Essay on Five-Star Hospitality & Cash Flow: The Royals Hotel, Atlanta, Georgia

The Royals is a five stars hotel located in Atlanta, Georgia. The luxury destination offers all aspects of hospitalities, including wedding, anniversaries, and private meetings spaces. Our website helps us accept advanced bookings. We also work with event organizers and promoters to sell their tickets and book spaces.

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Cash flow statements contain three sections, which include operating, investing, and financing activities (CFI, 2018). Operating cash flows are associated with purchases, sales, and various expenses. Some of the items to consider include depreciation, amortization, impairment expenses, change in working capital, and change in the provision, interest tax, and tax. Investing cash flows are associated with cash from buying and selling plants, equipment, property, financial assets, and non-current assets. Financing cash flow is related to changes in the composition and size of entity borrowings and equity capital.

To prepare the cash flow statement, I can use the direct or indirect method. While the businesses prefer the indirect method, the Financial Accounting Standards Board (FASB) prefer the direct approach. However, the two ways bring the same results.

Horizontal analysis, also known as trendy analysis entails comparing a line item, benchmark, or financial ratio over several accounting periods. It allows assessment of various changes in different things over time ("Cash flow," 2017). Besides, the method reveals the behavior of line items like expenses and revenues. In vertical analysis, each line item is placed as a percentage of a base figure. Therefore, each line item can be indicated as a percentage of gross income in an income statement while the balance sheet is stated as a percentage of liabilities and assets. On the other hand, vertical analysis of cash flow shows each outflow and inflows as the percentage of the total cash flow. Vertical analysis is more relevant to the business owner because it makes it easy to compare the financial statements of various companies within the industry. This is so because one can access the relative proportions of balances of the accounts. It is also possible to compare the performance of a firm based on quarterly and yearly analysis to determine whether a business is deteriorating or going up.

The following methods are used to calculate working capital, acid-test ratio, and current ratio.

Working capital = current assets - current liabilities

Acid-test ratio = (Cash + cash equivalents+ marketable securities +current accounts or receivables)/ total current liabilities.

Current ratio = current assets/ current liabilities

The creditors or banks look at the above ratios to determine the ability of the debtor to pay back their current debts without relying on external sources ("Study," 2014). Working capital, acid-test ratio, and current ratio are important to monitor because of they the potentials or vulnerability of business. These show the ability of the firm to pay its debts and its security to keep functioning. Current ratios show the stability of the company in the short term. It is always calculated to determine the ability to pay short term loans and taking care of emergencies. These ratios indicate the ability of a business to convert the assets to cash easily. The ratios are most useful when comparing different firms within an industry. Their comparison analysis can be done externally or internally. When investors want to know the company to invest in, they will look at their liquidity ratios from a different period.

References

Cash flow statement, a vertical analysis and horizontal analysis. (2017, September 4). Retrieved from https://www.slideshare.net/BradParkly/cash-flow-statement-a-vertical-analysis-and-horizontal-analysis-79407361

CFI. (2018, December 26). Statement of Cash Flows - How to Prepare Cash Flow Statements. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/accounting/statement-of-cash-flows/

Study: Liquidity Ratios: Quick Ratio, Working Capital, Cash Conversion Cycle: Intro to Accounting. (2014). Retrieved from https://learn.canvas.net/courses/37/pages/study-liquidity-ratios-quick-ratio-working-capital-cash-conversion-cycle