hardcopy viniee

8/7/2019 hardcopy viniee

1/28

Ratio Analysis

1

Analysis of Financial Statements HOTEL Industry

Submitted To:-

Prof. Maheshwari Rajan

By_

Vinita Jain C-40

Amita Pathak C-47

Mayank Dand C-60

In

Partial Fulfillment of the Course Requirements of the

M.M.S 2nd Sem.

Vidya Prasarak Mandals

Dr.V.N.Bedekar Institute of Management

Studies, Thane


2/28

Ratio Analysis

2

INTRODUCTION:-

Service

Service is defined as any act or performance one party can

offer to another that is essentially intangible and does not

result in the ownership of anything.

Its production may or may not be tied to a physical product

it is a non-perishable thing.

However, Manufacturers, distributors, retailers, etc., are

providing value added services, or simply excellent customer

service, to differentiate themselves.

Hospitality Industry in India

All major hotel chains have properties across India.

Hospitality sector has shown a promising upswing of 21%

over 2005-06 in revenue terms.

The first half of 2008 had registered a 19.6% increase in

revenue per available room.

But due to the terror attack on 26/11/08 occupancy ratio &room rates are suffering.

Hospitality revenues are projected to grow over Rs.82,600

crore by 2010.


3/28

Ratio Analysis

3

An additional 80,000+ rooms are slated to come online acrosscategories countrywide.

More than 40 international brands are trying to make inroads.

HOTEL TAJ

The Taj, a symbol of Indian hospitality.

Founded by Tata Group, Mr. Jamshedji N. Tata, in 1903.

The Indian Hotels Company Limited (IHCL). One of

Asia's largest and finest hotel company. More than 60 hotels.,

45 locations across India.,15 International hotels

LEELA PALACE

Founded in 1957 by Capt. C.P. Krishnan Nair, with the amt

of Rs.450 crore. Leela Group is engaged in the business of

ready-made garments and luxury hotels and resorts.

Incorporated in 1981 to set up and operate 5-star hotels,

Hotel Leela .

The Leela Palaces, Hotels and Resorts is an expanding chainof some of the finest five star luxury resorts and business

hotels in India. It is also one of the best-run corporates in

India.


4/28

Ratio Analysis

4

Ratio.......

Ratio is a tool which helps to convert group of figures. Into

the numbers which helps to analyse the performance of any

firm also in assessing the financial position & profitability of

an enterprise. Utility lies in comparison of the ratios.

But these ratios is not a full proof solution, its just a tool so

further interpretation is necessary for which is a job of we

managers.

Ratio comparison Can be of 5 types:-

1) Same enterprise over several years.2) Between two enterprises in the same industry.3) One industry against the industry as a whole.4) An enterprise against a pre-determined standards.5) For inter-segment comparison within the same

organisation.


5/28

Ratio Analysis

5

Comparison Over past five years performance

Ratios of HOTEL LEELA

Particulars Mar '

09

Mar '

08

Mar '

07

Mar '

06

Mar '

05

Profitability ratios

Operating margin (%) 35.73 46.13 49.92 49.82 46.81Gross profit margin (%) 23.58 37.32 41.06 39.90 35.19

Net profit margin (%) 25.28 25.65 31.43 21.14 16.49

Fixed assets turnover ratio 0.11 0.19 0.21 0.19 0.18

Return on Total asset (%) 20.64 20.91 18.45 12.56 8.72

Return on capital employed

(%)

7.34 9.66 11.07 9.12 8.53

Leverage ratios

Long term debt / Equity 3.42 2.79 1.34 1.89 1.62

Total debt/equity 3.49 2.84 1.39 1.93 1.63

Owners fund as % of total

source

22.28 26.06 41.82 34.11 38.00

Liquidity ratios

Current ratio 0.93 1.96 1.35 2.99 3.34

Current ratio (inc. st loans) 0.80 1.70 1.10 2.40 3.03Quick ratio 0.82 1.82 1.02 2.79 3.02

Inventory turnover ratio 59.78 76.78 74.47 68.75 65.15


6/28

Ratio Analysis

6

Ratios of TAJ Hotel

Particulars Mar '

09

Mar '

08

Mar '

07

Mar '

06

Mar '

05

Profitability ratios

Operating margin (%) 42.93 48.04 47.91 45.94 39.46

Gross profit margin (%) 37.18 43.58 43.29 40.17 33.52

Net profit margin (%) 22.11 27.25 26.39 24.43 19.07

Return on total assets (%) 19.58 30.47 35.10 31.29 19.27

Return on capital

employed (%)

22.43 38.27 40.44 31.94 19.30

Fixed assets turnover ratio 0.51 0.95 0.94 0.74 0.71

Leverage ratios

Long term debt / Equity 0.47 0.25 0.39 0.56 0.63

Total debt/equity 0.51 0.31 0.39 0.56 0.64

Owners fund as % of total

source

66.10 75.77 71.70 63.85 60.84

Liquidity ratios

Current ratio 0.48 0.66 0.82 1.10 0.99

Current ratio (inc. st loans) 0.38 0.54 0.81 1.10 0.94

Quick ratio 0.41 0.60 0.78 1.06 0.95

Inventory turnover ratio 96.36 71.84 86.57 80.84 144.68


7/28


8/28

Ratio Analysis

8

GP margin of Leela as well as of Taj was increased and

was at maximum during year2007 but later it declined the

reason here was inflation affected their profit margins.

--)Net Profit Margin (%):-

Shows how much after tax profits are generated by

each dollar of sales.

NP earned by both the Hotels were average over a

period of time they were capable enough to keep their sales

growing, instability was only in year2007 it was good compared

to earlier years but again its average all are the latent effects toGP.

--) Fixed Asset TurnoverRatio:-

It measures the utilisation of the companys fixed assets

(i.e., plant & equipment); measures how many sales are

generated by each dollar of fixed assets.

Fixed Asset Turnover Ratio

Yrs Mar'05 Mar'06 Mar'07 Mar'08 Mar'09

LEELA 0.18 0.19 0.21 0.19 0.11TAJ 0.71 0.74 0.94 0.95 0.51

Net Profit Margin (%)


LEELA 16.49 21.14 31.43 25.65 25.28TAJ 19.07 24.43 26.39 27.25 22.11


9/28

Ratio Analysis

9

--) Return on Total Asset (%):-

It measures the profitability of the total funds of a firm. It

measures the relationship between net profits & total assets. It helpsto find out how efficiently the total assets have been used by the

management. It excludes fictitious assets.

Return on Total Asset (%)


LEELA 8.72 12.56 18.45 20.91 20.64

TAJ 19.27 31.29 35.1 30.47 19.58

In case of Leela Assets are underutilised upto an extent

also as the Foundation of both the hotels has a huge difference

so the value of assets had a huge difference.

--) Return on Capital Employed (ROCE):-

It measures the relationship between net profir & capitalemployed. It reveals how efficiently the long term funds of

owners & creditors are being used.

Return on Capital Employed (ROCE)


LEELA 8.53 9.12 11.07 9.66 7.34

TAJ 19.3 31.94 40.44 38.27 22.43

Taj is using the Shareholders funds more efficiently as that

of Leela.


10/28

Ratio Analysis

10

LEVERAGE RATIOS

Leverage ratios/Capital Structure deals with the Firms

Long term solvency & it also indicates the ability of the firm tofulfil its longterm liabilities such as conserving shareholderswealth, paying off Interest on loan time to time, repayment ofPrincipal amount on maturity lumpsum, instalments at duedates.

--) Long Term Debt/Equity Ratio:-

It indicates the relative proportion of debt & equity infinancing the assets of the firm. It is calculated as follows:-

Debt equity ratio= long-term debt/Shareholders funds.

Long Term Debt/Equity Ratio


LEELA 1.62 1.89 1.34 1.89 1.62TAJ 0.63 0.56 0.39 0.25 0.47

Though the ideal ratio is 2:1 but the ratio depends upon

the nature of an industry. So in hospitality sector as compared

to Leela ,Taj has a less Long term debts., which may reveal two

things Leela is more credit worthy and Taj has lesser debt ,so

also it saves the interest and risk from outside.

--)T

otalD

ebt/E

quityR

atio:-

This ratio indicates the outside liabilities are related to total

capitalisation of the firm, it measures the funds provided by

creditors versus the funds provided by owners.


11/28

Ratio Analysis

11

Total Debt/Equity Ratio


LEELA 1.63 1.93 1.39 2.84 3.49

TAJ 0.64 0.56 0.39 0.31 0.51

Similarly, as the long term debt ratio Leela has high

debtors compared to hotel Taj, which shows lesser contribution

in Taj as in form of debts. Whereas Leela is likely to be bound

with the debts. Leela is showing an increment continuously.

--) Owners Fund as % ofTotal Source:-

This term shows that what percentage of Total Funds is

included/invested into the business.

Owners Fund as % of Total Source


LEELA 38 34.11 41.82 26.06 22.28

TAJ 60.84 63.85 71.7 75.77 66.1

So Taj has highly included the funds in its business

compared to Leela but in case of Leela the Life cycle case can

be seen high at a starting stage highest in Growth stage

and declining at maturity after the growth at saturation level

which is not in case of Taj as it has achieved the stability due to

existence in this field past 107 years.


12/28

Ratio Analysis

12

LIQUIDITY RATIOS

It analyses the short-term financial ability to meet itscommitments. How much capable the liquid assets of a firm are

to pay off its quick liabilities. It is also known as SOLVENCY

RATIO.

--) Current Ratio:-

A short term indicator of the companys ability to pay its short-

term liabilities from short-term assets; how much of current assets areavailable to cover each dollar of current liabilities.

CR = Current Assets/Current Liabilities.

Current Ratio


LEELA 3.34 2.99 1.35 1.96 0.93

TAJ 0.99 1.1 0.82 0.66 0.48

--) Current Ratio (inc. Short term loans):-

Current Ratio (inc. st loans)Yrs Mar'05 Mar'06 Mar'07 Mar'08 Mar'09

LEELA 3.03 2.4 1.1 1.7 0.8TAJ 0.94 1.1 0.81 0.54 0.38

Ideal Current Ratio is2:1


13/28

Ratio Analysis

13

}}}} If the Taj and Leela improves the position of its

current & Inventory it would be able to improve its

short term financial position.

--) Quick Ratio:-

Measures the companys ability to pay off its short- term

obligations from current assets, excluding inventories. Acid

Test Ratio = CA-(Stock+Prepaid exp.)/CL-(Bank o/d + Income

received in advance) Ideal Quick Ratio is 1:1.

Quick Ratio


LEELA 3.02 2.79 1.02 1.82 0.82TAJ 0.95 1.06 0.78 0.6 0.41

Comparing all the above three ratios its indicates that thesolvency capability of Leela is better over Taj. But this term is

hard to swallow in case of Taj as it is not due to its lower

solvency capacity but because of Higher Financial

Management.

--) Inventory TurnoverRatio:-

IT reveals the Inventory status which includes Raw Material, WIP& Finished Goods. It shows the Inflow & outflow of the stock and

processing and selling speed. Measures the number of times that

average inventory of finished goods was turned over or sold during a

period of time, usually a year.


14/28

Ratio Analysis

14

ITR = COGS/Avg. Stock OR = Sales/Clsng Stock

High Inventory turnover ratio means Less stock in hand higher

the sales but problem of stock out cost can be faced whereas, LowInventory turnover ratio means lesser the Sales high is the stock in

hand which may also increase the carrying out cost.

Inventory Turnover Ratio


LEELA 65.15 68.75 74.47 76.78 59.78

TAJ 144.68 80.84 86.57 71.84 96.36

Ratio of Leela is not too low, it has achieved average in

terms of Stock holding period sales . Sales would improve

and the ratio may go high in future prospect of Growth.

In case of Taj where high ITR is observed reveals that its

sales are high, Investment is not blocked in the form of

inventory, also the stock holding period is less which shows

that the stock is converted into cash faster also that the debtorsare loyal to pay off quickly i.e. There are least worries regarding

the term Debtors.


15/28

Ratio Analysis

15

Cash Flow Statement

Cash Flow Statementshows the relationship between

the liquidity & Profitability capacity of a firm.

Application of Cash that is the used for various purposes

known as Cash Outflow.

Sources of Cash that means cash generated or bought

through various activities known as Cash Inflow .

It is bifurcated into three activities as :- Operating Activity,

Investing Activity & Financing Activity.

NET Operating activities should always be Positive, it shows

the smooth functioning of a firm.

Investing activies includes the purchases of fixed assets or

investments also the receipt of cash in the form of interest or

dividend, NET Investing Activies if negative shows that the

purchases were high.

Financing activities includes the issue of shares/debentures ,

redemption of debentures , payment of interest/dividend , cash

can be raised by issuing of shares also if net balance is

negative it shows that the debt is more to be paid off.

Ideal Cash Flow needs the NET Operating & NET Financing to

be positive and NET Investing activity should be Negative.


16/28

Ratio Analysis

16

Cash flow Statement of LEELA PALACE:-

Particulars Mar 09 Mar 08 Mar '07 Mar '06 Mar '05

Profit before tax 193.45 223.3 189.7 111.54 49.22

Net cash flow-operating

activity

267.93 117.7 216.78 147.08 109.1

Net cash used in investing

activity

-596.98 -910.44 -124.49 -365.9 55.3

Net cash used in fin.

Activity

63.85 1,077.56 -244.28 329.41 55.3

Net inc/dec in cash and

equivalent

-265.19 284.81 -151.99 110.59 46.85

Cash and equivalent begin

of year

295.58 10.77 162.69 52.06 5.21

Cash and equivalent end of

year

30.39 295.58 10.7 162.65 52.06

Cash flow Statement of

Hotel TAJ:-

Particulars Mar '09

Mar ' 08 Mar '07

Mar '06

Mar '05

Profit before tax 81.69 108.29 100.79 69.95 35.72

Net cashflow-operating

activity

85.2 79.23 71.67 57.08 14.54

Net cash used in investing

activity

-125.75 -73.18 -34.85 -46.94 62.69

Netcash used in fin.

Activity

31.37 -19.99 -25.8 2.7 46.91

Net inc/dec in cash and

equivlnt

-9.18 -13.94 11.02 12.84 -1.25

Cash and equivalnt begin of

year

11.32 25.26 14.24 1.15 2.4

Cash and equivalnt end of

year

2.13 11.32 25.26 14 1.15


17/28

Ratio Analysis

17

In case ofLeela Palace Net operating Activity of all the

five year balances are positive which is ideal, Investing Activityis negative means purchases of assets and investments are

done frequently except in the year2005 , Financing activities

ideal balance should be Positive which is there in this case

except in the March 2007 which was due to payment of interest

and dividend with the hindrance of Inflation.

In case ofTAJ Net operating Activity of all the five year

balances are positive which is ideal, Investing Activity isnegative means purchases of assets and investments are done

frequently but the interest received was higher too, Financing

activities ideal balance should be Positive which is there in this

case except in the March 2007 & 2008 which was due to

repayment of shares amount also due to redemption of

debentures and dividend with the hindrance of Inflation.

If Leela compared with Taj the difference in theirincorporation is much more which may indicate that Leela Cost

of asset & Taj Cost would differ much more due to value of

money has obviously changed past 70 years.


18/28


19/28


20/28

Ratio Analysis

20

COMPARISON BETWN 2 COMPETITORS IN SAME SECTOR:-

RATIO ANALYSIS 2008-09

Profitability ratiosLEELA

PALACETAJ

Operating margin (%) 35.73 42.93

Gross profit margin

(%)23.58 37.18

Net profit margin (%) 25.28 22.11

Fixed assets turnover

ratio0.11 19.58

Return on Total asset

(%)20.64 22.43

Return on capital

employed (%)7.34 0.51

Leverage ratios

Long term debt / Equity 3.42 0.47Total debt/equity 3.49 0.51

Owners fund as % of

total source22.28 66.1

Liquidity ratios

Current ratio 0.93 0.48

Current ratio (inc.

shortterm loans)0.8 0.38

Quick ratio 0.82 0.41

Inventory turnover

ratio59.78 96.36


21/28

Ratio Analysis

21

FINAL ANALYSIS:-

y Taj has a high operating profit margin though it had 10%

increment in their recruitment and the selling & admin.

Expenses were increased upto 13% but inspite of that

operating profit its well maintained.

y GP ratio is also better in case of Taj but NP ratio is in case

of Leela as it has a huge turnover so Tax payment madeis high if compared.

y Assets of Taj are utilised in a better way than that of

Leela.

y ROCE is much better of Leela than Taj which indicates

that the funds of creditors are used very efficiently and it

has a better future prospect in terms of future growth.

y Leverage Ratio is better in case of Taj as it has lesser the

debt which indicates lesser outflow of cash in form of

interest and sharing of profit with outsiders., but Leelas

higher Leverage indicates the creditworthiness which is

too better to posses.

y Contribution of total funds is higher in Taj than Leela.


22/28

Ratio Analysis

22

y Current Ratio & Quick Ratio seems better in case of Leela

compared with Taj, we can estimate that the solvency

capability is therefore better of Leela, but Taj has a better

Financial Management by which it has achieved this ratio.

y Stock turnover ratio is high of Taj which shows high sales

and less stock holding period also the debtors are solvent

enough to pay off before and at the due dates.

CONCLUSION:-

After analysing both the hotels financial statements we

would like to conclude that Taj is better to invest and be a

shareholder if you wish for stable returns and for continuous

increment of your wealth. Also would like to suggest the people

who are ready to accept risk with returns may prefer Leela as

its on Growth stage, may have a huge growth in future.


23/28


24/28

Ratio Analysis

24

Debt Coverage Ratios

Interest Cover 2.04 4.53 5.89 7.38 8.53

Total Debt to OwnersFund

1.63 1.93 1.39 2.84 3.49

Management Efficiency Ratios

Inventory Turnover Ratio 11.01 13.03 74.47 76.78 59.78

Debtors Turnover Ratio 15.22 14.76 12.36 13.59 12.90

Investments TurnoverRatio

65.15 68.75 74.47 76.78 59.78

Fixed Assets TurnoverRatio

0.26 0.27 0.21 0.20 0.12

Total Assets TurnoverRatio

0.21 0.20 0.23 0.19 0.14

Asset Turnover Ratio 0.18 0.20 0.21 0.20 0.12

Average Raw MaterialHolding

-- -- -- -- --

Average Finished GoodsHeld

-- -- -- -- --

Number of Days InWorking Capital 254.26 302.73 78.70 204.18 -20.88

Profit & Loss Account Ratios

Material CostComposition

5.07 4.25 4.69 4.17 4.47

Imported Composition ofRaw Materials Consumed

-- -- -- -- --

Selling Distribution CostComposition

2.28 2.10 2.43 2.30 3.36

Expenses as Compositionof Total Sales

70.01 69.68 67.58 63.01 61.18


25/28


26/28

Ratio Analysis

26

Free Reserves PerShare (Rs)

Bonus in EquityCapital -- -- -- -- --

Profitability Ratios

Operating ProfitMargin(%)

39.46 45.94 47.91 48.04 42.93

Profit Before InterestAnd Tax Margin(%)

33.43 40.06 43.16 43.44 37.01

Gross Profit

Margin(%)

38.47

43.99 46.

7843.58

37

.18

Net Profit Margin(%) 19.07 24.43 26.39 27.25 22.11

Adjusted Net ProfitMargin(%)

19.20 24.81 26.58 27.25 22.11

Return On CapitalEmployed(%)

19.20 31.94 40.39 36.49 21.80

Return on Long TermFunds(%)

19.30 31.94 40.44 38.27 22.43

Liquidity And Solvency Ratios

Current Ratio 0.94 1.10 0.82 0.54 0.38

Quick Ratio 0.95 1.06 0.78 0.61 0.42

Debt Equity Ratio 0.64 0.57 0.39 0.32 0.51

Long Term DebtEquity Ratio

0.63 0.57 0.39 0.26 0.47

Debt Coverage Ratios

Interest Cover 28.19 19.11 33.38 39.60 13.49

Total Debt to OwnersFund

0.64 0.57 0.39 0.32 0.51


27/28

Ratio Analysis

27

Management Efficiency Ratios

Inventory Turnover

Ratio

71.84 74.48 79.39 71.84 96.36

Debtors TurnoverRatio

27.13 34.48 36.37 45.22 40.49

Investments TurnoverRatio

144.68 80.84 86.57 71.84 96.36

Fixed Assets TurnoverRatio

0.74 0.96 1.00 0.96 0.51

Total Assets TurnoverRatio

0.59 0.79 0.94 0.84 0.58

Asset Turnover Ratio 0.72 0.74 0.94 0.96 0.51

Average Raw MaterialHolding

-- -- -- -- --

Average FinishedGoods Held

-- -- -- -- --

Number of Days InWorking Capital

-1.01 10.95 -19.35 -36.08 -53.08

Profit & Loss Account RatiosMaterial CostComposition

9.02 8.09 8.21 8.22 8.46

Imported Compositionof Raw MaterialsConsumed

-- -- -- -- --

Selling DistributionCost Composition

3.88 3.65 3.43 3.42 3.61

Expenses as

Composition of TotalSales

40.99 41.68 41.45 35.03 28.09


28/28

hardcopy viniee

Documents