Constructing Statement of Cash Flows and Analyses - Essay Example

                The Metropolitan Hotel in Vancouver, British Columbia, Canada, is one of the best hotels in the area. The hotel has friendly and helpful staff, rooms of good size that are well maintained, and is quite and very comfortable. The current management of the hotel needs to assess its performance so as to come up with efficient ways to improve its operations. The assessment will consist of a full absolute and percentage comparative horizontal analyses of the balance sheet and income statements, preparation of the cash flow statement, and summary of the financial position and performance achievement of the hotel.

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Absolute and Percentage Comparative Horizontal Analysis

Balance Sheet

 

Period

Change

 

Year 2

Year 1

Absolute

Percent

Current Assets

 

 

 

 

     Cash

$1,032,204

$470,880

$561,324

119.21

     Inventories

$1,779,525

$1,285,792

$493,733

38.40

     Accounts Receivable

$1,030,806

$1,000,357

$30,449

3.04

     Restricted Cash

$191,828

$983,098

$(791,270)

(80.49)

     Cash from Borrowing

$88

$63,550

$(63,462)

(99.86)

     Total Current Assets

$4,034,452

$3,803,676

$230,776

6.07

Long Term Assets

 

 

 

 

     Building Property & Equipment

$35,000,000

$35,000,000

     Plus: Building Capital Additions

$2,956,000

$2,156,000

$800,000

37.11

     Less: Building Depreciation

$3,735,137

$2,489,440

$1,245,697

50.04

     FF&E Property & Equipment

$5,000,000

$5,000,000

                                –

     Plus: FF&E Capital Additions

$3,299,500

$1,239,500

$2,060,000

166.20

     Less: FF&E Depreciation

$1,267,815

$773,205

$494,610

63.97

     Net Long Term Assets

$41,252,548

$40,132,855

$1,119,693

2.79

Total Assets

$45,287,000

$43,936,532

$1,350,468

3.07

Current Liabilities

 

 

 

 

     Accounts Payable

$253,098

$251,653

$1,445

0.57

     Taxes Payable

$0

$0

     Total Current Liabilities

$253,098

$251,653

$1,445

0.57

Long Term Liabilities

 

 

 

 

     Bank loan

$14,744,182

$15,111,487

$(367,305)

(2.43)

     Total Long Term Liabilities

$14,744,182

$15,111,487

$(367,305)

(2.43)

Owners’ Equity

 

 

 

 

     Share Capital

$15,000,000

$15,000,000

     Retained Earnings

$15,289,721

$13,573,392

$1,716,329

12.64

     Total Owners Equity

$30,289,721

$28,573,392

$1,716,329

6.01

Total Liabilities & Equity

$45,287,000

$43,936,532

1,350,468

3.07

 Income Statement

 

Year 2

Year 1

Absolute

Percent

Revenue

 

 

 

 

     Rooms

$10,442,567

$10,278,614

$163,953

1.60

     Food & Beverage

$3,678,007

$3,717,675

($39,668)

(1.07)

     Other Departments

$1,164,806

$1,199,649

($34,843)

(2.90)

     Total Revenue

$15,285,379

$15,195,938

$89,441

0.59

Departmental Expenses

 

 

 

 

     Rooms

$3,072,862

$2,702,012

$370,850

13.72

     Food & Beverage

$2,713,515

$2,643,836

$69,679

2.64

     Other Departments

$742,402

$549,636

$192,766

35.07

     Total Expenses

$6,528,779

$5,895,484

$633,295

10.74

Total Departmental Profit

$8,756,600

$9,300,453

($543,853)

(5.85)

Undistributed Expenses

 

 

 

 

     Marketing & Sales

$1,700,580

$1,424,370

$276,210

19.39

     Administrative & General

$1,799,419

$1,798,288

$1,131

0.06

     Property Operations & Maintenance

$562,350

$546,075

$16,275

2.98

     Total Undistributed Expenses

$4,062,349

$3,768,733

$293,616

7.79

Gross Operating Profit

$4,694,251

$5,531,720

($837,469)

(15.14)

Less: Management Fee

 

 

 

 

     Base Fee

$305,708

$303,919

$1,789

0.59

     Incentive Fee

$328,598

$387,220

($58,622)

(15.14)

Income Before Fixed Charges

$4,059,946

$4,840,581

($780,635)

(16.13)

Fixed Charges

 

 

 

 

     Property Taxes

$240,000

$240,000

     Insurance

$120,000

$120,000

     Property Depreciation Building

$1,245,697

$1,241,387

$4,310

0.35

     Property Depreciation FF&E

$494,611

$394,500

$100,111

25.38

     Total Fixed Charges

$2,100,307

$1,995,887

$104,420

5.23

Net Operating Income

$1,959,638

$2,844,693

($885,055)

(31.11)

     Other Income

$328,800

$204,800

$124,000

60.55

     Total Income

$2,288,438

$3,049,493

($761,055)

(24.96)

     Income Tax

$572,110

$762,373

($190,263)

(24.96)

Net Profit

$1,716,329

$2,287,120

($570,791)

(24.96)

 

Comparative Vertical Analysis

Balance Sheet

 

Year 2

Percent

Year 1

Percent

Current Assets

 

 

 

 

     Cash

$1,032,204

2.28

$470,880

1.07

     Inventories

$1,779,525

3.93

$1,285,792

2.93

     Accounts Receivable

$1,030,806

2.28

$1,000,357

2.28

     Restricted Cash

$191,828

0.42

$983,098

2.24

     Cash from Borrowing

$88

0.00019

$63,550

0.14

     Total Current Assets

$4,034,452

8.91

$3,803,676

8.66

Long Term Assets

 

 

 

 

     Building Property & Equipment

$35,000,000

77.29

$35,000,000

79.66

     Plus: Building Capital Additions

$2,956,000

6.53

$2,156,000

4.91

     Less: Building Depreciation

$3,735,137

8.25

$2,489,440

5.67

     FF&E Property & Equipment

$5,000,000

11.04

$5,000,000

11.38

     Plus: FF&E Capital Additions

$3,299,500

7.29

$1,239,500

2.82

     Less: FF&E Depreciation

$1,267,815

2.80

$773,205

1.76

     Net Long Term Assets

$41,252,548

91.09

$40,132,855

91.34

Total Assets

$45,287,000

100

$43,936,532

100

Current Liabilities

 

 

 

 

     Accounts Payable

$253,098

0.55

$251,653

0.57

     Taxes Payable

$0

$0

     Total Current Liabilities

$253,098

0.55

$251,653

0.57

Long Term Liabilities

 

 

 

 

     Bank loan

$14,744,182

32.56

$15,111,487

34.39

     Total Long Term Liabilities

$14,744,182

32.56

$15,111,487

34.39

Owners’ Equity

 

 

 

 

     Share Capital

$15,000,000

33.12

$15,000,000

34.14

     Retained Earnings

$15,289,721

33.76

$13,573,392

30.89

     Total Owners Equity

$30,289,721

66.88

$28,573,392

65.03

Total Liabilities & Equity

$45,287,000

100

$43,936,532

100

 

Income Statement

 

Year 2

Year 1

 

Amount ($)

Percent

Amount ($)

Percent

Revenue

 

 

 

 

     Rooms

10,442,567

68.32

10,278,614

67.64

     Food & Beverage

3,678,007

24.06

3,717,675

24.47

     Other Departments

1,164,806

7.62

1,199,649

7.89

     Total Revenue

15,285,379

100

15,195,938

100

Departmental Expenses

 

 

 

 

     Rooms

3,072,862

20.10

2,702,012

17.78

     Food & Beverage

2,713,515

17.75

2,643,836

17.40

     Other Departments

742,402

4.86

549,636

3.62

     Total Expenses

6,528,779

42.71

5,895,484

38.80

Total Departmental Profit

8,756,600

57.29

9,300,453

61.20

Undistributed Expenses

 

 

 

 

     Marketing & Sales

1,700,580

11.13

1,424,370

9.32

     Administrative & General

1,799,419

11.77

1,798,288

11.83

     Property Operations & Maintenance

562,350

3.68

546,075

3.59

     Total Undistributed Expenses

4,062,349

26.58

3,768,733

24.80

Gross Operating Profit

4,694,251

30.71

5,531,720

36.40

Less: Management Fee

 

 

 

 

     Base Fee

305,708

2.00

303,919

2.00

     Incentive Fee

328,598

2.15

387,220

2.55

Income Before Fixed Charges

4,059,946

26.56

4,840,581

31.85

Fixed Charges

 

 

 

 

     Property Taxes

240,000

1.57

240,000

1.58

     Insurance

120,000

0.79

120,000

0.79

     Property Depreciation Building

1,245,697

8.15

1,241,387

8.17

     Property Depreciation FF&E

494,611

3.24

394,500

2.60

     Total Fixed Charges

2,100,307

13.74

1,995,887

13.13

Net Operating Income

1,959,638

12.82

2,844,693

18.72

Other Income

328,800

2.15

204,800

1.35

Total Income

2,288,438

14.97

3,049,493

20.07

Income Tax

572,110

3.74

762,373

5.02

Net Profit

1,716,329

11.23

2,287,120

15.05

Statement of Cash Flow

Metropolitan Hotel

Statement of Cash Flows

For the End of Year 2

Cash Flows from Operating Activities

 

 

Net Profit

 

1,716,329

     Property Depreciation Building

1,245,697

 

     Property Depreciation FF&E

494,611

 

     Increase in Inventories

($493,733)

 

     Increase in Account Receivables

($30,449)

 

     Accounts Payable

$1,445

 

Net Cash from Operating Activities

 

1,217,571

Cash Flows from Investing Activities

 

 

     Building Capital Additions

($800,000)

 

     FF&E Capital Additions

($2,060,000)

 

Net Cash from Investing Activities

 

($2,860,000)

Cash Flows from Financing Activities

 

 

     Bank Loan

(367,305)

 

Net Cash from Financing Activities

 

(367,305)

Total Cash Flow

 

(293,405)

     Plus: Cash at the End of Year 1

1,517,528

 

Cash at the End of Year 2

 

1,224,123

 

Business Liquidity 

                The Metropolitan Hotel had a negative cash flow since the cash at the end of Year 2 is less than the cash at the end of year 1. The negative cash flow resulted in a reduction of the liquidity and hence the financial flexibility of the business. A positive and stable cash flow is needed for regular payment of the salaries of employees, payments of dividends to shareholders, timely payment of taxes and insurance premiums, and payment of loan interest and principal without any disruption. Thus, a negative cash flow may result in financial failure of the business. Moreover, failure of the business to realize its liquidity and financial flexibility status may cause significant problems such as bankruptcy. Thus, the statement of cash flow is important in ensuring that the business becomes aware of its liquidity status hence make accurate decisions concerning its ability to meet its short-term obligations.