,000 1,950,8 45,000 (17,88 1,000) (9,5 79,580) (465 ,810) (5,97 1,463) (263,9 27,000) (133,7 00,000) (446,4 65,000)

Financial Data Finance Cost/Interest Cost EBIT Cash flow from operating activities (CFO) Tax paid Capital Expenditure Debt Repayment Dividends Paid

Ratio Interest Cover Cash Interest Coverage Cash Flow Adequacy

Galadari Hotel Ltd (2.17) 1.14 1.58

Amaya Leisure Plc 1.13 0.34 (2.62)

Asian Hotels and Properties PLC 6.18 17.30 2.31

Interpretation of Ratios for three companies

Interest Cover Ratio When analyzing the converge ratios of the three companies it is evident that the GHP have the poorest performance with regard to covering the annual payment of its debt. Having a negative interest cover ratio signals, the company is not capable of generating a profit to cover its interest cost. But the positions of the other two companies are fairly positive. ALP having a 1.13 interest indicates that the company has Rs. 1.13 of profits available to pay Rs.1 of Interest. And similarly AHPP has Rs. 6.18 operating profits to pay Rs. 1 of Interest. These ratio hiGHPights that not only GHP is not well managing their capital structure with risky debt capital but they do not qualify t generate an profit to cover the cost of capital.

Cash Interest Coverage Comparing cash interest coverage and interest cover well illustrates the profitability and liquidity of company. From the three companies the ALP has the weakest ratio and AHPP has the best position with regard to this ratio. Though GHP is not satisfactory with regard to interest cover their cash flow

situation to covet its interest cost is positive, which means though they earn losses the firm has been able to maintain a liquidity level to pay its debt holders. But the state is reverse with regard to ALP their cash flow situation to cover interest is lower as .34 though they have a interest cover of 1.13. The ratio is impressive with regard to AHPP as always they do not have an cash flow is with paying interest as they have an cash interest cover of 17.3.

Cash Flow Adequacy When analyzing the cash flow adequacy of the three companies it can be recognize that the AML is facing issues with covering its main long term cash flows like capital expenditure and debt repayment because having a negative cash flow adequacy ratio of 2.62 means the company does not generate an operational cash flow to pay its main investment activity and finance activity. Simply the operating cash flow is not adequate but with regard to GHP an AHPP this has resulted with a positive figure which means the operating cash flow is adequate to pay up is capital expenditure and debt repayments.

Considering the debt coverage ratios the company can be ranked as follows, Best
Asian Hotels and Properties PLC

Second Highest
Galadari Hotel PLC.

Worst
Amaya Leisure PLC.

Activity Ratios

Activity measures ActivityRatio Ratio measuresthe theefficiency efficiencywith withwhich whichthe the recourses of a firm have been employed and its indicate recourses of a firm have been employed and its indicatethe the speed with which assets are being turned over into sales.. speed with which assets are being turned over into sales.. Activity ratios measure a firm's ability to convert different accounts (asset, liability or capital share) within their balance sheets into cash or sales (revenue). Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. In general, the sooner management can convert assets into sales or cash, the more effectively the firm is being run. Such ratios are frequently used when performing fundamental analysis on different companies. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios. Basically, activity ratios measure the effectiveness of the firms use of resources. Activity ratios are critical in evaluating a companys fundamentals because in addition to expressing how well a company generates revenue, activity ratios also indicate how well the company is being managed.

Classifications of Activity ratios


Activity Ratios

Inventory/Stoc k Turnover Ratio

Debtors / Receivables Turnover Ratio

Assets Turnover Ratio

1. Inventory / Stock Turnover Ratio

Inventory Inventory/ /Stock StockTurnover TurnoverRatio Ratioindicates indicatesthe the number of time the stock has been turned over number of time the stock has been turned overduring during the period and evaluates the efficiency with which the period and evaluates the efficiency with whichaa firm firmis isable ableto tomanage manageits itsinventory. inventory.This Thisratio ratioindicates indicates whether investment in stock is within proper limit whether investment in stock is within proper limitor or not. not.

This Thisratio ratioshows showsthe therelationship relationshipbetween betweenthe thecost costof of goods sold during a particular period of time and the goods sold during a particular period of time and the cost costof ofaverage averageinventory inventoryduring duringaaparticular particularperiod. period.ItItis is expressed in number of times. expressed in number of times.

Formula Inventory/ Stock Turnover Ratio Inventory = Cost of Goods Sold Average

Calculation and comparison of Inventory/ Stock Turnover Ratios for three companies

Asian Hotels and Properties PLC.


Inventory Goods Sold Turnover Inventory Ratio Cost of

Amaya Leisure PLC.


Inventory Goods Sold Turnover Inventory Ratio Inventory Turnover Ratio Cost of

Galadari Hotel PLC.


Inventory Goods Sold Turnover Inventory Ratio Cost of

Average

Average

Average

Rs. 000
= 2,169,181 65,931.50

Rs.
= Nil Nil

Rs.

Inventory Turnover Ratio

Inventory = 152,714,732

Turnover 32,623,801 Ratio

32.9

4.68

Interpretation of Activity Ratios for three companies Inventory / Stock Turnover Ratio
Asian Hotels Plc has the best Inventory turnover ratio when compare to other two hotels (i.s. 32.9). This mean that an average one rupee invested in stock will turn into 32.9 sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit,

Sometimes, a high inventory turnover ratio may not be accompanied by relatively high profits. Similarly a high turnover ratio may be due to under-investment in inventories.

Amaya Leisure Plc and Hotel Galadari shows relatively very low inventory turnover ratio and it indicates an inefficient management of inventory. A low inventory turnover implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. The inventory turnover ratio is also an index of profitability, where a low ratio signifies low profit.

2. Debtors / Receivables Turnover Ratio

Debtors indicates DebtorsTurnover TurnoverRatio Ratio indicatesthe thevelocity velocityof of debt collection of a firm. In simple words it indicates debt collection of a firm. In simple words it indicates the thenumber numberof oftimes timesaverage averagedebtors debtors(receivable) (receivable)are are turned over during a year. turned over during a year.

Trade Tradedebtors debtorsare areexpected expectedto tobe beconverted convertedinto intocash cash within a short period of time and are included in within a short period of time and are included in current currentassets. assets.Hence,the Hence,theliquidity liquidityposition positionof ofconcern concern to pay its short term obligations in time depends to pay its short term obligations in time dependsupon upon the quality of its trade debtors. the quality of its trade debtors.

Calculation and comparison of Debtor Turnover Ratios for three companies

Asian Hotels and Properties PLC.


Debtors Sales Turnover Debtors Ratio Total Credit

Amaya Leisure PLC.


Debtors Sales Turnover Debtors Total Credit

Galadari Hotel PLC.


Debtors Sales Turnover Debtors Total Credit

Average

Average

Average

Ratio Ratio Rs. 000 Rs. Rs. Credit sales Credit sales Credit sales Informations are not Informations are not Informations are not available in annual available in annual available in annual report to calculate report to calculate report to calculate and interpretations of and interpretations of and interpretations of debtors turnover debtors turnover debtors turnover ratio ratio ratio

3. Asset Turnover Ratio

Asset measures the revenue that is AssetTurnover TurnoverRatio Ratio measures the revenue that is generated for every rupee generated for every rupeeof ofasset assetowned ownedby bythe the company. company.

Asset Assetturnover turnoverratios ratioshelp helpto tomeasure measurethe theeffectiveness effectiveness with which the company/management uses with which the company/management usesits itsassets assetsto to generate sales or revenue. These ratios help to measure generate sales or revenue. These ratios help to measure Formula the theproductivity productivityof ofaacompany's company'sassets assets Asset Turnover = Total Sales Ratio Assets Average Total

Calculation and comparison of Assets Turnover Ratios for three companies

Asian Hotels and Properties PLC.


Asset Sales Turnover Total Assets Ratio Asset Total

Amaya Leisure PLC.


Asset Sales Turnover Total Assets Ratio Inventory Total

Galadari Hotel PLC.


Asset Sales Turnover Total Assets Ratio Total

Average

Average

Average

Rs. 000
= 3,833,158

Rs.
= 4,981,460

Rs.

Turnover 12,796,177 Ratio

Turnover 1,111,175,529 Ratio

Inventory = 730,093,065 Turnover 8,081,784,320 Ratio

0.30.

0.004

0.09

Interpretation of Activity Ratios for three companies Asset Turnover Ratio In general companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Based on that we can say Asian Hotels Plc run with low profit margin that and is the reason they have highest asset turnover and its symbolizes greater shareholder wealth compare two other two hotels. Amaya Leisure Plc has lowest asset turnover ratio because there are running with higher profit margins compare to other two hotels.

Market Ratios
Market Marketratios ratiosmeasure measurethe theinvestor investorresponse responseto toowning owningaa company's company'sstock stockand andalso alsothe thecost costof ofissuing issuingstock. stock. A market-value ratio is a metric used to gauge a company's viability in terms of such variables as profitability and the market valuation of its stock. These ratios are used analytically by a company's management as well as by its current and prospective investors. A market-value ratio also acts as an indicator that expresses the value of a company's stock in terms of a specific item in its financial statements. Different ratios indicate a company's viability, or financial health, where asset values, revenue, income, and ability to pay bills are concerned.

Classifications of Market ratios


Market Ratios

Earnings per share Ratios

Dividen ds per Share

Dividend s Payout Ratios

Price Earnings Ratios

Earning s Yield Ratio

1. Earnings per Share

Earnings Earningsper pershare share(EPS) (EPS)the theportion portionof ofaacompany's company'sprofit profit allocated to each outstanding share of common stock. allocated to each outstanding share of common stock. Earnings Earningsper pershare shareserves servesas asan anindicator indicatorof ofaacompany's company's profitability. profitability. Basic BasicEarnings Earningsper pershare shareis iscalculated calculatedby bydividing dividingthe thenet netloss loss for the year attributable to ordinary shareholders by the for the year attributable to ordinary shareholders by the weighted weightedaverage averagenumber numberof ofordinary ordinaryshares sharesoutstanding outstanding during the year. during the year. The Theweighted weightedaverage averagenumber numberof ofordinary ordinaryshares sharesoutstanding outstanding during the year and previous year are adjusted for during the year and previous year are adjusted forevents eventsthat that have change the number of ordinary shares outstanding, have change the number of ordinary shares outstanding, without withoutaacorresponding correspondingchange changein inthe theresources resourcessuch suchas asaa bonus bonusissue. issue. Formula Formula EPS EPS= = Net NetProfit ProfitAfter AfterTax Tax

Average AverageNumber Numberof ofissued issuedordinary ordinaryshares shares Calculation and Interpretation of Earnings per share Ratios for three companies

Financial Data
Profit/Loss after Tax

Galadari Hotel Ltd


-351,985,121

Amaya Leisure Plc


3,228,598

Asian Hotel & Properties Ltd

606,288,000 Average Number of issued ordinary shares EPS 182,433,060 (1.93) 42,029,959 0.08 221,388,000 2.74

Earnings per share ratio signify the amount of earnings available for the investors who have been invested or willing to invest in equity shares of the company. This ratio gives the amount of earnings can be attribute to a single share of the company. Out of the three companies the AHPP has the highest earnings per share though they have a considerably higher number of shares. Even with having a lower profit compared to AHPP, the ALP have been able to maintain a positive EPS which is the better than the GHL. The -1.93 EPS of GHL does not give a favorable signal to its investors. The ratio highlights that company is not performing well to generate enough earning s to cover its expenses, interest and taxes which has results with loss for the share holders.

2. Dividends per Share Dividends Dividendsper perShare Share(DPS) (DPS)shows showsthe thesum sumof ofdeclared declared dividends for every ordinary share issued. dividends for every ordinary share issued. Dividend Dividendper pershare share(DPS) (DPS)is isthe thetotal totaldividends dividendspaid paidout outover over an entire year (including interim dividends but not including an entire year (including interim dividends but not including special specialdividends) dividends)divided dividedby bythe thenumber numberof ofoutstanding outstanding ordinary shares issued. ordinary shares issued. Dividends Dividendsare areaaform formof ofprofit profitdistribution distributiontothe totheshareholder. shareholder. Having a growing dividend per sharecan bea sign Having a growing dividend per sharecan bea signthat thatthe the company's company'smanagement managementbelieves believesthat thatthe thegrowth growthcan canbe be sustained. sustained. Formula Formula DPS DPS= = Total TotalDividends DividendsDeclared Declared Number Numberof ofissued issuedordinary ordinaryshares shares

Calculation and Interpretation of Dividends per share Ratios for three companies Galadari Hotel Financial Data
Profit/Loss after Tax Average Number of issued ordinary shares DPS 182,433,060 0 42,029,959 0 221,388,000 2

Amaya Leisure Plc


0

Asian Hotel & Properties Ltd


442,776,000

Ltd
0

It is evident that the only AHPP has been able to declare dividends for its equity holders. Hence the remaining two companies do not have an DPS value. While having an appealing EPS the management of the company has decided to pay dividends for its investor may be because they have higher stability in its growth and or company decided to distribute its earnings compensating current investments. Without a surprise Galadari Pls has not declared because they have ended up with an loss for the period. But though Amaya Plc has achieved a positive EPS the management may have decided

not to declare dividends with a motive of reinvesting the current earning rather than cash payout to its shareholders.

Dividends Payout Ratio


The Thedividends dividendspayout payoutratio ratio(DPR) (DPR)Indicates Indicatesthe theproportion proportion of earnings that are used to pay dividends to shareholders. of earnings that are used to pay dividends to shareholders. Companies Companiesthat thatpay payhigher higherdividends dividendsmay maybe bein inmature mature industries where there is little room for growth and industries where there is little room for growth and paying payinghigher higherdividends dividendsis isthe thebest bestuse useof ofprofits profits Formula Formula DPR DPR= =Dividends Dividendsper pershare share Earnings Earningsper pershare share

Calculation and Interpretation of Dividends payout Ratios for three companies Financial Data
EPS DPS Dividends payout ratio

Galadari Hotel Plc


(1.93) 0

Amaya Leisure Plc


0.08 0

Asian Hotel & Properties Plc


2.74 2

.73

As the only company to pay dividends out of the three companies Asian hotel Plc has a fairly higher dividends payout ratio which is .73. The company only retains 27% of its earnings, balance they have used to payoff to its shareholders as dividends.

Price Earnings Ratio

The ThePrice-to-Earnings Price-to-Earningsratio ratio(P/E (P/Eratio) ratio)of ofaastock stock is isaa measure measureof ofthe theprice pricepaid paidfor foraashare sharerelative relativeto tothe theannual annual net income or profit earned by the firm per share. net income or profit earned by the firm per share. (P/E) (P/E)ratio ratioindicates indicatesthe thevalue valueof ofaacompany's company'sstock stockrelative relativeto to its financial performance. its financial performance. ItItis issometimes sometimescalled calledaamultiple multiplebecause becauseititindicates indicatesthe the amount of money that must be invested in order to derive amount of money that must be invested in order to deriveone one dollar of earnings. For this reason, lower ratios are preferred dollar of earnings. For this reason, lower ratios are preferred to tohigher higherones. ones. Formula Formula P/E P/ERatio Ratio= = Market MarketPrice Priceper perShare Share

Earnings Earningsper perShare Share

Calculation and Interpretation of Price Earnings Ratios for three companies Financial Data
Market Value per share (Rs.) EPS(Rs.)

Galadari Hotel Plc


15 (1.93)

Amaya Leisure Plc


73 0.08

Asian Hotel & Properties Plc


131.50 2.74

P/E Ratio

-7.7

912.50

47.9

The calculated P/E Ratio reflects that the Amaya Plc has the highest ratio which is 912.50 and the next best is Asian hotel Plc which is 47.9. Due to the face that Galadary having after tax loss it has resulted with an negative EPS. A higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. The P/E ratio has units of years which can be interpreted as "number of years of earnings to pay back purchase price. Therefore out of the three companies Amaya Leisure Plc share is the most expensive one because comparing to the amount of earnings its share price is relatively high. If we consider the number of years to pay up the purchase value of the share by its earnings, hypothetically for an investors of Asian hotels Plc it takes 47.9 if the company continues to earn current level of profits.

Earnings Earningsyield yieldRatio Ratioreflects reflectsthe theamount amountof ofearnings earningsyou you buy with one rupee of investment in share. buy with one rupee of investment in share. Earnings Earningsyield yieldis isaameasurement measurementratio ratiothat thatis isoften oftenused usedby by investment managers or stock market investors to evaluate investment or stock market investors to evaluate Earnings Yieldmanagers Ratio the worth of a particular the worth of a particularstock stock This Thisratio ratioreflect reflectthe thereturn returnon oninvestment investmentrate ratewhen whenmaking making decision to invest in equity shares/ decision to invest in equity shares/ Formula Formula Earnings Earningsyield yieldRatio Ratio= = Earnings Earningsper perShare Share Market Marketprice priceper perShare Share

Calculation and Interpretation of Earnings Yield Ratios for three companies Financial Data
Market Value per share (Rs.) EPS(Rs.) Earnings Yield Ratio

Galadari Hotel Plc


15 (1.93)

Amaya Leisure Plc


73 0.08

Asian Hotel & Properties Plc


131.50 2.74

(.12)

0.001

0.02

Asian hotel Plc has the highest Earnings yield Ratio which implies that the company generated an Rs. 0.02 of return for every rupee which invest in the company. The ratio of Amaya Plc is 0.001 which is less, because its market value of share is comparably high and earnings are low. Galadary Plcs rate of return for the investment is negative which amounts to be -0.12. If the company continues making losses it will have a negative impact on the share price in further.

Conclusion

The various ratios that have been identified in determining a financial situation can be categorized in to three major elements i.e. Profitability Ratio, Liquidity ratio, Solvency ratio, Activity and Market ratio. As described in the introduction each of these ratios play a specific function with reference to the functionality and the status quo of an organization. In the case of the specific exercise, three companies from the hotel industry have been selected and the annual reports of them, namely Galadari Hotel, Asian Hotels and Properties and Amaya Leisure have been analyzed. The profiles of the companies have been shown in the introduction and the annual reports have been annexed. Profitability ratio: Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company's bottom-line. The profitability ratios are then categorized in to several other ratios: Gross profit, Net profit, return on asset, return on equity and return on capital employed. Based on the calculations derived from the ratios the profitability of the three organizations has been ranked in the descending order of Amaya Leisure, Galadari Hotel and Asian Hotels and Properties Plc. Hence when considering the profitability ratio, the most profitable entity is Amaya Leisure hence the company represents comparatively sound ratios. Leverage Ratio: Leverage ratio is used to measure the ability of a business to meet its long-term financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. Two main categories of Leverage ratios are Debt Financing and Coverage ratios.

The ranking for debt financing in descending order are Amaya Leisure, Asian Hotel and Properties Ltd and Galadari. This indicates that Amaya Leisure debt has a stronger financial stability in terms settling its long term debt compared to the other two companies. The ranking for Coverage ratio in descending order is Asian Hotels and properties, Galadari Hotel and Amaya Leisure. This indicates that Asia Hotels and Properties are well managing their capital structure while generating a profit to cover the cost of capital The importance of these ratios is that to an investor the ratios give information on the general direction of the identified companies. The investor can then decide whether to hold, buy or sell his or her shares. Also based on the ratios the investor can identify if a company has over borrowed or if the company can meet its short term liquidity issues. The shareholders of Asian Hotel and Properties and Ltd will know whether the companies are on track as expected and Galadari Shareholders will know if they are entitled to dividend. How each company performs then is indirectly translated in to how well the industry is performing. Going through several annual reports of the same the same company will indicate that there is a sharp increase in the earnings and profits. This is a clear sign of economic and tourism boom experienced after the end of the war. The ratios will also analyze how each company is doing compared to each other. From the three companies, Asian Hotel and Properties Ltd has a strong profitability ratio but Amaya Leisure has better financial ratio.

Reference
Schorder, R.G.,Clark M W and Cathey J M, (2009), Financial Accounting Theory and Analysis:

Text and Cases, 9th Edition, John Wiley & Sons. Inc. http://www.investopedia.com/university/ratios/ http://www.zeromillion.com/business/financial/financial-ratio.html http://tutor2u.net/business/accounts/main_ratios.htm http://www.netmba.com/finance/financial/ratios/ www.cse.lk/cmt/upload_report_file/532_1274867640886.pdf www.cse.lk/cmt/upload_report_file/690_1275657128533.pdf

Você também pode gostar