Question

Based on the graph, which company would you rather invest in? Why? Make sure you compare the profitability, liquidity, solvency/leverage aspects of these companies with appropriate ratios.

oints) RatioAnalysis You are interested in investing in a regional hotel company and have investigated the financial statements of four potential investments. Use the information in the table below to answer the questions. Hotel N Hotel J Hotel C Hotel W Information from the income statement Total revenue $10,099,000 $3,816,000 $428,806 $1,277,550 Total expenses 9,503,000 3,618,000 354,461 1,822,748 Information from the balance sheet Current assets 1,946,000 1,020,000 526,549 68,629 Total assets 8,668,000 8,183,000 262,388 3,783,127 Current liabilities 2,356,000 895,000 101,091 693,809 Total liabilities 3,089,318 5,944,000 4,587,000 456,441 *Note: total revenue net sales; the interest expenses and income taxes are included in the total expenses. 1. (12') Calculate the following accounts and financial ratios. Write the final values in the table below, show your calculation in the blank area on the next page for partial credits only. Hotel C Hotel J Hotel W Hotel N 545.198 $690,000 Ia8,000 T4,245 1. Net income after tax (net profit or net loss) -4a lo87 5,119. 17.347 54.a31. 2. Return on sales tu93,809 3. Owners' equity -,081,000a.as,00014,U83 8.841. 14 1009 4. Return on equity 0.74 I.14 O.loS 0. 3 5. Current ratio 4.46 -a.35 6. Debt-to-equity ratio 6/7

Answer 1

Holetin Hotel Hotel Hotel w (0) Total Revenue $10,099.000 83,816,000 $428,806 $1,277, 550 Toral Expenses | 9503000| 3618,000 354,461 | 1,822248 2 Current Assets in 1946000 1020.000 68,629 526,549_ i(d) || Total Assets 2,668080 8,183,000 | 262,388 | 3.783,127 Tell Current liabilities 12356, 080 895 000 | 101091 | 693,809_ (f) Total liabilities 14587,000 59440801 456,441 3.089,318 U Net Income of ter tex $596,000 $198.000 $74,345 | * Sus,198) 5.901. 5.19% 17.347. (42.68% (2) | Return on sale ! (<i> la xico) <3 | Ouners' Equity... 184,081,000 $2,239,000 ($194,053)|$693,809 (a-f) | 14:60% / 8.84% (78.584 (4) | Return on Equity (013) X1080) (57 I loll 0.68 0.76 Current ratio 10.83 : (cles teus 12 | Debt to Equity Ratio | 112 | 2.65 (2.35) 14.45 Slanned_maith llam Scanner is

on the basis Hotel a of Parameters Hotel c l Hotel w = a - Ronking of Holels I Parametery Hotel a profitability |- Return on salen I and -Dunes Equiliy T 3rd T ist uth 2 Uquidity 1. Current Ratio uth T old wl Solrency - Debt to Equity 1st 2nd I saith the Total 4 9 T 10 I 14 : lo Conclusion Hotel w - 12) Holel c » The hotel is in loss with bad solvency. Hence, rejected. Even though this hotel is the best in profit ability, its solvency is the 'worst ind in danger. The debt! brought by the hotel has been loaned to its eque owners. Plus, its liquidity is also not good. Hence rejected. - a 13) Hotel N & J » Holer N is better in profitability as compared lto Holel J and others. Even though tlore N is not better than Hotel I in liquidity, but is it the best among all in solvency. Hence the investment should be done in Ho belen