Introduction
The Grand Formosa is a hotel that prides itself in providing the best atmosphere for its guests. The hotel is designed to provide the best relaxing environment so that guests enjoy their stay. The hotel’s business model looks very promising on paper. However, the previous management ran the hotel down through inefficiencies in its operations. The new management has been instituted and is in the process of turning the hotel’s business around. This paper will analyze the position of the hotel with the help of some performance measures. This is in an effort to determine whether there is increased efficiency in the operations of the new management. The paper will use graphs to present numerical data to back the analysis. The performance measures to be utilized in the analysis include current ratio, gross profit ratio and profit margin ratio.
Current ratio
This is a ratio that measures the ability of a company to pay any short-term debts it has accrued. The ratio is calculated by dividing current assets by the company’s current liabilities. These figures are gotten from the company’s balance sheet.
current ratio=Current assetscurrent liabilities
Figure 1.0 showing the graph for current ration of the two years
Gross Profit Ratio
Gross profit ratio is an expression of the relationship between the total net sales revenue and gross profit. The ratio is derived by dividing the gross profit of a company by the net sales.
Gross Profit Ratio= Gross ProfitNet Sales
Figure 2.0 showing the graph for gross profit ratio for the current year
Figure 3.0 showing the graph for profit margin ratio for the previous year
In order to get the relationship between the total net sales revenue and gross profit, it is important to consider the two graphs together because the post the values for the two years. In comparing the figures from the two years, it is evident that the ratios have increased. This is an indication of the continued improvement of the efficiency in the operations in the hotel.
Profit Margin Ratio
This is the ratio of profitability of an enterprise. The ratio measures the proportion of each dollar made in sales that an enterprise keeps in earnings. It is calculated by dividing the net income by sales.
Profit Margin Ratio=Net incomesales
Figure 4.0 showing the graph for profit margin ratio for the current year
Figure 5.0 showing the graph for profit margin ratio for the previous year
In order to understand the changes in the profit margin ratio for The Grand Formosa Hotel, it is important to consider graph 2.0 and 3.0 together. From the graph below it is evident that the company recovered from the big loss that it had incurred in the month ending December of the previous year. However, this increment was not enough to break even. In that year, the company was able to break even for one month.
The other months were fluctuations from one month to the other. In the current year, the company was able to break even after the first month of the year. This is the year when the new management took over the running of the hotel. Since February, the hotel has been able to post and increased profit margin ratio. The marginal increase in the profit margin ratio has fluctuated but at least the hotel was able to break even and post profits. Between August and September the profits dipped with significant marginal decreases.
Conclusion
The analysis of the three ratios shows continued improvement to the figures posted in the previous year. This is a testament of the increased effectiveness in the operations of the new management. Nonetheless, there is still a lot of improvement required so that the hotel can be realized.
