Indication of the Financial Position of Chateau Hotel Redoubtable - Assignment Example

Financial analysis Introduction The financial position of an organization is directly related to the managerial structure and management style employed. However, the resources of the organization like the assets, customers, and the employees play a significant role in determination of an organizations financial success. In an event one intends to purchase a company or an organization, it is crucial to assess the financial status of the company to determine the viability of investment in such organization. A company that portrays a continuous trend in losses with minimum profitability would likely result in liabilities hence previous trends and records of the organization can be used to assess the profitability of an organization as an investment opportunity (Ou & Penman 2009, pp.295–329). To understand the significance of the financial well-being of an organization, this paper will conduct a financial analysis of Chateau hotel redoubtable as an investment opportunity for the Smithsons. Indication of the financial position of Chateau hotel redoubtable The core objective of investing in a business is to get a return for the price invested. Inferring to the statement of the financial position of the hotel basing on the analysis of two years (year ended December 30 2013 and 2014), the hotel made an improvement in the value of the total assets from €3,263, 000 to €3,881, 000. Additionally, the company made an improvement in the equity shares from 800 shares to 1000 shares with each of the share selling at €100. However, the company has an outstanding long-term loans and current liabilities with inclusion of the bank overdraft, payable dividend, taxation owing deposit by customers and payable-trade creditors cumulatively summing to €3,263, 000 for the financial year ended 2013 and €3,881, 000 for the financial year ended 2014. This implies that a liquidation of the assets of the company would be sufficient to settle the liabilities of the company without outstanding profit. However, inferring to the income statement of the company, it is evident that the rental income of the hotel had declined from €505, 000 in the year 2013 to €448, 000 in the year ended 2014. Analysis of the financial figures of the hotel indicates that the hotel is currently running at diminishing returns, which makes the chances for solvency and the resale of the company to be difficult. Equally, owing to the declining financial position of Chateau hotel redoubtable, the hotel is not profitable thus; investment in the hotel would demand a change in the strategy in the manner with which it is operated to realize profit. Nevertheless, liquidating the assets of the hotel can be undertaken as the assets like lands and building can be easily done, a fact that may not apply to other assets like fixtures and fittings as well as bedding, soft furnishing, and the kind. Evaluation of the asking price of the business To acquire the business, the Smithsons is required to purchase the property at €3.0 million according to the company managing the business. However, in relation to the financial statement of the business, purchasing the hotel at the stated prize would be a poor investment plan owing to the fact that the assets of the hotel, as well as the sales from the hotel, cannot sum to a third of the said price. Nevertheless, the location of the hotel and the possibility of reviving the sale volume could be a motivator for the purchase of the hotel owing to the fact that a reduction in the price of the rooms increases the demand. This can be used for scaling up the sale value in the hotel thus justifying the need to purchase the property at the stated price. In accordance with the financial statement of the hotel, the asking price for the sale of the hotel is beyond the reasonable price expected in relation to its market performance. In relation to the current financial position of the hotel, it would take approximately seven years to return the sale value of the property, which would indicate the company would be operating in more debts, which could result in the collapse of the business (Oosterloo et al. 2007, pp.337–355). Useful information to make a firm judgment concerning the purchase of the hotel Buying an already existent business like Chateau hotel redoubtable is viable since the business present with minimum problems of organizing the operations of the business as it already has an intricate network of workers and suppliers. Additionally, an already existent business has an established customer base who will be important for the productivity of the organization. However, venturing into an already existent business demands analysis of information pertaining to the nature of the business to determine the viability of ease in operating the business. In the process of asset purchase transaction, the new owner of the business does not take the responsibility for the liabilities of the previous business, a fact that applies to the tax debt of the former owner of the business. Nevertheless, if the tax agency or a state tax agency has filed a notice of tax lien against the business in the public records, then the assets of the business are still subject to the alien. It is thus prudent to know the information concerning the tax liens of the business as represented in the public records to avoid liquidation of the assets of the business in case of outstanding tax debts. Additionally, there is a risk of undiscovered task liability involved in the stock purchase transaction, thus the buyer of the business stocks must demand the information concerning a promise by the seller to pay any tax liability or any other debt prior to the sale of the stocks to the new owner (Brammer & Millington 2008, pp.1324–1343). Recommendations to the Smithsons Prior to purchasing the business, the Smithsons must carry out a market assessment to determine the level of competition, the weaknesses, strength opportunities and the threats to Chateau hotel redoubtable with the intention of improving the company after the purchase. Additionally, it is recommended that the Smithsons should carry out an assessment of the market to determine the presence of alternatives in the market to buy from the best alternatives. However, the Smithsons can bargain the price of the hotel and purchase it at a lower reasonable price that would be in accordance with its market value. After the purchase of the business, the Smithsons could employ use of price reduction as a means of attracting more customers to the business with anticipation of experiencing a higher rate of turnover, which would translate to higher profit for the company. The Smithsons can equally reorganize the management structure of the company through the creation of sales agencies on top of advertisement agencies to the company as a means of attracting more customers for increased profitability of the company (Fitzsimmons et al. 2008, pp.370–380). Bibliography Brammer, S. & Millington, A., 2008. Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29, pp.1324–1343. Fitzsimmons, J. a., Noh, J. & Thies, E., 1998. Purchasing business services. Journal of Business & Industrial Marketing, 13, pp.370–380. Oosterloo, S., de Haan, J. & Jong-A-Pin, R., 2007. Financial stability reviews: A first empirical analysis. Journal of Financial Stability, 2, pp.337–355. Ou, J.A. & Penman, S.H., 1989. Financial statement analysis and the prediction of stock returns. Journal of Accounting and Economics, 11, pp.295–329. Read More