City Lodge Financial Analysis

General Management Environment MBA GENV01-8

SECTION B (40 MARKS) GROUP ASSIGNMENT

Question 3 (15 marks)

Conduct an assessment of the company’s financial performance, including trends, a description of its key performance from both the management and shareholder perspective, sources and application of funding and salient aspects of their cash flow. Base your analysis on five key financial ratios.

Highlight any noteworthy aspects in the notes and Directors reports that should be further considered.

Financial assessment based on the 2012 audited annual income statement of City Lodge

(All figures are reported in millions)

Revenue increased from R790.2 in 2011 to R875.8 in 2012 this equated to a 10.8% growth in comparison with 5.5% in 2011 and 12.6% in 2010 – the reason for the growth in 2012 was due to increase of occupancy from 56% to 59%, increase of the room rates was in line with inflation. This shows a positive on-going growth of an average of close to 10% per annum.

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Gross profit increased from R389.3 in 2011 to R431.0 in 2012 this equates to a 10.7% growth in comparison to a negative growth of -11.3% in 2011 and 6.1% in 2010. The decrease in 2011 was due to a 29.3% growth in cost of goods sold.

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Gross profit have been declining rapidly over the last couple of years, from 62.2% in 2009 to 58.6% in 2010 to 49.3% on 2011 to an ultimate low of 49.2% - it is our assumption that it is stabilising around the forties. The reason for the decrease is due to high cost of sales growth in comparison to a lower sales growth, this was influenced by the fact that they took the decision to not increase rates on 1 August 2011 and 2012 increase was in line with inflation.

Operating expenses have been stable for the last couple of years at an average of around 16% as a percentage of sales.

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Operating and net income as a percentage of sales have been declining over the last couple of years. All due...