Dictionary of Finance and Investment †Free Samples to Students

Question: Discuss about the Dictionary of Finance and Investment. Answer: Introduction: Abu Dhabi national hotel is one of the most recognizable and renowned hotel in Emirate and has evolved into hospitability business. Company despite the disappointing performance of hotels reported huge amount of profits (Adnh.com 2017). While leveraging synergies between various business divisions of the organization of ADNH, the company confident to build the performable and profitability and thereby increasing the performance. National Corporation for tourism and hotel has witnessed an increase in its performance. Increase in profitability of the organization is attributable to segment of catering and retail services (ncth.com 2017). Ability of company to earn adequate return is judged by ratio analysis. The figures provided by ratio analysis are comparable across industries and across companies. It depicts the financial strength, competitive position and profitability of company, thereby assist investors in making investment decisions. Efficiency of organization in utilizing their assets for generating revenue is evident by figures suggested by ratio analysis. Ratio analysis helps in depicting the level of income that is attributable to shareholders in proportion of investment made by them. Financial leverage of firm and if there exist any discrepancy between return on equity and return on assets is provided by this quantitative tool. Competitive advantage of company in terms of quality, products and branding is depicted by ratio analysis. This tool serve as for metrics for judging the competitive position that assist investors in making investment decisions. Analysis of performance of ADNH (Abu Dhabi National Hotel Company) with its competitor NCT H (National Corporation for Tourism and Hotel)is done using the calculated ratios. For the purpose of analysis, six ratios have been considered. It involves Return on capital employed, operating profit margin, asset turnover, gearing ratio, interest coverage ratio and P/E ratio. Below graph make the comparison between the main company that is ADNH and its competitor NCT H. This organization is dedicated to promoting the travel industry of Abu Dhabi at international and national level. There are for directions followed by hotels and it involves management and acquisition of hotels, catering, traveling and hospitality service. Return on capital employed (ROCE) depicts the efficiency of company in generating profits from its employed capital. A higher ratio is considered as favorable because it indicates that more profits are generated by employment of each dollar in the business. From the above graph, it is evident that ROCE ratio for NCT H is more than ADNH for both the years. The ratio is much higher than ADNH and it is indicative of the fact that NCT H is more efficient in generating profits from its capital employed. When comparing the profits of two companies, it is evident from their annual report that profit before interest and tax of ADNH is higher than NCT H. However, current liabilities for ADNH is comparatively higher than it competitor and it is more in proportion to their profits generated. Operating expense comprising of general and administrative expense of ADNH is much higher compared to its competitor in both the financial year. Although, the total sales generated by NCT H is less as c ompared to ADNH. Operating profit margin ratio (OPMR) indicates the efficiency of company in generating money from its ongoing operations. A higher ratio is considered favorable than lower ratio. In year 2014, operating margin ratio for ADNH is lower compared to NCT H. For year, 2015 the ratio is high compared to ADNH. It indicates that NCT H are better able to pay their interest on debt and bear fixed expenses. Hence, ADNH is less efficient in generating income from its operating activities. There is a fall in operating profit margin ratio of NCT H in FY 2016 and the fall is attributable to high cost of staff rental housing and high cost of electricity and water services. The rise in operating profit margin of ADNH is attributable to three new properties namely Park Hyatt Abu Dhabi hotel, Ritz Carlton hotel and Sofitel JBR are the key growth segments of ADNH. The catering division of group performed well and recorded high growth in net profit. Transport sector also resulted in improved productivi ty along with retail division. A higher turnover ratio indicates that assets of companies are utilized efficiently for generating profits (Grant 2016). Investors are informed about the assets efficiency in producing product and meeting sales. From the above graph, the asset turnover for both the organizations have increased in year 2015 as compared to 2014. Asset turnover ratio for NCT H is much higher compared to ADNH. It is indicative of the fact that ADNH does not efficiently utilize its assets for income generation as compared to NCT H. Financial risk to which the business of organization is subjected to is depicted by gearing ratio. A higher ratio indicates high proportion of debt to equity and lower proportion of debt to equity is represented by lower ratio (Bodie 2013). The gearing ratio of ADNH is lower as compared to NCT H in both the financial year. However, the gearing ratio of ADNH has reduced in year 2015 and on other hand; the rearing ratio of NCT H has increased. Comparing the two companies, it depicts that financial management of ADNH is conservative compared to NCT H. financial strategy of ADNH is conservative and they do not rely on aggressive policy for financing their operations. The purpose of long-term borrowing by NCT H is because of diversification of hotel in all aspect. Such borrowing is also intended to control expenses and providing supplies for development of various other sectors. Gearing ratio of NCT H is weak compared to ADNH and this is because Corporation has obtained loan for deve lopment of Al Dhafra Resort project and Jebel Dhanna. Loan amount will be used for adding twenty-four five star category chalets a three star category hotel room and this is done in addition to integrated staff accommodation. ADNH has strong gearing ratio because of loan facility granted to group under syndicated term loan facility. Financial performance of company has strengthened because of successful negotiation for enhancing the tenor and terms of refinancing facility. The current ratio of ADNH stood at 1.148 and it is more than NHCH as against 1.054 in financial year 2014. However, this ratio increased in year 2015, but it was lower than NCT H. Current ratio of NCT H is quite high at 1.911 as against 1.261. This is indicative of the fact that NCT H is more efficient in utilizing current assets for meeting its short-term obligations. The reason is attributable to that fact that they are not able to clear their inventories into sales. For both financial years, gross profit margin ratio of ADNH is lower than NCT H as clearly depicted in the graph. This indicates that profit margin of competitor is higher than main company. However, total sales of ADNH is much higher than NCT H, but they are not able generate profits out of it as compared to higher sales margin of its competitor. This particular ratio depicts the ability of companies to make timely service its debt. Interest coverage ratio is of particular interest to investors, as it shows whether the company will be able to meet its debt obligations regarding interest payment (Downes and Goodman 2014). Ratio for both the companies is above industry standards. Ratio for ADNH increased in the financial year 2015 and the increase was more than NCT H. Interest coverage ratio of NCT H is higher than that of ADNH. NCT H is much more efficient and capable in meeting its interest obligations. However, the probability of defaulting on interest payment by ADNH has decreased in year 2015, it remained low than its competitor. This ratio is used by investors for evaluating the fair value of stock of companies and to make prediction about future earnings per share. Higher earnings of the companies depicts higher dividend payment and lower ratio indicates the poor performance of companies (Dechow et al. 2014). Valuation of stock of company is better valued if the price earnings ratio is high and lower ratio makes lower valuation of stock. Since not all things are held constant, it is not possible to compare the ratio of the companies. However, comparison can be made on general basis; the price earnings ratio of ADNH is lower compared to NCT H. However, the ratio has fallen in the financial year 2015. This indicates that the performance of company ADH has reduced and this is indicated by lower price of share. On the other hand, price earnings ratio of NCT H has increased by significant amount in financial year 2015. It is indicated by a high jump in price of shares. NCT H has been performing well in the 20 15 financial year. In Financial year 2016, ADNH had declared dividend payment of AED 100 million and that is equivalent to 10% of nominal value of issues share capital. A cash dividend of AED 0.07 per share and AED 0.05 per share was declared to shareholders in year 2016 and 2015. On other hand, NCT H declared a dividend payment of AED 0.25 per share in year 2015 as compared to AED 0.05 in year in 2014. Total amount of dividend paid to shareholder in 2014 by NCT H stood at AED 115865271. The operating segment of ADNH is managed separately according to services and product provided. A strategic operating unit is presented by each segment and there are four operating segment. Segment is divided into transportation services, retail, hotel and holding and their performance is measured based on reported loss or profit. Profit generated for hotel operating segment has fallen and that of transport and holdings have increased in year 2015. Operating segment of NHC H is comprised of hotel catering service, retail service and holding. For the purpose of making decision about performance management and allocation of resources, operating results of business units are managed separately. There is only one geographical segment of company. The line item of operating segment that is hotel has grown in recent year as the operating margin from this segment has increased. The operating policy of NCT H and ADNH is done by making investment is associates and joint venture and they intend to control their operating expenses by generating more sales. However, ADH lags behind NCT H in making sales. The reason is attributable to the exact that Competitor Company that is NCT H is more efficient in utilizing its assets for generating revenue and moreover, the operating expense is much lower than ADNH. Conclusion: From the above analysis of short-term capability of organization using the ratio analysis, it is evident that the performance of NCT H is better than its competitor ADNH. The ratios have been calculated for two financial years focusing on six ratios presented above. When looking at all ratios, the main company performance is far beyond its competitor. The efficiency of the competitor company is higher than main company. They are better in utilizing their employed capital, assets for generating revenue and thereby profits. Moreover, the operating expense of NCT H is much lower as compared to ADNH in proportion to their sales. This has resulted in higher profit generation of Competitor Company. A company is able to command higher price in market if its share are considered value, which is depicted by its rising share price. Financial year 2015 witnessed a huge jump in share price of NCT H. Reference: Adnh.com. (2017).Abu Dhabi National Hotels - Hotels, Catering, Transport, Tours.. [online] Available at: https://www.adnh.com/ [Accessed 2 May 2017]. Bodie, Z., 2013.Investments. McGraw-Hill. Dechow, P.M., Sloan, R.G. and Zha, J., 2014. Stock prices and earnings: A history of research.Annu. Rev. Financ. Econ.,6(1), pp.343-363. Downes, J. and Goodman, J., 2014.Dictionary of finance and investment terms. Barron's educational series. Global, T. (2017).Abu Dhabi Travel- Best Abu Dhabi Hotel Resorts- National Corporation for Tourism Hotels. [online] Ncth.com. Available at: https://www.ncth.com/ [Accessed 2 May 2017]. Grant, R.M., 2016.Contemporary strategy analysis: Text and cases edition. John Wiley Sons. Harper, D., 2016. Accounting Financial Statements Analysis. Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014.Financial Accounting: a user perspective. Wiley Global Education. Wahlen, J., Baginski, S. and Bradshaw, M., 2014.Financial reporting, financial statement analysis and valuation. Nelson Education.