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FOR300 - Assignment 2

Benjamin Carroll19014

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Part B

At first glance the purchase of this second hotel is seen to be a risky venture, even

though the hotel has been seen to be marginally improving from previous years, it is

still operating at a loss over the given period, as viewable in operating income where

the current year records a $6,000 loss in comparison to a $57,000 loss in the

previous year.

In comparison with the hotel the potential buyer currently owns, the high capacity

months of January and February present the opportunity for high profit gain,

although the Profit and Loss Statement for Harbour View Hotel for Calendar Year

2012 indicates a higher rate of spending particularly in Sales and Marketing but also

across the board, thus recording losses for the current year.

Although the business expected higher costs of goods sold then was obtained, these

costs are still exceeding levels of that of the previous year, thus indicating the

business itself was defensively forecasting, suggesting the expectation of potential

negative growth.

These small losses recorded by the business could suggest a period where the

business has implemented strategies for growth. However this cannot be proven,

leaving it only an assumption.

Lower revenue in the expected high capacity months of January and February, even

though there is a clear increase in spending on sales and marketing, leads to overall

losses in months where yields should be higher.

Cash inflows indicate higher losses to the previous year. Referring to the

aforementioned action in regards to the reduction of costs, the business should

expect growth.

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Through a comparison of revenue and COGS, a recommendation could be made toleave COGS unchanged and focus on improving the numbers for sales and marketing.

This is because while these costs appear to be marginally smaller they do indeed

prove to be elementary in overall costs of the company.

A higher labor cost in comparison to previous year indicates an increase in the

number of staff. This can be justified, as there is a recorded increase in revenue

indicating more customers as well as expectations for higher yield. To further the

profitability of this section and the business as a whole a recommendation could be

made to lay off staff in the quieter months.

A steady increase in the value of inventory suggests a rise in property value.

Through the above points mentioned, a recommendation is made to purchase the

hotel and endure minimal losses for the first few years of ownership, to eventually

acquire large returns.