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Understand and explain the purposes of the financial information produced by businesses
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Explain the structure and terms used within the main financial statements and undertake the analysis and interpretation of financial statements.
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Demonstrate appropriate academic writing skills, referencing and good academic practice and make decisions on organising material in a logical and coherent way with an audience in mind.
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OVERVIEW 2000 words
A case study is used as evidence to demonstrate an understanding of the analysis and interpretation of information produced by financial statements. Also, the case study will be used as the basis for explaining the terms used within the main financial statements
Case Study:
Pauline Marriot is the director of Marriot Inns Ltd. The company has traded for 30 years and has in the past achieved very good levels of growth and return on capital, but this is now changing. In recent time it has failed to introduce new product lines, relying on traditional products and little has been invested in New Product Development.
You are a business planning consultant for a firm of Management Consultants. Marriot Inns Ltd is one of your clients. In recent times the business has experienced increased turnover but a downturn in overall performance.
Pauline Marriot has had a meeting with your director and she has stated that she wants to introduce tighter management control within the company by introducing a system of responsibility accounting.
You receive the following memo from your Director, Christina Parks, regarding this case.
Memorandum
To: Business Planning Assistant
Date: 21st May 2021
From: Christina Parks, Director
Subject: Marriot Inns Ltd. - accounts information
You are aware that I met with Pauline Marriot yesterday and that she is concerned with the latest results shown in the final accounts that have recently been prepared at year end.
The file attached contains a summary of the company`s abbreviated profit statements and balance sheets for the past three years; together with additional information and performance indicators for their business sector as a whole for the period under review.
I would like you to examine this information and meet with me on Friday morning to discuss the form and presentation of a detailed financial analysis of the company over the three-year period.
Signed: C. Parks
Marriot Inn Ltd Financial information.
1. Summary profit statements
£m £m £m
2019 2020 2021
Sales 4.90 5.30 6.60
Operating costs 4.17 4.43 5.82
Operating profit before tax 0.73 0.87 0.78
Taxation 0.24 0.30 0.27
Profit after tax 0.49 0.57 0.51
Dividends 0.12 0.16 0.16
Retained profit 0.37 0.41 0.35
N.B. The Hotelier’s detailed breakdown of costs is as follows:
Years 2019 2020 2021
Labour costs 0.93 0.98 1.25
Room maintenance costs 0.44 0.49 0.61
Administration costs 0.19 0.22 0.27
2. Summary balance sheets
£m £m £m
2019 2020 2021
Fixed assets 2.40 2.77 2.88
Current assets
Stocks:
Raw materials 0.09 0.12 0.15
Finished goods 0.40 0.43 0.45
Debtors 14 1.32 1.84
Bank 0.03 0.04 0.05
1.66 1.91 2.49
Less Current liabilities 1.35 1.56 1.90
Net current assets 0.31 0.35 0.59
2.71 3.12 3.47
Capital and reserves 0.5 0.91 1.26
Bank loans 2.21 2.21 2.21
2.71 3.12 3.47
3. Hoteliers federation membership
Average ratios for Hoteliers federation members 2021
% Return on capital employed 26.0%
Asset turnover 1.79 times
Net profit margin 14.5%
Current ratio 1.5:1
Acid test ratio 1.03:1
Debtors collection period 83 days
Gearing ratio 32.0%
Labour cost % of sales 18.1%
Operating cost % of sales 85.5%
Room maintenance costs % of sales 9.5%
Admin costs % of sales 4.5%
DESCRIPTION OF THE TASK – WHAT YOU ARE BEING ASKED TO DO?
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- a. Introduction: Define financial information and provide an overview of the aims and objectives of the case study (150 words).
b. You are required to clearly explain the purpose of financial information and identify the characteristics of good financial information. (500 words)
- a. Calculate the following ratios for the Marriot Inns Ltd and compare them with budgetary targets.(600 words)
b. Prepare a detailed report on the company`s performance in terms of profitability and liquidity compared with the average of the sector over the period. (600 words)
i. Return on capital employed
ii. Asset turnover ratio
iii. Net profit margin
iv. Current ratio
v. Acid test ratio
vi. Debtors collection period
vii. Gearing ratio
- Labour cost as % of sales
ix. Operating costs as % of sales
x. Room Maintenance costs as % of sales
xi. Administrative costs as % of sales
Conclusion: Consolidate the key findings and overall remarks and suggestions (150 words)
