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Home Page Business Accounting Cash Flow Constructing Statement of Cash Flows and Analyses Essay Example
Constructing Statement of Cash Flows and Analyses Essay Example
Constructing Statement of Cash Flows and Analyses Essay Example

Constructing Statement of Cash Flows and Analyses Essay Example

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Topics:
Cash Flow, Corporate Finance, Financial Services, State
  • Pages: 3 (822 words)
  • Published: August 20, 2018
  • Type: Case Study
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The Metropolitan Hotel in Vancouver, British Columbia, Canada, is one of the best hotels in the area. The hotel has friendly and helpful staff, rooms of good size that are well maintained, and is quite and very comfortable. The current management of the hotel needs to assess its performance so as to come up with efficient ways to improve its operations. The assessment will consist of a full absolute and percentage comparative horizontal analyses of the balance sheet and income statements, preparation of the cash flow statement, and summary of the financial position and performance achievement of the hotel.

Absolute and Percentage Comparative Horizontal Analysis

Balance Sheet

  Period Change

189.0pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top" width="252"> 

Year 2 Year 1 Absolute Percent
Current Assets        
     Cash $1,032,204 $470,880 View entire sample
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padding: 0cm 5.4pt 0cm 5.4pt;" valign="top" width="86">$561,324

 119.21
     Inventories $1,779,525 $1,285,792 $493,733 38.40
     Accounts Receivable $1,030,806 $1,000,357 $30,449 3.04
     Restricted Cash $191,828 $983,098 $(791,270) (80.49)
     Cash from Borrowing $88 $63,550 $(63,462) (99.86)
     Total Current Assets $4,034,452 $3,803,676 $230,776 6.07
Long Term Assets  

0cm 5.4pt 0cm 5.4pt;" valign="top" width="96"> 

    
     Building Property & Equipment $35,000,000 $35,000,000 - -
     Plus: Building Capital Additions $2,956,000 $2,156,000 $800,000 37.11
     Less: Building Depreciation $3,735,137 $2,489,440 $1,245,697 50.04
     FF&E Property & Equipment $5,000,000 $5,000,000                                 - -
     Plus: FF&E Capital Additions $3,299,500 $1,239,500 $2,060,000 166.20

0cm 5.4pt;" valign="top" width="252">     Less: FF&E Depreciation

 $1,267,815 $773,205 $494,610 63.97
     Net Long Term Assets $41,252,548 $40,132,855 $1,119,693 2.79
Total Assets $45,287,000 $43,936,532 $1,350,468 3.07
Current Liabilities        
     Accounts Payable $253,098 $251,653 $1,445 0.57
     Taxes Payable $0 $0 -

5.4pt;" valign="top" width="76">-
     Total Current Liabilities $253,098 $251,653 $1,445 0.57
Long Term Liabilities        
     Bank loan $14,744,182 $15,111,487 $(367,305) (2.43)
     Total Long Term Liabilities $14,744,182 $15,111,487 $(367,305) (2.43)
Owners’ Equity        
     Share Capital $15,000,000 $15,000,000

5.4pt;" valign="top" width="86">-

 -
     Retained Earnings $15,289,721 $13,573,392 $1,716,329 12.64
     Total Owners Equity $30,289,721 $28,573,392 $1,716,329 6.01
Total Liabilities & Equity $45,287,000 $43,936,532 1,350,468 3.07

 Income Statement

  Year 2 Year 1 Absolute Percent
Revenue        
     Rooms

5.4pt 0cm 5.4pt;" valign="top" width="95">$10,442,567

 $10,278,614 $163,953 1.60
     Food & Beverage $3,678,007 $3,717,675 ($39,668) (1.07)
     Other Departments $1,164,806 $1,199,649 ($34,843) (2.90)
     Total Revenue $15,285,379 $15,195,938 $89,441 0.59
Departmental Expenses        
     Rooms $3,072,862 $2,702,012 $370,850 13.72
    

Food & Beverage

 $2,713,515 $2,643,836 $69,679 2.64
     Other Departments $742,402 $549,636 $192,766 35.07
     Total Expenses $6,528,779 $5,895,484 $633,295 10.74
Total Departmental Profit $8,756,600 $9,300,453 ($543,853) (5.85)
Undistributed Expenses        
     Marketing & Sales $1,700,580 $1,424,370 $276,210 19.39

211.25pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top" width="282">     Administrative & General

 $1,799,419 $1,798,288 $1,131 0.06
     Property Operations & Maintenance $562,350 $546,075 $16,275 2.98
     Total Undistributed Expenses $4,062,349 $3,768,733 $293,616 7.79
Gross Operating Profit $4,694,251 $5,531,720 ($837,469) (15.14)
Less: Management Fee        
     Base Fee $305,708 $303,919

width="85">$1,789

 0.59
     Incentive Fee $328,598 $387,220 ($58,622) (15.14)
Income Before Fixed Charges $4,059,946 $4,840,581 ($780,635) (16.13)
Fixed Charges        
     Property Taxes $240,000 $240,000 - -
     Insurance $120,000 $120,000 - -
     Property Depreciation Building $1,245,697 $1,241,387

63.8pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top" width="85">$4,310

 0.35
     Property Depreciation FF&E $494,611 $394,500 $100,111 25.38
     Total Fixed Charges $2,100,307 $1,995,887 $104,420 5.23
Net Operating Income $1,959,638 $2,844,693 ($885,055) (31.11)
     Other Income $328,800 $204,800 $124,000 60.55
     Total Income $2,288,438 $3,049,493 ($761,055) (24.96)
     Income Tax $572,110

70.8pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top" width="94">$762,373

 ($190,263) (24.96)
Net Profit $1,716,329 $2,287,120 ($570,791) (24.96)

 

Comparative Vertical Analysis

Balance Sheet

  Year 2 Percent Year 1 Percent
Current Assets        
     Cash $1,032,204 2.28 $470,880 1.07
     Inventories $1,779,525 3.93 $1,285,792

5.4pt;" valign="top" width="96">2.93
     Accounts Receivable $1,030,806 2.28 $1,000,357 2.28
     Restricted Cash $191,828 0.42 $983,098 2.24
     Cash from Borrowing $88 0.00019 $63,550 0.14
     Total Current Assets $4,034,452 8.91 $3,803,676 8.66
Long Term Assets        
     Building Property & Equipment $35,000,000 77.29

5.4pt 0cm 5.4pt;" valign="top" width="96">$35,000,000

 79.66
     Plus: Building Capital Additions $2,956,000 6.53 $2,156,000 4.91
     Less: Building Depreciation $3,735,137 8.25 $2,489,440 5.67
     FF&E Property & Equipment $5,000,000 11.04 $5,000,000 11.38
     Plus: FF&E Capital Additions $3,299,500 7.29 $1,239,500 2.82
     Less: FF&E Depreciation $1,267,815 2.80 $773,205 1.76
     Net Long Term Assets

0cm 5.4pt;" valign="top" width="108">$41,252,548

 91.09 $40,132,855 91.34
Total Assets $45,287,000 100 $43,936,532 100
Current Liabilities        
     Accounts Payable $253,098 0.55 $251,653 0.57
     Taxes Payable $0 - $0 -
     Total Current Liabilities $253,098 0.55 $251,653 0.57
Long Term

Liabilities

        
     Bank loan $14,744,182 32.56 $15,111,487 34.39
     Total Long Term Liabilities $14,744,182 32.56 $15,111,487 34.39
Owners’ Equity        
     Share Capital $15,000,000 33.12 $15,000,000 34.14
     Retained Earnings $15,289,721 33.76 $13,573,392 30.89

padding: 0cm 5.4pt 0cm 5.4pt;" valign="top" width="276">     Total Owners Equity

 $30,289,721 66.88 $28,573,392 65.03
Total Liabilities & Equity $45,287,000 100 $43,936,532 100

 

Income Statement

  Year 2 Year 1
  Amount ($) Percent Amount ($) Percent
Revenue        
     Rooms 10,442,567 68.32 10,278,614

5.4pt 0cm 5.4pt;" valign="top" width="72">67.64
     Food & Beverage 3,678,007 24.06 3,717,675 24.47
     Other Departments 1,164,806 7.62 1,199,649 7.89
     Total Revenue 15,285,379 100 15,195,938 100
Departmental Expenses        
     Rooms 3,072,862 20.10 2,702,012 17.78
     Food & Beverage 2,713,515 17.75

5.4pt;" valign="top" width="102">2,643,836

 17.40
     Other Departments 742,402 4.86 549,636 3.62
     Total Expenses 6,528,779 42.71 5,895,484 38.80
Total Departmental Profit 8,756,600 57.29 9,300,453 61.20
Undistributed Expenses        
     Marketing & Sales 1,700,580 11.13 1,424,370 9.32
     Administrative & General 1,799,419

valign="top" width="72">11.77

 1,798,288 11.83
     Property Operations & Maintenance 562,350 3.68 546,075 3.59
     Total Undistributed Expenses 4,062,349 26.58 3,768,733 24.80
Gross Operating Profit 4,694,251 30.71 5,531,720 36.40
Less: Management Fee        
     Base Fee 305,708 2.00 303,919 2.00
     Incentive Fee

5.4pt;" valign="top" width="96">328,598

 2.15 387,220 2.55
Income Before Fixed Charges 4,059,946 26.56 4,840,581 31.85
Fixed Charges        
     Property Taxes 240,000 1.57 240,000 1.58
     Insurance 120,000 0.79 120,000 0.79
     Property Depreciation Building 1,245,697 8.15 1,241,387 8.17
     Property

Depreciation FF&E

 494,611 3.24 394,500 2.60
     Total Fixed Charges 2,100,307 13.74 1,995,887 13.13
Net Operating Income 1,959,638 12.82 2,844,693 18.72
Other Income 328,800 2.15 204,800 1.35
Total Income 2,288,438 14.97 3,049,493 20.07
Income Tax 572,110 3.74 762,373 5.02

5.4pt 0cm 5.4pt;" valign="top" width="288">Net Profit

 1,716,329 11.23 2,287,120 15.05

Statement of Cash Flow

Metropolitan Hotel
Statement of Cash Flows
For the End of Year 2
Cash Flows from Operating Activities    
Net Profit   1,716,329
     Property Depreciation Building 1,245,697  
     Property Depreciation FF&E 494,611  
     Increase in Inventories ($493,733)  
     Increase in Account Receivables ($30,449)

valign="top" width="168"> 
     Accounts Payable $1,445  
Net Cash from Operating Activities   1,217,571
Cash Flows from Investing Activities    
     Building Capital Additions ($800,000)  
     FF&E Capital Additions ($2,060,000)  
Net Cash from Investing Activities   ($2,860,000)
Cash Flows from Financing Activities    
     Bank Loan (367,305)  
Net Cash from Financing Activities   (367,305)

style="width: 256.25pt; padding: 0cm 5.4pt 0cm 5.4pt;" valign="top" width="342">Total Cash Flow

   (293,405)
     Plus: Cash at the End of Year 1 1,517,528  
Cash at the End of Year 2   1,224,123

 

Business Liquidity

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

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