Travel & Tourism Finance Assignement

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PROFITABILITY RATIOS. * Gross Profit / sales Foyle Hotel 58400/ 125000 x 100 = 46.72% Cave Hill Hotel 79200/150000 x 100 = 52.8% Purpose. Gross profit is a basic measure of the profitability of the business and it shows the return a business can make from making and selling its products. Calculating gross profit is done in the first part of the profit and loss account, known as the trading account. Trend. Both hotels, where above the industry average of 30%. The Foyle hotel was above average by 16.72% and the Cave Hill hotel was above by 22.8%, meaning Cave Hill was up by 6.08% in comparison to Foyle hotel. Interpretation. Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. There is no standard GP ratio for evaluation. It may vary from business to business. However, the gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends. * Net profit/sales. Foyle Hotel 41600/125000 x 100 = 32.28% Cave Hill hotel 63300/15000 x 100 = 42.0% Purpose. This ratio measures how much net profit is generated by each £100 of sales. It is typically used as a measure of the efficiency of the firms marketing spend. This is because the running costs of an established business will typically be the same from year to year. Therefore the only expense which can change significantly in marketing costs. If a firm spends £20.000 on a marketing campaign, then it needs top generate an additional £20,000 net profit in order to brake even. Trend. The Foyle hotel was 9.72% below cave Hill Hotel. The industry

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