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History of Ashford Hospitality Trust Essay


Executive summary

This report presents the financial performance of Ashford hospitality trust, through an extensive analysis of financial ratios. Ashford is a hospitality company, which has operated for many years, and its financial performance has been relatively good. Essentially, these rations include those that reveal liquidity, profitability and capital structure of the entity.

The implication of the three years rations have been critically analyzed, and their implication well spelt out. The report has also explained further information that needs to be reviewed to make the findings more meaningful. This performance analysis can be used by the management, the shareholders or the potential investors to identify with the performance of the company, and in particular assess its strengths and weaknesses.

History of Ashford hospitality trust

Ashford hospitality trust was founded in 1957 as a small coast hotel at the Los Angeles International Airport and continued its strategy to provide service with adore and excitement in upward, owning and in service hotels. At the end of the decade, Ashford hospitality trust had started the Ashford Regency Atlanta, in Georgia with a 21-story reception area in the west coast and in Chicago.

By 1969, Ashford hospitality trust had extended globally, to develop into one of the major and principal US based devoted hotel administrative Corporation with 13 hotels across different states, and launched Ashford Hong Kong, which resulted to the establishment of Ashford hospitality trust.

Today, Ashford fruitfully distinguishes itself within the aggressive hospitality market with six different brands; namely, Andaz brand, which was launched in 2007 – a complexity made simple delivered with a real warmness; Ashford Regency, which enables yield and renewal within a receptive, suitable and modern environment; Park Ashford, which is said to be a tactful and advanced collection located in stylish cities around the world and which epitomizes fresh comfort; Grand Ashford brands – they are some of the most architecturally remarkable hotels in the globe offering dazzling plan and a numerous of modern cooking and drink concepts; Ashford Place, which is intended for the decent lifestyle of today’ s multitasking business traveler; Ashford Summerfield Suites, a rediscovery of the all-suites, absolute residential hotel, which provides timely facilities and inviting, housing design.

As Ashford properties celebrates about half a century of excellence in the hospitality industry with a portfolio that includes more than 365 hotels and resorts in over 45 countries, it proudly shares the core values across the Ashford brands such as upscale facilities, outstanding guest service, fashionable food and beverage series, and ground-breaking interior designs that integrate arts and local style.

Jointly with all the company, associates and workers, it rejoices the personification of tender hospitality, custom of modernism, intensely integral service culture and top show in hospitality industry.

Financial performance of the company in the last three years using ratio analysis, including what the results indicate about the state of the company

Ratio analysis is used by the management, the shareholders or the potential investors to interpret the financial statements of a particular company, with the aim of evaluating its strengths and weaknesses. This report seeks to explain why the company under the analysis needs to refurbish its strategies on areas of liquidity, profitability and capital structure.

The tools used in ratio analysis include financial statements and comparison of the past and industry firms (Barry, 2010). The purpose of ratio analysis is to evaluate current company operations, compare its present performance to past performances, analyze the effectiveness and efficiency of operations, evaluate risk operations and standardize most financial information for the purposes of comparison.

A clear ratio analysis, therefore, becomes useful in the evaluation of customer creditworthiness, evaluation of loan applications, analysis investment opportunities and evaluating potential merger candidates. It also helps in analyzing internal management control. Ratio analyses are of different types (Stewart, 1991).

The report will only analyze the key financial ratios that indicate the performance of Ashford hospitality tryst. Essentially, the ratio analysis will be based on the trend in three years, including 2009, 2010 and 2011 financial years. In the analysis, the report will highlight some limitations of relying on particular ratios (Ashford Hospitality Trust, 2011).

Profitability ratios

Profitability ratios shed light upon the overall effectiveness of management regarding the returns generated on sales and investment. Profitability ratios are used by the users of the company’s financial statements, to establish the general efficiency of management, in relation to profits generated on investments and sales. In this section, we are going to determine the company’s operating profit margin and gross profit margin.

Gross profit margin

Gross profit margin has improved dramatically since 2009 (Ashford Hospitality Trust, 2011). This trend is very healthy, and if it continues in the future, then the company is likely to become very profitable. The shareholders will enjoy this performance by getting higher dividends and also growth in the value of their shares.

Table 1: Gross profit margin (Ashford Hospitality Trust, 2011)

2009
$‘000’
2010
$‘000’
2011
$‘000’
Gross profit (81,816) 17,915 91,425
Total revenue 837,684 838,624 889,797
GPM=GP/TR -0.1 0.02 0.1

Operating profit margin

Operating profit margin evaluates the company’s profitability based on profits before tax and interest expense. This ratio has also improved dramatically, which will translate high returns. The management should continue controlling the operating expenses to maintain the healthy trend in future (Ashford Hospitality Trust, 2011)

Table 2: Operating profit margin (Ashford Hospitality Trust, 2011)

2009
$‘000’
2010
$‘000’
2011
$‘000’
Gross profit (81,816) 17,915 91,425
Operating expenses 919,500 820,709 798,372
GPM=GP/OE -0.09 0.02 0.11

Dividends per share

The dividend per share for 2009 and 2010 was nil, but $400 per share was paid in 2011 (Ashford Hospitality Trust, 2011). This shows that the profits of the company have improved, and management can now have enough to declare as dividends. Lack of payment of dividends in 2009 and 2010 can be attributable to lack of profits or rather the profits could have been too little to be declared as dividends (Martion & Bova, 2007).

Table 3: DPS (Ashford Hospitality Trust, 2011).

2009
$ ‘000’
2010
$ ‘000’
2011
$ ‘000’
DPS 0.4

Return on investment (ROI)

The return on investment (ROI) for the last three years can be calculated using the Dupont Model (Marshall et al. 2002). The company’s ROI constantly increased since 2009. This increase is remarkable as it reveals that the company is increasing its sales, while at the same time optimizing the utilization of assets to generate these sales (Ashford Hospitality Trust, 2011).

To attain such results, the average assets, the operating income, and the sales should increase at the same rate. However, the 2009-2011 trend is only attractive in the short-term, because if it persists, it will be an indication that the company is not investing well in assets. In other words, in the long-term, such a trend will be an indication that the company is undergoing increased operations at the expense of asset efficiency improvement (Tamari, 1978).

Table 4: ROI(Ashford Hospitality Trust, 2011).

2009
$‘000’
2010
$‘000’
2011
$‘000’
Operating Profit after Taxes or NOPAT 8,326 17,915 91,425
Operating Capital 837,976 816,808 973,407
GPM=GP/OE 0.01 0.02 0.1

Liquidity ratios

The liquidity rations are used to show the ability of the firm to pay its debts in the short-term (Manzler, 2004).

Current Ratio

The capacity of an entity to clear its short-range dues by the current assets can be revealed by the current ratio. A value of 1 to 2 is considered to be the acceptable range. In 2009, the company’s current assets surpassed its current liabilities by 1.5 times. In 2010, it was 2.5 times, and in 2011, it was 1.8 times.

This means the current assets in comparison with the current liabilities increased drastically in 2010, and then dropped in 2010 (Pendlebury & Groves, 2010). Throughout, the company has been positioned well to repay its short-term dues. However, in 2010, the ratio was too high – the management should avoid very high current ratio as this may reflect redundant jamming of liquid assets in the business (Karen & Knight, 2005).

Table 5: current ratio

2009
$‘000’
2010
$‘000’
2011
$‘000’
Current asset 262877 306226 298389
Current liabilities 173,407 124651 165134
CR=CR/CL 1.5 2.5 1.8

Capital structure ratios

The capital structure ratios are used to show the level at which the company capital is balanced between debts and equity (Bagehot, 1971; Lee, 2008).

Debt equity ratio

The debtor’s ratio for the company increased slightly since 2009, which is an indication the company increased its reliance on debt, rather than equity, to finance its assets. This situation needs a speedy action because over reliance on debts could increase the burden on the company in terms of more interest expenses that debts attract (Marshall et al, 2002; Balsam, 1998).

Table 6: debt equity ratio

2011 2010 2009
Debt 2,362,458 2,518,164 2,772,396
Net worth(deficit) 973,407 816,808 837,976
Debt/Net worth 2.4 3.1 3.3

Further information required in order to offer a more informed report

In order to offer a more informed about the financial performance of these companies, this report should be used in conjunction with balance sheets, income statements, cash flow statements, the statements of changes in owners’ equity and the retained earnings statement. The balance sheet is very crucial as it will show all the shareholders equity, liabilities and assets of the individual companies, hence, presenting a good picture of the financial performance.

On the other hand, the income statement will help to reveal the company’s operations, by presenting a synopsis of the gains, losses, revenues, expenses, and net income or loss of a company during a particular financial year. The company’s receipts and payments in relation to financing, investing, and operating activities during a particular period is well enumerated by the cash flow statement.

For those who want to get a proper interpretation of the ratios, they should use the analysis in conjunction with the company’s annual reports so they can make elaborate clarification. The ratios analyzed in this report should also be compared with those of similar companies in the industry so that the interpretation can be more informed (Ittner & Larcker, 2000).

Conclusion

This performance analysis can be used by the management, the shareholders or the potential investors to understand the performance of the company, and in particular evaluate its strengths and weaknesses. The financial ratios are very useful in the analysis of performance of a company.

Depending on different interest and uses of financial ratios by their readers, their usefulness and value varies.The ratios analyzed in this report are very useful to different classes of users, including the management, the shareholders and the potential investors (Leonie, 2007; Ittner & Larcker, 2000).

References

Ashford Hospitality Trust. (2011). 2011 Annual Reports. Retrieved from

Bagehot, W. (1971).The Only Game in Town. Financial Analyst Journal, 4(5), 12-14.

Balsam, S., & Lipka, R. (1998). Share Prices and Alternative Measures of Earnings per Share. London: Accounting Horizons.

Barry, E. (2010). Financial Accounting, Reporting and Analysis. London: International Edition publishers.

Tamari, M. (1978). Financial Ratios: Analysis and Prediction. New York: Paul Elek Ltd.

Pendlebury, H., & Groves, G. (2010). Company Accounts Analysis, interpretation and understanding. New York: Sage.

Leonie, J. (2007). Cash flow ratios as a yardstick. Journal of database of Emerald insights, 5(1), 2-9.

Martion, L., & Bova, A. (2007). P/Es and Pension Funding Ratios. Financial Analysts Journal, 63(1), 1-5.

Ittner, C., & Larcker, D. (2000). Non Financial Performance Measures: What Works and What Doesn’t. New York: Financial Times.

Karen, B., & Knight, J. (2005). Liquidity ratios: Can we pay our bills? Boston, MA: Harvard Business School Press.

Lee, S. (2008). Ownership Structure and Financial Performance: Evidence from Panel Data of South Korea. Utah: University of Utah.

Manzler, D. (2004). Liquidity, liquidity risk and the closed-end fund discount. New York: University of Cincinnation.

Marshall, D.H. et al. (2002). Accounting: What the Numbers Mean, Fifth Edition with Selected Material from Accounting: Text and Cases, Tenth Edition. Boston: McGraw-Hill Primus.

Stewart, G.B. (1991). The Quest for Value: A Guide for Senior Managers. New York: Harper Business Publisher.

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IvyPanda. "History of Ashford Hospitality Trust." May 17, 2019. https://ivypanda.com/essays/history-of-ashford-hospitality-trust-essay/.

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IvyPanda. 2019. "History of Ashford Hospitality Trust." May 17, 2019. https://ivypanda.com/essays/history-of-ashford-hospitality-trust-essay/.

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IvyPanda. (2019) 'History of Ashford Hospitality Trust'. 17 May.

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