Financial Performance Analysis of major hotel chains in

Financial Performance Analysis of major hotel chains in

Poland, Finland, and United Kingdom during 2017-2019

Justyna Mrowinska

Bachelor’s Thesis

Degree Programme in

International Business

2020

10.2020

Author(s) Justyna Mrowinska

Degree programme International Business

Report/thesis title Financial Performance Analysis of major hotel chains in Po-

land, Finland, and United Kingdom during 2017-2019

Number of pages and attachment pages 45

This thesis is focusing on analysing hotel chains in Poland, United Kingdom, and Finland.

The chosen hotel chains are the leading companies in mentioned countries. The analysis

was based on years 2017- 2019. This work aimed to evaluate the financial performance of

the leading hotel chains to examine the financial decision's role in companies' overall

performance. It analyzed financial ratios and capital structure to understand the industry

benchmark and the overall growth of the hotel industry. The condition of companies was

assessed.

Theoretical framework presented necessary information to achieve concluding proper

financial analysis and give quality recommendation. The framework included financial

theory like financial statement, financial statement analysis and key performance

indicators. The theory also included different ways of conducting analysis. Key financial

ratios that were used to do analysis contain debt or laverage, turnover, profitability and

liquidity ratios. Quantitative method and desktop research were used to do the research.

Financial statements of companies were examined and explained. The research from men-

tioned analysis were presented in following chapter.

In conclusion, key findings shows hotel industry has seen very good economic conditions

over the past few years. The continued interest of both international and domestic tourists

in hotel investments is highly profitable. It is not without reason that many world-famous

hotel brands have appeared or resumed their activities. There are more and more invest-

ments in the hotel segment. The supply is currently under construction, and thus the com-

petition is considerable, which is why they compete in various types of incentives for poten-

tial buyers. When the market faces a slowdown, some operators may not be able to deliver

on their promises.

Keywords Financial statement, ratio analysis, key performance indicators

Table of contents

1 Introduction ................................................................................................................... 1

1.1 Background of thesis topic .................................................................................... 1

1.2 Research Question ............................................................................................... 2

1.3 Demarkation ......................................................................................................... 3

1.4 International Aspect .............................................................................................. 3

1.5 Benefits ................................................................................................................. 3

1.6 Key Concepts ....................................................................................................... 4

1.7 Case Companies .................................................................................................. 5

2 Theoretical Framework .................................................................................................. 8

2.1 Financial Statement Analysis ................................................................................ 8

2.2 Vertical and Horizontal Analysis ............................................................................ 9

2.3 Ratio Analysis ..................................................................................................... 11

2.3.1 Liquidity Ratios ......................................................................................... 11

2.3.2 Profitability Ratios .................................................................................... 13

2.3.3 Turnover Ratios ....................................................................................... 13

2.3.4 Debt or Leverage Ratios .......................................................................... 14

2.4 Hotel industry ...................................................................................................... 16

3 Research Methods ...................................................................................................... 19

4 Analysis and benchmarking......................................................................................... 22

4.1 Vertical and horizontal analysis ........................................................................... 22

4.2 Ratio analysis ..................................................................................................... 24

4.2.1 Liquidity Ratios ......................................................................................... 24

4.2.2 Profitability Ratios .................................................................................... 27

4.2.3 Turnover Ratios ....................................................................................... 29

4.2.4 Debt or Leverage Ratios .......................................................................... 30

4.3 Benchmarking ..................................................................................................... 32

4.4 Impact of COVID-19 on hospitality industry ......................................................... 34

5 Conclusions ................................................................................................................ 36

5.1 Summary and key findings .................................................................................. 36

5.2 Recommendations .............................................................................................. 37

5.3 Reflection of learning .......................................................................................... 39

References ...................................................................................................................... 40

List of abbreviations

ATO- Asset turnover ratio

e.g. – For example/ such as

e.t.c.- Et cetera

i.e.- That is

KPI – Key performance indicators

N/A- Not available

RevPar- revenue per available room

ROA- Return on assets

ROE- Return on equity

List of Figures, Pictures and Tables

Table 1. Overlay matrix ...................................................................................................... 2

Table 2 Balance sheet ..................................................................................................... 10

Table 3 The difference between qualitative versus quantitative methods.: (Reichardt and

Cook 1979) ...................................................................................................................... 19

Table 4 Orbis SA - Vertical and Horizontal Analysis ......................................................... 22

Table 5 EasyHotel - Vertical and Horizontal Analysis ....................................................... 23

Table 6 Radisson Group - Vertical and Horizontal Analysis ............................................. 23

Table 7 Millenium Group - Vertical and Horizontal Analysis ............................................. 24

Table 8 Liquidity ratios- EasyHotel ................................................................................... 25

Table 9 Liquidity Ratios- Radisson Hospitality ................................................................. 25

Table 10 Liquidity Ratios- Interferie SA ............................................................................ 25

Table 11 Liquidity Ratios – Orbis Group .......................................................................... 26

Table 12 Liquidity ratios- Scandic .................................................................................... 26

Table 13 Liquidity ratios- Millenium hotels ....................................................................... 27

Table 14 Profitability ratios- Easyhotel ............................................................................. 27

Table 15 Profitability ratios- Radisson Hospitality ............................................................. 27

Table 16 Profitability ratios- Interferie SA ......................................................................... 28

Table 17 Profitability Ratios- Orbis Group ........................................................................ 28

Table 18 Profitability Ratios- Scandic Group .................................................................... 28

Table 19 Profitability ratios - Millenium Hotels .................................................................. 29

Table 20 Turnover ratio- EasyHotel ................................................................................. 29

Table 21 Turnover ratio- Radisson Group ........................................................................ 29

Table 22 Turnover ratio- Interferie SA .............................................................................. 29

Table 23 Turnover ratio- Orbis group ............................................................................... 30

Table 24 Turnover ratio – Scandic ................................................................................... 30

Table 25 Turnover ratio- Millennium Hotels ...................................................................... 30

Table 26 Debt or leverage ratios- EasyHotels .................................................................. 30

Table 27 Debt or leverage ratios – Radisson Group ........................................................ 31

Table 28 Debt or leverage ratios – Interferie .................................................................... 31

Table 29 Debt or leverage ratios - Orbis .......................................................................... 31

Table 30 Debt or leverage ratios - Scandic ...................................................................... 32

Table 31 Debt or leverage ratios – Millenium Hotels ........................................................ 32

Figure 1 Research design ................................................................................................ 21

Figure 2 Revenue of hotel chains in $ .............................................................................. 33

Figure 3 Revenue growth of hotel chains in % ................................................................. 33

Figure 4 Discussed hotels comparison ............................................................................ 34

1

1 Introduction

This work aims to conduct and present a financial analysis of couple of hotel chains in

Poland, Finland and United Kingdom based on the annual reports provided from 2017 to

2019. The current condition of companies was assessed. The main task of financial

analyses is a verification of efficiency of the operation of the enterprise and the current

state of its finances and opportunities for further development. It is useful not only for the

company management but also for all entities interested in its situation for various reasons

(e.g. banks, shareholders, etc). To get a view on the activities of the company under

consideration the following analyses have been carried out successively: vertical and

horizontal, income statement, and financial ratios. Each activity in an enterprise is

connected with incurring costs. The special feature of costs in the decision-making

process is that they are primary to revenues, which gives them a negative character and

justifies the purposefulness of taking action, i.e. the sense of incurring costs.

1.1 Background of thesis topic

Business management is treated as a continuous process of adopting decisions, whose

validity determines the effectiveness, and the desired level of economic activities, is

complicated in conditions of the high variability of the environment, and growing

competition. One of the basic conditions for effective operation of the company is the

analysis of the achieved management results. The company management, to manage it

efficiently, must have a good understanding of the actual effectiveness of the decisions

made in the past. The obtained results may be silent on the necessity to change the

existing methods of conduct or confirm the rightness of the policy pursued.

The analysis of the achieved management results is also necessary for the owners who,

based on its results, can assess the work of the company management, and make

appropriate personnel decisions. Making strategic decisions that define the basic

economic objectives as operational, and tactical decisions aimed at removing undesirable

deviations from the assumed goals; their early detection requires a constant flow of full,

fast, and reliable information.

Financial analysis is one of the most important tools for making decisions and the results

achieved by the economic entity. Initially, it was based only on the balance and analysis

results. The first attempts to assess the financial indicators of the enterprise were made in

the second half of the 19th century. A comparison of the balance was initiated in 1870 by

2

L. Cohstaedt, the creator of the journalistic criticism of the balance sheet. In the current

practical economic analysis, the financial analysis covers issues such as nature and

preliminary analysis of financial statements, examining the financial condition of the

company, in particular, it is financial liquidity, the level of indebtedness, efficiency,

profitability, and evaluation of the market value of shares and capital. The financial

analysis allows for the analysis of factors shaping the financial results of enterprises, the

analysis of sales revenues, and own costs, which is the basis for making decisions

regarding both current and future business operations.

1.2 Research Question

According to targets enclosed in previous subchapter main goal of this thesis can be

summarised in a research question. The research question is: Whats is the performance

of major hotel chains in Poland, Finland and United Kingdom during 2017-2019? In order

to answer that question, the author came up with four questions that are being answered

in this work. The aim is to find out the financial status and development of hotels in

European countries. Answering these questions will give the answer for the research

question.

The questions are:

IQ 1: What was the financial performance of companies during 2017-2019?

IQ 2: What is the hotel chain’s performance using ratio analysis?

IQ 3: How companies are performing compared to each other?

IQ 4: What are the recommendations for the companies?

Table 1 shows theoretical framework, research methods, and results chapters for each

investigative question.

Table 1. Overlay matrix

Investigative question

Theoretical Framework*

Research Methods Results (chapter)

IQ 1: What was the financial performance of companies during 2017-2019?

Financial Statement Analysis

Desktop study/ Comparative Study

4

IQ 2: What is the

hotel chain’s

Financial Ratios Analysis


4

3

performance using

ratio analysis?

IQ 3: How

companies are

performing

compared to each

other?

Vertical and Hori-zontal Analysis


4

IQ 4: What are the recommendations for the companies?

Recommendations, knowledge of hotel industry

Desktop study/Autors’ observations

5

1.3 Demarkation

This thesis will concentrate on the four investigative questions. Moreover, the extent of the

thesis has been separated in such ways that the key work indicators included in the thesis

were chosen by the author (contrary to calculating all key performance indicators).

The report is focused on the years 2017-2019.

Fundamental data are significant for the thesis since the spotlight of it is based on

calculations. So the yearly reports are seen crucial so thesis objectives can be met. To do

the right calculations income statements and balance sheets were used. The figures

attached in the thesis were created by using data included in annual statements of chosen

hotel chains.

1.4 International Aspect

The hotel chains are located in three European countries, Poland, Finland and United

Kingdom. Also, the author is from one of the chosen countries. Also, most of the investi-

gated chains have hotels in different countries worldwide where they employ a lot of peo-

ple. Also this work is written in English so at the same time people from different countries

can have use of it.

1.5 Benefits

Commissioning companies can have profited from having prepared several analyses. For

every organization, it is crucial to know their weak and strong sides to be successful and

4

profitable in the future. Because one of the key questions is dedicated to discovering re-

gions where the organizations can enhance, different partners can also be beneficial from

this thesis. In that case, organization would be able to acquire customers and serve cli-

ents a better dimension and meet all their needs.

On the other hand, the advantages for the author can be improving knowledge regarding

financial analyses as well practical abilities to apply theories creating real projects. Devel-

oping different skills, for example, communication, also can be considered as another pos-

sible advantage for the author. As well as improving the knowledge about the depreciation

of fixed assets. Another fact in favour of the author can be the possibility of future work

within any commissioning company and getting to know the company already before em-

ployment. Also, further studies of the author are connected to hospitality.

1.6 Key Concepts

In the following subchapter, there will be explained some key concepts. The concepts

stated below are supposed to cover all the basic points of the thesis.

Financial analysis deals with the examination of the state and development of broadly

understood company finances. It is being developed in order to assess the condition of

finances, the effectiveness of financial management and the assessment of business

ventures and financial decisions. It is the most widely used analysis of the company's

operations - it is useful not only for the management of the enterprise itself but also for

other entities for various reasons interested in its state. It is used by all types of lending

institutions to assess the risk associated with granting a loan to a given company and then

to monitor its solvency. In market economies, where ownership is increasingly separated

from business management, financial analysis is often the primary source of information

for owners about the status of their company. This is particularly evident in the case of

public companies whose shares are listed on stock exchanges.

The ratio analysis is an extension of the initial analysis of financial statements. Ratio

analysis, which is a kind of quantitative analysis, shows the relationships of certain

financial quantities, important from the point of view of their mutual relations. It is good to

mention that financial ratios are divided into absolute ratios and relative ratios. The

absolute indicators are composed of: primary quantities, sums, differences and

percentage values. Relative indicators include: share of a given value in another value,

relationships between quantities and changes over time. As a rule, financial indicators use

data from the balance sheet and / or the profit and loss account in their structure. If a

5

financial indicator is constructed both from balance sheet and result data, then balance

sheet financial figures are included in the financial indicator as an arithmetic mean. The

use of a large number of indicators in the analysis is not however tantamount to increase

the quality of the analysis. The excess of indicators may obscure the image of the

company's financial situation.

Key performance indicators (KPI) are often used to measure the value of difficult to

measure activities, such as the benefits of leadership development, engagement,

services, and customer and employee satisfaction. KPIs should be closely related to the

organization of the strategy. The results of the assessment of the achieved levels of

individual performance indicators should be directly related to the bonus system.

1.7 Case Companies

The case companies are situated in three different European countries, Poland, Finland,

United Kingdom. The author decided to choose the following companies because they are

one of the biggest hotel chains in countries mentioned above. The Polish case companies

are Orbis and Interferie. Orbis SA is the largest group investing in hotel real estate in Po-

land and Eastern Europe. It owns 73 hotels, including 63 owned and 10 leased (over

14,000 rooms in total), in 6 countries of the region. The Polish Travel Agency "Orbis" was

established in 1920 in Lviv. Orbis SA is the leader of the hotel real estate market in East-

ern Europe, it also invests in modernization of hotels. The parent company in the group is

Orbis SA, with its registered office in Warsaw, Poland. In 2019 management board of

Orbis SA decided the Company's transformation and the division of business lines into the

service part, including franchise and management agreement and the related interest to

the ownership of hotel real estate. In 2019, Orbis's entire hotel service activity was sold

SA and its selected subsidiaries to subsidiaries Accor SA. ORBIS SA is the parent

company of the Orbis Group, which includes companies from the hospitality. The Orbis

group is the largest operator in Poland and Central and Eastern Europe. The hotels of the

Orbis group operate under the following brands; Accor. Sofitel, MGallery, Novotel,

Mercury, IBIS, Ibis style, and Ibis budget.

Interferie is the largest chain of holiday resorts and hotels in Lower Silesia, Poland which

has been operating for over 25 years and are located on the Baltic Sea and in the Sude-

tes. The resources of the Interferie Group include nearly 2001 beds in the most attractive

Polish resorts. The Interferie Group includes facilities belonging to INTERFERIE S.A., lo-

6

cated in many locations in Poland, as well as a four-star hotel, belonging to Interferie Med-

ical SPA Sp. z o.o. Interferie is listed on the Warsaw Stock Exchange and is part of Asso-

ciation of Stock Exchange Issuers. Interferie S.A. they are also a member of the Polish

Chamber of Tourism, the Lower Silesian Tourist Organization, and the Chamber of Com-

merce of the Polish Hotel Industry. The Interferie Group also includes the Interferie Tourist

Office, which acts as an intermediary in the sale of holiday offers in Poland and abroad.

Interferie SA is based in Legnica, operates on the tourist market, offering recreation in

their many attractive places in Poland and mediating in the organization of summer

camps, holidays, and preventive treatment and sanatorium- rehabilitation stays. The

company does not have branches/organizational units that prepare independent financial

statements following the accounting standards.

The company has hotels and accommodation, sport-related activities, provision of

services in treatment, rehabilitation and recreation, travel agents' activities,

physiotherapeutic activities, running a sport, tourist and entertainment rental, and

conducting activities in social.

Scandic is a hotel chain based in Stockholm, Sweden with the largest number of hotels in

the Nordic countries. In addition to hotels in Sweden, Norway, Finland, and Denmark, the

chain also has facilities in Estonia, the Netherlands, Germany, Belgium, and Poland. In

1963 the first hotel to be later renamed Scandic was a hotel in Laxå, Sweden. Scandic

hotel has driven development in the Nordic hospitality industry. Guests appreciate its

innovative thinking, and the company enjoys a high share of returning customers. Most

hotels in the Nordics market operate through long-term leasing agreements, but Scandic

focuses on revenue-based leasing agreements, contributing to financial stability. It also

links the scandic and the property owner's interest, enabling long-term positive

development of the hotels.

Radisson Blu is an international hotel chain operated by Radisson Hotels. The company

established in 1960, Denmark, the Radisson Blu brand name came into existence in 2009

with a rebranding from Radisson SAS. The operating philosophy "Yes I Can!" is at the

heart of the company's interaction with guests, which sets them apart from the competi-

tion. This is reflected in the positive attitude and professional approach of the team mem-

bers. The Radisson Blu is European leader in hotel industry in size and scale, according

to a statement made by Radisson Hotel Group. There are over 1100 Radisson Blu proper-

ties in the world, located in biggest cities. Radisson hospitality group is a limited-liability

company incorporated in Sweden; the registered office and principal business place are in

Stockholm, Sweden. Euro is the functional currency of the primary economic environment

7

in which the parent company and the majority of its entities operate. Consequently, the

financial statement is presented in the euro.

Millennium & Copthorne Hotels was established in 1989 and is a global hospitality man-

agement and real estate group, with 145 hotels in 22 countries. The company is head-

quartered in Singapore and London. In the 1993 company bought 548-room Millennium

Gloucester Hotel London Kensington and took over a 13-hotel chain in New Zealand. In

1997 the company was voted "Best UK Hotel Group of the Year" during Executive Travel

Hotel Awards. Millennium Hotels & Resorts employ over 11thousand people.

EasyHotel is international super budget hotel chain founded in 2004 with its headquarters

in London. EasyHotel owns 40 hotels worldwide, which operate under a super budget

brand which offers comfortable and clean accommodation. The first hotel was opened in

London in 2005. The company floated on London Stock Exchange in June 2014. The

company is owned by Sir Stelios Haji-Ioannou. Orange colour scheme associated with

company is the same as the low-cost budget airline, EasyJet, which belongs to the same

owner. 3660 rooms belong to the hotel chain. EasyHotel has 40 hotels covering 13

countries and 32 towns. The Easy hotel RevPAR was up 4.6%, delivering market

outperformance for the fourth consecutive year (Rusty 2019, 64). During the year 2019,

six newly owned and franchised hotels were opened. There was a significant investment

in digital and operating platforms to support brand and business growth. Citrus UK BIDCO

recommended the EasyHotel cash offer limited, which controls 69% of the company

issued share capital.

8

2 Theoretical Framework

This chapter includes the necessary theoretical framework to proceed with the analysis.

Different types of analysis have been discussed, and most important ratios.

2.1 Financial Statement Analysis

Financial analysis is used to understand the processes that take place in the enterprise

and to capture the relationship between individual financial quantities. Its task is to obtain

the most comprehensive and synthetic image of the company, its property and capital

status or economic potential understood as the ability to generate financial surpluses.

Important criteria for making decisions and assessing the effectiveness of their

implementation in an enterprise are costs. Detailed and reliable recording, classifying, and

presenting costs are all activities constituting the cost account. The information contained

in the cost calculation is used by managers to make various decisions, including related

ones with the innovative process in the company.

Importantly, the assessment of the company's situation allows us to know not only its

current state but also to determine possible directions of development in the future (at

least in short term). The analysis is a provider of information for internal recipients in the

enterprise (they may be its owners and managers) as well as - external e.g. financing

banks or its contractors who want to determine the status of finances of the company with

which they cooperate or plan to establish economic contacts. In the course of the

analysis, various instruments are used, and this is done based on financial accounting

data.

The scope of the financial analysis depends on what data was available when conducting

the analysis, and also on the purpose for which it was conducted. There is no doubt that

other areas of financial analysis will be important, for example, for bank representatives,

and different for creditors or shareholders.

Today's entrepreneur runs a business in an extremely dynamic environment. The rapid

development of science and technology as well as increasing competition make the

knowledge and ongoing monitoring of its financial and financial condition an extremely im-

portant factor in running and managing an enterprise. The property and financial condition

provide a range of important information about the past and present property and financial

9

situation of the enterprise as well as the effectiveness of its operations, development op-

portunities, and potential threats. Lack of proper knowledge or lack of quick reactions to

the changes taking place in the micro and macro environment may lead to incorrect or de-

layed decisions resulting in deterioration of the company's finances or even a threat to the

continuation of its activities. The financial analysis is part of the economic analysis of the

enterprise. It is an extremely broad concept and covers the entirety of the company's op-

erations. It is part of the economic analysis of the enterprise, however, it is its most exten-

sive part.

2.2 Vertical and Horizontal Analysis

An important element of the financial statements is the entity's balance sheet. It presents

the company's assets and its financing sources. In the balance sheet, the value of the as-

sets must match the value of the liabilities. The proper balance sheet includes:

Assets - are presented in a specific order, i.e. from the lowest liquidity to the highest liquid

component (convertible into cash), Liabilities - are presented from the order specified as

the due date. Initial analysis of financial statements provides basic information on the fi-

nancial architecture of the enterprise. The preliminary analysis of financial statements

consists of a vertical analysis and a horizontal analysis. In the case of the balance sheet,

the vertical analysis consists of determining the share of individual components of the bal-

ance sheet in the balance sheet total.

Assets and liabilities are divided depending on the period of their relationship with the en-

tity:

− Fixed and current assets - fixed assets include those parts which are used in an

enterprise in many economic processes and serve the enterprise for a period

longer than one year. Fixed assets include, inter alia, intangible assets, tangible

fixed assets and long-term receivables and investments, long-term prepayments.

Current assets can be divided into tangible current assets, and financial current

assets. These assets consist of ingredients that either pass through the operating

cycle or are used up within 12 months from the balance sheet date.

− Liabilities - equity and liabilities and provisions for liabilities; external sources of fi-

nancing assets. Also known as foreign capital. It is a corporate debt, that is, all

kinds of sources of financing using foreign capital, such as credits, loans, leasing

The following table presents a simplified model of the company's balance sheet:

10

Table 2 Balance sheet

The structure of assets has a significant impact on the company's financial standing and

its financial position. Current assets have a major influence on the generation of profit, as

the constant rotation of this property directly contributes to the creation of the company's

profit. Therefore, the share of this property in the balance sheet should be significant.

On the other hand, fixed assets, although it is important, only indirectly affect the creation

of profit, therefore the aim is to ensure that the fixed assets are only as much as neces-

sary. In addition, the excessive share of fixed assets through depreciation creates an ad-

ditional cost of sales, which affects the company's profit or loss at the net level. Thus, the

ratio of the value of fixed assets to the value of assets financial statements and their share

in the asset structure are not neutral. The enterprise should strive to have the largest pos-

sible current assets in relation to the existing needs and the smallest (relative to the

needs) fixed assets, which only indirectly contribute to the creation of profit.

Horizontal analysis is very often called dynamic analysis or horizontal analysis. This stage

of the study consists of calculating the changes in the value of individual balance sheet

items over time. Namely, changes in the dynamics of individual assets and liabilities may

affect the structure of the company's assets and capital. The results of the horizontal anal-

ysis should be read with great caution. First of all, it should be remembered that the study

of dynamics itself should not be interpreted in isolation from the analysis of the structure.

Namely, a very large increase in the value of a given item may seem interesting. How-

ever, it should be remembered that it does not matter when the share of the value of this

balance sheet element in the balance sheet total is negligible.

11

When interpreting horizontal analysis, attention should be paid to changes in the value of

crucial balance sheet components. These include, first of all, the value of fixed and current

assets, tangible fixed assets, receivables and investments (short-term and long-term), in-

ventories, cash and its equivalents, equity, total long and short-term liabilities, trade liabili-

ties, and interest-bearing liabilities (debt).

2.3 Ratio Analysis

The ratio analysis of financial statements is an extension of the preliminary analysis.

The benefits of using the index analysis of financial statements include, among others, the

possibility of comparing in time and analysing trends in the studied phenomena. Moreo-

ver, thanks to the widespread use of indicators, it is possible to conduct comparative anal-

yses both on the domestic and international markets, and a large variety of indicators al-

lows for a comprehensive assessment of the company's financial situation. The weak-

nesses of the use of the ratio analysis of financial statements are related, inter alia, to the

fact that the analysis of individual ratios in isolation from other information may give a

wrong picture of the financial situation enterprises; Moreover, only selected ratios have

model values, and changes in financial reporting (application of different accounting

standards) may hinder comparability of ratios. There are four basic areas of financial anal-

ysis, i.e. turnover, profitability, debt, and liquidity.

2.3.1 Liquidity Ratios

Financial liquidity can be defined as the company's ability to meet its current obligations

(e.g. related to payment of suppliers for products and services, payment of remuneration).

There is a disadvantage in examining the company's financial liquidity using the ratio anal-

ysis. Financial ratios are constructed based on the balance sheet data, historical data, and

the financial liquidity relates to the future, in the short term. A similar problem occurs when

trying to assess the company's liquidity in accordance with value of net working capital.

Both the assessment of liquidity based on the value of net working capital and the ratio

analysis is a static method of examining the mentioned issue. The method of dynamically

examining financial liquidity (on the basis of cash flows) will be presented in the further

part of the study. The liquidity ratios include only balance sheet values in their structure,

12

specifying short-term ones. The three basic liquidity ratios, presented below, have a com-

mon denominator (liabilities/current liabilities), and the numerator of successive liquidity

ratios covers the increasingly liquid part of assets.

The liquidity analysis enables the assessment of the entity's ability to meet its current lia-

bilities. Liquidity ratios are compiled using data from the balance sheet. There are three

levels of liquidity, reflected by successive ratios. The first indicator concerns the current

liquidity. It is assumed that he should be 1.8-2.0, i.e. current assets should be twice as

large as short-term liabilities. Generally speaking, it should be stated that a low value of

the quick ratio may indicate liquidity problems, while a high value may indicate unproduc-

tive accumulating cash and/or high receivables.

Current Ratio= Current Assets/Current Liabilities

When it comes to accelerated liquidity ratio, inventories and prepayments are deducted

from current assets. This indicator should be around 1.0–1.2. Thus, it is assumed that the

sum of short-term receivables and short-term investments should be approximately equal

to short-term liabilities. Current and quick liquidity ratios can be compared. The variation

between current ratio and quick ratio shows level of inventories and status of prepaid ex-

penses in the enterprise. A large difference usually indicates a high level of inventories,

i.e. freezing of current assets.

Quick Ratio= Current Assets – Inventories/Current Liabilities

The cash ratio takes two forms, depending on the content of the numerator of the fraction.

The numerator of the indicator may include either the value of liquid assets (cash and

short-term securities) or only cash. The structure of the cash liquidity ratio depends on the

development of financial markets in the economy where the enterprise operates. If these

markets can be described as developed, including liquid ones, it is advisable to include

the discussed ratio of liquid assets in the numerator. If, on the other hand, financial mar-

kets are not sufficiently developed or are characterized by low liquidity, it is advisable to

include the discussed only cash indicator. The numerator of the cash ratio uses the most

liquid components of the current assets, i.e. short-term investments (including cash). It is

assumed that this ratio should be around 0.2.

Cash Ratio = Cash and Cash Equivalent + Short term Investments/Current Liabilities

13

It should be noted that both too low and too high a level of liquidity ratios are not beneficial

for the entity. A too low level of liquidity ratios may indicate that the entity is at risk of

timely repayment of current liabilities. On the other hand, too high level of liquidity ratios

indicates ineffective management of current assets.

2.3.2 Profitability Ratios

On the basis of profitability ratios, it is possible to check the effectiveness of asset man-

agement and the effectiveness of investments. Profitability analysis provides information

on the profitability of the enterprise. Three basic profitability ratios are most often used, i.e.

Return on Assets (ROA) and Return on Equity (ROE).

ROE ratio= net income/shareholder’s equity

The most popular measure of profitability is the return on assets (ROA). This ratio shows

the share of net profit in the value of assets. It informs about the effective use of the com-

pany's assets. The increase in the ratio illustrates the improvement of the company's fi-

nancial condition. The rate of return on assets determines the possibility of making a profit

on all assets of the enterprise and is the ratio of net profit to total assets, that is:

ROA ratio= Net Income/Average Total Assets

Then the result obtained in this way multiplied by 100 indicates the percentage ratio of the

profit generated by a given bank and the average level of assets. Thus, the effectiveness

of using the organization's resources in creating the financial result is shown.

2.3.3 Turnover Ratios

The beginning of examining the company's activity in the field of collection of receivables

is to differentiate sales growth with rate of receivables. Along with the liquidity analysis,

the amount of net working capital is determined as well, which is the difference between

current assets and short-term liabilities. Net working capital should be positive. Otherwise,

short-term liabilities are financed with fixed assets. The turnover analysis provides infor-

mation on management efficiency selected components of the balance sheet. It is possi-

ble to distinguish three main areas of turnover, i.e. inventory turnover, trade receivables

14

turnover, and trade payables turnover. Data from the balance sheet need to be used and

the profit and loss account are used to determine turnover ratios.

The asset turnover ratio (ATO) is the most synthetic and the most stable indicator in this

group. The amount of this ratio informs about the turnover (productivity) of the total as-

sets. The fixed assets turnover ratio has been limited only to fixed assets and, irrespective

of the value of sales revenues, its value will increase over time if the depreciated fixed as-

sets are not supplemented with new ones.

Asset Turnover Ratio= Net Sales/Average Total Assets

The receivables turnover ratio shows the number of times the receivables are recon-

structed during a given financial period. The obtained value of this ratio largely depends

on the adopted strategy of managing the level of receivables in the enterprise. Due to the

above, it is difficult to determine the optimal level of this indicator for the general public, as

its value will be adjusted individually to each enterprise, due to its nature, specificity, and

adopted strategy of conducting commercial activities. Receivables management is one of

the key decisions in managing current operations. After all, their growth will additionally

burden the company's finances, and their reduction will provide the enterprise with finan-

cial resources. Therefore, it would be optimal to minimize the level of receivables while

maximizing the level of current liabilities (these considerations mainly concern commercial

activities).

Accounts Receivable Turnover= Net Sales/Average AR

The receivables turnover ratio in days shows how much on average an entity expects to

pay its receivables in a year. The liabilities turnover ratio in days shows how much, on av-

erage, an entity is in arrears in a year with the payment of its liabilities.

2.3.4 Debt or Leverage Ratios

The debt ratio analysis can be seen as an extension and complement to the liquidity anal-

ysis. Therefore, the focus is on the amount of obligations to pay and the number of cash

for this purpose. The difference is that a continuous line full of debt and a debt service

platform, i.e. installments and the bank. The existence of the period is determined by the

ability to settle liabilities for up to one year. Financial risk mitigation is accompanied by an

increase in operational risk, the latter of which may be faster.

15

The use of external sources of financing (e.g. credits and loans) fosters the increase in

profitability, helps to increase the competitive advantage, and develop the business.

The debt ratio is the basic indicator for assessing the structure of financing assets.

The debt to equity ratio shows the ratio between the total amount of liabilities and equity.

For developing enterprises, the desired indicator 3 is assumed, and for developed enter-

prises 1. Although too high value of foreign capital in the financial structure of an enter-

prise may indicate its higher risk of insolvency, it should be remembered that in enter-

prises characterized by high profitability, high the value of this ratio, because thanks to for-

eign capital, the company can significantly increase its profit. A debt analysis is also a

powerful source of knowledge for potential shareholders and shareholders. The data ob-

tained thanks to it determines the level of enterprise security. As a result, they allow as-

sessing the chances of future profits. Knowing debt ratios will therefore be useful to know

if to invest money in company stocks.

Debt to equity ratio= Liabilities/equity

It is assumed that the value of the indicator should not exceed 1.0 for large and medium-

sized enterprises and 3.0 for small enterprises. Values above 1 indicate a high burden on

capital capitals. an increase in value, an increase in value, is interpreted as a deterioration

in the value of the line's ability and reliability (connection with an increase in the debt

level), a decrease in the value is interpreted as the improvement and data reliability val-

ues, respectively.

The general debt ratio shows the share of foreign capital (long-term and short-term) in the

financing of the company's assets. Elevated distribution of foreign capital in the financing

of assets (ratio with a high value) may indicate an elevated financial risk. Limit standard of

the discussed index was determined in the closed range (0.57-0.67). In enterprises char-

acterized by a bad financial situation, characterized by a high loss (exceeding equity / eq-

uity, which is negative), the overall debt ratio is greater than 1.

Debt Ratio= Total Debts/Total Assets

A low-level indicator means that the company is able to finance its activities on its own.

However, too low a value may reveal that it does not use all development opportunities.

A value above 0.67 may indicate excessive credit risk. It means a large share of debt in

the company's operations. In the event of an economic downturn, such an entity is rela-

tively exposed to bankruptcy. The higher the general debt ratio, the higher the indebted-

ness of the enterprise. Elevated values (above 50%) and enlarged ratio's value over time

16

are considered as an increase in the burden of liabilities on the company's assets.

Low values and reducing its value over time can be interpreted as a reduction in the in-

volvement of debt capital in financing the company's operations, and thus a decrease in

financial risk and an improvement in creditworthiness and credibility.

The interest coverage assesses the risk of a situation in which the enterprise will not have

the cash to pay interest. The interest coverage ratio is as follows:

net profit + income tax + interest/interest

It tells how many times the gross profit plus interest earned exceeds the interest paid by

the enterprise. The higher the ratio, the safer the company's financial situation, and the

less possible profit fluctuations may affect its solvency. A ratio equal to one would mean

that all profit earned by the enterprise (before deducting it by income tax and interest

costs) would be used to pay interest. The higher the ratio than one, the less burdensome

it is to pay interest instalments. There is a thesis that credit risk is acceptable when the ra-

tio is at least 4-5.

2.4 Hotel industry

The concept of hospitality is very complex. Generally speaking, it is understood as a so-

cially organized activity that primarily consists of hosting visitors. Additionally, it should be

emphasized that the hotel industry is the basic tourism industry. Ch. Konsewicz believes

that the hotel industry can be understood as service and production activities of all types

of establishments providing accommodation and at least partially meals against payment.

Any establishment providing this type of service is a hotel establishment.

The hospitality industry is a sphere of intangible services. This activity does not lead to the

manufacture of new products. The essence of hotel management depends on specific

hospitality, as it is paid for.

Hospitality thus provides the need for:

− rest,

− relaxation,

− accommodation,

− food,

− maintaining personal hygiene,

− health and property protection,

17

− communication with the environment,

− cultural entertainment.

A hotel company is a separate group of people who perform all activities aimed at satisfy-

ing the needs of tourists, independently make strategic, tactical, and operational deci-

sions. A hotel is equipped with tangible and intangible assets.

The most representative form of accommodation base is a hotel, which is a commonly ac-

cepted international term used to describe a facility providing hotel services. Hospitality

takes place in designated facilities of the hotel base.

The hotel is obliged to:

− ensure the safety of stay,

− provide comfort (declared standard of the facility, service level, other entertain-

ment),

− provide a good atmosphere for stay, full professionalism, and ethical and moral

level of employees.

The most important element of the tourism infrastructure and business is hotel industry.

It is dictated by the fact that tourists have different needs concerning the accommodation

base, while the base is adapted to the needs and financial possibilities of tourists.

The reason for using hotel services is to temporarily leave a permanent place of residence

and travel. These trips take place for various purposes, whether it is recreational, profes-

sional, health, or religious, so it is very important in this area to properly select the ser-

vices provided by the hotel. The hotel service performs the basic function of an accommo-

dation facility. It is a condition for its existence. The hotel service consists of basic ser-

vices provided in all facilities, but to a different extent, and additional services, the imple-

mentation of which is not a prerequisite for running a hotel establishment.

In 2019 there were over 700 thousand hotels and resorts with worth over 570$ billion.

Globally there 4mln rooms available. The average price per room in Europe was 112Euro.

As of June 30, 2019, the Polish hotel base includes 2,829 categorized hotels offering

276,973 beds in 139,052 rooms. The above figures include only those facilities that have

successfully passed the categorization procedures and, in accordance with Polish law,

may use the reserved name "hotel". Of course, there are many uncategorized facilities on

the market, the owners of which have either not decided to subject them to the procedures

for classifying them into specific types and assigning categories, or due to failure to meet

the relevant requirements, have not been entered in the hotel facility records. In Poland,

broken down into categories, there are 79 five-star hotels (9,530 rooms), 436 four-star

(40,210), 1,499 three-star (63,458), 642 two-star (20,048) and 173 one-star (5,806) hotels.

18

Thus, the largest share, measured by the number of rooms, is held by three-star hotels

(45.6%), and the smallest by one-star hotels (4.2%). In total, over 25.6 million rooms were

rented in hotels in Poland, the most in the voivodeship Mazowieckie (4.8 million), and

Lesser Poland (4.2 million). Compared to 2014, the number of rented hotel rooms in-

creased by 38.4%. As of 2019 hotel industry employed around 237 thousand people and it

was 12% of Polish GDP.

On the other hand in Finland hospitality employs 140 thousand of which 30% is under26

years old. Industry accounts for 2,6% of Finnish GDP (15 billion Euro). As of 2018, hotel

services in Finland generated almost 1.48 billion euros in revenue. The Finnish hotel in-

dustry, including hotels, motels, and guest houses, started to increase its revenue from

2014. According to WEF (World Economic Forum) report for 2019, Finland is the safest

travel destination. And for several years the travel to Finland has increased by 10%. In

2019 there were 682 hotels in Finland, of which 646 is opened year-round. In 2019 there

were 54344 hotel rooms in Finland, with average price of 120 Euro per room.

In 2018 UK hospitality industry was worth more than 100 billion Euro. There are over 13

thousand hotels in United Kingdom, the industry employs 370 thousand people. United

Kingdom takes 10th place on most visited countries in the world and the tourism is on the

rise, as of 2018 there was 1,4 billion tourist arrivals. Starting from 2020 domestic hotels

are expected to grow by around 0,5-0,9% per year.

19

3 Research Methods

Data acquisition methods are divided into quantitative and qualitative. Both approaches

are completely incomparable and serve other purposes. The choice of the method

therefore depends on what investigation is needed and what to find out. Differences

between qualitative and quantitative methods are shown in table below.

Table 3 The difference between qualitative versus quantitative methods.: (Reichardt and

Cook 1979)

Qualitative methods Quantitative methods

▪ focus on understanding ▪ importance on testing and verification

▪ Focus on understanding from respondent’s/ informant’s point of view

▪ Focus on facts and/or reasons for social reasons

▪ Interpretation and rational approach

▪ Logical and critical approach

▪ Observations and measurements in natural settings

▪ Controlled measurement

▪ Subjective ‘insider view’ and closeness to data

▪ Objective ‘insider view’ distant from data

▪ Explorative orientation ▪ Hypothetical-deductive; focus on hypothesis testing

▪ Process oriented ▪ Result oriented

▪ Holistic perspective ▪ Particularistic and analytical

▪ Generalization by comparison of properties and contexts of individual organism

▪ Generalization by population membership

At first sight, it seems very appealing to conduct only a quantitative study. A large number

of respondents, or easy comparability of unambiguous numerical results, are tempting

arguments when making decisions. However, it is a must note that entrusting only

quantitative research carries risks. It is because of the fact that notwithstanding the

number of calculated situations, the links between results acquired will be only a matter of

intuition, which may lead to erroneous conclusions. Each method has its advantages and

20

threats. Certainly, the most effective method of the market research will be a skillful

combination of both methods, however, there is not always a need.

The thesis approach will be combination of desktop study and quantitative research

method. The research and data collection are secondary in natury due to the fact that data

needed for that analysis are available from companies websites. Desktop research is

used due to absence of comissioning company. Quantitative research, examines features

already known, predetermined. Qualitative research provides a new quality of knowledge

and information.

The primary goal of quantitative method is to explain and control the phenomenon under

study. The foundations of qualitative research are usually the results obtained as a result

of the conducted quantitative research. In this situation, both in quantitative and qualitative

research, the researcher's awareness of determining the sense and purposefulness of the

research and the final shape of the information obtained from it is extremely important. As

part of quantitative approach, the researcher decides first of all on the objective criteria of

phenomena description, and in the qualitative approach, portrays somehow the

environment, referring to subjective criteria of description. The quantitative approach,

therefore, comes down to the use of a precision-based formula in defining operational

variables and making research assumptions, as well as carrying out reliable

measurements and testing the results.

Qualitative techniques are aimed at extracting from the subjects the knowledge or opinion

on a given topic, but they do not limit the examined persons. In quantitative studies, the

answers are given and the subjects indicate one of them. In qualitative research, the

answers are obtained from the subjects themselves, the researcher does not assume

what they will be. Thanks to this, these techniques allow to reach unusual data, allow to

look at the analyzed issue from a different angle, from a different perspective.

Qualitative research in comparison to quantitative research is not very systematized. Due

to the lack of a quantitative approach, statistical inference is not used. The goal is not to

know how many people think but how people think differently. The purpose of using

qualitative research should be understood. Qualitative research is used to obtain new

information to better understand the analyzed aspect.

Qualitative methods are most helpful, as they lead to building and clarifycaing hypothesis.

Qualitative methods should be used in the initial phases of analysis, providing the basis

for applying methods quantitatively. Accurate determination of the quality and speed of

21

changes in the variables studied is extremely helpful in forecasting and planning.

Qualitative analysis methods have specific advantages and disadvantages. Important to

them the advantage is the large simplicity and ease of use in practice. The basic

disadvantage of quality methods is the inability to accurately recognize the character

dependencies occurring between the tested variable and the factors determining it, and

the inability to indicate the strength and direction of these dependencies.

Yearly reports are most useful to accomplish stated thesis objectives. For calculations

author focused closely on the income statement and balance sheet, financial position of a

company. The majority of the information required for this thesis was included in the

annual statements of the companies.

Also, the combination of a qualitative and quantitative method for maintaining optimal

results may be a golden measure for many industries. However, these are not the only

forms of research methods worth implementing. On the one hand, to have even

rudimentary figures from a selected group of recipients.

Figure 1 Research design

22

4 Analysis and benchmarking

This chapter includes the analysis of chosen hotel chains. The liquidity and profitability

ratios will be analysed. Also the author will do vertical and horizontal analysis. At the end

of the chapter benchmarking will be done. It must be noted that some of the calculations

were not done fully due to missing pieces of information from the companies.

4.1 Vertical and horizontal analysis

Table 4 presents vertical and horizontal analysis of Orbis balance sheet. It is possible to

see quite big yearly increases of assets and equity. Large increases (or decreases) in the

analyzed economic values will not necessarily be the basis for positive (or negative) as-

sessment, especially if a given increase in relation to the previous year is result of the ex-

ceptionally low database of analysis which are the result of economic downturn.

Table 4 Orbis SA - Vertical and Horizontal Analysis

In the table below it is possible to see vertical and horizontal analysis of EasyHotel. When

it comes to gross profit it is easy to notice steady loss. However, gross profit in 2019 al-

most doubled comparing to 2017. Net income after tax grew between 2017-2019.

23

Table 5 EasyHotel - Vertical and Horizontal Analysis

In table 5 are presented some of the components of Income statement of Radisson Group

and its vertical and horizontal analysis. Within 3 years company recorded very rapid in-

crease of operating profit.

Table 6 Radisson Group - Vertical and Horizontal Analysis

Also, Millenium Group recorded growth of their assets and liabilities. Increase of revenue

is the result of an increase in the value of mainly current assets (inventories and receiva-

bles), which may indicate an increase in production as a result of earlier investments in

fixed assets.

24

Table 7 Millenium Group - Vertical and Horizontal Analysis

4.2 Ratio analysis

One of the easiest methods of making financial analysis is to calculate financial ratios.

Thanks to such calculations, the entrepreneur has the opportunity to evaluate the busi-

ness activity and compare the achieved results over time, with the standards and the re-

sults of the competition. To calculate financial ratios, financial data that are included in the

balance sheet are needed, profit and loss account, and cash flow statement.

4.2.1 Liquidity Ratios

EasyHotels’ current ratio increases from 5,81 in 2017 to 6.58 in 2018 and to 7,2 in 2019,

meaning that easy hotel can meet its present obligation with ease and it has better

position to pay off its liabilities. The quick ratio increase from 5,8 in 2017 to 6.5 in 2018

and decrease to 3.21 in 2019, meaning that the company can convert current assets to

cash quickly. The cash ratio increases from 0,05 in 2017 to 0,06 in 2018 and decreases to

0,05, meaning that the company can meet the current obligations. The operating cash

flow ratio is stable and increases from 5,37 in 2017 to a high of 6.0 in 2018 and decreases

to 3,91 in 2019, meaning that the company can meet the current obligation.

25

Table 8 Liquidity ratios- EasyHotel

Liquidity ratios 2017 2018 2019

Current ratio (assets/liabilities) 5,81 6,58 7,2

Quick ratio ((current assets-inventory)/liabilities) 5,80 6,50 3,2

Cash ratio ((cash+cash equivalents/liabilities) 0,05 0,06 0,05

Operating cash flow ratio (cash flow from opera-tions/liabilities) 5,57 6,0 3,91

The Radissons’ Hospitality Group current ratio decreased from 0.75 in 2017 to 0.44 in

2019, meaning that it struggles to meet its present obligation with ease. The company

could improve their situation by paying off current liabilities. The quick ratio decrease from

0.14 in 2017 to 0.19 in 2019. It means that it has problens to convert existing assets to

cash quickly. The cash ratio decreases from 3,4 in 2017 to 4,5 in 2019, implying that the

company will meet the present obligation. The operating cash flow ratio of 4,2 in 2017 fell

to 1,0 in 2019, meaning that the company will not meet the current obligation using cash

flows from operations.

Table 9 Liquidity Ratios- Radisson Hospitality






The current ratio of Interferie SA decreased from 2,5 in 2017 to 1,16 in 2019, meaning

that it struggles to meet its present obligation with ease. Interferie could improve their

situation by selling off unproductive assets. The quick ratio at the end of December 2019

also decreased to 0,9 from 1,5 in 2018. The lower the ratio the more possible problems

with paying debts. Also, cash ration have dropped in 2019 to 0,68. In case when company

has a ratio lower than 1 is at risk of financial difficulty.

Table 10 Liquidity Ratios- Interferie SA



Quick ratio ((current assets-inventory)/liabilities) 1,5 0,9

Cash ratio ((cash+cash equivalents/liabilities) 1,2 0,7

Operating cash flow ratio (cash flow from opera-tions/liabilities) 1,3 0,9

26

The current ratio of Orbis Group increased from 2,35 in 2018 to 2,76 in 2019, meaning

that it can meet its present obligation with ease. The quick ratio increase from 1,01 in

2017 to 2.4 in 2019 means converting existing assets to cash quickly. When ratio is more

than 1 the company has enough cash to cover short-term obligations. The cash ratio

increases from 0,7 in 2016 to 2.6 in 2019, meaning that the company can meet the

present obligation. The operating cash flow ratio is stable and increases from 0,74 in 2017

to a high of 2.6 in 2019, meaning that the company can meet the current obligation using

cash flows from operations.

Table 11 Liquidity Ratios – Orbis Group






Scandics’ current ratio decreases from 1,77 in 2017 to 1,18 in 2019, meaning that the

hotel cannot meet its present obligation with ease. To improve situation the company can

rise shareholder’s fund in order ot increase current assets. The quick ratio decreased from

1,75 in 2017 to 1,18 in 2019. The small or decreasing ratio can be a sign that the

company has taken too much debt or the sales are decreasing. It can also mean that the

company has problems to collect accounts receivable. The cash ratio increases from 0,05

in 2017 to 0.06 in 2019, meaning that the company can meet the current obligation.

Table 12 Liquidity ratios- Scandic






Milleniums’ Hotels The current ratio only slightly decreases from 1.5 in 2017 to 1.3 in

2019. In 2019 quick ratio decrease after a small raise in two previous years. The operating

cash flow ratio is 1,29 in 2017 and 1,022 in 2019. In 2018 it was below 1. In this kind of

situation it means that company did not get enough cash to cover the current liabilities.

27

Table 13 Liquidity ratios- Millenium hotels






4.2.2 Profitability Ratios

In last years ROA of Easyhotels was decreasing. ROA was respectively 0,64% in 2017,

0,49% in 2018. It can be a sign of smaller revenue or rise in costs. Very low number

ilustrate that company poorly generate returns with respect to deployed capital. It shows

how effectively company is converting invested money into net income. In the table below

it is able to see ROE ratio, in 2019 it was on minus, which means that company had a

financial loss.

Table 14 Profitability ratios- Easyhotel

Profitability ratio 2017 2018 2019

ROA (net profit/asset) 0,64% 0,49% -2,01%

ROE (Net profit/equities) 0,9% 0,5% -3,2%

Radisson Hospitality Group -both the profitability ratio of ROE and ROA increased in the

last few years. Within two years the companys’ ROA tripled, increasing roa shows better

asset efficiency. That means company is doing a good job when it comes to increase of

profits with every money they spend. Also ROE has grown very rapidly, from 1,73% in

2017 to over 16% in 2019. That can be a sign of huge borrowings by company. Problem

with very high ROE can cause inconsistent profits.

Table 15 Profitability ratios- Radisson Hospitality


ROA (net profit/asset) 8,6% 4% 18%

ROE (Net profit/equities) 1,73% 1,4% 16,1%

ROA ratio of Interferie Sa decreased from 5,5% in 2016 to 0,5% in 2017 and then slightly

increased to 1,8% in 2019. However, it means they are still generating profit. As it can be

seen in the table below ROE has a fluctuation tendency, in 2 years it almost doubled.

28

Table 16 Profitability ratios- Interferie SA


ROA (net profit/asset) 5,5% 0,5% 1,8%

ROE (Net profit/equities) 6% 1% 15%

Orbis group - profitability ratio ROA increase from 8% in 2017 to 10,6% in 2018, meaning

that Orbis is operating profitably. The ROA was increasing which means company was

earning more money on less investment. Also, previous years were good when it comes

to ROE. In 2017 ROE was 6,23%, in 2018 it was 6,80% and 32,30% in 2019. The growth

in 2019 might have been caused by increase in equity caused by hight profit sale.

Table 17 Profitability Ratios- Orbis Group


ROA (net profit/asset) 8% 10,6% 4,7%


Scandic Company the profitability ratio of both ROE and ROA decreases. ROA decreased

from 4,55% in 2017 to 2,36% in 2019, meaning that the company is struggling to generate

profit. Decreasing ROE of company can be a sign that they struggle to create profits

(9,82% in 2017 to 10,1% in 2019).

Table 18 Profitability Ratios- Scandic Group




The profitability ratio of Millennium & Copthorne Hotel slightly decreased over tha last few

years. It can be cause by lower asset productivity. However, in year 2019 had growth.

Also ROE has decreased as well. ROE should be greater than ROA, in cases where it is

not company learning lesson the debt capital comparing to costs of borrowing that capital

(Ibendahl 2018, 2). And of course the higher the ROA the better, because then the

company is earning higher amount of money on less investment. Detailed ratios can be

found in the table below.

29

Table 19 Profitability ratios - Millenium Hotels




4.2.3 Turnover Ratios

EasyHotels’ asset turnover ratio had a decreasing tendency. A higher level or upward

trend in the asset turnover ratio or a lower level or downward trend in the asset

commitment ratio deserves a positive assessment. This proves higher resource efficiency.

This efficiency depends, in particular, on the speed of asset resource turnover and their

internal structure.

Table 20 Turnover ratio- EasyHotel

2017 2018 2019

Asset turnover ratio ( sales revenue/total assets) 0,22 0,18 0,02

Radissons’ Hospitality Group asset ratio had a decreasing tendency, from 1,88 in 2017 to

0,88 in 2019, showing that the company uses assets efficiently to generate revenue.

Of course, the higher ratio is better, and it is a sign of higher efficiency in use of assets.

On the other hand, a lower ratio shows that company is not using its assets efficiently.

Table 21 Turnover ratio- Radisson Group

2017 2018 2019


The asset turnover ratio of Interferie is increasing from 0,35 in 2017 to 0.84 in 2019.

Table 22 Turnover ratio- Interferie SA

2017 2018 2019


The asset ratio of Orbis group decreases from 0,5 in 2017 to 0,44 in 2019, showing that

the company uses assets efficiently to generate revenue. The fixed assets turnover ratio

gives in-depth information about the efficiency of fixed assets, limiting itself solely to the

item of tangible fixed assets.

30

Table 23 Turnover ratio- Orbis group

2017 2018 2019


Scandic Company the asset turnover ratio was decreasing from 0,94 in 2017 to 0.62 in

2019. in 2018 it was 1,04, ratio of 1 is a sign the net sales of company are the same as

average total assets per year. It means the company is getting 1 euro of sales for every

euro invested in assets.

Table 24 Turnover ratio – Scandic

2017 2018 2019


Millennium & Copthorne Hotels plc. The asset turnover ratio decreases from 0.9 in 2017

to 0.73 in 2019, showing that the company uses assets efficiently to generate revenue.

Table 25 Turnover ratio- Millennium Hotels

2017 2018 2019


4.2.4 Debt or Leverage Ratios

EasyHotels’ Liabilities to equity ratio decreased slightly from 26,49% in 2017 to 22% in

2019, at the same time it means that the company can meet financial obligations. A lower

ratio shows lower amount of financing using debt via lenders, versus funds by equity via

shareholders. Higher ratio means that company gets more of financing by lending money.

Debt to capital stayed on similar level for last few years. Interest coverage ratio was

decreasing over the years, it means that the company is on the way to insolvency.

Table 26 Debt or leverage ratios- EasyHotels

2017 2018 2019

Debt to equity ratio (total liabilities/total equity) 26,49% 19,91% 22%

Debt to capital ratio (debt/(debt+equity)) 14,62% 50% 13,22%

Interest coverage ratio (Ebitda/interest expense) 2,68 3,39 1,18

31

Radissons’ Group Liabilities to equity ratio increased from 10,2% in 2017 to 19,3% in

2018, meaning that the company can meet financial obligations. Debt to capital ratio was

rapidly growing which indicates risky company. It means that company is founded more by

debt than equity. Interest coverage ratio had declining tendency.

Table 27 Debt or leverage ratios – Radisson Group

2017 2018 2019

Debt to equity ratio (total liabilities/total equity) 10,2% 19,3% 8,31%

Debt to capital ratio (debt/(debt+equity)) 70,29% 100,8% 100%


Interferies’s liabilities to equity ratio increased from 14,87%% in 2017 to 17,73% in 2019,

meaning that the debt level is acceptable, and the company is benefiting from obligations.

Debt to capital ratio was rapidly growing which indicates a risky company. It means that

company is founded more by debt than equity, in 2017 it was 4,59% and in 2019, 6,17%.

The ratio grew rapidly shows that company might have problems paying debtors. On the

other hand in last few years interest coverage ratio was decreasing.

Table 28 Debt or leverage ratios – Interferie

2017 2018 2019


Debt to capital ratio (debt/(debt+equity)) 4,59% 3,46% 6,17%


Liabilities to equity ratio of Orbis group increased from 24,8% in 2017 to 30,4% in 2019.

The level from 2017 and 2018 was very close. It went up in 2019 as a rsult of

implementation IFRS 16.The debt- to- capital ratio grows from 26,1% in 2017 to 69,67% in

2019, implying that the debt level is high, and almost doubled comparing to 2017. It

indicates that company is financing their growth with debt.

Table 29 Debt or leverage ratios - Orbis

2017 2018 2019




Liabilities to equity ratio of Scandic Company decreased from 13,0% in 2017 to 5,59% in

2019, meaning that company can meet the financial obligation. The intrest coverage ratio

is increasing throughout the years, from -3,67 to 4,99 in 2019. The increase of ratio may

32

happen due to few actions. For example by increase of net operating income, or lowering

operating expenses, or paying off existing debt. Debt to capital ratio decresed slightly in

past years.

Table 30 Debt or leverage ratios - Scandic

2017 2018 2019


Debt to capital ratio (debt/(debt+equity)) 42% 41,5% 21,82%


In Millennium Hotels liabilities to equity ratio increased from 45,12% in 2017 to 50,92% in

2019, meaning that the company can meet financial obligations. Interest coverage ratio

increase from 3,52 in 2017 to 3,8 in 2019.

Table 31 Debt or leverage ratios – Millenium Hotels

2017 2018 2019




4.3 Benchmarking

The name "benchmarking" derives from the word benchmark, which means a surveyor's

landmark, determined in a place visible from a distance and defining a certain position.

It is a reference point used in leveling measurements. In business, its idea is to compare

yourself with the best players on the market in such a way as to set strategic goals based

on their results and look for areas for development for the company.

All of the companies had either better or lower returns, that can depend on many factors.

For example, property maintenance costs, administration and management costs, energy

costs, or marketing and booking costs can depend on it. This group of costs is related to

the operating activities performed by the accommodation facility.

33

Figure 2 Revenue of hotel chains in $

Revenue growth is one of the main indicators used to determine the speed of the compa-

ny's development. It talks about the speed of the company's development and therefore it

is one of the key positions during examinating the company's condition. It gives us signals

regarding many processes in the company and therefore is often used practically to detect

problems in the sales process and to evaluate marketing activities. Revenue growth was

calculated using the following formula:

Revenue growth= (Current year revenue – prior year revenue)/prior year revenue

Figure 3 Revenue growth of hotel chains in %

The figure above shows that the sales revenue for Easyhotels increases steadily for last

three years. Radisson group have a similar pattern but do not have a steady increase,

with lower growth in 2018. Orbis had the same kind of tendency with the difference of

much higher growth in 2017. From figure 3 it is easy to see that Interferie was struggling

with their growth in 2018. However, the revenue growth in 2019 was much higher

comparing to Orbis. Millenium had the same tendency as Orbis or Interferie. Only Scandic

managed to double its revenue in 2018 comparing to the previous year, it was 23,49% in

2018 and in 2017, 11,47%.

When it comes to hotel industry it is also possible to do benchmarking on different criteria,

for example using location, prices of hotels, or product. In the figure below comparison of

hotels has been executed according to their occurrence, occupancy and employment.

34

Hotels of Easyhotel Group were deffinitely the most occupied in last two years. It can be

the result of quite cheap price and the fact that it is possible to find these hotels in 13

countries. Radisson Group is the hotel chain with biggest amount of hotels and rooms.

The Group gives also employment to over 14 thousand people. Their average occupancy

level is 70%. Orbis Group owns 63 hotels ( total 130, rest is in leasing). As a polish

company they have managed to expand very well over the years. The average occupancy

is higher than Radisson group, customers prefer their competitive prices. Orbis and

Interferie are the cheapest hotels out of those compare in the work. As of Interferie having

small amount of hotels, part of their revenue consist travel agency revenue. On the other

hand Millennium Group has the highest average revenue giving employment to over 11

thousand people. Scandic turns out to be the one with most expensive prices per room.

Figure 4 Discussed hotels comparison

4.4 Impact of COVID-19 on hospitality industry

It is still quite too early to be sure of the drastic consequences worldwide pandemic will

have impact on hotel industry. However, many scientist are doing the research on long-

term consequences. The hospitality sector felt the results of the spread of the coronavirus

before the authorities implemented any restrictions. It is worth noting that despite the

worldwide cases of illness and deaths as a results of the coronavirus, practically until the

start of February, the hotel sector within the largest European cities functioned without

major disruptions. The collapse of the dynamics of the analysed hotel operating indicators

failed to happen until a month later, when a pointy in-crease in cases and deaths began to

spread in Europe. The forecasts prepared before the outbreak of the pandemic for the Eu-

ropean hotel marketplace for 2020 were quite conservative. They emphasized the upcom-

ing slowdown, and there was even an opportunity of slight re-cession. On the opposite

side, 2020 may be a year characterized by an oversized oversupply of latest hotels enter-

ing the market. it's a phenomenon observed within the European, and particularly - global

context. Within the post-pandemic period, it seems unrealistic to keep up such supply,

most new investments are in danger, and official hotel openings will definitely be delayed.

35

Relaxing the restrictions by governments doesn't mean that the ecu hotel industry will start

to function because it did within the period before the pandemic. Additionally, psychologi-

cal aspects should be taken into consideration, especially the fear of traveling to other

countries. Without expecting the circumstances to enhance on the European level, hotel-

iers can take actions to reorient their activities. It is crucial to understand the mechanism

of the recovery of individual segments of demand for hotel services. The primary expecta-

tion to return are individual customers and business travellers employees of state institu-

tions and non-governmental organizations. Next, the segment of small business meetings

and special events will develop. Then there'll be international tourists traveling around Eu-

rope. It should be noted that the corrective actions taken by hoteliers might not be

enough. Government intervention are necessary. However, the proposed solutions must

take into consideration the specificity of the municipal hotel sector.

36

5 Conclusions

The last chapter includes a summary and key findings of the analysis. There are also

some recommendations for companies. The chapter consists of two parts to provide more

detailed answer for the reserach question. Also the reflection of authors’ learning is

included.

5.1 Summary and key findings

Overall system sales of Easyhotels in 2019 grew by 27.5% to £47.6m, also total revenue

increased by 56.0% to £17.6m. The sale of participation in the Radisson Royal Hotel

Beijing was finalized at the beginning of 2019, resulting in the gain in 2019. Radisson has

also in 2019 disposed of its participation in PBR hotel ltd with no impact on profit and loss.

Interferie is the largest chain of recreational facilities and hotels in lower Silesia, operating

for over 26years. The resources of Interferie include 1880 beds in most attractive polish

results. Interferie facilities promote active recreation with health prophylaxis and so far has

hosted over 10million guests. Interferie Sales in 2018 decreased by 7%, other operating

Income also reduced. Working revenue in 2018 was also reduced as compared to 2018.

The sale of the real estate under which ZCP carried out was finalized on December 16,

2016. Following the concluded contract, the real estate hotel's deal was for the amount of

18600 thousand. PLN, of which 7100 thousand PLN was paid on the date of the sale

agreement, 4500 thousand PLN was settled in 2017, 5000 thousand PLN was paid in

December 2018, while the payment date of the remaining 2000 thousand PLN for 2019.

Net sales of Scandic in 2018 and underlying earnings improved majorly due to more room

revenue in operation from the Restel new acquisition that was concluded in December

2017. Demand continued to develop positively in the Scandic market more or less with the

supply growth. The Scandic hotel opened six new hotels with lease contracts in 2018.

Millennium had steady growing sales with a big amount of returning guests. Its strong

market position in the mid-market place in the mid-segment and suitable geographic

footprint means that Millennium is the first choice destination.

37

5.2 Recommendations

” The global tourism industry has experienced steady growth in recent years. In this context, the

sharing economy has changed the rules of global tourism by developing multi-faceted technology

platforms for hotel services comparable to major group hotels. Hotel chains from the Second World

Economy have grown more and more internationally, although the term has more ancient roots.

Currently, hotel chain rates include buying hotels worldwide and controls 75% of the hotel titles.

Especially since the beginning of this decade, markets have newly improved, the importance of

emerging countries in the level of increasing hotel groups of growth, the sharing economy has

rapidly developed as a short-term rental offer. These interrelated work at an increasing level of

performance to purpose, while requiring attention to business strategies in light of the critical

factors that currently determine competitive and social success” (Salvioni 2016, 36-39).

Despite the numerous similarities between hotel facilities and another commercial real

estates, it is worth noting some characteristic features of the hotel business that affect the

ability to generate income for the owner. Tourism is an economic phenomenon of a spatial

nature, which is associated with the need to migrate in order to consume tourism.

Information about the scale of tourist traffic in local terms is of great importance for the

basic operational indicators, such as the use of hotel rooms and the average use of

accommodation places per year (Bednarska & Nawrot 2014, 7) When using such

indicators, however, special attention should be paid to the diversification of the tourism

economy within countries and regions. Therefore, companies wishing to open new hotels

should do this type of analysis before making any decisions.

The outbreak of COVID-19 in 2019 has had a huge influence on the easy hotel of March

2020. Management has to take measures to mitigate financial losses. Some of the

recommended actions include; temporary layoff of personnel, rent renegotiation, deferrals,

application for government subsidies and loans, and postponement of some future

colossal capital investment. Radisson Hospitality is also cooperating in various other

areas, such as global integrated IT platform, global sales, brand websites, revenue

optimization tools, and purchasing. All transactions are done at arms' length basis. Any

transaction with Radisson deemed to be material requires the approval of the board of

directors of Radisson. The outbreak of COVID-19 in first quarter of 2020 has had a

significant impact on Radisson as of March 2020. Management has to take measures to

mitigate financial losses. Some of the recommended actions include; temporary layoff of

personnel, rent renegotiation, deferrals, application for government subsidies and loans,

and postponement of some future colossal capital investment. The outbreak of COVID-19

in 2019 has had a significant impact on INTEFERIE SA as of March 2020. Management

38

has to take measures to mitigate financial losses. Some of the recommended actions

include; temporary layoff of personnel, rent renegotiation, deferrals, application for

government subsidies and loans, and postponement of some future colossal capital

investment. The outbreak of COVID-19 in 2019 has had a significant impact on Orbis

Group as of 2020. Management has to take measures to mitigate financial losses. Some

of the recommended actions include; temporary layoff of personnel, rent renegotiation,

deferrals, application for government subsidies and loans, and postponement of some

future colossal capital investment. The outbreak of COVID-19 in 2019 has had a

significant impact on Scandic and other hotel chains at the beginning of 2020.

Management has to take measures to mitigate financial losses. Some of the



colossal capital investment. The company board, therefore, proposed no dividend to be

paid. Millennium & Copthorne Hotel concerns about Brexit have affected UK hotels,

especially in London, however total revenue for the year increased by £82m or 8.9% to

£1008m. Before tax profit grew by 36.1%. The group share of profit from joint ventures

and associates fell by£4m to £22m. The outbreak of COVID-19 in 2019 has significantly

impacted the Millennium & cop Thorne hotel plc. As of the beginning of 2020,

management has to take measures to mitigate financial losses. Some of the



colossal capital investment. General Managers of hotels are often involved mostly with

operational activities and membership issues. They may not spend quality time analyzing

financial statements. With the aid of ratios, general managers may control the hotel

industries' profitability and performance. In the hotel industry, franchise agreements and

management contracts are the most common way of spreading large corporate systems.

The liquidity ratio of some networks may present several liquidity risks. When liquidity

deteriorates, it is a sign that the company needs to improve its liquidity management and

travel to operations. While the results are standard, which has shown growth and

payback, some networks are looking to streamline their commitments. These firms need

to provide debt and cash service as well as introduce liquidity supplementary tools by

introducing liquidity and inventory controls in line with the industry trend.

The hospitality industry has been experiencing huge changes and disturbances over two

decades. Whereas the Covid-19 widespread is centering numerous industry players on

short-term trade survival, understanding the best hospitality patterns will be fundamental

for long-term competitiveness. There are couple of trends that hotels should focus on to

improve their revenue. One of them can be focusing on meeting demands of different

39

generations, becoming more sustainable, reasonable prices of products or more

forecasting/budgeting.

5.3 Reflection of learning

The content presented above was intended to present the essence of operating activities

in the hotel industry in the context of estimating the potential income from this activity. The

author had a chance to improve the knowledge about financial analysis, how it is done

step by step. Also it was a chance to revise all the materials that have been presented

during completing the degree. Moreover it showed how important it is to know how to do

at least basic financial analysis in future possible private use. It was new thing for the

author to learn about quantitative and qualitative methods of doing research.

At first it was quite difficult to find or to get materials to begin writing with. Some of the

companies do not present their financial statements to public. Because of that it was quite

difficult to find relatively big Polish hotel chains that would provide all the needed material.

The reason of topic selection were also private interests of the author and job experience.

By writing this work author had a chance to get to know more standards of writing reports,

how to create references properly and use excel more properly. It was also a good chance

of learning new trends within industry. Another good aspect was to create whole report in

English language, since English is not the mother tongue of author. The knowledge

gained by the author an be used and developed more in the future career.

40

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Documents

Financial Performance Analysis of major hotel chains in