7 Seas Onboard Restaurants Case Study

The purpose of this report is to analyze and review the 7 Seas Onboard Restaurants' business operations for the last five years. Hence with regard to the income statement and statement of financial position, the goals of the report are to give current/future profitability, the financial fitness to meet the current and future obligations, and the capability to meet current and future liability commitments. Earnings statements for example are contained in the managerial account because they provide information concerning the position of the business. This case study will be feasible dollars to strongly evaluate the company’s operations’ effectiveness, discover opportunities for enlargement, and recommend future strategies. The report shall also review the use of financial information across stated interested parties of the company.

Financial Information

The financial information of the business is important for different users who have different reasons for its use. The new concept of 7 Seas Onboard Restaurants working under the Company offers the visitors good food providers based on the ship’s buffet style which has facilities to offer several cooked vegetables, seafood, traditional meats, salads, and pastries. It provides its services for both tourists and families have set its service at ‘buffet style’ which includes children's favourite dishes. The business operation focuses on improving customers’ experience during ferry travels along with accrual profitability depending on the cost management and diversification of the fleet menu and having regard to the customer’s preferences for the selected routes while acting as a member of one of the key European ferry providers.

Motives of the Stakeholders for Financial Information

Government (HMRC)

HMRC is the government body that applies financial data to enforce laws on taxation and to compute the company’s obligation to taxes, corporation tax, and value-added taxes (Ramgulam and Bourton, 2021, p.96). To avoid underreporting or tax evasion, accurate records help the government set the right taxes that ought to be levied.

DFDS Seaways

Being the ferry operator and the company, which has hired 7 Seas Onboard Restaurants, DFDS Seaways comes to the point of interest in terms of the restaurant’s revenue, net income, and any other financial measures which indicate the company’s performance. The key profit and loss indicator is carefully evaluated to understand how the onboard restaurants are benefiting the passengers and the company’s strategic plan. The financial position of the restaurants also determines the nature of their relationship with DFDS Seaways.

Suppliers of Raw Materials

Purchasers rely on the solvency of 7 Seas for the timeliness of payments to the suppliers or credit terms offered to these suppliers. Liquidity ratios and other financial ratios are very essential to the suppliers for evaluating the capacity of the firm to pay the amounts on a consistent basis (Effiong and Ejabu, 2020). This minimises the chances of the payment being delayed or even defaulting.

Potential Investors

They want to know how much the company earns, what actual and possible ROI is, and its prospects. Annual reports contain performance information that allows investors to decide whether 7 Seas is a stable business worth their investment (Michelon et al., 2020).

Banks and Financial Institutions

Borrowers analyze the data with the purpose of defining creditworthiness and possible risks connected with the credit. Debt ratio, current ratio and return on equity (ROE) reveal the company’s performance in managing its debt portfolio and determine its creditworthiness to banks regarding loans and the terms including the interest rate (Ferretti, 2021).

Purpose of Financial Information

Financial information is very important because it provides accurate, reliable and relevant information necessary for various purposes required by the different users including the government, business, investors, suppliers, and other financial establishments (Abdulshakour, 2020). To a stakeholder such as the government through HMRC, financial information serves to enable it to adhere to the tax laws, facilitate the overseeing of corporate activities and aid in the prediction of policies within the economy. 7 Seas Onboard Restaurants can minimize the chances of facing legal implications or penalties, failing in which businesses miss the required regulatory responsibility such as tax obligations.

Specifically for a company like DFDS Seaways, which is a parent company, the financial information plays a significant role in controlling the operations. The improved quality of financial reports provides an opportunity for DFDS to monitor the restaurant’s efficiency, evaluate the potential of the company’s income-generating activities on board, and plan investments’ further expansion (PHORNLAPHATRACHAKORN and NA, 2021). This means that the preparation of accurate, relevant and comparable financial information enables the firm – in this case DFDS – to make good evaluations about whether a particular business route should be continued or not as well as changes that should be made to operating practices.

Characteristics of Good Financial Information

7 Seas Restaurants rely on suppliers of raw materials such as Seafood that require financial security guarantees for payments within the long-term business contract. Accuracy of the financial information creates confidence in the Firm’s liquidity position, Solvency and payment history (Blessing and Sakouvogui, 2023, pp.102-115). Suppliers are especially concerned with liquidity ratios and gross-profit-to-net-sales ratios to judge whether they will receive their money on time.

7 Seas Restaurants has its potential investors motivated by the company’s profitability and growth orientation. By so doing they are able to obtain important information in their financial reports such as return on equity and assets turnover ratio to assess the feasibility of their investments (Olayinka, 2022, pp. 49-66). Accurate economic data can stimulate interest in the company’s activities and increase investment due to its good prospects and financial management.

To the tenets of banks and other financial institutions, financial information is vital concerning lending facilities and finances to 7 Seas Restaurants. Debt ratios such as the debt-to-equity ratio, current ratio and quick ratio inform the banks whether the company will withstand to discharge of its short-term or long-term liabilities (Choudhry, 2022). Lenders or providers of credit expect the data they receive to be clear, consistent with the previous data, and complete because incomplete data increases risk.

Accuracy is another attribute of good financial information because this information should not have distortions and a biased perspective. They have to be relevant to the needs of the stakeholders in order to offer information that would be required for making certain decisions (Fridson and Alvarez, 2022). Second, it should be usable for relative purposes and should be steady across various time points and from company to company. Last but not least, good financial information must also be relevant as it simplifies the information report to avoid misleading the users.

In meeting these characteristics, financial information caters for the various motives of the stakeholders and increases the overall confidence of the stakeholders in the firm’s financial health and future prospects.

Ratios Analysis

By looking at the average of the actual numbers for 7 Seas Onboard Restaurants, the level of financial ratios shows more information about the firm’s financial position for the years 2019 to 2023. These ratios help to compare the company’s profitability, efficiency, liquidity, as well as possible defaults.

Gross Profit Ratio

The gross profit ratio is a business profitability formula used to determine the proportion of the cost of sales in total revenue (Nariswari and Nugraha, 2020). While the ratio was volatile over the five-year period, 7 Seas’ gross profit ratio was generally on the rise from 36% in the year ended December 2019 to 43% in the year ended December 2023. This makes the cost to be controlled better and increases the probability of profitability.

Operating Profit Ratio

The operating Profit Ratio shows how much profit has been generated after all costs of operations have been incurred (RAJINDRA et al., 2021, pp. 109-115). This ratio remained fairly stable and rose from -7% for 2019 to 14% for 2023. A transition from operating loss back to a positive ratio of the operating cost reveals efficiency on the part of the firm in managing its cost.

Net Profit Ratio

The net profit ratio is the last profit position taken from the total turnover (Hag and Firmansyah, 2024). Growth from -3 per cent in 2019 to 20 per cent in 2023 could be considered to show a more favourable profitability status in general. This points to a good control of all operating and non-operating costs for this period.

Return on Investment

Return on Investment (ROI) measures the capability of the company to obtain returns on its total investment (Rangkuti et al., 2020). ROI increased continuously improving from -1% in 2019 and reaching 10 % in 2023 which depicted that the corporation has enhanced the usability of assets to accomplish gross within enhanced proficiency.

Return on Equity

Return on Equity (ROE) shows the ability of an organisation to generate revenue for every dollar of shareholders’ equity (Sulistyanie and Sumantri, 2020). This increased from (-2%) in 2019 to 16% in 2023 to demonstrate a better position of shareholders’ returns in the period under analysis.

Assets Turnover Ratio

Asset Turnover Ratio reveals the utilisation of assets for producing the total sale value by the company. Results here show a slight increase in the operational efficiency from 0.38 in 2019 to 0.45 in 2023 hence revealing a little improvement.

Current Ratio

The Current Ratio gives details of how well a company meets its short-term obligations with the help of its short-term resources. The current ratio improved from 0.53 in 2019, to 1.00 in 2023 thus displaying a stronger ability to pay the current obligation during the period.

Quick Ratio

Because the Quick Ratio shows the company’s liquidity without the use of Inventory to support current liabilities. It has increased from 0.33 in 2019 to 0.79 in 2023 showing a good sign of managing the liquidity position of a business.

Equity Ratio

Equity Ratio gives the percentage of assets funded by the equity. Resources, Total Equity and Total Assets are used in this ratio. The equity ratio fluctuated around 30% for the five years and hence the company has been sustaining the correct capital structure.

Debt Ratio

Debt Ratio indicates a ratio of debt used for the acquisition of assets. It fell also slightly from 69% in 2019 to 65% in 2023, which suggests somewhat lesser financial risks and more dependence on debts.

Therefore, specific objectives for 7 Seas Onboard Restaurants were met as total assets, profitability, efficiency and liquidity increased over the five-year period with declining financial risks.

Limitations of Ratio Analysis

Despite the fact that ratio Analysis is a strong indicator of the health of a business’s financials, the method comes with some limitations and disconstraints that need to be taken into account. First, for instance, ratios are historical in nature and therefore may not capture the current or future position of the business or the current market position. Fluctuations in the economy, changes in consumer trends, or immediate changes in the price of products and prevailing market prices make ratios for the year irrelevant when planning for the future.

Second, various standards of accounting procedures of different firms distort the presentation. For example, differences in the approach adopted for stock appreciation (LIFO or FIFO), or depreciation, would cause variations in the figures and hence render benchmarking to other businesses less meaningful.

Third, ratio analysis tends to disregard non-financial factors including changes in the managerial team, technological advancement or competition among firms, something that can greatly distort and firm’s performance as compared to other firms but is not reflected in the financial ratios. The problem with this approach is that it gives a very limited and perhaps, even distorted view of the company’s state.

Also, Cross explained that ratios can be influenced by, or, indeed, are prone to being influenced by, acts of fraud: Created through manipulations of accounting standards and policies or through other creative accounting practices. A company’s Management might decide to scale down its expenditures or choose not to recognize some of its revenues in order to achieve better ratios and hence give a distorted view of the real financial position.

Second, as mentioned earlier, ratios only give information about the organization at a certain time. They cannot be used by still presenting fluctuating data changes, and these factors include season changes or the change in the growth rate of the economy.

Finally, ratio analysis can be made valid by using industry standards for comparison in most cases. Without these benchmarks, it becomes almost impossible to tell whether a certain company is performing well or poorly.

Conclusion

Based on the financial performance of 7 Seas Onboard Restaurants the company’s profitability, efficiency, liquidity and levels of financial risk have improved in the period of five years. Gross profit, net profit and return on equity ratios were up, suggesting improved operational and cost Controls of the company and its financial structure. The company enhanced its capacity to pay near-term claims as evident from the current and quick ratios. Nevertheless, there is still the use of debt financing even though it has slightly reduced in its use. In this regard, the following practical recommendation can be made for 7 Seas to move to the next phase of strategic development: Finally, efforts to include qualitative measures in the financial evaluations will increase the understanding of the company’s future prospects.

References

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Case Study Report: Fundamentals of Business Finance - A Case Study on 7 Seas Onboard Restaurants

Contents

Introduction