Introduction
Financial reports are extremely significant to any organization since it assists in evaluating and gauging the economic strength of an organization. These reports are crucial irrespective of the nature of the company i.e. whether profit-making or nonprofit making. Financial reports are often evaluated before decisions on the best recommendations and strategies are given (Gill and Moira, 2). Therefore, it is extraordinarily imperative for organizations and institutions to have an extensive and precise assessment of their financial reports.
The financial performance
Analyzing the financial performance of a hotel is extremely significant for the management team. For instance, the Mandarin Oriental International Hotel’s financial report can be analyzed and used in various capacities. The report can be used to decide on the best approaches, tactics, and strategies for advancing the performance of the hotel. The analysis of the hotel’s financial report will focus on the last three years of its operation i.e. 1999, 1998, and 1997.
Within the last three years, the hotel experienced a tremendous decrease in its total revenues. The registered changes in revenue were noted as +19%, +1%, and finally -18% in 2009. This, unquestionably, indicates that the company’s profitability level is declining as years pass by. The revenue decrease was accompanied by declined earnings before tax, and the figures were noted as +63, -14, and -47 in 1997, 1998, and 1999 respectively (Mandarin Oriental). The attributed profit to the hotel’s shareholders was also not left out, since it also reduced tremendously. However, the decrease was only realized within the last two years; given that, in 2007, the hotel registered an incredible 35% increase. This signifies that the company experienced a hostile environment, in the subsequent years after 2007.
The hotel’s earnings per share also declined within the last two years; although, in 2007, the earnings were positive with a remarkable 35% increase. The hotel registered a relatively reduced dividend per share within the last two years. This was, however, the reverse in 2007, whereby the hotel registered an astonishing 100% increase in dividends per share. Also in 2007, the company experienced a substantial increase in its net asset per-share value. However, the change took another shift in the subsequent years after 2007, thus registering a negative change in the net asset per-share value.
In the years 2007 and 2008, the hotel experienced an insignificant change in revenues i.e. a difference of $ 0.5 million. However, in the year 2009, it registered a tremendous decline in revenues i.e. from $530 million to $ 438 million. This trend was also noted in the cost of sales, whereby the hotel registered almost a similar value in 2007 and 2008. However, in 2009, the hotel recorded a shocking decline in cost of sale i.e. from $324 to $298 million (Mandarin Oriental). Surprisingly, this trend was further extended in the gross profit of the Hotel; it witnessed $210.7 and $205.5 million in 2007 and 2008 respectively. However, in 2009, gross profits took another shift making the hotel, earn a gross profit of $139 million.
From 2007 up to 2009, the hotel registered a significant change in its operating profits. The operating profits decreases from one year to another, since 2007. However, in the year 2009, the change was extremely shocking; it registered over a 50% decrease in operating profit i.e. from 86.2 to 23.6. In the following year, i.e. 2008, the hotel also registered a substantial decrease in profits before tax; the profits decreased from107.4 to 84.4 million dollars. However, in 1999, the decrease was insignificant i.e. it only changed from 84.5 to 84.4 million dollars (Mandarin Oriental). Profits after tax and earnings per share tremendously declined, in the year 2008; however, in 2007, they increased considerably.
Overall performance
In the year 2007, the hotel registered an incredible increase, in the overall year profit. However, this was not the case in the year 2008, whereby the hotel experienced a tremendous decrease in its overall profits. Despite the challenge, in 2009, the Hotel took a different shift, as it registered a considerable increase in its overall profits. This undoubtedly indicates that the Hotel lacks consistency in its overall performance; profits take different directions year after year, and thus there is a need for stability and consistency. However, it is imperative to note that the inconsistency indicated, was also influenced by the economic crunch that hit businesses, in a global capacity.
By the hotel’s balance sheet, the company witnessed considerable progress of their asset values, in the year 2007. However, in 2008, the company experienced a tremendous reduction in its asset values. This was, then, followed by a small positive change in asset value, in 2009. Arguing from this information, it is noted that the company’s assets keep on shifting in values thus unstableness. The tremendous decrease in asset value, in 2008, is a result of either selling some of the assets or excessive depreciation of asset values. Moreover, the decrease in asset value can also be a result of the economic crunch, which affected millions of businesses around the globe. Despite the challenge, the Hotel seems to be recovering assets as indicated by last year’s considerable increase in asset values.
The hotel has also ventured into joint businesses, and thus earns a considerable amount of money out of it. In 2007, the Hotel earned $ 107.7 million from joint ventures (Mandarin Oriental). Although in the succeeding years, earnings from joint ventures extraordinarily decreased to the extent of even reaching a negative figure. Despite the decline, Joint ventures also contribute significantly to the hotel’s profits; therefore, it should be considered as a viable project. Moreover, the shocking decrease in profits could have been due to economic problems that hit the globe, and thus it is normal for the venture to suffer at such moments. However, on the other hand, this indicates how joint ventures are incapable of sustaining financial pressures or economic problems.
SWOT analysis
SWOT analysis is an approach given to a company or any institution when one needs to assess some of its several aspects such as finances and competition. This approach contains four concepts that must be employed for one to have a comprehensive understanding of a company. The concepts can be summarized as follows; threat, weaknesses, opportunities, and finally strength (Ferrell and Hartline, 119).
Strength
Despite being faced with several economic challenges, the hotel also has several points of strength that can significantly help it realize its goals and objectives. The hotel is a multinational company; thus it is well established. Such established companies can easily restore their competitiveness in the market as compared to younger and growing companies. This is because; they can sell some of their expensive assets and use the cash to resurrect the competitiveness of the company.
Weakness
In general, the whole company cannot endure economic crises or problems in the market. This is indicated by the massive losses that the company registered during the crisis period; for instance, in the joint ventures. Additionally, the hotel is also suffering from financial problems, which is contributed by the unconvincing recent performance of the company. Ultimately, the hotel has an extremely unfavorable credit position, due to its previous excessive borrowing. This limits its capacity to obtain loans or finances from banks or any other financial institution.
Opportunities
There is significant room for expansion, especially in developing countries. Thus, the company can expand its capacity, to serve in different countries where there is extremely minimal competition. The hotel also has a wide market, with millions of customers around the globe. It has numerous options, in case it needs to expand and serve more customers; some of the options include Africa, South America, and Asia.
Threats
The Hotel is under threat of unfavorable competition. The competition is further magnified by the hotel’s unfortunate performance. This is because; it can be overshadowed by other companies, which have the financial muscle too, effectively, market and promote their services. The hotel is also faced with security threats i.e. terrorism or the general insecurity of the country (Kolb, 83). Such threats are extremely disastrous to hotels since they tremendously disrupt activities and performances of the hotel. They can make the hotel suffer massive losses since most of its customers will feel insecure, to be accommodated in certain countries that are facing insecurity problems.
Financial and cost recommendations
SWOT analysis can be employed in designing suitable strategies that can extensively assist the hotel, to realize its goals and objectives. Moreover, they can also be used to evaluate companies thus easing the process of deciding on the best strategies and recommendations (Groppelli and Ehsan, 431).
Financial recommendations
Achieving superb financial results is one of the primary goals for this hotel. Therefore, financial recommendations should target precisely activities that aim at achieving this goal. Despite the increase in profit in 1999, the company is still underperforming i.e. in comparison to its previous profits. Therefore, the company needs to invest in several aspects of the hotel for it to realize an incredible profit increase. Moreover, the hotel should invest massively in advert, expansions and also promoting its services. This will eventually attract and accommodate new customers thus increasing service sales. Consequently, the company will experience a substantial increase in profits that can be reinvested back in the company, to improve its capacity (Lee, 47). Moreover, the increased profits can also be used to repay the financial obligations of the hotel. Ultimately, it is key to note that profits strengthen the hotel economically thus enabling it to compete favorably in the market.
The above financial recommendation cannot be achieved without finances; therefore, there is a need to develop a strategy for raising funds. Unfortunately, the company is suffering from massive financial obligations thus it is extremely difficult for it to obtain finances from banks or financial institutions. The best alternative for the company will be to float its shares in the stock market. This will enable the company to, effortlessly, raise finances, and also avoid increasing its financial obligations. Furthermore, the amount raised can be used to invest in the joint venture, since the company seems to perform well in them. However, in doing so, it is extremely significant to be cautious, since this venture is incapable of enduring economic problems.
Cost
For the realization of any substantial increase in profits, the cost of operating and running a firm must be reduced tremendously (Harris, 43). This is also applicable to hotels that strive to achieve an incredible financial position. Arguing from the financial report; it is noted that the hotel is spending excessively on the cost of sales i.e. by comparing to its revenue. Therefore, for the hotel to realize a tremendous increase in profits, it must strive to reduce its production costs i.e. by adopting effective strategies and recommendations. For instance, seeking other alternative sources of raw material can help in identifying cheaper suppliers. However, it is imperative not to forget excellent quality, while looking for cheaper sources of raw materials. Looking on the brighter side of this recommendation, the company will experience a tremendous reduction in the cost of producing foodstuffs. Consequently, the hotel will realize a tremendous increase in profits.
The cost of labor must also be regulated by adopting credible strategies and recommendations (Hey-Cunningham, 20). For instance, the remunerations of employees should be standardized i.e. employees are paid based on qualifications and merit. However, in employing this recommendation, it is extremely significant to ensure there is no underpayment or overpayment. The viability of this recommendation will help to cut off the extra cost incurred by overpaying workers. As a result, the company will experience a decreased cost of sale, which translates to a tremendous increase in profits.
Reducing labor and raw material cost can significantly reduce some of the hotel’s threats. For instance, the company will now be empowered economically thus enabling it to compete favorably in the market. The hotel will also have the capacity to repay the massive cash is borrowed from financial institutions. In addition to cost reduction, the hotel’s economic strength will further be strengthened, if the financial recommendations prove feasible. This, therefore, implies that the company will now have the capacity to perform numerous activities directed towards its goals.
Conclusion
Financial reports must be analyzed before developing any strategy. Some of the crucial aspects that need extensive analysis include the overall and financial performance of a company (hotel). The analysis should be done with extraordinary care, to ensure the report precisely reflects the financial statements. Ultimately, the financial report can now be used to decide on the relevant recommendations and strategies for the company (hotel). Such recommendations and strategies can extensively assist the company to realize its goals and objectives, in various capacities.
Works cited
Ferrell, Odies and Hartline, Michael. Marketing strategy. Ohio: Cengage learning 2008 (4) 119.
Gill, James and Chatton, Moira. Understanding financial statements: a primer of useful information. Ohio: Cengage Learning, 1999 2.
Groppelli, Angelico and Nikbakht, Ehsan. Finance. Barron’s Educational Series, 2000 (4) 431.
Harris, peter. Accounting and finance for the international hospitality industry. Massachusetts: Butterworth-Heinemann, 1997 43.
Hey-Cunningham, David. Financial Statements Demystified. Sydney: Allen & Unwin, 2007 (4) 20.
Kolb, Bonita. Tourism marketing for cities and towns: using branding and events to attract tourism. Massachusetts: Butterworth-Heinemann 2006 83.
Lee, Thomas. Financial Reporting and Corporate Governance. London: John Wiley and Sons. 2007 47.
Mandarin Oriental. News release. Mandarin Oriental. 2010. Web.
Mandarin Oriental. News release. Mandarin Oriental. 2008. Web.
Mandarin oriental. Financial report. Mandarin oriental. 2010.