Financial Statement Analysis of Al Buraimi Hotel and Batinah Hotels

Question: Discuss about the Financial Statement Analysis of Al Buraimi Hotel and Batinah Hotels. Answer: Introduction Financial statement analyse is a technique of evaluating any companys weaknesses and strengths through resealing the association among distinct aspects of an income statement or balance sheet. This analysis offers clarity through employing several techniques including Z-score, trend, off balance sheet and cash flow statements analysis. The organizations those are selected for the evaluation is Al Buraimi Hotel and Batinah Hotels to be a vital aspect to observe that the revenue is decreasing for an organization. Moreover, the net profit increased that needed further evaluation to analyse the negative correlation among them. The drawback of the paper considers that the research scope is limited or the four-year period that does not offer a clear indication of an organizations superior performance. Trend Analysis Al Buraimi Hotel and Batinah Hotels is observed to deal with several challenging situations in comparison to previous year. Both the companies have been dealing with the challenge in increasing their profits for enhancing the sales [1]. Revenue for both Al Buraimi Hotel and Batinah Hotels has considerable decreased in the year 2016 because of global economic crisis. Raw material prices are gradually increasing along with tourism within the nation is decreasing gradually that has resulted in decreased profits and increased materials cost. Performances of both the companies are deemed exceptional. Hotel sales of Al Buraimi Hotel have decreased gradually along with increasing sales cost that resulted in decreased gross profit. On the other hand, sales of Batinah Hotels have gradually decreased considerably that resulted in increased profits in contrast to previous year. It was uncompromising for both the organizations to hold its customers once again from its rivals as the costs at which these neighbourhood organizations sold was too low where organizations like Al Buraimi Hotel and Batinah Hotels could not diminish the costs as it was underneath their edge of wellbeing. [2] Cost of sales for both the organizations contain food products, handling charges, excellent dining services and so forth. Due to the retreat, it was watched that the costs of food products and related items required for the creation had diminished radically along these lines taking the upside of this circumstance. Al Buraimi Hotel attempted to buy more raw materials for making superior recipes and increment its capital in work in advance hence came about an expansion in inventories which includes completed food based commodities and food materials. The organization would later offer these items at a higher edge and gain higher profits. This was likewise found in the announcement of monetary position with an expansion in the inventories and plant, property and hardware expanded. Additionally the inventories for Batinah Hotels had expanded which is because of higher creation to exploit low costs. With the customers and organizations obtaining power contracting and happen to wind up cost wary; the organizations attempted to enhance their deals by offering using a loan which can be demonstrated by looking at the receivables expanding. Both the organizations were utilizing fetched cutting activities in the ranges of dissemination, grease mixing and working costs keeping in mind the end goal to enhance their edges on the items; this was seen with the cost of offers decreased amounts for Al Buraimi Hotel and Batinah Hotels. Therefore, the finance cost has diminished as the organization has just a transient credit and no overdraft in the present year. While the premium cost has expanded that contrasted with the most recent year as the organization's auxiliary had taken a loan, likewise the premium wage has expanded as the call stores with business banks, which are here, and now in nature have matured. The salary charge cost had diminished for Al Buraimi Hotel as the working costs had expanded for the most part the managerial costs, which brought about a lower working benefit contrasted with the earlier year subsequently the expense sum likewise decreased. In the meantime the salary assess cost had expanded for Batinah Hotels as the benefit before income tax has expanded besides the organization could limit its costs which brought about this higher net profit contrasted with the earlier years. Cash Flow Analysis The cash generated from the operating activities of Al Buraimi Hotel has increased to 5618 Rials in 2016 from 1688 Rials in 2015. This is because of the reason that receivables and inventories has decreased considerably for the company could not attain the benefit of raw materials price reduction and could not make revenue by selling at an increased margin in the upcoming years. [3] On the other hand, there has been a gradual increase in receivables as the companys revenues were decreased. Moreover, the local competitors of both the hotels is deemed to impact the sales that results in selling goods with credit for increasing the revenue. Similar trend was observed in case of Batinah Hotels, where the payables are also observed to be increasing because of raw material of credit purchases along with costly raw materials long with maintaining and increasing sales. Cash Flow Analysis AL BURAIMI HOTEL SAOG AL BATINAH HOTELS SAOG Particulars 2013 2014 2015 2016 TOTAL 2013 2014 2015 2016 TOTAL Net Cash Flows from Operating Activities 89,332 37501 1,688 5,618 134,139 -7595 94663 893561 92936 1073565 Net Cash Flows from Investing Activities -28,645 -7,125 -3,529 -343 -39,642 -1096880 -61357 -763483 -79872 -2001592 Net Cash Flows from Financing Activities -67,799 -29,386 1,409 -1,953 -97,729 1074521 79870 -225107 -46399 882885 TOTAL -7,112 990 -432 3,322 -3,232 -29954 113176 -95029 -33335 -45142 Cash gathered from the investment activities for Al Buraimi Hotel was observed to decrease in the year 2016. Such decrease is observed to be reduced because of their investments within intangible and fixed assets in comparison to previous year. [4] Moreover, the same is observed to increase for the Al Batinah Hotels in the year 2016. This is due to the reason that the company is investing more in the machinery, fixed assets in comparison to the previous years, and paid for the joint ventures for the purpose of business expansion. [5] Cash used within the financing activities is observed to be decreased for both the companies in comparison to the previous years. This is for the reason that Al Buraimi Hotel has addressed short-term loans of a particular amount. The dividend paid increased y considerable amount because of increased earnings and at the same time interest paid increased by a considerable percentage, that is on employed overdrafts facilities. On the other hand, Batinah Hotels cash employed within the financial activities was also decreased in comparison to previous year for the reason that dividend paid has deceased considerably. This for the reason that the hotel has taken loan of Rials 139587 that indicates increase in financing practices. [6] Z-Score Analysis The Altman Z-Score for Batinah Hotels is observed to be 2.75 in the year 2014 and 3.44 in the year 2015. As per the model, the organizations having a score of 3 is deemed to be safe for the organizational health with decreased chances of getting bankrupt in the upcoming years. On the other hand, the companies from 1.8 to 3 are likely to get bankrupt over the next two years. After observing the Z-score of Batinah Hotels, it was gathered that over the past four years, the company is observed to attain n increased Z-score. [7] This also indicates that the financial position of the company is observed to be superior with an increased score and this is for the reason that the company is performing in a better manner. Moreover, the retained earnings previous trend remains at an upward position that also have sufficient cash balance. This also signifies that an organization have adequate cash for financing all its operations. [8] Z score Analysis Company X Particulars 2012 2013 2014 2015 TOTAL Z score calculated 2.75 2.91 2.75 3.44 SWOT Analysis The SWOT Analysis for Al Buraimi Hotel is conducted under: Strengths Profitable domestic market Experienced business units Decreased labour costs Market entry barriers Increased revenue and profitability Weaknesses Paying of high taxes Barriers are faced by the industry Increased possibility of missing suppliers Business nit structure might turn out to be critical Opportunities Regular increase of an income level Existence in international markets New acquisitions New market trends can be observed Positive end can be observed in the industry Fast market changes Threats Regulations from government External risks of business Possibility of increasing costs The SWOT analysis of Batinah Hotels is conducted under: Strengths Strong sales and distribution networks Decreased labour costs Increased revenue and profitability Market entry barriers Superior existence in domestic market Weaknesses Possibility of increased loan rates Brand portfolio Opportunities Existence of global markets Possibility of new acquisitions Threats Cash flow Rising expenses Risks of external business Financial capability Off Balance Sheet Analysis Al Buraimi Hotel and Batinah Hotels follows the standards of International Financial Reporting. [9] Financial statements of the company are generated through consideration of the assumptions and estimates that is likely to affect the companys balance sheet within the preparing date along with fair value changes. Such assumptions and estimates are relied on several factors for the company. The types of risks that can be faced by the Al Buraimi Hotel and Batinah Hotels include credit, liquidity and market risks. At the same time, the management anticipated to deal with the risks in order to have certain material impact. The companies have maintained a provision for the costs of environmental remediation relied on the evaluations. It was also observed that the companies do not tend to have severe material impact on their earnings. Batinah Hotels faced loss of 114,761 Rials due to the reason that a gradual increase in the cost of goods sold has contributed to certain decrease in the net income. On the other hand, because of compensation, provision faced by Al Buraimi Hotel due to its employees is not likely to cause any material impact to take place and along with that, fewer provisions have been made within the financial statements. [10] Conclusion Financial statements evaluating of the selected company Al Buraimi Hotel and Batinah Hotels has indicated that the future of this organization is deemed financially promising once they are highly capable to manage all their expenses. Financial stability is observed to be increased based on the trend analysis of the companies that ensures its increased liquidity and profits. The cash balances are also observed to be healthy as the company is observed to take debt for maintaining is effective business operations. Based on the evaluation of Al Buraimi Hotel and Batinah Hotels it can be gathered that the company requires to increase its inflows for addressing all its debt obligations. The collection policies of Al Buraimi Hotel is observed to be effective but not that effective because of the receivables amount that was increasing that has great impact on its profitability. After the financial statements evaluation of the organization it can be gathered that Al Buraimi Hotel and Batinah Hotels are performing in a better manner within the Oman hotel industry. The business of the hotel is observed to remain diversified in several segments. Management and diversification of risk managed in a better manner by Al Buraimi Hotel and Batinah Hotels. References Arabzad an, S, "Trend Analysis of Qualitative Research on Counseling Psychology Area(20002012)". inKorea Journal of Counseling, 14, 2013, 3871-3893. Cai, Y, "Investment and Financing Scale Analysis Model for Balanced Cash Flow". inApplied Mechanics and Materials, 421, 2013, 894-897. 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