KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT

Ratio Analysis of TAJGVK

Hotels and Resort
Financial Decisions

Submitted To:
Asst Prof Sabin Bikram Pant

Submitted By: Group 4

Kawish Shrestha
Sabnam Maharjan
Sudip Giri
Teresa Bista

Introduction

TAJGVK Hotels & Resorts Limited (TAJGVK) is a joint venture, formed through a Strategic
Alliance, between the Indian Hotels Company Limited (IHCL) and the Hyderabad based GVK
Group in the year 1999/00. GVK Group is a Hyderabad based multi-product and multi-location
business conglomerate with several integrated companies in India and abroad. IHCL is a TATA
enterprise with a chain of hotels owning the Taj Group of Hotels and manages and operates various
hotels across the country and abroad. The Company owns & operates three five star hotels in
Hyderabad and one five star hotel each in the cities of Chennai and Chandigarh.

Ratio Analysis
The financial analysis, planning and decision making is done on the basis of financial statement.
These financial statement depicts the profit and loss, operating activities and position of a company
at a particular point of time. However these statements dont reflect all necessary information
required for financial analysis and planning. So in order to understand why a company is
performing the way it is and to forecast where it is heading, it is necessary to analyze the data
depicted in the financial statement. The financial manager uses certain analytical tools which help
in analysis of such data.
Ratio Analysis is one among such analytical tools that expresses the relationship between two
individual figures or group of figures selected from financial statements in mathematical terms. It
is a technique useful to measure, compare and evaluate various aspects of a companys operating
and financial performance such as its efficiency, liquidity, profitability and solvency. Ratio

analysis is based on the fact that a single accounting figure by itself may not communicate any
meaningful information but when expressed as a relative to some other figure, it may definitely
provide some significant information. It is not just comparing different numbers from the balance
sheet, income statement and cash flow statement but it is comparing figures against previous years,
other companies and industry of same business for the purpose of financial analysis.
With the help of financial ratios, all the stakeholders can draw conclusions regarding past, present
and future performance of a company by analyzing its strength and weakness. There are different
categories of financial ratios which assist in making financial decisions. For example, liquidity
ratio indicates ability of a business to pay its short term liabilities; leverage ratios measure the long
term stability and structure of a firm, activity ratio evaluates the efficiency with which the firm
manages and utilizes its assets etc. Some other key financial ratios are discussed below.

Ratio Analysis of TAJGVK Hotels and Resort

1. Liquidity Ratios
Liquidity ratios provide information about a firm's ability to meet its short-term financial
obligations. They are of particular interest to those extending short-term credit to the firm. Two
frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio.

a. Current Ratio
Concept
The current ratio is a liquidity ratio that measures a company's ability to pay shortterm obligations. The current ratio is the ratio of current assets to current liabilities:

Current Ratio (CR) = Current Assets / Current Liabilities

The higher the current ratio, the more capable the company is of paying its obligations, as
it has a larger proportion of asset value relative to the value of its liabilities. A ratio under
1 indicates that a companys liabilities are greater than its assets and suggests that the
company in question would be unable to pay off its obligations if they came due at that
point. However, it is not always the case that CR below 1 is bad. With the expectation of
getting higher returns in the future, if debt is borrowed today, then current years CR can
be below 1, but still the company is doing well.

Analysis
Year

Current Assets(CA)

Current Liabilities(CL)

CR

2012-13

3984.83

9473.71

0.42

2013-14

4324.96

8739.06

0.49

2014-15

3279.46

6643.73

0.49

In the year 2012-13 the current ratio was 0.42. Then in 2013-14, we can see current assets
increased slightly and current liabilities dropped slightly which made the current ratio to
be 0.49. Then, in 2014-15, the current assets and current liabilities both dropped down by

same proportion resulting in constant current ratio of 0.49. The reason behind decrease in
CL is payment of secured short term loans payable on demand from bank, and payment of
current maturities.

In the case of TAJGVK, the company is decreasing its current liabilities in order to increase
its current ratio. The lenders need not be worried as the current ratio may be below an ideal,
but the lenders are being paid which in turn has increased the current ratio as well. The
focus is now on long term loans for investment.

b. Quick Ratio/ Acid-Test Ratio

Concept
Quick ratio is a liquidity indicator that further refines the current ratio by measuring the
amount of the most liquid current assets there are to cover current liabilities i.e. quick ratio
is more conservative than current ratio. The quick ratio is an alternative measure of
liquidity that does not include inventory in the current assets. The quick ratio is defined as
follows:

Quick Ratio (QR) = (Current Assets- Inventory) / Current Liabilities

Analysis
Year

Quick Assets

Current Liabilities

QR

2012-13

3095.82

9473.71

0.32

2013-14

3260.06

8739.06

0.37

2014-15

2338.2

6643.73

0.35

In the above table we can see that the quick assets in the year 2012-13 was 3095.82 crores
which made quick ratio to be 0.32. But in 2013-14, the quick asset rose slightly to 3260.06
and again declined by 921.86. On the contrary, CL has been declining slowly resulting in
the QR to be 0.32 to 0.37 to 0.35 in the year 2012-13, 2013-14 and 2014-15 respectively.
Many lenders are interested in this ratio because it does not include inventory, which may
or may not be easily converted into cash. From the business point of view, higher quick
ratio is needed when the company has difficulty borrowing on short-term notes. But
if quick ratio is higher, company may keep too much cash on hand or have a problem
collecting its accounts receivable. Therefore, to maintain quick ratio is a tricky task. In
TAJGVK hotel, QR is comparatively lower than 1.1(ideal ratio in all industries), but it does
not mean that it relies much in its inventory as inventories are fluctuating in very less
amount. Thus, the short term lenders can still be confident about trading with the hotel as
it has a long term orientation.

Conclusion
Hence, the overall liquidity position of TAJGVK is not good. The company needs to
improve in its liquidity position. Currently the company is not in an ideal position to pay
off its short term liabilities. Although the CR is just .49 in the last two years the Cash flow
from operating activities has been increasing which is a good sign and may be able to
compensate for the low Current ratio.

2. Debt Coverage Ratios

Debt coverage ratios provide an indication of the long-term solvency of the firm. Unlike
liquidity ratios that are concerned with short-term assets and liabilities, these ratios measure
the extent to which the firm is using long term debt.

a. Debt-to-Equity Ratio
Concept
The debt-to-equity ratio is total debt divided by total equity:

Total Debt
Debt-to-Equity Ratio =
Total Equity

The Debt-to-Equity ratio is an important indicator of financial leverage of a firm.

Therefore, it is much referred by the lenders, financial analysts and shareholders. Usually
a very high debt ratio is not considered a good signal for all the parties as it resembles high
risk and instability. However, if the debt is leveraged, then it also represents greater profit
to its shareholders, timely interest to its lenders and finally a better goodwill.

Analysis

Year

Total Debt

Total Equity

Debt-to-Equity Ratio

2012-13

17560.10

34495.47

0.51

2013-14

18849.49

34846.44

0.54

2014-15

27072.29

34649.14

0.78

In 2012/2013, the company maintained Debt-to Equity ratio of 0.51 which increased in the
following two years and reached to 0.54 and 0.78 in 2013-14 and 2014-15 respectively.
These figures indicate that there is increase in financing through long term debt in 201415. Though there is no exact reason mentioned in the annual reports, debt could have been
taken for investment in equity shares worth Rs 367,500,000 of M/s.Greenwoods Palaces
and Resorts Pvt. Ltd. and also for entering into power purchase agreement, in the same
year. Service industry usually are capital intensive and tend to have high debt to equity
ratio. The company has been investing in equity shares and working capital.
Year

Indian Hotel Company

Taj GVK

2012-13

0.74

0.51

2013-14

0.86

0.54

2014-15

1.11

0.78

Indian Hotels Company, TAJGVKs major competitor has maintained a higher debt to
equity ratio in all the three years. So, we can conclude that even though the debt has been
increasing it is not a matter of serious concern.

3. Interest Coverage Ratio

Concept
The interest coverage ratio indicates how well the firm's earnings can cover the interest
payments on its debt. It is calculated by:

EBIT
Interest Coverage Ratio (ICR) =
Fixed Interest Charges
Where, EBIT = Earnings before Interest and Taxes
The interest coverage ratio measures the ability of a company to pay the interest on its
outstanding debt. This measurement is used by creditors, lenders, and investors to determine
the risk of lending funds to a company. A high ratio indicates that a company can pay for its
interest expense several times over, while a too low ratio is a strong indicator that a company
may default on its loan payments. (accounting tools).

Analysis

Year

EBIT

Fixed Interest Charges

ICR

2012-13

3595.32

2235.22

1.6

2013-14

3213.87

2340.64

1.37

2014-15

2594.37

2777.79

0.93

In the above table we can see that the earnings before interest and tax in the year 2012-13 was
3595.32 crores which made interest coverage ratio to be 1.6. But ever since the profit has been
decreasing with little rise in interest charges, the ratio has also declined to 1.37 in 2013-14 to
0.93 in 2014-15. The reason behind decreasing ICR can be increase in interest payment due to
increase in debt, decrease in EBIT or both. Here, as there is rapid increase in long term and
short term borrowings by TAJGVK which has led to increase in the interest payment. The
companies EBIT has also been declining. So, both the reasons contribute to the decreasing ICR
ratio.

Conclusion
Therefore, the increase in debt to equity ratio, and decrease in ICR ratio in case of Taj can
work as a negative indicator to its lenders, shareholders and also analysts as it refers to the
fact that the debt collected can have high chances of being default.

4. Profitability ratio:
One of the important indicator of the performance of company is profitability ratio. Profit is
what the existing and potential investors look for. Profitability ratio shows how much the
company can generate profit in respect to assets, equity or debt employed. It gives measure
of how much of the money company has after paying for its expenses. Different profitability
ratio for TAJGVK Hotels and Resort is found and analyzed below:

a) Return on equity (ROE):

Concept:
Return on equity is the rate at which the company generates profit for each unit of
capital provided by shareholder. Higher ROE shows efficient use of shareholders
capital to generate profit. Increase or decrease in return on equity can further be
analyzed by using Du-Pont analysis. Du-Pont analysis breaks down return on equity
into three components: profit margin, assets turnover and equity multiplier which helps
us to observe the factor that is affecting the return on equity of the company the most.
The return in equity is calculated by suing following formula:
Net Income
Return on Equity =

Sales

Sales

Total Assets

Total Assets Total Equity

Profit margin Assets turnover Equity multiplier

Analysis:
Return on equity of TAJ GVK Hotels and Resorts for three different years is shown
below:
Profit

Assets

Equity

Return on

Margin

Turnover

Multiplier

equity

2012/13

3.47%

0.379

1.95

2.54%

2013/14

2.04%

0.366

1.91

1.43%

2014/15

-0.79%

0.341

2.09

-0.56%

The table shows the declining trend of ROE. The return on equity of TAJGVK Hotels
and Resorts have declined from 1.43% in 2013/14 to -0.56 in 2014/15. Negative ROE
in the year 2014/15 shows that this company is very much inefficient in utilizing the
shareholders equity. For every 1 unit of capital employed by the shareholder, the
company makes loss of 0.0056.
Furthermore the declining ROE of this company can be assessed by decomposing ROE
into the profit margin, assets turnover and equity multiplier as follows:

Profit margin
The decreasing ROE of TAJGVK Hotels and Resort can be attributed to decreasing
profit margin. The decrease in profit margin shows that the company is not efficient
in in operations. Company was earning net profit margin of 3.48% in 2012/13
which decreased to 2.04% in 2013/14 and 0.79% in 2014/15. The net profit
margin of -0.79% in 2014/15 shows that for every 1 rupee of sales the company

generates, the company is making the loss of 0.79. This figure proves that this
company is not efficient in controlling its costs. The reason for decreasing net profit
margin of the company is increase in long term loan and advances and investment
of that capital in work in progress and buying the equity of projects like Green wood
palaces and resort that has not provided significant return at the present time. The
increase in loan and advances has increased the interest expenses to INR 3359 lacs
in 2014/15, INR 490 lacs greater than previous year while the investment of those
capital has increased the income by only INR 488.34 lacs.
The company is incurring expenses more than what it is earning. In the year
2012/13 and 2013/14, the company had decrease in income and increase in
expenses while in the year 2014/15 there was increase in income but less than
increase in expenses. The increase in income and expenses is shown in the
following table:

Year

Income

Expenses

%Change in income

%Change in expenses

2011/12

25593.9

21316.02

2012/13

25423.6

23894.06

-0.67%

10.79%

2013/14

24513.4

24050.9

-3.71%

0.65%

2014/15

25001.8

25185.2

1.95%

1.95%

Assets turnover
The assets turnover of this company shows how much sales the company is
generating by utilizing 1 unit of assets. Assets turnover of TAJGVK Hotels and

Resort is declining. The assets turnover ratio has decreased from 37.6% in 2012/13
to 36.6% in 2013/14 and from 36.6% in the fiscal year 2013/14 to 34.1% in 2014/15.
34.1% assets turnover in ear 2014/15 shows that for every INR 1 of assets the sales
of INR 0.341 is generated. Decreasing in assets turnover of this company shows
that each year the capacity of the company to generate sales by utilizing its assets
is decreasing. The reason for decrease in assets turnover ratio is that the increase in
sales of the company is less than the increase in assets of the company. The reason
for such increase in assets and sales is that there has been significant investment in
assets that will generate benefit in future. The percentage increase in sales and
assets in different year is shown below:
Total assets

Total sales

% increase in assets

% increase in sales

2011/12

64072.48

25593.88

2012/13

67176.73

25423.56

4.62%

-0.67%

2013/14

66683.61

24513.44

-0.74%

-3.71%

2014/15

72706.88

25001.78

8.28%

1.95%

Equity multiplier
Equity multiplier illustrates the financial leverage of the company. In other words
we can say the equity multiplier shows the capital structure the company is using
to finance its assets.
Unlike other components of du-pont, the equity multiplier of the company has
increased in the year 2014/15. The equity multiplier has increased from INR 1.91
in 2013/14 to INR 2.09 in 2014/15. The increase in equity multiplier shows that

company uses high amount of debt to finance its assets. In the year 2013/14 the
proportion of debt in TAJGVK Hotels and Resort was 1.91 times more than debt.
The equity multiplier of 2.09 in the year 2014/15 shows that for every 1 unit of
capital invested by shareholder, the company owns 2.09 unit of assets.

b. Return on assets (ROA):

Concept:
Return on assets is the rate at which the company generates profit for each unit of assets
employed. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. Higher return on assets generally shows high efficiency of management
in utilizing its assets. Return on assets is calculated by using following formula:

ROA = Net Income

Total Assets

Analysis:
Year

Net income

Total Assets

Return on assets

2012/13

878.38

67,176.73

1.31%

2013/14

497.71

66,683.62

0.75%

2014/15

-197.29

72,706.88

-0.27%

The declining trend of return on assets shows that company is not being able to use its
assets efficiently to generate earnings. The ROA of TAJGVK Hotels and Resorts was 1.31%

in 2012/13 which declined to 0.75% in 2013/4. In the year 2014/15 the company had
negative ROA of 0.27%. The number -0.27% indicates that for each rupee of assets the
company invests, the company is making loss of 0.27 rupees.
The reason for decrease in its return on assets is the investment in joint ventures and work
in progress. The cash flow statement and balance sheet shows that the company has made
heavy investments in long term assets (especially investment purchases and work in
progress) that has not given significant return in present time. The investment in work in
progress and non-current assets increased by INR 1845.4 lacs and INR 2526.89 lacs in
fiscal year 2014/15 compared to 2013/14 while the income from investments increased
only by INR 8.22 lacs (interest) in year 2014/15.

Conclusion
The profitability ratio of TAJGVK Hotels and Resort shows that the return on equity for
shareholder is decreasing every year. The main reason behind decrease in return on equity
is decreasing profit margin. The company should make its work procedures efficient as
increase in expenses in greater than that of increase in income. Although TAJGVK has
decreasing net income and returns, increase in those figures is expected in future because
the company have made heavy investment in work in progress (extension of hotels and
renovations) and purchasing investment of hotel that will operate soon.

5. Earning performance ratio:

a. Dividend per Share (DPS):
Concept
Dividends are a form of profit distribution mechanism allowing the distribution of
company profit to the shareholders who actually own the company. DPS is the amount of
dividend that a stockholder will receive for each share of stock held. DPS reflects how
much profit is paid as dividend and how much is retained by the business.
DPS is an important indicator of profitability for investors and analysts.
We can calculate DPS by using following formula:

Dividend Per Share=

Dividend to the equity shareholders

No of shares outstanding

Analysis:
Year

Dividend

Number of equity shares

Dividend Per share

2012/2013

944.19

627.01

1.51

2013/2014

326.62

627.01

0.52

2014/2015

129.87

627.01

0.21

In 2012/2013, company paid DPS of INR 1.51 per share which was reduced in the
following two years. It means that the investors of the company are earning lesser amount
of dividend than the previous year. In 2012/13, the company was able to generate profit of
INR.878.38 lacs. In 2013/14, profitability of the company reduced to INR 497.71 lacs
whereas in 2014/15 company incurred losses of INR 197. 29 lacs. The reason for decrease
in profits of the company is heavy investment of company in work in progress and
purchasing the investments. For investing in those assets the company increased its long
term borrowing every year which increased the finance cost of the company. The finance
cost increased from INR 2235.21 in 2012/13 to INR 2340.64 lacs in lacs 2013/14. In
2014/15 it reached to INR 277.79 lacs. In year 2012/13 and 2013/14, the total income of
this company declined while the total expense was on rise while in the year 2014/15 the
increase in expense was greater than increase in income. The effect of increasing such cost
was decrease in net profit and eventually decrease in dividend paid.

b. Earnings per share (EPS):

Concept:
The earnings per share ratio (EPS ratio) measures the amount of a company's net income
that is theoretically available for payment to the holders of its common stock. A company
with a high earnings per share ratio is capable of generating a significant dividend for
investors, or it may plow the funds back into its business for more growth; in either case,
a high ratio indicates a potentially worthwhile investment, depending on the market price
of the stock.

Analysis:
2012/13

2013/14

2014/15

Net income

878.38

497.71

-197.29

No of shares

627.015

627.015

627.015

1.40

0.79

-0.31

EPS

Earnings per share of TAJGVK Hotels and Resort is in decreasing trend. The EPS in year
2012/13 was INR 1.40 which eventually decreased to INR 0.79 in 2013/14 and INR -0.31
in 2014/15. The reason for decreasing EPS of the company is decreased net income of the
company as the number of shares outstanding is constant throughout three years in this
company. As explained earlier, the reason for decreasing net income is high financial cost
and other operating expenses.

Conclusion
Due to decreasing net income of the company, the earnings for shareholders in form of
dividends and net income is decreasing. This decreasing earnings can act as negative
indicator for both potential and existing shareholders.

6. Free cash flow (FCF):

Concept:
Free cash flow represents the cash that a company is able to generate after laying out the
money required to maintain or expand its asset base. In other words, free cash flow is the
amount of money a company has left over after it pays its bills. Higher free cash flow shows
the good position of the company. This is capital available to reinvest in the, acquiring other

companies, pay dividends to share holder, buy back shares, and more. This is the money you
can use to make more money next year and the next and so on.
Free cash flow= Net operating profit after tax (NOPAT) Net investment in operating
capital.

Analysis
The free cash flow of the company for three different years is shown below:
Free cash flow
NOPAT
Net investment in operating capital
FCF

2012/13

2013/14

20014/15

878.38

497.71

-197.29

1,181.60

-678.80

2353.77

-303.22

1,176.51

-2,551.06

The above table shows that free cash flow of TAJGVK Hotel and Resort is inconsistent.
Although net operating profit after tax is decreasing every year, free cash is fluctuating. The
free cash flow in the year 2012/13 was INR 303.22 lacs. The negative FCF was the result of
high investment in operating capital. In that year the company increased the investment in
inventories by 19.65%. In addition to that company was not able to generate enough net
operating capital to cover all its expenses. Later in the year 2013/14the FCF increased to INR
1176.51 lacs. The reason for increase in free cash flow in this year was decrease in net
investment in operating capital. Although the company witnessed decrease in NOPAT, the
company acquired cash in hand through increasing trade payables. The company increased
trade payables and other current liabilities. The company increased trade payables to INR
2607.99 lacs, 27.09% greater than previous year and increased other current liabilities to INR

4480.85 lacs, 11.87% greater than previous year. The FCF again reached negative point in the
year 2014/15. The FCF in that year was INR -2551.06 lacs. The decrease in INR was mainly
due to drastic decrease in NOPAT and increase in net operating working capital.

7. Economic Value Added (EVA)

Concept
Economic Value Added (EVA) is a way to determine the value created for the shareholders of
a company. It is based on the idea a company should create returns for its shareholders above
its cost of capital. The idea is that value is created when the return on the firm's economic
capital employed is greater than the cost of that capital.
Economic Value Added (EVA) = Net Operating Profit after Taxes (NOPAT) (WACC
Operating Capital Employed)

Analysis

Year

NOPAT

Operating Capital(OC)

Cost of Capital(WACC*OC)

EVA

2012-13

878.38

-5488.88

-363.57

1241.95

2013-14

497.71

-4414.10

-420.59

918.30

2014-15

-197.29

-3364.27

-222.87

25.58

From the above table, we can see that there in drastic decrease in NOPAT each year and so is
operating capital. Since there is negative operating capital, the WACC at 8.4% is also negative
in all three years. However, there is positive EVA each year although it has decreasing trend,
which shows that even after paying for all the operating expenses, and dividends to its
shareholder there still exists economic profit. The companys EVA is declining due to heavy
decline in NOPAT and negative operating capital. Nevertheless, the positive EVA of Taj GVK
hotel shows that companys operating performance has increased the wealth of shareholders.
If economic value added (EVA) for a period is positive, it means the management has increased
the company's total worth. On the other hand, if the economic value added is negative it means
that the cost of capital employed is greater than the profit generated by the company and this
means a decline in the company's value over the period. In case of Taj GVK, there is a positive
trend of EVA which is a signal for operational efficiency. The reasons behind decreasing EVA
could be due to investments in equity shares of M/s.Greenwoods Palaces and Resorts Pvt. Ltd.
which will not immediately yield a good return but can yield a better return in the future. This
is also the reason behind EVA being positive despite negative NOPAT in 2014-15.

EVA as an indicator of operational efficiency has placed the TAJGVK at better position.
Although the results are positive, declining EVA can definitely have some negative
consequences later on.

8. MVA
Market Value Added is the difference between the capital contributed to the company by
bondholders and shareholders and the final market value of the product.
MVA= MV of stock- Equity capital supplied by the investors
(S/O * stock price- Total common equity)
MVA measures the operational capabilities of a company's management and represents the
value of the company as a whole on the open market. EVA shows the value added during a
year. MVA reflects performance over companys entire life. Even times before current
manager were born.
Year

Shares

Avg. Market

Outstanding

Price/Share

2012-13

62701495

2013-14

62701495

63.05

92.5

Market Value

Book value

Market Value Added

39533.29

1,254.03

38,279.26

57998.88

56,744.85
1,254.03

2014-15

62701495

79.475

49832.01

1,254.03

48,577.98

The face value of TAJGVKs share is INR 2. So, the IPO shareholders have gained
incremental increase in the share price. In 2013-14 the MVA was the highest in comparison
to the other two financial years as the average market price of the share was 92.5. The
company did not issue any additional shares during the three years.
Since the book value and shares outstanding have not changed the only factor that has
changed the MVA in these three years is the Price of the share in National stock exchange.
Since MVA is directly related with the shareholders wealth, it is one of the most important
financial indicator.

Conclusion
We cannot see correlation between market value of shares and its financial performance due
to which MVA has been fluctuating while EVA is decreasing. In case of TAJGVK Hotels and
Resorts other factors than financial performance of company seems to play important role in
determining the market value of the company.

9. Management Efficiency Ratios

a. Inventory Turnover Ratio

Concept
The inventory turnover ratio measures how many times a companys inventory has been
sold and replaced during the year.
Inventory Turnover ratio =

Sales

Average Inventory

Analysis
Year

Sales

Average

Inventory

Average Sale

Inventory

turnover ratio

Period

2012-13

25,269.82

782.64

32.28792293

11.30

2013-14

24,385.44

900.005

26.1623895

13.95

2014-15

24,803.30

868.57

30.80925645

11.85

The inventory in TAJGVK consists of mainly two things

1. Stores and operating supplies
2. Food and beverages
The low turnover ratio compared to its competitors implies that company has not been
able to increase sales, resulting in excess inventory. The companys sales has been in
declining trend since 2011 however companies average inventory has been recorded at
900 in the year 2013-14 which is inconsistent with the declining sales. Decreasing sales
and increasing inventory leads to overstocking which increases the storage cost of the
inventory.

Company/Year

TAJGVK

Hyatt Hotel

Indian Hotels

Corp

Company Ltd

2012-13

32.28

37.38

46.9

2013-2014

26.16

74.04

48.02

2014-15

30.80

54.77

48.89

When compared to the major competitors TAJGVKs Inventory turnover ratio is lower
than Hyatt and IHC in the last three years. This is one of the management efficiency ratio
and the above table shows that the management of TAJGVK in terms of inventory
management is not efficient in comparison to its competitors.

b. Fixed Assets Turnover ratio

Concept
The fixed-asset turnover ratio measures a company's ability to generate net sales from
fixed-asset investments - specifically property, plant and equipment (PP&E) - net of
depreciation. A higher fixed-asset turnover ratio shows that the company has been more
effective in using the investment in fixed assets to generate revenues.
Fixed assets turnover ratio = Net Sales
Fixed assets

Analysis

Year

Net Sales

Fixed Assets

Fixed assets
turnover ratio

2012-13

25,269.82

42,333.94

0.5969

2013-14

24,385.44

40,533.47

0.6016

2014-15

24,803.30

38,285.70

0.6478

It calculates the dollars of revenue earned per one dollar of investment in fixed assets.
The companys fixed asset turnover ratio has been rising since 2012. However the ratio
shows that the company has not been doing well in terms of fixed assets turnover ratio as
for every $1 invested in fixed capital, the company have been generating returns of less
than $1. The company has been adding Plant and machinery to its fixed assets every year
since 2012. In 2012 the companys balance sheet shows Plant and machinery at Inr.
16416.05 lacs which increased to Inr 17269.29. However due to depreciation the net
fixed assets has been declining every year since 2012. The investment in Plant and
Machinery has not paid off as the returns have not increased at the rate of investment.
The company have failed to increase sales at the rate at which it has invested in fixed
assets. The major portion of the fixed assets of TAJGVK consists of hotel building.

Company/Year

TAJGVK

Hyatt Hotel Corp

Indian Hotels
Company Ltd

2012-13

0.59

0.95

0.62

2013-2014

0.60

0.67

2014-15

0.64

1.03

0.66

TAJGVK when compared to its major competitors falls behind in terms of generating
revenues from its fixed assets. Hyatt Hotel Corp. managed returns of $1.03 per $1
invested in fixed assets while TAJGVK could just manage $0.64 per $1 invested in fixed
assets.

c. Total Assets Turnover Ratio

Note: This part has been explained while calculating the ROE above.

Conclusion
The management efficiency ratios calculated above shows that the management in
TAJGVK has a lot of room for improvement. When compared with its competitors the
company seems to lag behind in terms of inventory turnover as well as the fixed assets
turnover ratios. The company needs to increase sales in order to increase the inventory
turnover ratio. A cost cutting measure can also be applied by decreasing the level of
inventory.
The company also needs to improve its fixed assets turnover ratio. So, the company
basically needs to increase its sales.

10. Revenue per Room Available

Concept
Revenue per available room is a ratio commonly used to measure financial performance in
the hospitality industry. The metric, which is a function of both room rates and occupancy,
is one of the most important gauges of health among hotel operators. If company will be
able to increase its revenue per room available there will be increase in net income of the
company. This ratio is significant for hotels because by increasing revenue per room
indicates increase in efficiency of hotel. One can increase net income without having
increase in invested amount if revenue per room available is increased. The revenue per
room available is calculate using following formula:
Revenue per room available =

Total revenue from room

No of room available

Analysis
Total rooms available

Revenue

Revenue per room

2012/13

1083

11,260.00

10.40

2013/14

1083

9,911.00

9.15

2014/15

1083

10,285.00

9.50

The above table shows that the company dont have high fluctuation in revenue per room
available in all three years. The revenue per room available has decreased from INR 10.40

lacs in 2012/13 to INR 9.15 lacs in 2013/14 and INR 9.50 lacs in 2014/15. This shows that
TAJGVK Hotels and Company have decreasing efficiency. It means with same number of
room capacity, less revenue is generate in 2013/14 and 2014/15 compared to year 2012/13.
This company has average room rate of INR 5000 per day but above figure shows the
company is earning average revenue of INR 2602.74 per day. It implies that the company
has low occupancy rate. Less rooms are occupied by customers than its capacity.

Summarizing Performance of TAJGVK Hotels and Resort

Ratio

2012/13

2013/14

2014/15

a. Current ratio

0.42

0.49

0.49

b. Quick raio

0.32

0.37

0.35

a. Debt to equity ratio

0.51

0.54

0.78

3. Interest coverage ratio

1.6

1.37

0.93

a. ROE

2.54%

1.43%

-0.56%

b. ROA

1.31%

0.75%

-0.27%

a. DPS

1.51

0.52

0.21

b. EPS

1.40

0.79

-0.31

6. FCF

-303.22

1176.51

-2551.06

7. EVA

1241.95

918.30

25.58

8. MVA

38279.26

56774.85

48577.98

a. ITR

32.88

26.16

30.81

b. FATR

0.59

0.60

0.64

10.40

9.51

9.50

1. Liquidity ratio

2. Debt coverage ratio

4. Profitability ratio

5. Earning performance ratio

9. Management efficiency ratio

10. Revenue per room available

References:

http://www.accountingtools.com/interest-coverage-ratio

http://www.investopedia.com/terms/c/currentratio.asp

http://www.ccdconsultants.com/calculators/financial-ratios/quick-ratio-calculator-andinterpretation?tab=interpretation

http://www.investordictionary.com/definition/economic-value-added

http://www.gurufocus.com/term/wacc/NSE:TAJGVK/Weighted%2BAverage%2BCost%
2BOf%2BCapital%2B%2528WACC%2529/Taj%2BGVK%2BHotels%2B%2526%2BR
esorts%2BLtd

http://www.moneycontrol.com/

http://www.accountingtools.com/profitability-ratio