Sample Business Paper on Accounting for Decision Making: Crystal Hotel Pry Ltd


Crystal Hotel Pry Ltd is a 3.5 stars hotel, whose location is in Parramatta Central Business District in Sydney. The hotel is privately owned. It has one hundred and sixty rooms having a maximum capacity of three hundred and fifty guests as well as a restaurant whose capacity is one hundred and fifty gusts. It also consists of a function room with a maximum capacity of two hundred and fifty guests, and a conferencing room whose capacity is two hundred guests. The hotel charges one hundred and forty eight dollars per night on average, for its rooms.

Although the hotel is located in a popular area near the Brisbane River and the center of the city, it has been become quite outdated in its services. The owners depend highly upon their corporate clientele, who often use the hotel for their expat workers. They often pay on credits after being issued with invoices at the end of the m0onth. This is due to their long term contractual obligations with the service provider. Is makes most of the invoices to become outstanding, with no payments made. This usually occurs with the long term clients of the company.

The hotel always get junior staff, hence making it quite hard to maintain quality staff. These junior staff, upon gaining the necessary experience and training, leave the company for search of better opportunities in other hotels having greater ratings. This happens mostly with the chefs. The hotel owners want to raise the ratings by refurbishing it and improving their services. They are considering constructing a wellness center on the rooftop of the hotel. This would include a massage treatment room, gym, outdoor pool and sauna.

However, the owners would like to know in advance whether they are financially stable since the new capital investments are quite extensive. This paper gives an analysis of the company’s financial statements, focusing more on vertical analysis and ratio analysis. It also gives a recommendation on the areas that need to be improved and analyzed further.

Vertical Analysis:

Vertical analysis is a method of financial analysis used to show every item on the financial statement as a percentage of a larger figure, known as the base figure, within the statement. In conducting the vertical analysis of a balance sheet, total assets, total liabilities and total owners’ equity is used as the base figures. Each item of asset is then shown as a percentage of total assets, while liabilities and equities are expressed as percentages of total liabilities and owners’ equity (Robinson, 2009).

Vertical analysis on the income statement are conducted by using the sales amount as the base figure. Each item on the income statement is then expressed as a percentage of this figure (Knott, 2004).The general formula used in vertical analysis is usually:

Base percentage = (Individual item amount / Base amount) * 100%

Income Statement Comparative Analysis:

Vertical analysis on the income statement of Crystal hotel Pty Ltd allows us to perform an inter-company analysis since all items on the financial statement have been expressed as a percentage of some larger common figure. The company had a common size of interest before fixed charges of 29%, while that of the industry was 27%. This implies that the company is not very much worse off as compared to other firms in the industry. However, the hotel needs to improve its strategies so that it can gain a better competitive edge over its competitors and hence make more profits (Knott, 2004).

The company’s revenue as a percentage was 100%. Its cost of sales excluding personnel costs 28% as compared to that of the industry which was 20%. This indicates that the company incurs more costs in selling. This is not a good strategy since higher costs leads to reduced operating profits. It means that the company is allocating resources which are not driving enough sales as required (Robinson, 2009).

The company should cut on the costs of sales. Its personnel costs, compared to the 325 of the industry, was 25.40%. This shows that it is a bit more efficient in managing its personnel costs that include sales and marketing as well as property management and maintenance. This is favorable move that helps it to maintain its expenses at a low value, hence improving its profits.

The unallocated operating costs of the industry was 21% while that of Crystal Hotel Pty Ltd was 18%. Considering this benchmark, it is clear that the company is managing its unallocated operating costs at a much lower level than that of other firms in the same industry. This is very helpful in cutting such costs and increasing the company’s profitability (Knott, 2004).

Considering the costs discussed above, the hotel’s total cost proportion was 71.40% as compared to that of the industry which was 73%. This is a clear indication that the company has total cost proportions that are much higher than the benchmark firms in the industry.


Considering the above industry analysis, the main area that should be focused by Crystal Hotel Pty Ltd is minimizing its cost of operations. This is a very crucial area since it determines the amount of profits that the company will make from its operating activities. The management of the hotel should concentrate on implementing strategies that reduce these costs to a much lower level than that of the industry. This will enable the company to enjoy higher profit margins than its peer firms (Robinson, 2009).

Profitability, Efficiency, Liquidity and Solvency of the Hotel:

As calculated in the excel workbook, the company’s profitability is high in comparison to that of the industry. Its gross profit margin is 262% while that of the industry is 81%. This is a clear indication that the company is performing quite well. Its margin of net profit is 100% and that of the other firms is 11% on average, indicating that that the company is better off than its competitors. Its return on assets and return on equity is 15% and 28.83% respectively while that of the whole industry is 8% and 9% respectively. This shows that the company has a relatively higher return on the funds invested by the owners and stockholders.

The efficiency ratios of the firm include its inventory turnover which was at 6.85 as compared to that of the industry that was 8.60. This tells us that the company’s stock is sold at a higher rate than that of its competitors in the same industry. This greatly increase the sales volume of the company. However, the company has a much higher period of collecting its accounts receivable than the other firms. This means that it is at a much higher risk of incurring bad debts than other firms (Knott, 2004).

On considering the liquidity ratios, the firm is better off than its competitors. It has a current ratio of 1.80 as compared to that of the industry which is 3.20. This means that the company has ore ability to pay off its current debts from its current assets. This ratio is also above the recommended ratio of 2. Furthermore, its quick ratio is 1.60, which is much favorable as compared to the whole industry. In addition, the ratio is above the recommended ratio of 1. In terms of solvency, the firm’s debt ratio is 26.37% indicating that much of its operations are financed by its assets as opposed to debts. Also, its debt to equity ratio is 36%, indicating that it uses more equity financing than debt financing. Hence, it is not highly leveraged (Robinson, 2009).

Recommendation on Efficiency:

The firm needs to take measures necessary to reduce its accounts receivable days outstanding to that of the other firms in the industry. This will enable it to recover debts as and when they fall due from their debtors. By doing this, the company will avoid bad debts as well as helping it reduce the probability of credit sales becoming uncollectible accounts.

Recommendations on Additional Industry Specific Benchmarks:

There are additional industry specific benchmarks that could be used by the hotel to compare itself to the entire industry in its comparative analysis. These include measuring the company’s customer service standards, calculating sales per employee and comparing strategic objectives. These are explained below (Knott, 2004).

Comparing strategic objectives to that of the whole industry would enable the firm to learn important strategic techniques from its competitors. The firm analyses and focusses on whether the quality of standards and developing online sales platforms gives their competitors a competitive advantage.

Calculating per employee sales will provide the firm with a good measure of how productive their employees are as compared to those of the other companies in the industry. If the sales are lower, the reasons leading to this are then investigated and addressed appropriately (Robinson, 2009).

Finally, measuring the firm’s standards of customer service is very essential since this helps in satisfying the needs of the clients, making them to be loyal to the hotel. This is arrived at by determining the sales proportion that is generated from the returning customers, and then comparing it to that of the other firms in the industry (Knott, 2004).


Vertical analysis is an important financial analysis tool used for comparing or benchmarking performance of two or more firms with different sizes of sales figures and profits. This is made possible by using the common size figures and values, hence enabling the firm to compare its numbers to the total figures of the entire industry.



Knott, G. (2004). Financial management. Basingstoke: Palgrave Macmillan.

Robinson, T. R. (2009). International financial statement analysis. Hoboken, NJ: John Wiley & Sons.