SB Hotel Case Case Study Help
| 3 | Lavioli | The third option is to purchase land in Montreal which is a parking lot and can be used to build the conference Centre which will generate the business for SB | · The expected total revenue by building conferences Centre is expected to be $5.5 to $7.3 million depending on the number of meetings held.
· Average occupancy rate of SB is expected to increase from 65-70% |
· There is a huge competition near Montreal hotel which include mid-scale, up-scale and luxury hotels. These hotel’s services like conference can be a disadvantage to operate. |
Ratio Analysis
| Ratio Analysis | SB Holding | |
| Formula | 2017 | |
| Liquidity Ratios | ||
| Current Ratio | CA/CL | 0.96 |
| Quick Ratio | (CA-Inventories)/CL | 0.92 |
| Leverage Ratios | ||
| Debt to Asset | Long Term Debt/Total assets | 0.67 |
| Debt to Equity Ratio | Total Liabilities/shareholder equity | 3.57 |
| Efficiency Ratios | ||
| Total Asset Turnover | Sales/Average Total Assets | 2.92 |
| Fixed Asset Ratio | Long Term Assets/Total Assets | 86% |
| Inventory Turnover | COGS/Average Inventory | 66.33 |
| Account Receivable Turnover | Sales/Average Account Receivable | 50.0 |
| Average Collection Period | 365/ARTO | 0.1 |
| Profitability Ratios | ||
| Return on Sales | Operating Income/Sales | 92.2% |
| Return on Assets (ROA) | NI/Total Assets | 13.60% |
| Return on Equity (ROE) | NI/Average Stockholders' Equity | 73.00% |
Liquidity Ratio
Current Ratio
Current ratio measures that whether the company’s current assets are able to meet its current debt or not. The SB hotel current ratio is 0.96, which represents for 96% of the debts will be met by current assets.
Quick Ratio
Quick ratio is also known as acid liquid ratios. It helps to measure the company’s ability to meet its short-term debt, with its most liquid asset. The SB hotel quick ratio is 0.92, which represents for 92% of the debts will be met by current assets.
Leverage Ratios
Debt to Asset Ratio
It is an indicator for the company’s financial leverage. It depicts who much of the company’s assets have been financed by the creditors. The debt to asset ratio of SB hotel is 0.67.
Debt to Equity Ratio
It is an indicator for the company’s financial leverage. It tells how much of the company’s operations have been financed by equity in comparison of debt. The debt to equity ratio of SB hotel is 3.57.
Efficiency Ratios
Total Asset Turnover
It is the summary of all asset management ratio, which concludes the impact of increase or decrease in all of the ratios. It shows how efficiently the company’s assets have been used for generating revenue. The SB hotel’s total asset turnover is 2.92.
Fixed Asset Ratio
It shows how efficiently the company is utilizing its fixed assets, in order to generate revenues. Currently, the fixed asset turnover ratio is 86%. This shows that the SB hotel is efficiently utilizing the assets in order to generate revenues.
Inventory Turnover
It shows how efficiently the inventory is managed in comparison to COGS, with average inventory period. The SB hotel inventory turnover ratio is 66.33.
Account Receivable Turnover
Receivable turnover ratio is an efficiency ratio, which is used to measure that how efficiently the company is collecting money. The receivable turnover ratio is 50. The SB needs to improve their receivable turnover ratio.
Average Collection Period
Average collection period of SB hotel is 0.1. The SB hotel is performing well in collection of money from customers. It tells that how many days the company takes to collect from its creditors.
Profitability Ratios
Return on Sales
Return on sales is the ratio being used to measure the efficiency of the company. It helps in measuring the how much profit is produced on per dollar sale. The return on sales of SB hotel is 92.2%, which shows that they are performing well.
Return on Assets (ROA)
Return on Equity tells the company’s return on its total assets The SB hotel ROA is 13.60%. They need to improve ROA of the hotel.
Return on Equity (ROE)
Return on Equity tells the company’s return on its shareholder’s equity. The SB hotel ROA is 73%. The SB hotel is performing well according to ROE.
Recommendations
There are three alternatives available as discussed by the meeting members, buying pampered hotel will be a better idea for SB because it already has a good market reputation and 40 years of remaining useful life. Moreover, the bank’s offers are also considerable. The general manager of the Pampered Horse hotel is very efficient. However, there are some cons as well, but considering Alternative 1 can prove to be a very good option.
Plan of Action
Actions can be taken on the bases of more services. Pampered Horse hotel should be bought by SB and more services should be included like dry clean, internet or other. SB should pay $5 million and the reaming as per the offer of the owner of Pampered Horse hotel. Accounting and auditing system should also not be outsourced but implemented by skilled employees. Moreover, cost cutting should be encouraged, which results in better revenue generation.............................
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