From: (Your Name)
To: Christina Hansen (Operations manager)
Subject:
Business Finance
From: (Your Name)
To: Christina Hansen (Operations manager)
Subject:
Business Finance
Introduction
The report seeks to measure the performance of 7 Seas Onboard
Restaurants for the financial year ended 2019-2023 incorporating
the chosen financial ratios about profitability, efficiency, and
liquidity, and the analysis of the company's financial risk. It
will also explain the financial information needed by various
consumers such as the government, suppliers, as well as
prospective investors.
Financial
Information
Financial information concerns information regarding the firm's
financial transactions, including revenues, costs, assets, and
liabilities as presented on statements for income statement and
balance sheet. This information is fundamental in assisting the
stakeholders with the decisions they make about the company
concerning its financial position, ability to grow, and efficiency
(Fridson and Alvarez, 2022).
Motives
of the Stakeholders for Financial Information
HMRC (Government): The government, more so HMRC needs
proper financial statements to ascertain if the company has paid
the correct amount of tax as well as other external parties such
as investors, creditors, and shareholders to make the right
decisions about the company. HMRC, therefore can establish the
profits of 7 Seas Onboard Restaurants by scrutinizing the balance
sheet of the organization, and hence, it will calculate taxes to
be paid. They also monitor the financial data of the firm to
fulfil the demands of the regulatory bodies and are also able to
identify other issues, such as fraud (Hudson, 2018).
DFDS Seaways: In this case, being a business partner or
parent company, DFDS Seaways is required to review the financial
strength of 7 Seas Onboard Restaurants for strategic development
and its alignment with corporate objectives. They go through the
financial statements while calculating profitability, efficiency,
and overall performance that affects their income and schemes (Tan
et al., 2018).
Raw Material Suppliers: The suppliers are concerned with
the solvency of the company as well as the solvency of the
business to prevent payment delays. Financial statements help them
to analyze whether 7 Seas Onboard Restaurants can clear its termly
payments so that instances of bad debts can be reduced, and
long-term reciprocal relationships can be maintained (Lechler et
al., 2020).
Potential Investors: Because of this, the investors use the
financial statements to balance the profit-making, growth
prospects and the actual rate of returns on investments (ROI). In
this scenario, they try to determine the profitable operating
profit, net profit and cash flow figures, which determine their
investment in the firm (Adhariani and De Villiers, 2019).
Banks and Financial Institutions: While approving these
loans, the banks evaluate the company in terms of efficiency in
paying back the loans by analyzing the financial position of the
company. They measure the firm's ability to meet its obligations
and handle the given risks by considering liquidity ratios, high
debt, and low profit margins. Link between financial performance
and loan bargaining power; Good operational profits and returns
improve the firm's prospects regarding better loan rates (Park and
Kim, 2020).
Purpose
of Financial Information
Every stakeholder group needs financial information to determine
if the business is sound from its financial position and
performance as well as its cash flows. This gives a business
overview of efficiency, profitability, or a business's capacity in
the financial period in question or obligation due. This enables
the stakeholders to put in place proper investment decisions to
either lend, manage, or regulate the company. In the case of firms
such as 7 Seas Onboard Restaurants, efficient financial
information allows the determination of the financial position and
the possibility of growth (Kimmel, Weygandt, and Kieso, 2020).
Characteristics
of Good Financial Information
Relevance: Financial information must be useful in the
decision-making process of an organisation.
This makes the
stakeholders such as potential investors and banks assess the
status of the firms and what to expect in the forthcoming year
because current and relevant information is available at such a
time. For example, investors may be concerned with the
profitability ratios whereas banks may want to analyze the
liquidity and the solvency ratios before giving credit. The more
useful the data, the more informed the decisions that stakeholders
will make based on their financial conditions (Gelinas, Dull, and
Wheeler, 2018).
Reliability: In the case of the financial information of
the organization, it must be such that it is accurate, consistent,
and verifiable, to the point that the stakeholders trust its
data.
The data is highly relevant for suppliers and banks
because the volume of reliability and creditworthiness of payments
depends on financial statements. Where the information proves to
be false or conflicting, the followers can be deceived and wrong
decisions made. For instance, banks require the accuracy of
financial information for them to put into perspective the credit
risk levels of the firm before issuing it credit; reliability
allows the suppliers to be assured of their payments (Alathamneh,
2020).
Comparability: Comparability enables the stakeholders to
compare the firm's previous performance with others. In the case
of DFDS Seaways, benchmarking 7 Seas Onboard Restaurants will
allow the organization to measure improvement or lack thereof as
well as if the company is aligned with objectives and goals. This
can be against different financial periods or competitors. Holders
also use comparability to determine whether the firm has better
returns than other investment opportunities available in the
market (Chen et al., 2018).
Understandability: Financial statements should be properly
written and in simpler language with the aid of other related
financial terms that the users would comprehend. As much as
possible, complicated terms must be explained in a way that would
make the understanding much simpler. For example, in formulating
or preparing financial reports, some potential investors,
suppliers and other stakeholders may likely have little
understanding of some specific accounting terms or concepts, so if
the data is presented/analysed correctly, then it should help them
make good decisions. This is very helpful, especially concerning
non-financial stakeholders such as DFDS Seaways or Government
agencies that depend on noble financial information in grading the
issue of sufficiency and appropriateness (Parsa and Sarraf, 2018).
About these characteristics, the information contained within the
financial statements is informative, credible, comparable, and
understandable by everybody. For instance, while evaluating the
risk of a loan, reliability and comparability are highly
crucial for banking companies; however, for determining the trend
of profitability, relevance and understandability are very
critical in the eyes of potential investors.
All of them
utilize these attributes to serve their respective goals and to
make proper decisions that concern the enterprise (Chen et al.,
2018).
Ratios
Analysis - 7 Seas Onboard Restaurants
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Detailed Analysis of Company's Performance:
The use of ratios is very widespread in financial analysis, as
most of them may convey information on some aspect of the
organization. It helps many stakeholders make analysis on
profitability, operating cost, financial strength and financial
sustainability.
Gross Profit Ratio: This means how well a firm is managing it
operations to produce its products or deliver its services. It
shows how many sales dollars are available for everything else
after all the cost of manufacturing or merchandising a product. It
is higher where cost control is desired and where firms are more
effective in controlling their prices. Operating Profit Ratio:
This ratio will inform me how well or otherwise a business has
been running in terms of operational cost as compared to the
operating revenue. Increase in the scale of operating profit ratio
indicates better efficiency in operation whereas low operating
profit ration may suggest that the overheads are high, or control
measures of cost are not effectively implemented (Choiriyah et
al., 2020).
Net Profit Ratio: This shows how much a company earns after all
expenses have been paid, taxes provided and interest on borrowings
levied, respectively. This reveals the profit by sales dollar, or
any other unit that may be used in business. Showing it Gives an
indication of the amount of Net Income that can be made for every
dollar, or other unit of Sales. A high net profit ratio entails
firm is most profitable once all the sundry expenses have been
charge
What does each ratio generally explain
about a company?
Return on Investment (ROI): Total asset/equity
ratio gives information as to how effectively an organization is
running to generate revenue out of its total assets. High return
on invested capital informs that the resources of the firm are
managed successfully to generate returns for the owners of the
firm.
Return on Equity (ROE): Income available to
common stockholders is computed using one of the widely known
financial ratios known as Return on Equity. It is another way of
demonstrating more of its operational capacity in utilizing
investment resulting from owners’ funds to generate profits. A
higher number of ROE, points to better returns it has provided for
its investors.
Assets Turnover Ratio: This shows the
efficiency with which the firm is using assets in generating sales
revenue. A higher turnover ratio suggests the firm assures
efficiency of resources employed within the company (Patin,
Rahman, and Mustafa, 2020).
Current Ratio: The Working capital ratio seeks
to establish how effectively a firm is able to deal with its
liabilities by matching the easily readily convertible current
assets against the easily portable current liabilities. A higher
proportion is always considered optimal and thus a high ratio
indicates a strong liquidity condition. Quick Ratio: Unlike the
current ratio, inventory and other assets are not factored into
such ratios to provide a stricter classification of the ability of
the organization to meet its near term obligations.
Equity Ratio: Split of assets that the
organisation has invested presents the percentage of owners or
shareholders’ funds out of total assets possessed by the
organisation. Thus, high equity ratio indicate low credit risk
since the company relies more on equity than on debt.
Debt Ratio: This has been taken to mean the
proportion level of a firm’s assets financed through borrowings.
A low debt ratio is an assurance of low credit risk since the firm
depend much on external financing.
ü
What does the development in the ratios explain about the company?
The overall financial ratios seen below for 7 Seas Onboard
Restaurants show proof of the company’s improvement during the
analysed years particularly in the years 2019 to 2023. At the same
state, Gross, Operating, and Net Profit Margins were negative in
the years 2019 and 2020 which indicates poor efficiency and high
cost of the company. However, after 2021, gross profit ratio
improved and was 62% and operating profit ratio was better 34% in
the year 2023 indicating improved cost management skills and
strong operations. This research also demonstrates that the net
profit ratio also rose and was equal to 24% in 2023 which
illustrates that there was a positive change in the level of
organisations’ profitability. There was also a correspondence in
the trend of the analysis of the ROI and ROE. As for the Analysis
of the shareholders’ returns we can see that both the ROI as
well as the ROE were negative in the years 2019 & 2020;
however, there is a sign of recovery in the following years where
by the year 2023, the ROE would even get to reach 10.35 % High as
this would depict better returns for the shareholders and better
utilization of the assets of the business. It raised beyond 1 by
2022, the current and the quick ratios depicting the company’s
ability to meet short term commitments. This is a sign that there
is increased revenue and this is always good for the company since
it reduces its rate of vulnerability of the company in terms of
its liquidity. The asset turnover ratio has a consistent rising
trend during the years, which pointed to the efficient use of
assets in generating sales. Holds that the equity ratio will
increase in 2022 and 2023 this proves strong equity financing,
again, a small debt ratio means small debt financing. This is
because lower debt levels mean that there is less credit risk than
if the given company is using high debts most of the time hence
outcompeting rivals and gaining the attention of investors.
Therefore, it was mentioned that the Onboard Restaurants company
was very much in a bad shape but has been transformed to be
financially sound or a financially healthy company provided that
certain measures of financial performance control was upheld to
include costs control, assets efficiency and liquidity.
Ratios
Analysis
However, ratio analysis has some limitations that one has to bear
in mind when undertaking a financial analysis of a firm. First,
one can observe ratios Since ratios employ history, they do not
reflect future performance. For instance, perhaps owing to
economic fluctuations, new market environment or new laws the
prior data may not be very helpful in decision making (Kamaluddin,
Ishak, and Mohammed, 2019). Secondly, a comparative analysis must
take place; however, this may not be an easy task very often. The
relative usefulness of the ratios can be possible wherein it is
compared with their industry averages Although some companies can
have industry characteristics which make them not to be comparable
to other companies in the industry such as 7 Seas Onboard
Restaurants. In addition, ratios are powerless to distinguish
intangibles such as customer satisfaction, morale of employees or
market conditions. Some of the above qualitative aspects may
significantly affect the performance of a company over the
long-term but the may not be observed in the ratios of financial
statements (Olayinka, 2022). Another weakness is that inflation
rate and accounting facts and figures influence the assessment
calculation. Many speci?cs change with inertial growth such that
?uctuations caused by in?ation affect the value of historical
?nancial data and make it less meaningful to compare performance
between two different years. Besides, some of the figures in
financial statements such as depreciation or inventory valuation,
may give a different variety in ratios and lead to inconsistency
in analysis. Therefore, to finalise, let us mark the above facts
about one of the most used and effective evaluation methodologies
of the financial performance, namely, the ratio analysis but at
the same time which has some considerable disadvantages. It should
be used together with other fundamental/ quantitative and
qualitative news on a firm to get a clearer insight on the health
of a firm and its future outlook.
Conclusion
Therefore, the concerns on 7 Seas Onboard Restaurants made better
and move forward in terms of the gross profit, operating profit,
and net profit in five years’ analysis. It also came out well in
the aspect of resource utilisation, as inferred by the improved
asset turnover and the ROI of the company. Regarding the liquidity
position, the current ratios as well as the quick ratios has been
above 1 in the later years although there are liabilities which
should require some attention. The risk situation of the company
has been moderate in relation to the company’s debt to equity
ratio, but the fact that the company relies so much on the funds
by borrowing helped remain a worry. The suggested recommendations
include; the company should focus on cost and revenue control
resulting in increased operating profit margins, improvements in
the liquidity ratio to enhance short-term solvency and debts
should be brought under control resulting in decreased long-term
risks. That way, implementation of such strategies will improve
the organizations resiliency and subsequent future growth.
Signature and Date
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