Business Finance: A Case Study on 7 Seas Onboard Restaurants

Module 6

Fundamentals of Business Finance

Cohort: Jan 23 – Level 4

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Subject: Business Finance

Introduction:

The focus of this case study is 7 Seas Onboard Restaurants, which is a buffet restaurant that is associated with the main European ferry facility DFDS Seaways. As it is recognized for its wide eating possibilities, it delivers companies with diverse options, from travellers to family customers, and serves infinite dishes that increase their journeys on the ferry. By way of ratio analysis as per a structure, this report will evaluate the financial performance of the restaurant, especially the effect of important measures, for example, profitability, liquidity, and efficiency of the company.

Financial Information

Well, decision-making of the finance business is contingent significantly on financial information, which supplies an understanding of the prominence of the company by way of income statements, statements of financial position, and cash flow statements of the business (BDC.ca, 2021). The data gives to cost management, budget planning and investment selections by way of a result, improves both operational effectiveness and the sustainability of ways with DFDS Seaways.

Motives of the Stakeholders for Financial Information

HMRC Government:

They are seeking 7Seas Restaurants’ financial information by way of it mostly discusses taxation drives. HMRC is required to precise financial information about the business to calculate the taxpayer’s taxable income, making sure for compliance by the company on the subject of its tax regulations and estimating correct tax liabilities (Gov.UK, 2019). Along with this, HMRC uses financial information intending to control the financial goings-on of the company to eliminate the likelihood of fraud or evasion.

DFDS Seaways:

DFDS Seaways are the prospective partners or agents who may demand financial data from 7Seas Restaurants to measure the financial solidness and financial performance of the business (DFDS A/S, 2023). It would concentrate on identifying the liquidity, growth forecasts and profitability of the restaurant to assess its feasibility and risks related to the firm.

Suppliers for Raw Material:

To assess the ability of the business to pay for its raw materials, foods and services, suppliers depend on the financial information of the business (POLISH DISTRIBUTOR OF RAW MATERIALS, 2021). The enlarged faith of suppliers in the rapid payment of their bills rises from the dependable cash flow and liquidity ratios of the business, which keep a better business relationship with suppliers.

Potential Investors:

Investors of the company view the profitability of the business combined with the potential for the business’s growth and how it discourses such related risk. The ROE and ROI ratios precisely disclose how accomplished the business is in the usage of shareholder capital together with forecasts for future yields (Foodstars, 2019).

Banks and Financial Institutions (FI):

Banks and financial institutions (FI) are requisite for financial information of 7Seas Restaurants to assess prosperity and measure the privilege for loans, credit lines or other financial amenities of the business. It scrutinizes financial information to define the capability of the restaurant for its payment of the amount outstanding, management of well cash flow and alleviation of financial risks in the business (Bankofengland.co.uk, 2020).

Purpose of Financial Information

The major function of the financial information of the business is to permit knowledgeable decision-making in the company. Financial data are valued for better decision-making leaders for the reason that they upkeep assessments of their performance and focus on areas for growth and relief in strategic decisions on cost-efficiency or future growth of the business (accaglobal, 2024).

Along with a planning outlook, financial information helps 7 Seas Onboard Restaurants fix achievable aims and budgets. These financial data advise that management can match working needs to assets, which in sequence help to permit the company to participate fit and retain profitability through many DFDS Seaways ways (accaglobal, 2024).

The purpose of the financial information of the business matches the motivations of stakeholders. Defined financial information makes certain that a business is obeying government guidelines, strengthens supplier relations by exemplifying liquidity performances, and declares to investors and banks the financial stability of the business (accaglobal, 2024). Controlling financial management and reporting are essential for attaining persistent victory and touching a business onward for the long term purpose.

Characteristics of good Financial Information

Understand ability: Financial reports of the business need to be accessible justifiably, as they contain clear definitions for terminology and information. It helps to permit supervisors and dealers who have non-financial parts, for example, DFDS Seaways supervisors or suppliers, to understand the financial data and make significant business decisions (CFI, 2023).

Relevance: A business’s financial data needs to be significant to well-versed decision-making, backing investors in performance appraisal, risk identification, and the predicting future financial health of the company. The operative decisions at 7 Seas On-board Restaurants are prejudiced by the financial information on profitability and outlays (CFI, 2023).

Reliability: To improve trust with shareholders it is essential to have comprehensive and provable financial information. Dependable information inspires confidence in shareholders, banks, and dealers about the reporting of the company. All through the inspected financial years, the financial statements of 7 Seas must signify its sales revenues, expenditures, and income.

Accuracy: Accurate financial information settles that stakeholders need the data for healthier decision-making and aid to allow them to assess the financial health and performance of 7Seas Restaurants more precisely (CFI, 2023).

Ratios Analysis- 7 Seas Onboard Restaurants

Calculation of Ratios

7 Seas Onboard Restaurants Ltd.’s financial performances for 5 accounting year period (years 2019 to 2023) can be examined by way of liquidity, efficiency, default risk ratios and profitability. These pointers deliver critical visions regarding the financial health and operational effectiveness of the company.

Profitability Ratios

Includes Return on Assets (ROA), Return on Equity (ROE), Operating Profit Margin, and Gross and Net Profit Margin, reflecting the capacity of the company to produce profits with its assets or sales (ClearTax, 2018).

Return on Equity (ROE): Measures the ability of the company to generate profit by shareholders' equity. The ROE of the business vacillated knowingly, beating a low of -10.10% in the year 2020, and improving to 10.36% by the year 2023. It suggests operative challenges in the year 2020, but a noteworthy recovery in profitability by the year 2023.

Return on Assets (ROA): Signposts efficiently of the company to generate good profit by using its assets. Subsequently, a decline in the year 2020 was -0.04%, and ROA upgraded little by little to 0.92% by the year 2023. The adverse number in the year 2020 indicates asset disorganizations through that year, but the rising trend displays a renewal in the asset efficiency of the company (CFI, 2024).

Operating Profit Margin: This profitability ratio fell to an undesirable in the year 2020 at -14.78% but mounted remarkably to 56.21% by the year 2023. Such variations disclose that operational effectiveness fell through the year 2020, but deliberate progress or retrieval led to a healthy margin in the year 2023 (CFI, 2024).

Gross Profit Margin: This profitability ratio shows how much revenue surpasses the cost of goods sold (COGS). Its better quality from negative values that is -9.05% in the year 2019 and -14.78% in the year 2020 to positive ones are 54.31% in the year 2021, 62.19% in the year 2022, and 56.21% in the year 2023). The adverse margins in 2019 and 2020 designate struggles with production expenditures, nonetheless, the significant upgrading in the subsequent years suggests well cost management and pricing policies (CFI, 2024).

Profit Margin: Like other profitability ratios, the net profit margin showed a severe decline in the year 2020 which is -43.97% before improving to 23.70% in the year 2023. it indicates that while the business faced problems upholding profitability throughout the disaster years, it successfully returned its profitability by the end of the year.

Efficiency Ratios

Including Asset Turnover replicates the ability of the company to use its assets to produce sales revenue (CFI, 2024).

Asset Turnover: evaluate the ability of the company to make sales from its assets. The ratio reduced from the year 2020 (0.05) to the year 2021 (0.06), as it indicates a go-slow in sales to asset size, which might propose disorganizations in asset use. On the other hand, the slight rising movement from the year 2021 to the year 2023 proposes modest expansions in effectiveness by way of regular business circumstances (The Economic Times, 2024).

Liquidity Ratios

Including the Current ratio and Quick Ratio measures the ability of the company to meet short-term requirements. Greater ratios propose well liquidity and inferior default risk (CFI, 2024).

Current Ratio: Displays the ability of the company to pay its current liabilities by current assets. This ratio continued exceeding 1 through the years, getting 1.63 in the year 2023, as it motioned that the company had passable liquidity to come across with its short-term debts through the period (CFI, 2024).

Quick Ratio: A more severe measure of liquidity ratio as it excludes inventories, this also continued healthy, beyond 1 throughout the period and climaxing at 1.63 in the year 2023. This designates the improved liquidity position of the business in current years (Novuna, 2024).

Default Risk Ratios

Including the Debt Ratio and Equity Ratio, replicates the financial leverage of the company and ability to encounter long-term debts (CFI, 2024).

Debt Ratio: The debt ratio of the business remained stable between 0.43 and 0.50 during the period, as it suggests that the company preserved a fairly conventional level of debt financing (Nasdaq.com, 2021).

Equity Ratio: it indicates the share of assets supported by shareholders' equity of the company. This ratio reached from 0.49 in the year 019 to 0.56 in the year 2023, as it demonstrated a regular increase in equity financing, suggesting that the company has been plummeting its dependence on debt over equity (CFI, 2024).

Conclusion

The examination of financial ratios shows that 7 Seas Onboard Restaurants Ltd met substantial challenges in the year 2020, likely because of external factors for example the pandemic, as designated by sharp failures in profitability and operational effectiveness. On the other hand, from the year 2021 onwards, the company established a vigorous recovery through all financial sizes. The profitability ratios of the company improved meaningfully, liquidity continued healthy, and debt levels were reserved steadily.

This improvement in the financial performance of the company proposes active management policies that restore profitability and operational effectiveness, putting the company thriving for future growth while upholding a traditional financial risk outline.

Limitation of the Ratios Analysis

Effect of financial statements: The financial ratio of the business examines rendering to financial data of the company that is defined by the business in financial statements of an organization (Arora, 2021). This financial data may be operated by the management of the company to report an enhanced result as likened to its definite financial performance of the business. Therefore, a financial ratio study may not appropriately lead to a particular nature, as the fabrication of financial data is not seen in place of modest analysis (Arora, 2021).

Changed Accounting Policies: Unlike accounting methods amongst companies can create differences in financial reporting of the company that adversely disturbs the fairness of ratios. Distinct inventory valuation methods or depreciation are accomplished by creating decidedly dissimilar profit margin ratios and asset turnover ratios, which confuses the task of creating accurate comparisons (Wallstreetmojo, 2024).

Past Data Limitations: The procedure is extremely dependent on the preceding financial past, which may not precisely demonstrate the financial condition presently or forecasts for the future. Market circumstances, the preferences of customers, and surprising actions can source vicissitudes that decrease the prominence of earlier performance as stated (Arora, 2021).

Operative differences: A company may expressively modify its working configuration, irrespective of its supply chain method to the product that is selling in the marketplace. When considerable operational differences chance, the assessment of financial procedures of the business before and after the working dissimilarity may reproduce confused choices regarding the performance and forecasts (GeeksforGeeks, 2023).

Conclusion

In brief, 7 Seas Onboard Restaurants displays that their organization is operative; however, they practice for solid profitability and liquidity position. From the financial ratios of the business's gross profit, operating profit, and net profit, it is clear that it is an expert in the management of expenses and making greater profits. Confirmation from ROI and ROE displays that the restaurant is making from employed investments with equity and generating returns that must to safe cheerfulness for its investors of the company.

The asset turnover ratio helps to reveal possible areas aimed at development, by allowing the business to upsurge its efficiency of asset usage for the generation of sales. Undertaking this issue might improve profitability other than operational efficiency.

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