Financial Ratio Analysis

2010

ACCOUNTING RATIO ANALYSIS TO ASSESS THEProfitability, Liquidity, Capital Structure and Solvency in Hotel Three Sri Lankan Holding Companies.

Preface Business has never been as competitive as it stands today, we have witnessed the fall of many industry giants within the last decade than ever before. Industry experts and scholars put this down to many reasons, not forecasting or adapting to possible changers. Not been proactive enough but reactive are few to name. A major area which attracted the lime light was the ‘Accounting sector’ mainly many critics pointed out that the reason for ‘Financial Giant’ to collapse was due to lack of correct (Legal) and ethical accounting practices, reflecting their true financial picture/status to the public. Following the fall of many Industry giants their respective ‘annual reports’ and ‘audit reports’ were heavily criticized (by media largely) and many others as it had fabricated actual figures yet made up to the general financial standards.

Financial reports at a glance provide the ‘profit and loss ’ stance of a company, but to get the maximum leverage or insight knowledge one should be able to ‘read between the lines’ in accounting terms in an annual report. This is the point where we can use the ‘ratio analysis’ as a vital tool. Not only to analyze the profit / loss but many other important factors. Understanding the cost effectiveness, capital and liability structure in long term and short term perceptive, effectiveness of assets management, income turnover of assets, etc this will give an comprehensive insight via ratio analysis for the management to make viable strategies, ensuring the prevail and prolonged success.

We as a group had many ideas and views to approach this task, to show the effectiveness of the ratio analysis and at the end we commonly agreed to focus our study on the ‘Hotel / tourism Industry’ where we picked three major (five star) hotels holding companies and the year 2009 as the year to conduct the study, based on their annual reports. There were many reasons behind this selection, as 2009 was a historical year for all Sri Lankans in which we as a nation had to face the peak of the civil war and with a sign of relief saw the end to the 30 year hard fought civil war, three major elections, flood, initiation of major investments, increase in tourists, etc. In a country like Sri Lanka though the share market does not reflect the true picture of the business functions, we have been able to loop the business and financial fluctuations logically and strategically to reflect the original purpose of the study.

We hope that this comprehensive and descriptive ratio analysis will be able to give an in-depth insight to the industry and much other functionality in a more coherent and an accountable manner.

Introduction

Background of Selected

Industry

Sri Lanka is well-known around the world as being an attractive destination for travel and

tourism, offering a wide range of experiences. The sector is a significant contributor to national

income and has emerged as the 4th highest foreign exchange earner in the country. Gross

earnings from tourism stood at US $ 384 million in 2009 an increase of 12.3 percent over 2008

making itself as the fast emerging growth industry in the economy. Recently New York

identified Sri Lanka as the number one destination out of 31 to visit in the world in year 2010.

The Sri Lankan tourism sector is gearing up for increased arrivals and higher average daily

expenditure per tourist. It is also focusing on increasing room capacity and generating

additional direct employment. The industry is currently investing to upgrade existing hotels and

enhance the product range on offer.

Company profiles Asian Hotels and Properties PLC.

Coroporate Structure

The “Asia Hotels and Properties plc” is engaged in hoteliering and property

development. Its corporate structure consist with three main subsidiary companies

namely Cinnamon Grand Hotel, Cinnamon Lake Hotel and Crescat Boulevard.

Performance Overview -

During the financial year ended March 31st 2010, the Group achieved revenues of Rs.

3.8 billion with a net profit after tax and minority interest of Rs. 606 million, these

being increases of 7 per cent and 19 per cent respectively.

Stated Capital Rs. 3.3 billion

Market value per share is Rs. 131.50

Earning per share is Rs. 2.84

Share Capital as at 31-03-2010 – Rs. 208,754,321.

Amaya Leisure PLC.


The Amaya Leisure Plc’s principal activities and its subsidiaries included in the consolidation

consist of the following:

Operators of star class hotels, providing services for management research and

development of the hotel chain of the Group.

Servicing the MICE (Meetings, Incentives, Conferences and Exhibition) market.

Promoting and providing facilities relating to Ecotourism.

Operators of high class Wellness and Spa outlets.



4.9 million with a net profit after tax and minority interest of Rs. 3.2 million, It is a

increment of 196% compare to the year of 2009’

Stated Capital Rs. 466 million


Earning per share is Rs. 1.65

Share Capital as at 31 -03-2010– Rs. 39,502,389.

Galadari Hotel .


The hotel Galadari is situated in the heart of Colombo's business district, and accomplishes with

450super luxury rooms, that overlooks the Indian Ocean and is adjacent to leading Banks and

the World Trade Center, with easy access to the shopping areas in Colombo.

The Galadari Hotel offers a rich blend of service and quality in five star luxury living. Hotel

ensure and meticulous about maintaining the privacy of its guests has drawn in many an elite

personality from around the world such as heads of government, prime ministers of leading

nations, royalty, well known sports & music personalities over the past two and half decades.

With a range of room and suite types, and a comprehensive list of facilities, the hotel is able to

cater to the requirements of both business and family travelers, and is especially geared to

handle the needs of Muslim clients, with Halal food in all restaurants.



730 million with a net loss after tax and minority interest of Rs. 351 million, It is a

increment of 78.73% compare to the year of 2008’. (Year 2008” loss – 629 million)

Stated Capital Rs. 1.8 billion


Earning per share is Rs. (1.93)

Share Capital as at 31 -03 -2009 –Rs. 153,024,739.

Introduction to Financial Analysis of

three leading hotels This study is for examine specific characteristics in the financial analysis of three leading hotels

in Sri Lankan, that are listed in the Colombo Stock Exchange (CSE). The analysis is based on the

following selected areas to identify whether the three companies assessed and carrying out

their financial activities up to standards and also to evaluate and analysis the financial

strengths and weaknesses of a firms by establishing meaningful relationships between the

elements of financial statements .

Selected areas are as follows;

Profitability Ratio

Liquidity Ratio

Solvency Ratio

Activity Ratio

Market Ratio

The selected companies for the study are Asian Hotels and Properties PLC (AHP PLC), Amaya

Leisure PLC (AL PLC) and Galadari Hotel. All the three companies are listed in Colombo Stock

Exchange (CSE). The three companies are mainly operated well in Hotel industry by showing

high performance continuously. The analysis of financial operation evaluations in relevant to Sri

Lankan Accounting Standards are carrying base on 2009-2010 financial year in all the three

companies. The analysis has mainly focused on financial ratio analysis to evaluate financial

strengths and weaknesses of firms by establishing meaningful relationships between the

elements of financial statements.

.

ACCOUNTING RATIO ANALYSIS

“Ratio Analysis: is a process of identifying and analyzing of financial strength and weaknesses of a firm by establishing meaningful relationship between the elements of the financial statements.”

Advantages of Ratio Analysis Limitations of Ratio AnalysisAssist investors to make effective investment decision.

Effect of price changes

Facilitates inter-firm comparison Limitations of financial statementsAssist organization planning and forecasting Comparative study required:

Few advantages and disadvantages of ratio analysis are listed below,

Profitability Ratios

Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company's bottom line. Profitability measures are important to company managers and owners alike.

Profitability ratios show a company's overall efficiency and performance. These measures indicate whether the company is performing satisfactorily. They are used to measure the performance of the management, to identify whether a company may be a worthwhile investment opportunity and to determine a company’s Performance relative to its competitors.

Classifications of profitability ratios

Profitability Ratio measures the results of the organization operations, performance and effectiveness.

Profitability Ratio measures the results of the organization operations, performance and effectiveness.

Profitability RatiosProfitability Ratios

Gross Profit

Ratios

Gross Profit

Ratios

Net Profit

Ratios

Net Profit

Ratios

Return on Asset Ratios

Return on Asset Ratios

Return on Equity Ratios

Return on Equity Ratios

Return on Capital

Employed Ratios

Return on Capital

Employed Ratios

1. Gross Profit Ratio

Calculation and comparison of Gross Profit Ratios for three companies

Asian Hotels and Properties PLC.

Amaya Leisure PLC. Galadari Hotel PLC.

Rs. ‘000 Rs. Rs.

Gross Profit Ratio indicates the amount of earnings, required to pay fixed costs and profits, are generated from revenues.

Indicates how much of each sales rupee is available to meet expenses and profits after merely paying for the goods that were sold of an organization.

The gross profit margin looks at cost of goods sold as a percentage of sales. This ratio looks at how well a company controls the cost of its inventory and the manufacturing of its products or services and subsequently passes on the costs to its customers. The larger the gross profit margin, the better for the company.

Gross Profit Ratio indicates the amount of earnings, required to pay fixed costs and profits, are generated from revenues.

Indicates how much of each sales rupee is available to meet expenses and profits after merely paying for the goods that were sold of an organization.

The gross profit margin looks at cost of goods sold as a percentage of sales. This ratio looks at how well a company controls the cost of its inventory and the manufacturing of its products or services and subsequently passes on the costs to its customers. The larger the gross profit margin, the better for the company.

Gross Profit = Gross Profit ×100

Ratio Net Sales


Ratio Net Sales


Ratio Net Sales

Gross Profit = 1,663,977 × 100

Ratio 3,833,158

43.41%

Gross Profit = 4,981,460 × 100

Ratio 4,981,460

100%

Gross Profit = 577,378,333 × 100

Ratio 730,093,065

79.08%

Formula

Gross Profit Ratio = Gross Profit × 100

Net Sales

According to the definition of gross profit ratio, the company who has generated the highest value of gross profit is best/ preferred, because gross margin should be adequate to cover-up other expenses of the company.

According to the above analysis, Companies can be rank as below,

Best Second Highest ThirdAmaya Leisure PLC Galadari Hotel PLC. Asian Hotels and Properties

PLC.

2. Net Profit Ratio



Rs. ‘000 Rs. Rs.

Calculation and comparison of Net Profit Ratios for three companies

Interpretation of Profitability Ratios for three companies

Net Profit Ratio shows how much of each sales rupee shows up as net income after all expenses are paid. The net profit margin measures profitability after consideration of all expenses including taxes and interest.

Net Profit Ratio shows how much of each sales rupee shows up as net income after all expenses are paid. The net profit margin measures profitability after consideration of all expenses including taxes and interest.

Net Profit = EAIT ×100

Ratio Net Sales


Ratio Net Sales


Ratio Net Sales

Net Profit = 606,288 × 100

Ratio 3,833,158

15.82%

Net Profit = 3,228,598 × 100

Ratio 4,981,460

64.81%

Net Profit = (351,985,121) × 100

Ratio 730,093,065

(48.21)%

Formula

Net Profit Ratio = Earnings after interest and tax × 100

Net Sales

Gross Profit & Net Profit Ratio

The second highest gross profit recorded from hotel Galaradi and it indicates higher amount of sales and low cost of sales, but it has the lowest and negative net profit ratio. The reason was the hotel Galadari has extremely high administration, financial and other operating expenses amounting

Rs.864, 466,721 due in efficiency of operations.

Three main expenses as a percentage to sales = 864,466,721 × 100 = 118.40%

730,093,065

According to the above analysis shows, Hotel Galadari has been utilized, its large portion of income to pay off three main expenses due to in efficiency of their internal operational issues and high interest payments for bank overdraft, financial leases and bank term loans due to current financial crisis.

According to these figures Amaya Leisure Plc has highest gross profit ratio (i.s. 100%) and highest net profit ratio compared other two hotels. A higher gross profit ratio is good for a company because it indicates higher sales and zero cost of sales this is unusual situation in business.

Administration Expenses × 100 = 457,126,776 × 100 = 62.61%

Sales 730,093,065

Other Operating Expenses × 100 = 296,637,708 × 100 = 40.63%

Sales 730,093,065

Financial Expenses × 100 = 110,702,231 × 100 = 15.16%

Sales 730,093,065


Sales 4,981,460

Financial Expenses × 100 = 25,523,896 × 100 = 512.38%

Sales 4,981,460

Amaya Leisure Plc has hazardous satiation than the hotel Galaradi in the facts of high financial and administration cost due in lack of operational and management in efficiencies and high interest payment but Amay Leisure Plc able maintain good net profit ratio due to have high other income source amounting Rs.35.86 million .

Asian hotels Plc has lowest gross profit ratio and second highest net profit ratio. Their administration, financial and other expenses were low. Comparing with other two hotels, Asian Hotels PLC was performed well during the year 2009.

According to the above analysis shows, Asian Hotels Plc has been utilized small portion of its income to pay off their administration, finance and other expenses due efficiency of their management and operational efficiencies.

3. Return on Assets Ratio

Return on Assets Ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets.

Net Income is taken from the income statement and total assets are taken from the balance sheet. The higher the percentage is the better, because that means the company is doing a good job using its assets to generate sales.

Return on Assets Ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets.

Net Income is taken from the income statement and total assets are taken from the balance sheet. The higher the percentage is the better, because that means the company is doing a good job using its assets to generate sales.


Sales 4,899,671

Other Expenses × 100 = 732,699 × 100 = 14.95%

Sales 4,899,671



Rs. ‘000 Rs. Rs.

Calculation and comparison of Return on Assets Ratios for three companies


Formula

Return on Assets Ratio = Net Profit after Tax × 100

Average or Total Assets

ROA = (351,985,121) × 100

Ratio 8,081,784,320

(4.35)%

ROA = Net Profit after tax × 100

Ratio Total Assets


Ratio Total Assets


Ratio Total Assets

ROA = 606,288 × 100

Ratio 12,796,177

4.74%

ROA = 3,228,598 × 100

Ratio 1,111,175,529

0.29%

Return on Assets Ratio

Asian Hotels Plc has the best return on assets ratio when compare to other two hotels (i.s. 4.74%). They

have managed its investments on assets and utilized them to generate disenable profit as well. They

have done well in using its assets to generate sales comparing to other two hotels.

Amaya Leisure Plc generate very poor return on assets ratio due lack of supervision on their investment projects and some projects are loss making. There fore Amaya Leisure Plc is unable to generate sufficient return on assets and generate attractive profits.

Hotel Galadari has negative ratio value and they are in bad position in using their assets to generate the profits due to having huge loss making investment project under financial crisis situation as well as their profits are heavily affected from exchange losses.

4. Return on Equity Ratio



Return on Equity Ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company.

Net income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage is the better; it shows that the company is doing a good job using the investors' money.

Return on Equity Ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company.

Net income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage is the better; it shows that the company is doing a good job using the investors' money.

Formula

Return on Equity = Net Profit available for equity holders × 100

Average or Total Equity

Rs. ‘000 Rs. Rs.

Calculation and comparison of Return on Equity Ratios for three companies


Return on Equity Ratio

Asian Hotels Plc has the highest return on equity ratio among the other two groups of hotels. (i.s.

5.54%). Management of the Asian Hotels Plc is able to utilize investor’s money more effectively and

efficiently to generate adequate profits to pay off fair retunes to their investors and done a good job

using the investor’s money. Therefore the investors of Asian Hotels PLS have taken the highest return on

the capital that they have invested in to the company.

Amaya Leisure Plc has very poor return on equity ratio. There are unable to generate sufficient profits to pay off fair retunes to their investors’ mainly due heavy out flow of financial expenses based on interest payments for bank overdrafts, financial leases and term loans and administration expenses.

Therefore we can say Amaya PLC is not in that much of good position and they have not done a good job for their investor’s money.

Hotel Galadari is in worst position regarding the return on equity. There are unable to generate single cense of profits to pay off fair retunes to their investors’ and they are unable to utilized the investor’s money, mainly due heavy out flow of administration, other operating and financial expenses based on interest payments for bank overdrafts, expenses.

5. Return on Capital Employed Ratio

ROE = (351,985,121) × 100

Ratio 1,346,063,925

(26.15)%

ROE = 606,288 × 100

Ratio 10,933,594

5.54%

ROE = 3,228,598 × 100

Ratio 577,326,607

0.56%

ROE = Net Profit available × 100

Ratio for equity Holders

Average or total equity









Rs. ‘000 Rs. Rs.

Calculation and comparison of Return on Capital Employed Ratios for three companies


Return on Capital Employed Ratio

Return on Capital Employed : The ratio compares the profit earned (usually before interest and tax) to the funds used to generate that return (often the total of share holders’ funds at the beginning of the accounting period plus long term creditors – most simply defined as total assets minus current liabilities). In theory, the higher the ratio, the more profitably the resources of the company have been used.

Return on Capital Employed : The ratio compares the profit earned (usually before interest and tax) to the funds used to generate that return (often the total of share holders’ funds at the beginning of the accounting period plus long term creditors – most simply defined as total assets minus current liabilities). In theory, the higher the ratio, the more profitably the resources of the company have been used.

Formula

Return on Capital Employed = Earnings before Interest and tax × 100

Equity + Debt Capital

ROE = (240,666,403) × 100

Ratio1,346,063,925+6,350,658.682

(3.13%)

ROE = 732,574 × 100

Ratio 10,933,594 +624,566

6.34%

ROE = 28,753,794 × 100

Ratio 577,326,607 +1,667,318

4.97%

ROCE = EBIT ×100

Ratio Equity + Debt Capital

ROCE = EBIT ×100


ROCE = EBIT ×100


Asian Hotels Plc has the highest return on capital employed ratio among the other two groups of hotels. (i.s. 6.34%). The generated profits / earnings are sufficient of the management of Asian Hotels Plc to settle the payments for all fund providers of the business.

We can say The Asia Hotel Plc is financially stable company any low risk company and good for investment

Amaya Leisure Plc Even though they have very poor return on equity ratio due to heavy out flow of financial expenses based on interest payments for bank overdrafts, financial leases and term loans and administration expenses. Company is able to manage good return on capital employed ratio by generate sufficient profits to settle payments for all fund providers of the business. This strength received them due to have heavy cash inflow from other sources of income to the business amounting Rs.35.8 million.

Hotel Galadari is in worst position regarding the return on capital employed. There are unable to generate sufficient profits to pay off their external fund providers of the business, mainly due heavy out flow of administration, other operating expenses. We can say this is high risk business and there might be possibilities for future bankruptcies

LIQUIDITY RATIOS

A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations.

Liquidity ratios is one of the important measures which a company undertakes in measuring its ability to meet short term obligations. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.

In general, the greater the coverage of liquid assets to short-term liabilities the better as it is a clear signal that a company can pay its debts that are coming due in the near future and still fund its ongoing operations.

Classifications of Liquidity ratios

1. Current Ratio

The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. It is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. The current ratio is used extensively in financial reporting.

The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). The higher the current ratio, the better.

Formula

Current Ratio = Current Assets

Current Liabilities

The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. It is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. The current ratio is used extensively in financial reporting.

The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). The higher the current ratio, the better.

Formula

Current Ratio = Current Assets

Current Liabilities

Liquidity RatiosLiquidity Ratios

Current

Ratios

Current

Ratios

Acid –Test (Quick) Ratio

Ratios

Acid –Test (Quick) Ratio

Ratios

Debtors collection

Period

Debtors collection

Period

Cash

Ratios

Cash

Ratios

http://www.investopedia.com/terms/c/currentratio.asp

http://www.investopedia.com/terms/l/liquidity.asp

http://www.investopedia.com/terms/w/workingcapital.asp

http://en.wikipedia.org/wiki/Financial_ratio

http://www.investopedia.com/terms/c/currentratio.asp

http://www.investopedia.com/terms/l/liquidity.asp

http://www.investopedia.com/terms/w/workingcapital.asp

http://en.wikipedia.org/wiki/Financial_ratio

Calculation and comparison of Current Ratio for three companies

Galadari Hotel Amaya Leisure PLC.


2008/2009Current Assets 203,107,674 57,495,207 1,229,249Current Liabilities 316,724,410 563,874,921 1,146,2212009/2010Current Assets 239,416,915 37,633,237 1,359,907Current Liabilities 347,183,942 528,324,511 1,293,705

Current RatioYear Galadari Hotel Amaya Hotels

PLCAsian Hotels and Properties PLC.

2008/2009 0.64 0.1 1.072

2009/2010 0.69 0.07 1.051

Interpretation of Liquidity Ratios for three companies

Current Ratio

A current ratio equal to or near 2: 1 is considered as a standard or normal or satisfactory.

Hotel Gladari and Asian Hotels Plc current ratio do not significantly vary in both comparable

years. Though Amaya Hotels Plc has a slightly decrease in the financial year 2009/2010. Thus

decrease in the current ratio represents that there has been deterioration in the liquidity

position of the firm.

Asian Hotels Plc has a relatively high current ratio both in the financial years 2008/2009 and

2009/2010 which is an indication that the company is liquid and has the ability to pay its

current obligations in time and when they become due.

On the other hand, Amaya Hotels PLC in 2009/2010 has a relatively low current ratio. Which

represents that the liquidity position of the firm is not good and the firm shall not be able to

pay its current liabilities in time without facing difficulties..

2. Acid-Test (Quick) Ratio

The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. It is a more well-known liquidity measure, because it excludes inventory from current assets.

The quick ratio or the acid-test ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

Formula:

The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. It is a more well-known liquidity measure, because it excludes inventory from current assets.

The quick ratio or the acid-test ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

Formula:

http://www.investopedia.com/terms/q/quickratio.asp

http://www.investopedia.com/terms/a/acidtest.asp

http://www.investopedia.com/terms/l/liquidasset.asp

http://www.investopedia.com/terms/q/quickratio.asp

http://www.investopedia.com/terms/a/acidtest.asp

http://www.investopedia.com/terms/l/liquidasset.asp

Calculation and comparison of Acid –Test (Quick) Ratios for three companies

Galadari Hotel Amaya Hotels PLC

Asian Hotels PLC

2008/2009Cash and Cash Equivalents 93,687,036 453746 666867Marketable securities 34,510,654 - 645372Accounts receivable 75940670 55347200 175444Current liabilities 316,724,410 563874921 11462212009/2010Cash and Cash Equivalents 104,913,173 260666 1037997Marketable securities 64,552,851 - 995376Accounts receivable 98138418 35980906 176942Current liabilities 347,183,942 528324511 1293705Quick RatioYear Galadari Hotel Amaya Hotels

PLCAsian Hotels PLC

2008/2009 0.64 0.09 1.2972009/2010 0.77 0.06 1.708


Quick Ratio

Quick ratio is used as a complementary ratio to the current ratio. This ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets.

Galadari Hotel and Amaya Hotels Plc Quick ratio do not show significant changes compared to the financial years 2008/2009 and 2009/2010. Thus, Asian Hotels Plc Quick ratio turns up to be about 0.5 increase compared to year 2009. And compared to those two companies Galadari hotel has a higher quick ratio than the other.

Asian Hotels Plc among the other companies has a higher quick ratio which is an indication that

the firm is liquid and has the ability to meet its current or liquid liabilities in time.

http://www.accountingformanagement.com/current_ratio.htm

On the other hand Amaya Hotels Plc compared to other two hotel companies has a low liquidity

ratio which represents that the firm's liquidity position is not good. As a convention, generally, a

quick ratio of "one to one" (1:1) is considered to be satisfactory.

Although liquidity ratio is more rigorous test of liquidity than the current ratio , yet it should be used cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity position of the firm if all the debtors cannot be realized and cash is needed immediately to meet the current obligations.

3. Debtors Collection Period

Calculation and comparison of Debtor Collection Period for three companies

Galadari Hotel Amaya Hotels PLC

Asian Hotels PLC

2008/2009Trade debtors 55,473,998 6721843 42879Sales revenue 701,389,170 4786781 34249562009/2010Trade debtors 82,153,535 11273890 52357Sales revenue 730,093,065 4981460 3833158

Debt collection period is the period over which the debtors are collected on an average basis. It indicates the rapidity or slowness with which the money is collected from debtors.

This ratio designates how quickly and efficiently the debts are collected. Although no standard period is prescribed anywhere, it depends on the nature of the industry.

Formula:

Debtors Collection Period = Trade debtors × 365

Sales Revenue

Debt collection period is the period over which the debtors are collected on an average basis. It indicates the rapidity or slowness with which the money is collected from debtors.

This ratio designates how quickly and efficiently the debts are collected. Although no standard period is prescribed anywhere, it depends on the nature of the industry.

Formula:

Debtors Collection Period = Trade debtors × 365

Sales Revenue

http://www.accountingformanagement.com/current_ratio.htm

Debtors Collection PeriodYear Galadari Hotel Amaya Hotels

PLCAsian Hotels PLC

2008/2009 28.8 512 4.562009/2010 41 826 4.98


Debtors Collection Period

The normal period for collecting debts will differ between industries. The figure measures in number of days how long on average it has taken the company to collect its debts.

Compared to the companies Amaya Hotels Plc has a huge debtor’s collection perid which seems to be worryingly high. This may be because mostly it deals with services in the hotel industry and most payments are done through credit card payments. Therefore lot of business on credit though will have much higher debt collection periods. And in 2009/2010 it has driven more high than in 2008/2009.

Galadari Hotel has a debtors Collection period of 28 days in 2008/2009 and 41 days in 2009/2010. Thus it shows an increase in the collection period and it implies and signals of increasing bad debts rather than the previous financial year 2008/2009. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. And that means your accounts receivables aren't as liquid or aren't being converted to cash as quickly.

Asian hotels Plc seems to have a shorter collection period which implies prompt payment by debtors. It reduces the chances of bad debts. It is difficult to provide a standard collection period of debtors.

4. Cash Ratio

The cash ratio is the most stringent and conservative of the three short-term liquidity ratios (current ratio, quick ratio and cash ratio).

It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. Cash ratio ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities.

It only actions the ability of a firm's cash, along with investments that are easily converted into cash, to pay its short-term obligations.

Formula:

The cash ratio is the most stringent and conservative of the three short-term liquidity ratios (current ratio, quick ratio and cash ratio).

It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. Cash ratio ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities.

It only actions the ability of a firm's cash, along with investments that are easily converted into cash, to pay its short-term obligations.

Formula:

http://www.investopedia.com/terms/l/liquidityratios.asp

http://www.investopedia.com/terms/l/liquidityratios.asp

Calculation and comparison of Cash Ratios for three companies

Galadari Amaya Hotels PLC

Asian Hotels PLC

2008/2009Cash and cash equivalents 93,687,036 453746 666867Current liabilities 316,724,410 563874921 11462212009/2010Cash and cash equivalents 104,913,173 260666 1037997Current liabilities 347,183,942 528,324,511 1,293,705

Cash RatioYear Galadari Amaya Hotels

PLCAsian Hotels PLC

2008/2009 0.29 8.0 0.582009/2010 0.3 4.9 0.8

Interpretation of Cash Ratios for three companies

Cash ratio measures the immediate amount of cash available to satisfy short-term liabilities. A cash ratio of 0.5:1 or higher is preferred. This is used by creditors when deciding how much credit, if any, they would be willing to extend to the company.

Among the three companies Amaya Hotels Plc has a considerably higher cash ratio compared to the other ratios. In 2008/2009 it is 8.0 and in 2009/2010 cash ratio is 4.9. Along with the quick ratio, a higher cash ratio generally means the company is in better financial shape. Though it has been decreased in the financial year 2009/2010 though it is higher compared to the other two companies.

The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities. Because being that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns. Therefore providing an interesting liquidity perspective, the usefulness of this ratio is limited.

LEVERAGE RATIO ANALYSIS

Any ratio used to calculate the financial leverage of a company to get an idea of the company's

methods of financing or to measure its ability to meet financial obligations. There are several

different ratios, but the main factors looked at include debt, equity, assets and interest

expenses. Investors and lenders often look closely at the solvency ratio as a means of evaluating

the credit rating of a business and assessing the degree of default risk that is currently present.

Classifications of Leverage ratios

Leverage Ratio measures the ability of a business to meet its long-term financial obligations.

Leverage Ratio measures the ability of a business to meet its long-term financial obligations.

1. Debt Financing Ratio

The Debt financing ratio’s involve the measuring of the extent to which the firm has used debt as their source of finance.

Formular :

Debt Ratio (Debt to Asset Ratio) = Long-term debt

Total assets

Long-term Debt to Total Capitalization = Long-term debt

Long-term debt + stockholder's equity

Debt to Equity Ratio = Long-term debt

Stockholder's Equity

The Debt financing ratio’s involve the measuring of the extent to which the firm has used debt as their source of finance.

Formular :

Debt Ratio (Debt to Asset Ratio) = Long-term debt

Total assets

Long-term Debt to Total Capitalization = Long-term debt

Long-term debt + stockholder's equity

Debt to Equity Ratio = Long-term debt

Stockholder's Equity

Each of the three debt ratios measures the extent of the firm's financing with debt. The

amount and proportion of debt in a company's capital structure is important to the financial

analyst because of the tradeoff between risk and return. Use of debt involves risk repayment.

Failure to satisfy the fixed charges associated with debt ultimately results in bankruptcy. A

lesser risk is that a firm with too much debt has difficulty obtaining additional debt financing

when needed or finds that credit is available only at extremely high rates of interest. Although

debt implies risk, it also introduces the potential for increased benefits to the firm's owners.

The debt ratio considers the proportion of all assets that are financed with debt.

The ratio of long-term debt to total capitalization reveals the extent to which long-term debt is

used for the firm's permanent financing (both long-term debt and equity).

The debt to equity ratio measures the overall riskiness of the firm's capital structure in terms of

the relationship between the funds supplied by creditors (debt) and investors (equity).

The higher the proportion of debt, the greater the degree of risk because creditors must be

satisfied before owners in an event of bankruptcy. The equity base provides, in effect, a

cushion of protection for the suppliers of debt. Because debt carries a fixed commitment in the

form of interest charges and principal.

Calculation and comparison of Debt Financing Ratios for three companies.

Financial Data Galadari Hotel LtdAmaya

Leisure Plc

Asian Hotels and Properties

PLC

Non Current Liabilities 6,388,536,453 5,524,411 568,878

Equity Capital 1,346,063,925 577,326,607 10,933,594,000

Total Assets 8,081,784,320 1,111,175,529 12,796,177

Interest Bearing Debt 6,350,658,682 1,667,318 490,866

Ratio Galadari Hotel LtdAmaya

Leisure Plc


PLC

Debt to Equity Ratio 4.75 0.01 0.05

Debt to Total Asset Ratio 0.79 0.005 0.04

Debt to Total Capitalization Ratio 0.83 0.01 0.05

Interest bearing Debt to Equity Ratio 4.72 0.003 0.04

Interpretation of Debt Coverage Ratios for three companies

There is difference of opinions on what constitutes an acceptable or good leverage ratio. This is

because profit margins will vary from one industry to another. It is necessary to adjust the

evaluation of the outcome to conform with the standards that apply to a given industry.

On average, a solvency ratio that is more than 20% or .02 is considered a strong sign that a

business is financially healthy and very likely to honor all long-term debt obligations. Should the

ratio fall below that percentage, which is an indication that there is some additional risk of

either slow payments or total default on a portion of those debts. As the leverage ratio sinks

lower over time, this is an indication that the company is undergoing some type of financial

distress and is not considered a good credit risk.

Debt to Equity Ratio

In this specific study four debt financing ratios has been calculated to evaluate the financial

stability in terms settling its long term debt. First when comparing the Debt to Equity Ratio of

the three companies. Galadari Hotel Plc (GHP) is in a very crucial & risky financial situation

because its debt capital is significantly higher than its equity capital. GHP debt capital is

approximately 4 times bigger than its equity capital. The company is working in a very thin edge

and the risk collapsing down due to the insolvency is very high. If debt terms are deeply

analyzed GHP’s borrowings are from government and related parties yet that would not reduce

the risk which effect to the companies long term survival. Compared to this company debt to

equity ratio of Amaya Leisure Plc (ALP) and Asian Hotels and Properties Plc (AHPP) is much

satisfactory which results in only 10% and 50% of debt capital from its equity respectively.

Though ALP have able to reduce the financial risk whether they are managing their financial

structure effectively because higher equity capital indicates higher cost to the company in

terms of required rate of return of fund providers.

Debt to Total Asset Ratio

Debt total asset ratio shows in which financial source the company has financed its assets. The

ratios shows that the 79% of the debt is financed by the debt capital of the company. This gives

a hint that the total assets should be utilized very effectively to make sure that it will generate a

higher returns to pay off the fixed interest charges. The ratios of the two companies are

marginal which the majority of the assets are financed by equity capital.

Debt to Interest Baring Borrowings Ratio

The motive of calculating an additional ratio which is Interest bearing debt to equity ratio is

because to identify pure effect of debt capital to the company’s financial position. The debt

capital figure used to calculate the debt to equity ratio consist interest bearing loans and

borrowings, other deferred liabilities. retirement benefit liability. Latter two are the liabilities

which has arise during the cause of business may be due to tax and legal purposes not with the

intension of financing the business. Only the interest bearing borrowings are the debt raised for

the purpose of financing the business. With regard to GHP and AHPP their isn’t significant

difference between this ratio and Debt to equity ratio because in these two companies the

long-term debt other than interest bearing are marginal. But ALP the ratio is far more lower

than the debt to equity ratio because from the total noncurrent borrowing 70% is retirement

benefit liability. There utilization of debt capital by the ALP is lower as .0003.

Considering the debt financing ratio’s the company can be ranked as follows,

Best Second Highest Worst

Amaya Leisure PLC Asian Hotels and Properties PLC.

Galadari Hotel PLC.

2. Coverage Ratios

In order for a firm to benefit from debt financing, the fixed interest payments that accompany

debt must be more than satisfied from operating earnings. Generally the higher the interest

cover ratio, the better the firm's situation; however, if a company is generating high profits but

no cash flow from operations, this ratio is misleading. It takes cash to make interest payments.

The cash interest coverage ratio measures how many times interest payments can be covered

by cash flow from operations before interest and taxes.

The cash flow adequacy ratio measures how well a company can cover annual payments of

items such as debt, capital expenditures, and dividends from operating cash flow. ash flow

adequacy is generally defined differently by analysts and credit rating agencies; therefore, it is

important to understand what is actually being measured. It is desirable for companies to

Coverage ratios measure the degree t which the firm is cable of paying its fixed interest charges of the period out of the operating profit or cash flows generating during the same period.

Formular :

Interest Cover = Operating profit (EBIT)

Interest expense

Cash Interest Coverage = CFOa + interest paid + taxes paidb

Interest paid

Cash Flow Adequacy = Cash Flow from operating activities

Capital expenditures + Debt Repayments + dividends paid

a Cash flow from operating activities (CFO )

bThe amounts for interest paid and taxes paid are found in the supplemental disclosures of the statement of cash flows.

Coverage ratios measure the degree t which the firm is cable of paying its fixed interest charges of the period out of the operating profit or cash flows generating during the same period.

Formular :

Interest Cover = Operating profit (EBIT)

Interest expense

Cash Interest Coverage = CFOa + interest paid + taxes paidb

Interest paid

Cash Flow Adequacy = Cash Flow from operating activities

Capital expenditures + Debt Repayments + dividends paid

a Cash flow from operating activities (CFO )

bThe amounts for interest paid and taxes paid are found in the supplemental disclosures of the statement of cash flows.

generate enough cash flow from operations to cover repayments of debt, some new capital

expenditures, and any cash dividends paid.

Calculation and comparison of Coverage Ratios for three companies.

Financial DataGaladari Hotel Ltd

Amaya Leisure Plc


PLC

Finance Cost/Interest Cost 110,702,2

31 25,523,896 118,596,00

0

EBIT (240,666,4

03) 28,753,794 732,574,00

0

Cash flow from operating activities (CFO)

15,154,808

(16,836,660)

1,950,845,000

Tax paid (17,881,00

0)

Capital Expenditure (9,579,58

0) (465,810) (263,927,00

0)

Debt Repayment (5,971,463

) (133,700,00

0)

Dividends Paid (446,465,00

0)

RatioGaladari Hotel Ltd

Amaya Leisure Plc


PLC

Interest Cover (2.17) 1.13 6.18

Cash Interest Coverage 1.14 0.34 17.30

Cash Flow Adequacy 1.58 (2.62) 2.31

Interpretation of Ratios for three companies

Interest Cover Ratio

When analyzing the converge ratios of the three companies it is evident that the GHP have the

poorest performance with regard to covering the annual payment of its debt. Having a negative

interest cover ratio signals, the company is not capable of generating a profit to cover its

interest cost. But the positions of the other two companies are fairly positive. ALP having a 1.13

interest indicates that the company has Rs. 1.13 of profits available to pay Rs.1 of Interest. And

similarly AHPP has Rs. 6.18 operating profits to pay Rs. 1 of Interest. These ratio hiGHPights that

not only GHP is not well managing their capital structure with risky debt capital but they do not

qualify t generate an profit to cover the cost of capital.

Cash Interest Coverage

Comparing cash interest coverage and interest cover well illustrates the profitability and

liquidity of company. From the three companies the ALP has the weakest ratio and AHPP has

the best position with regard to this ratio. Though GHP is not satisfactory with regard to

interest cover their cash flow situation to covet its interest cost is positive, which means though

they earn losses the firm has been able to maintain a liquidity level to pay its debt holders. But

the state is reverse with regard to ALP their cash flow situation to cover interest is lower as .34

though they have a interest cover of 1.13. The ratio is impressive with regard to AHPP as always

they do not have an cash flow is with paying interest as they have an cash interest cover of

17.3.

Cash Flow Adequacy

When analyzing the cash flow adequacy of the three companies it can be recognize that the

AML is facing issues with covering its main long term cash flows like capital expenditure and

debt repayment because having a negative cash flow adequacy ratio of 2.62 means the

company does not generate an operational cash flow to pay its main investment activity and

finance activity. Simply the operating cash flow is not adequate but with regard to GHP an AHPP

this has resulted with a positive figure which means the operating cash flow is adequate to pay

up is capital expenditure and debt repayments.

Considering the debt coverage ratio’s the company can be ranked as follows,

Best Second Highest Worst

Asian Hotels and Properties PLC

Galadari Hotel PLC. Amaya Leisure PLC.

Activity Ratios

Activity ratios measure a firm's ability to convert different accounts (asset, liability or capital

share) within their balance sheets into cash or sales (revenue). Companies will typically try to

turn their production into cash or sales as fast as possible because this will generally lead to

higher revenues.

In general, the sooner management can convert assets into sales or cash, the more effectively

the firm is being run. Such ratios are frequently used when performing fundamental analysis on

different companies. The asset turnover ratio and inventory turnover ratio are good examples

of activity ratios. Basically, activity ratios measure the effectiveness of the firm’s use of

resources.

Activity ratios are critical in evaluating a company’s fundamentals because in addition to

expressing how well a company generates revenue, activity ratios also indicate how well the

company is being managed.

Classifications of Activity ratios

1. Inventory / Stock Turnover Ratio

Activity Ratio measures the efficiency with which the recourses of a firm have been employed and its indicate the speed with which assets are being turned over into sales..

Activity Ratio measures the efficiency with which the recourses of a firm have been employed and its indicate the speed with which assets are being turned over into sales..

Activity RatiosActivity Ratios

Inventory/Stock Turnover Ratio

Inventory/Stock Turnover Ratio

Debtors / Receivables

Turnover Ratio

Debtors / Receivables

Turnover Ratio

Assets Turnover Ratio

Assets Turnover Ratio

Calculation and comparison of Inventory/ Stock Turnover Ratios for three companies



Rs. ‘000 Rs. Rs.

Interpretation of Activity Ratios for three companies

Inventory / Stock Turnover Ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not.

This ratio shows the relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times.

Inventory / Stock Turnover Ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not.

This ratio shows the relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times.

Formula

Inventory/ Stock Cost of Goods Sold

Turnover Ratio = Average Inventory

Inventory = 2,169,181

Turnover 65,931.50

Ratio 32.9

Inventory Cost of Goods Sold

Turnover Average Inventory

Ratio



Ratio



Ratio

Inventory = Nil

Turnover Nil

Ratio 0

Inventory = 152,714,732

Turnover 32,623,801

Ratio 4.68

Inventory / Stock Turnover Ratio

Asian Hotels Plc has the best Inventory turnover ratio when compare to other two hotels (i.s. 32.9). This

mean that an average one rupee invested in stock will turn into 32.9 sales. Usually a high inventory

turnover/stock velocity indicates efficient management of inventory because more frequently the stocks

are sold; the lesser amount of money is required to finance the inventory. The inventory turnover ratio

is also an index of profitability, where a high ratio signifies more profit,

Sometimes, a high inventory turnover ratio may not be accompanied by relatively high profits. Similarly a high turnover ratio may be due to under-investment in inventories.

Amaya Leisure Plc and Hotel Galadari shows relatively very low inventory turnover ratio and it indicates

an inefficient management of inventory. A low inventory turnover implies over-investment in

inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow

moving goods and low profits as compared to total investment. The inventory turnover ratio is also an

index of profitability, where a low ratio signifies low profit.

2. Debtors / Receivables Turnover Ratio

Debtors Turnover Ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year.

Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of concern to pay its short term obligations in time depends upon the quality of its trade debtors.

Debtors Turnover Ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year.

Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of concern to pay its short term obligations in time depends upon the quality of its trade debtors.

Calculation and comparison of Debtor Turnover Ratios for three companies



Rs. ‘000Credit sales Information’s are not available in annual report

to calculate and interpretations of debtors

turnover ratio

Rs.Credit sales Information’s are not available in annual report


turnover ratio

Rs.Credit sales Information’s are not available in annual report


turnover ratio

3. Asset Turnover Ratio

Debtors Total Credit Sales

Turnover Average Debtors

Ratio



Ratio



Ratio

Asset Turnover Ratio measures the revenue that is generated for every rupee of asset owned by the company.

Asset turnover ratios help to measure the effectiveness with which the company/management uses its assets to generate sales or revenue. These ratios help to measure the productivity of a company's assets

Asset Turnover Ratio measures the revenue that is generated for every rupee of asset owned by the company.

Asset turnover ratios help to measure the effectiveness with which the company/management uses its assets to generate sales or revenue. These ratios help to measure the productivity of a company's assetsFormula

Asset Turnover = Total Sales

Ratio Average Total Assets

Calculation and comparison of Assets Turnover Ratios for three companies



Rs. ‘000 Rs. Rs.

Interpretation of Activity Ratios for three companies

Asset Turnover Ratio

In general companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Based on that we can say Asian Hotels Plc run with low profit margin that and is the reason they have highest asset turnover and its symbolizes greater shareholder wealth compare two other two hotels.

Amaya Leisure Plc has lowest asset turnover ratio because there are running with higher profit margins compare to other two hotels.

Asset = 3,833,158

Turnover 12,796,177

Ratio 0.30.

Asset Total Sales

Turnover Average Total Assets

Ratio

Inventory = 4,981,460

Turnover 1,111,175,529

Ratio 0.004

Inventory = 730,093,065

Turnover 8,081,784,320

Ratio 0.09

Asset Total Sales


Ratio

Asset Total Sales


Ratio

Market Ratios

A market-value ratio is a metric used to gauge a company's viability in terms of such variables

as profitability and the market valuation of its stock. These ratios are used analytically by a

company's management as well as by its current and prospective investors.

A market-value ratio also acts as an indicator that expresses the value of a company's stock in

terms of a specific item in its financial statements. Different ratios indicate a company's

viability, or financial health, where asset values, revenue, income, and ability to pay bills are

concerned.

Classifications of Market ratios

Market ratios measure the investor response to owning a company's stock and also the cost of issuing stock.

Market ratios measure the investor response to owning a company's stock and also the cost of issuing stock.

Market RatiosMarket Ratios

Earnings per share

Ratios

Earnings per share

Ratios

Dividends per ShareDividends per Share

Dividends Payout Ratios

Dividends Payout Ratios

Price Earnings

Ratios

Price Earnings

Ratios

Earnings YieldRatio

Earnings YieldRatio

http://www.ehow.com/health/

1. Earnings per Share

Calculation and Interpretation of Earnings per share Ratios for three companies

Financial DataGaladari Hotel

LtdAmaya

Leisure PlcAsian Hotel & Properties Ltd

Profit/Loss after Tax -351,985,121 3,228,598 606

,288,000 Average Number of issued ordinary shares 182,433,060 42,029,959

221,388,000

EPS (1.93) 0.08 2.74

Earnings per share ratio signify the amount of earnings available for the investors who have

been invested or willing to invest in equity shares of the company. This ratio gives the amount

Earnings per share (EPS) the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Basic Earnings per share is calculated by dividing the net loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

The weighted average number of ordinary shares outstanding during the year and previous year are adjusted for events that have change the number of ordinary shares outstanding, without a corresponding change in the resources such as a bonus issue.

Formula

EPS = Net Profit After Tax

Average Number of issued ordinary shares

Earnings per share (EPS) the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Basic Earnings per share is calculated by dividing the net loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

The weighted average number of ordinary shares outstanding during the year and previous year are adjusted for events that have change the number of ordinary shares outstanding, without a corresponding change in the resources such as a bonus issue.

Formula

EPS = Net Profit After Tax

Average Number of issued ordinary shares

of earnings can be attribute to a single share of the company. Out of the three companies the

AHPP has the highest earnings per share though they have a considerably higher number of

shares. Even with having a lower profit compared to AHPP, the ALP have been able to maintain

a positive EPS which is the better than the GHL. The -1.93 EPS of GHL does not give a favorable

signal to its investors. The ratio highlights that company is not performing well to generate

enough earning s to cover its expenses, interest and taxes which has results with loss for the

share holders.

2. Dividends per Share

Dividends per Share (DPS) shows the sum of declared dividends for every ordinary share issued.

Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.

Dividends are a form of profit distribution to the shareholder. Having a growing dividend per share can be a sign that the company's management believes that the growth can be sustained.

Formula

DPS = Total Dividends Declared

Number of issued ordinary shares

Dividends per Share (DPS) shows the sum of declared dividends for every ordinary share issued.

Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.

Dividends are a form of profit distribution to the shareholder. Having a growing dividend per share can be a sign that the company's management believes that the growth can be sustained.

Formula

DPS = Total Dividends Declared

Number of issued ordinary shares

Calculation and Interpretation of Dividends per share Ratios for three companies

Financial Data

Galadari Hotel

Ltd

Amaya

Leisure Plc

Asian Hotel &

Properties Ltd

Profit/Loss after Tax 0 0 442,776,000

Average Number of

issued ordinary shares 182,433,060 42,029,959

221

,388,000

DPS 0 0 2

It is evident that the only AHPP has been able to declare dividends for its equity holders. Hence

the remaining two companies do not have an DPS value. While having an appealing EPS the

management of the company has decided to pay dividends for its investor may be because they

have higher stability in its growth and or company decided to distribute its earnings

compensating current investments. Without a surprise Galadari Pls has not declared because

they have ended up with an loss for the period. But though Amaya Plc has achieved a positive

EPS the management may have decided not to declare dividends with a motive of reinvesting

the current earning rather than cash payout to its shareholders.

Dividends Payout Ratio

The dividends payout ratio (DPR) Indicates the proportion of earnings that are used to pay dividends to shareholders.

Companies that pay higher dividends may be in mature industries where there is little room for growth and paying higher dividends is the best use of profits

Formula

DPR = Dividends per share

Earnings per share

The dividends payout ratio (DPR) Indicates the proportion of earnings that are used to pay dividends to shareholders.

Companies that pay higher dividends may be in mature industries where there is little room for growth and paying higher dividends is the best use of profits

Formula

DPR = Dividends per share

Earnings per share

Calculation and Interpretation of Dividends payout Ratios for three companies


PlcAmaya

Leisure PlcAsian Hotel & Properties Plc

EPS (1.93) 0.08 2.74DPS 0 0 2

Dividends payout ratio 0 0 .73

As the only company to pay dividends out of the three companies Asian hotel Plc has a fairly

higher dividends payout ratio which is .73. The company only retains 27% of its earnings,

balance they have used to payoff to its shareholders as dividends.

Price Earnings Ratio

The Price-to-Earnings ratio (P/E ratio) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.

(P/E) ratio indicates the value of a company's stock relative to its financial performance.

It is sometimes called a multiple because it indicates the amount of money that must be invested in order to derive one dollar of earnings. For this reason, lower ratios are preferred to higher ones.

Formula

P/E Ratio = Market Price per Share

Earnings per Share

The Price-to-Earnings ratio (P/E ratio) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.

(P/E) ratio indicates the value of a company's stock relative to its financial performance.

It is sometimes called a multiple because it indicates the amount of money that must be invested in order to derive one dollar of earnings. For this reason, lower ratios are preferred to higher ones.

Formula

P/E Ratio = Market Price per Share

Earnings per Share

Calculation and Interpretation of Price Earnings Ratios for three companies


PlcAmaya


Market Value per share (Rs.) 15 73 131.50

EPS(Rs.) (1.93) 0.08 2.74

P/E Ratio -7.7 912.50 47.9

The calculated P/E Ratio reflects that the Amaya Plc has the highest ratio which is 912.50 and

the next best is Asian hotel Plc which is 47.9. Due to the face that Galadary having after tax loss

it has resulted with an negative EPS.

A higher P/E ratio means that investors are paying more for each unit of net income, so the

stock is more expensive compared to one with lower P/E ratio. The P/E ratio has units of years

which can be interpreted as "number of years of earnings to pay back purchase price. Therefore

out of the three companies Amaya Leisure Plc share is the most expensive one because

comparing to the amount of earnings its share price is relatively high. If we consider the

number of years to pay up the purchase value of the share by its earnings, hypothetically for an

investors of Asian hotels Plc it takes 47.9 if the company continues to earn current level of

profits.

Earnings Yield Ratio

Calculation and Interpretation of Earnings Yield Ratios for three companies

Asian hotel Plc has the highest Earnings yield Ratio which implies that the company generated

an Rs. 0.02 of return for every rupee which invest in the company. The ratio of Amaya Plc is

0.001 which is less, because its market value of share is comparably high and earnings are low.

Galadary Plc’s rate of return for the investment is negative which amounts to be -0.12. If the

company continues making losses it will have a negative impact on the share price in further.


PlcAmaya


Market Value per share (Rs.) 15 73 131.50

EPS(Rs.) (1.93) 0.08 2.74

Earnings Yield Ratio (.12) 0.001 0.02

Earnings yield Ratio reflects the amount of earnings you buy with one rupee of investment in share.

Earnings yield is a measurement ratio that is often used by investment managers or stock market investors to evaluate the worth of a particular stock

This ratio reflect the return on investment rate when making decision to invest in equity shares/

Formula

Earnings yield Ratio = Earnings per Share

Market price per Share

Earnings yield Ratio reflects the amount of earnings you buy with one rupee of investment in share.

Earnings yield is a measurement ratio that is often used by investment managers or stock market investors to evaluate the worth of a particular stock

This ratio reflect the return on investment rate when making decision to invest in equity shares/

Formula

Earnings yield Ratio = Earnings per Share

Market price per Share

Conclusion

The various ratios that have been identified in determining a financial situation can be

categorized in to three major elements i.e. Profitability Ratio, Liquidity ratio, Solvency ratio,

Activity and Market ratio. As described in the introduction each of these ratios play a specific

function with reference to the functionality and the status quo of an organization.

In the case of the specific exercise, three companies from the hotel industry have been selected

and the annual reports of them, namely Galadari Hotel, Asian Hotels and Properties and Amaya

Leisure have been analyzed. The profiles of the companies have been shown in the introduction

and the annual reports have been annexed.

Profitability ratio: Every firm is most concerned with its profitability. One of the most

frequently used tools of financial ratio analysis is profitability ratios which are used to

determine the company's bottom-line.

The profitability ratios are then categorized in to several other ratios: Gross profit, Net profit,

return on asset, return on equity and return on capital employed. Based on the calculations

derived from the ratios the profitability of the three organizations has been ranked in the

descending order of Amaya Leisure, Galadari Hotel and Asian Hotels and Properties Plc.

Hence when considering the profitability ratio, the most profitable entity is Amaya Leisure

hence the company represents comparatively sound ratios.

Leverage Ratio: Leverage ratio is used to measure the ability of a business to meet its long-

term financial obligations. There are several different ratios, but the main factors looked at

include debt, equity, assets and interest expenses. Two main categories of Leverage ratios are

Debt Financing and Coverage ratios.

The ranking for debt financing in descending order are Amaya Leisure, Asian Hotel and

Properties Ltd and Galadari. This indicates that Amaya Leisure debt has a stronger financial

stability in terms settling its long term debt compared to the other two companies.

The ranking for Coverage ratio in descending order is Asian Hotels and properties, Galadari

Hotel and Amaya Leisure. This indicates that Asia Hotels and Properties are well managing their

capital structure while generating a profit to cover the cost of capital

The importance of these ratios is that to an investor the ratios give information on the general

direction of the identified companies. The investor can then decide whether to hold, buy or sell

his or her shares. Also based on the ratios the investor can identify if a company has over

borrowed or if the company can meet its short term liquidity issues. The shareholders of Asian

Hotel and Properties and Ltd will know whether the companies are on track as expected and

Galadari Shareholders will know if they are entitled to dividend.

How each company performs then is indirectly translated in to how well the industry is

performing. Going through several annual reports of the same the same company will indicate

that there is a sharp increase in the earnings and profits. This is a clear sign of economic and

tourism boom experienced after the end of the war.

The ratios will also analyze how each company is doing compared to each other. From the three

companies, Asian Hotel and Properties Ltd has a strong profitability ratio but Amaya Leisure has

better financial ratio.

Reference

Schorder, R.G.,Clark M W and Cathey J M, (2009), Financial Accounting Theory and Analysis:

Text and Cases, 9th Edition, John Wiley & Sons. Inc.

http://www.investopedia.com/university/ratios/

http://www.zeromillion.com/business/financial/financial-ratio.html

http://tutor2u.net/business/accounts/main_ratios.htm

http://www.netmba.com/finance/financial/ratios/

www.cse.lk/cmt/upload_ report _file/532_1274867640886.pdf

www.cse.lk/cmt/upload_ report _file/690_1275657128533.pdf

http://www.cse.lk/cmt/upload_report_file/690_1275657128533.pdf

http://www.cse.lk/cmt/upload_report_file/532_1274867640886.pdf

http://www.netmba.com/finance/financial/ratios/

http://tutor2u.net/business/accounts/main_ratios.htm

http://www.zeromillion.com/business/financial/financial-ratio.html

http://www.investopedia.com/university/ratios/

Financial Ratio Analysis

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