1.

1 INTRODUCTION
In our present day economics, finance is defined as the provision of money at the time
when it is required. Every enterprise whether big, medium or small needs
finance to carry on its operations and to achieve its target. In fact finance is so
indispensable today that it is rightly said that it is the life blood of industrywithout
adequate finance no enterprise can possible accomplish it objectives.
The process of reviewing and evaluating a companys financial statements (such as the
balance sheet or profit and loss statement), thereby gaining an understanding of the
financial health of the company and enabling more effective decision making. Financial
statements record financial data; however, this information must be evaluated through
financial statement analysis to become more useful to investors, shareholders, managers
and other interested parties.
Financial statement analysis is an evaluative method of determining the past, current and
projected performance of a company. Several techniques are commonly used as part of
financial statement analysis including horizontal analysis, which compares two or more
years of financial data in both dollar and percentage form, vertical analysis, where each
category of accounts on the balance sheet is shown as a percentage of the total account;
and ratio analysis, which calculates statistical relationships between data.

1.2 INDUSTRY PROFILE

Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is
inextricably linked to the tourism industry and the growth in the Indian tourism industry
has fuelled the growth of Indian hotel industry. The thriving economy and increased
business opportunities in India have acted as a boon for Indian hotel industry. The arrival
of low cost airlines and the associated price wars have given domestic tourists a host of
options. The 'Incredible India' destination campaign and the recently launched 'Atithi
Devo Bhavah' (ADB) campaign have also helped in the growth of domestic and
In recent years, government has taken several steps to boost travel & tourism which have
benefited hotel industry in India. These include the abolishment of the inland air travel
tax of 15%, reduction in excise duty on aviation turbine fuel to 8%, and removal of a
number of restrictions on outbound chartered flights, including those relating to
frequency and size of aircraft. The government's recent decision to treat convention
centre as part of core infrastructure, allowing the government to provide critical funding
for the large capital investment that may be required has also fuelled the demand for hotel
rooms.
The opening up of the aviation industry in India has exciting opportunities for hotel
industry as it relies on airlines to transport 80% of international arrivals. The
government's decision to substantially upgrade 28 regional airports in smaller towns and
privatization & expansion of Delhi and Mumbai airport will improve the business
prospects of hotel industry in India. Substantial investments in tourism infrastructure are
essential for Indian hotel industry to achieve its potential. The upgrading of national
highways connecting various parts of India has opened new avenues for the development
of budget hotels in India. Taking advantage of this opportunity Tata group and another
Hotel chain called 'Homotel' have entered this business segment.
According to a report, Hotel Industry in India currently has supply of 110,000 rooms and
there is a shortage of 150,000 rooms fueling hotel room rates across India. According to
2

estimates demand is going to exceed supply by at least 100% over the next 2 years. Fivestar hotels in metro cities allot same room, more than once a day to different guests,
receiving almost 24-hour rates from both guests against 6-8 hours usage. With demandsupply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by
80%, over the next two years. This will affect the competitiveness of India as a cost
effective tourist destination.
To overcome, this shortage Indian hotel industry is adding about 60,000 quality rooms,
currently in different stages of planning and development, which should be ready by
2012. The future scenario of Indian hotel industry looks extremely rosy. It is expected
that the budget and mid-market hotel segment will witness huge growth and expansion
while the luxury segment will continue to perform extremely well over the next few
years.
The Rooms Department is facing challenges while F&B operations are in a buoyant
mood. HR Managers are stressed with shortage of skilled persons and higher than
affordable salary and wage expectations. The General Managers are cautious, particularly
on the back of challenged market conditions and increasing operating costs.
The overall mood in the F&B segment is upbeat, witnessing demand growth and dynamic
activity. Actual market performances are showing growth, riding on increasing
consumerism and introduction of newer restaurant and cuisine concepts. In contrast, the
optimism portrayed at the start of 2011 in relation to room rates and occupancy has
waned. Rapid inventory addition in the country has continued to cause attrition and
poaching worries for HR Managers, while also causing payroll increases - both actual and
in the expectation-fulfilment gap. The near and mediumterm future is expected to be no
different. Smart and professionally adept managers are the need of the hour; while
employers aim to foster a culture of loyalty and commitment, the industry and individual
hotels / chains are challenged in retaining this talent.

1.2.1 2012 Performance

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Rooms: At the start of 2012 there was optimism among the General Managers with more
than 73% expecting strong to very strong growth in occupancy and 67% expecting
moderate to high growth in ADR. This optimism has unfortunately not been borne out:

44% General Managers reported ADRs achieved as being lower than expected at the start
of

the

year;

only

36%

reflected

better

than

expected

performance

1.2.2 2013 Outlook

The sentiment for 2013 also reflects a divergence between rooms and F&B operations.
The expectation from the rooms department is possibly moderated by the softer than
expected performance in 2012. By the same token, F&B departments are expressing
greater confidence. ADR: 3/8th of participating hotels expect ADR for 2013 to be in line
with 2012; while 22% are expecting a reasonable increase, a slightly larger 24% are
expecting a decline in room rates.
Occupancy: However, there is greater confidence in demand volumes with a third of the
hotels expecting 2013 performance to be in line with 2012 performance and 37%
expecting a reasonable increase; 1/6th of the participating hotels are expecting sizeable
increase in occupancy but, on the other hand, another 1/6th of the participating hotels are
expecting significant decline in occupancies
Clearly the impact of difficult business conditions and continued supply growth is not
really foreseen as impacting occupancies in a material way but is expected to have a
significantly diluting impact on room rates. F&B: Between 35-45% of the respondents
are expecting F&B revenues to remain the same as in 2011. About a third of the hotels
are expecting reasonable growth of F&B revenues while about 1/4th of participating
hotels are estimating strong to very strong improvement in F&B revenues.
Improved F&B revenues are mainly predicated on APC increases - 65% to 70% of the
respondents expect buffet prices to increase up to 8%; 55% to 70% of the respondents
4

also expect specialty restaurant and room service prices to improve by 8% .The positive
performance and outlook on F&B operations peculiarly comes at a time when some
hotels and hotel chains are exploring the option of leasing out these activities to third
parties.

1.2.3 Operating costs

In terms of operating costs, hotels seem to be feeling strong pressure. 85% of the hotels
How do you see the revenue from following sources in

expect payroll costs to increase in 2013 with

about half of such hotels expecting sizeable
2013
cost increases. Considering the slowdown in hiring and variable pay components in the
IT and other service sectors, the cost increase expectations of Hotel HR Managers appear
to standout. The very recent slowdown in food inflation, 70% of the hotels are expecting
moderate to large increase in food cost. Such increase, coming in on top of inflation lead
high food cost in 2012, could clearly dilute the revenue gains from restaurant and banquet
operations impacting F&B margins. With increased F&B Revenues and costs, it will be
interesting to watch continuing trends on the scope and demand for profitable F&B
operations in the coming year. Half the hotels expect up to 8% increase in the energy
cost; another 25% of the respondents are expecting more substantial energy cost increase
1.2.4 Payroll & Human resource
Employee attrition is a real concern; in fact, for 2/3rds of the respondents, it was their
prime HR concern. While attrition may be somewhat lower in 2012, if alternative service
sector jobs are harder to come by, this draining feature will continue to pose challenges to
hotels in times to come .HR Managers are also challenged by a rise in shortage of skilled
work force and competition from within the hotel sector; both these factors, combined
with inability of new comers to cope with work pressure, are being contributory to the
high attrition levels in the industry. Hotels are challenged to meet the payroll expectations
of staff. Clearly, persons working or intending to work in the industry are drawn away to
other sectors on payroll considerations and / or on considerations of better work-life
balance. About 66% of the HR managers expect a increase in the range of 20-40% in the
next three years. At the same time, there is genuine industry grouse that new and young
5

employees lack sufficient skills because of inadequacy of hotel schools, training curricula
and these only serve to exacerbate the problem

The shortage of trained manpower combined with the opportunity for increased pay
packages provides a perfect situation for hotels to poach staff from competition. The
industry has several excellent General Managers; hotels are frequently seeking to poach
them. Fortunately, the non-hotel sector does not draw on their skills. These other sectors
are some what more interested in poaching entry level staff and middle level managers.
The shortage of experienced General Managers will be a challenge as more hotels open in
the next 3 years. Work pressure issues are a significant challenge for entrance level staff;
the hotel industry is more exacting in its demands than other service industries with long
working hours and constant scrutiny by demanding guests. This challenge is possibly
further accentuated by inadequate teachings preemployment

1.2.5 Supply
As of January 2013, the total count of hotel rooms in India is 120,000 and the country is
expected to require additional 80,000. The shortage is more prominent in budget and mid
market segment. This will support improvement in ARRs (Average Room Rates) in this
segment for the next few years.
1.2.5(a) Demand : Largely depends on business travelers but tourist traffic is also on the
rise. Demand normally spurts in the peak season between November and March.
1.2.5(b) Barriers to entry: High capital costs, poor infrastructure facilities and scarcity of
land especially in the metros.
1.2.5(c) Bargaining power of suppliers: Limited due to higher competition, especially in
the metros.
1.2.5(d) Bargaining power of customers: Higher in metro cities due to increasing room
supply.
1.2.5(e) Competition: Intense in metro cities, slowly picking up in secondary cities.
Competition has picked up due to the entry of foreign hotel chains.
6

The Indian hotel industry is still in the nascent stages of recovery. In the near term,
despite an anticipated revival in room demand, hotels will not be able to hike ARRs
significantly as the expected additions to room inventory will intensify competition.
Chennai, Pune and Hyderabad are expected to be among the worst-hit destinations, as the
growth in supply is expected to far outpace that in demand. Though, events like the
Formula 1 race planned in Delhi in 2011 will benefit the hotel industry. Nevertheless, the
industry is yet to witness a sustained and significant improvement in occupancy levels
and ARRs.
In the long-term, the outlook for the sector is very promising. Demand levels are likely
to improve as economic growth gathers momentum and companies increase spending on
travel. With expectations of healthy salary increases within the corporate world,
discretionary spending is expected to increase further, especially on leisure travel. The
number of foreign tourists is expected to reach 6.2 m during 2011 and further to 11.1 m
by 2021. The demand-supply gap in India is very real and there is need for more hotels in
most cities. The shortage is especially true within the budget and the mid market
segment. There is an urgent need for budget and mid market hotels in the country as
travellers look for safe and affordable accommodation.

1.2.6 Economic Prospects

The number of people working in the sector fell dramatically in 2009 due to the
recession, but employment levels have since recovered. Employment prospects on the
whole are strong and it is predicted that over a million new employees will be required in
the sector by 2017.The demand for graduates is expected to grow as 69,000 more
managers are expected to be needed over coming years.
Trends across the sector are mixed. The number of bar staff has declined by 30% since
2005 but the decline is slowing. The number of conference and exhibition managers has
increased by 100% and is expected to continue growing, as is the number of hotel and
accommodation managers. Employment is expected to grow most quickly amongst
budget operators such as fast-food outlets, takeaways and cafs.

A number of factors are still expected to limit growth in the short term, such as:

rising costs, i.e. fuel, food and wages;

a weak pound;

new immigration controls, which will lead to an upward pressure on wages;

delays in adjusting to the needs of an ageing population;

the calibre of applicants in the sector is steadily rising, so qualifications and

experience are becoming ever more important.

1.2.7 Customer demand

The recession and the increasing use of the internet means customers have more
sophisticated and critical shopping habits. Shopping around, buying cheaper brands,
buying less and looking for ethical brands are all current patterns of customer shopping
behaviour.

1.2.8 Skills Shortages

In most of the UK, 4% of employers in the sector have roles that are difficult to fill, but
in Scotland the number rises to 39%.
Two roles which are expected to remain in high demand are:

skilled chefs (including Asian and Oriental chefs and senior chefs);

managers.

Continuing skills gaps in the industry include:

customer service;

communication;

multi-tasking;

marketing and sales.

1.2.9 Corporate responsibility

8

The majority of large businesses within the industry advertise their commitment to
environmental issues, their active involvement in the communities in which they operate
and their charitable donations. Organisations are keen to demonstrate that they can further
their business objectives while still doing the right thing.

1.2.10 Outsourcing
Increasing numbers of operators, including educational institutions, local authorities,
healthcare providers and other businesses, have outsourced hospitality facilities in order
to concentrate on their core business and drive down costs. This has presented huge
opportunities for food service providers and contract caterers.

1.2.11 Fragmentation of hotel industry

There has been an increase in no-frills and budget options, most notably within the hotel
industry. Hotels are now classed as business or leisure hotels and there are almost two
separate markets for luxury and budget hotels, with mid-market (mainly three-star and
below) hotels falling between the two.

1.2.12 Alignment of pubs and restaurants

A ban on smoking in all enclosed public places came into force in Scotland in March
2006. This continues to have an effect on the industry, most noticeably for pubs and bars.
Pub food has become more important and is now challenging the restaurant industry. The
growth of the gastropub and the increase in the number of pubs offering cheaper food
options has also increased competition across the sector. There has also been a move
towards a coffee-shop culture, with pubs and bars serving more coffees.

1.2.13 Conferences

There has been a slight shift away from residential conferences to day conferences.
Average rates showed a decline in the daily delegate rate for residential conferences but a
marginal increase for non-residential. The conference and meetings market remains
highly competitive but venues report a general tightening of budgets and a move towards
shorter and smaller conferences. A key emerging trend is shorter lead booking times, with
many venues indicating that this is now the norm.

1.2.14 Technology
A number of technological advances are changing the way the industry operates. Many of
these innovations are designed to reduce staffing costs, increase productivity and offer
customers a wider and more informed choice. Current developments include:

a steady growth in the use of the internet to purchase goods and services;

faster broadband technologies enabling a wider range of internet services;

online booking and checking-in facilities;

a growing use of user-generated content (UGC)

advances in mobile phone applications;

database-mining techniques to find new customers;

The use of social networking sites to find new customers.

1.2.15 Future growth prospects

According to the world travel and tourism council, the growth in the hospitality industry
is pegged at 15% every year, and with 2,00,000rooms (both luxury and budget) needed in
the country, the segment is poised for a stupendous growth. While the high influx of
foreign tourists has ensured huge footfalls for the sector over the years, internal tourism
too has, off late, begun offering great potential. With travelers taking new interests in the
country, players in the hospitality sector have had to offer the best of services, at
affordable prices. Also, with the USD 23 billion software services sector pushing the
Indian economy skywards, more and more IT professionals are flocking to Indian metro
cities, thus signaling a boomtime for the hotel and hospitality segment. Several other
factors such as Commonwealth Games in Delhi are fueling the need further.
10

The Indian hospitality industry is projected to grow at a rate of 8.8% between 2007 to
2016, placing India as the second-fastest growing tourism market in the world. Initiatives
like massive investment in hotel infrastructure and open sky policies made by the
government are all aimed at propelling growth in the hospitality sector. Hotel and
hospitality industries are among the biggest employment generators in the country.
Towards propelling its growth, while the government should confer infrastructure status
to the hotel industries, several taxation issues also need to be rationalised. Further permits
and licenses required for the hotel operations need to be rationalised by offering a single
window mechanism, says Sanjay Gupta, CMD, Neesa Leisure Ltd, the Group which
boasts of providing state-of-the-art facilities and services at its hotels.
The governments decision to substantially upgrade 28 regional airports in smaller towns
and privatization & expansion of Delhi and Mumbai airport has improved the business
prospects of hotel industry in India. Also, the upgrading of national highways connecting
various parts of India has opened new avenues for the development of budget hotels in
India. Couple this with the availability of qualified human resources and the hospitality
sector has already got great growth prospects! A focus on quality, behaviour-based
evaluation, market choice and market response has predominantly shaped the States
hospitality industry. Increased competition and increase in demand has consolidated the
hospitality segment, whilst opening up a plethora of opportunities. Fierce competition has
led to innovative ideas by hotel majors, thereby delivering impressive hospitality
products and services. This has, in turn, also prompted them to generate new lines of
revenue with creative approaches, be it by reducing transaction costs, increasing
productivity or promoting traditional Indian values.
A pioneering initiative, herein, is the concept of mixed-use developments, wherein the
real estate typically includes an apartment block of a commercial block along with a
hotel. Still in its nascent stages in India, the concept offers inspiring potential. Also, the
entry of multinationals and Indian hotel chains expanding internationally only reinforces
the segments untapped business potential. Combining unparalleled growth prospects and
unlimited business potential, this industry is certainly on the foyer towards being a key
player in the nations changing face.
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1.3 COMPANY PROFILE

1.3.1 India's Fastest Growing Chain of Upscale Business and Leisure

Hotels
Lemon Tree Hotels is India's largest chain of upscale hotels and resorts - the perfect
choice for today's discerning yet value conscious traveler.
Like the fruit they are named after, Lemon Tree Hotels are fresh, cool and sparkling with
zest. Walk in these hotels and be embraced by the signature lemon fragrance, a cheery
smile, uplifting colours and perhaps a wagging tail. People can relax and know that they
have arrived at someplace trusted where service is personalized yet professional.
youthful and contemporary hotels add a new twist to stay every time.
The Lemon Tree Hotels group recently launched Lemon Tree Premier, its new upscale
'plus' brand that retains the essence of the upscale Lemon Tree by continuing to provide
the fresh, fun and spirited experience the group is so well known for. The dcor is
'refreshingly elegant', making it perfect for the style conscious and upbeat business
travelers.
Lemon Tree Premier provides an enhanced product offering with sedan cars for airport
transfers; superior in-room amenities; a higher share of top-of-the-line premium rooms;
specialty restaurants; iMac terminals in the Business Center; a Life Fitness equipped gym
and a rejuvenating spa.
With a total of 15 hotels across India, Lemon Tree Hotels operates 12 hotels in
Ahmedabad, Aurangabad, Bengaluru, Chandigarh, Chennai, East Delhi, Gurgaon, Goa,
Indore, Muhamma - West of Kumarakom and Pune and Lemon Tree Premier operates 3
hotels in Bengaluru, Gurgaon and Hyderabad.
Lemon Tree Hotels are India's first, largest and finest chain of upscale hotels and resorts.
Not surprisingly, they say that being at a Lemon Tree hotel is like being offered a tall
glass of icy cold lemonade after hours of traipsing through the hot and dry desert!
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Lemon Tree Premier, the new upscale 'plus' brand that retains the essence of the upscale
Lemon Tree by continuing to provide the fresh, fun and spirited experience the group is
so well known for. Lemon Tree Premier provides an enhanced product-service offering
and superior amenities. At Lemon Tree Premier - it's everything that the customers love
about the 'refreshingly different' Lemon Tree Hotels.
Lemon tree hotel, Chennai Lemon tree located in hearted of Chennai on sarder patel
road on guindy, the hotel in close proximity to tidel park which houses Cognizant, satyam
computers, Tata consultancy services and HCL Technologies. The hotel is directly
opposite raj bhavan and easily accessible from anna university and Indian institute of
technology, Chennai
The refreshing interiors and large windows are designed to bring the outdoors in. The
centrally air conditioned hotel offers a mix of rooms, studio rooms and suites, business
centre, meeting rooms, a 24*7 multi-cusinie coffee shop, citrus caf, a hip recreation bar,
slounge as well as an outdoor pool and fitness center to keep the feeling as fresh-aslemon.

1.3.2 Vision
At the Lemon Tree Hotel Company they plan to be India's largest and finest chain of
upscale hotels and resorts.

1.3.3 Mission
At Lemon Tree Hotels, they make sure that it remains bright and clear. That's why
lemontree hotels are committed to:

The well-being of their colleagues, whose happiness and self-worth is of utmost

importance to them.

The delight of their customers, whose safety, security and sense of well-being and
care is the main reason for being.

The expectations of the shareowners, whose confidence and trust propel them to
excel further.
13

The needs of society, so that may give back a part of what they receive, to
contribute to a greater goal.

The efficiency of their processes, so that can be the most cost-effective quality
service provider and thereby offer the greatest value, so the customers have every
right to expect.

1.3.4 Awards for Lemon Tree Hotels

NCPEDP - Shell Helen Keller Award Winner in 2010 for policies, practices and
beliefs in equal rights and gainful employment for persons with disabilities. This
annual recognition by the National Centre for Promotion of Employment for
Disabled People (NCPEDP) is given to only four institutions nationally.

Ranked 69th, in the 2011 study of 100 Best Companies to Work For by the Great
Place to Work Institute & the Economic Times

The NCPEDP - MphasiS Universal Design Award, 2011 (for work done towards
the cause of accessibility)

SATTE 2010, Best Mid-Market Developer Recognition at India's largest travel

industry event is testament to Lemon Tree Hotels exponential growth in the midmarket hotel space.

FHRAI Hall of Fame, 2010 Awarded by the Federation of Hotel and Restaurants
Association of India for invaluable contribution to the growth of the hospitality
sector in India.

All Lemon Tree Hotels are recommended on Trip Advisor. This is a testament to
continued and consistent commitment to excellence.

4 Lemon Tree hotels - Goa, Pune, Ahmedabad, Aurangabad are in the elite list of
Expedia Insider's Select hotels for 2010. Note: The Expedia Insiders' Select
list is an annual award recognizing the top 1% of the best hotels available in
Expedia's global marketplace. Expedia is the world's largest online travel
marketer and attracts 864,000 hotel shoppers and over 1,500,000 travelers daily.
Note: TripAdvisor.com is the world's largest travel site with over 40 million
trusted reviews by travelers. The site assists customers to gather travel
information, post reviews and opinions of travel related content and engage in
14

interactive travel forums. TripAdvisor.com is part of the TripAdvisor Media

Group, operated by Expedia

Lemon Tree Hotel, Hinjawadi, Pune: Winner of TripAdvisor's Traveler's Choice

2010 Awards (Top 10 in service among all hotels in India) exemplifies our
promise to deliver best-in-class service.

Republic of Noodles, Goa: Winner of Times Food Award in the category of 'Best
Pan Asian Restaurant in North Goa' for the year 2010 & 2011.

1.3.5 Lemon Tree Hotels - Rich Core Values

Integrity Lemon Tree hotels maintain the highest ethical standards, fairness and
transparency in all their dealings.

Courage and responsibility This hotel always have the conviction to take
responsibility for their actions.

Respect and concern They exhibit respect and concern for colleagues, customers
and partners in all their interactions.

Excellence Lemon tree hotels seek ways to add value to the business to deliver
better solutions to customers at lower costs.

Teamwork - They will synergize our capabilities and recognize that superlative
performance is always the result of teamwork.

Fun Lemon tree hotels will create an exciting, fun filled environment
encouraging their colleagues to successfully pursue both personal and
organizational goals.

1.3.6 Safety and Security

Lemon Tree Hotels offer the opportunity to stay without a worry by ensuring that
customer are safe from security hazards at all times.

Individual fire indicators outside each room to expedite emergency response in

case of a fire emergency.

Wide angle (110 degrees) peephole on room entrance doors.

15

Safety chain and double lock facility in the main room door interactions.

Emergency procedures notice displayed behind the entrance door.

Fire resistant room door (up to a limited extent).

All entrance doors are lined with an environmental seal to minimize noise and
protect the room from external smoke, in case of fire.

Smoke detector in each room.

Water sprinklers in each room for enhanced fire safety.

Entrance door and bathroom doors can be double locked from the inside.

1.3.7 Lemon Tree Hotels - Eco-Friendly Practices

Committed to a healthy, happy earth, Lemon Tree Hotel-located across India from
Gurgaon to Bengaluru has implemented many eco-friendly processes for energy and
water preservation, responsible waste management as well as measures to control water,
noise and environmental pollution.
The Lemon Tree Hotel Company strongly believes in conservation of natural resources,
and has therefore implemented many eco-friendly processes for energy and water
preservation, responsible waste management as well as measures to control water, noise
and environmental pollution.

1.3.8 Energy Conservation

Variable Refrigerant Volume (VRV) technology for air-conditioning 30% more

efficient and superior comfort than conventional

CFL Lighting provides as much light as a conventional bulb yet consumes far less
energy

Key Tag Energy Saver System conserves energy in unoccupied rooms

Natural lighting reduces power consumption dramatically

Double Glazed Vacuum Sealed Windows conserves energy and reduces noise

Auto Time Management for lighting, air-conditioning and ventilation Fans

conserves energy

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Energy-Efficient Hydro-Pneumatic System for water supply ensures constant

pressure and reduces load on pumps

LT Voltage Stabilizer for energy saving prevents damage to equipment due to

sudden power fluctuations

Thermal Insulation increases room comfort and conserves energy

1.3.9 Water Conservation

Aerators/Flow Restrictors maintains water force and yet reduces outflow, hence
saving water

Rain Water Harvesting protects and replenishes water table

Auto Flush For Public Urinals minimizes water wastage

1.3.10 Waste Management

Sewage Treatment prevents pollution

1.3.11 Noise Pollution Management

Double Glazed Vacuum Sealed Windows reduces external noise level below 50
decibels

Environmental Seals prevents entry of noise and smoke (in case of fire) into the
room

Noiseless Generators acoustically insulated, the sound level is dampened to a

minimal level

1.3.12 Interiors
Rubber Wood and Particle Board helps save trees

1.3.13 Operational Practices

Laundry Paper bags instead of plastic. Environmentally friendly

Recycled Garbage Bags bio-degradable. Environmentally friendly

Water Glasses inverted and placed on a cork surface, thereby doing away with
plastic covers

Pencils not plastic pens

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1.3.14 Corporate Social Responsibility

One of the guiding principles of Lemon Tree Hotels is that the company exists first and
foremost for the well being of its employees, the community it operates in and society at
large.

They

undertake

various

initiatives

to

achieve

these

objectives.

The 'People with Disabilities' Initiative

As an equal opportunity employer, the company intends to employ at least 300 people
with disabilities by 2012. At present, this number stands at 100+ pan India. The
Management is confident in well trained differently enabled team members will delight
the people with the enthusiasm and alertness during the next visit to any of their hotels.
In 2010, in recognition of this initiative, Lemon Tree Hotels was awarded the NCPEDP
Shell Helen Keller Award by the National Centre for Promotion of Employment for
Disabled People (NCPEDP). This is an annual recognition given to only four
organizations nationally who through their policies and practices demonstrate their belief
in equal rights and gainful employment for persons with disabilities.
In 2010, LTH organized a 5 day training program, in partnership with British School,
New Delhi and Noida Deaf Society, on "Basic Computer Skills" for the benefit of
disabled people working at their NCR hotels. 18 employees attended this program held
from 9th to 13th August.
In 2011, Lemon Tree Hotels was awarded the NCPEDP MphasiS Universal Design
Award by the National Centre for Promotion of Employment for Disabled People
(NCPEDP). This award recognizes and acknowledges organizations who are playing a
pivotal

role

in

making

life

more

accessible

for

people

with

disabilities.

1.3.14(a) Promoting Tribal Art

Lemon Tree Hotels is the largest buyer nationally of tribal art from Bastar, Madhya
Pradesh. This enables the group to support poor tribal craftsmen in this region and allows
the chain to showcase their art extensively across its hotels.
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1.3.14(b) Caring for the Environment

Our existing and upcoming hotels are designed and constructed to qualify for the L.E.E.D
Gold Standard. Leadership in Energy and Environment Design (L.E.E.D) is the
internationally recognized eco-friendly building certification standard awarded by the
United States Green Building Council (USGBC) and the Indian Green Building Council
(IGBC) to buildings designed for energy savings, efficient use of water, reduction of CO 2
emission and overall improvement in environmental quality.

1.3.14(c) Giving Back to Society

LTH supports the NGO Goonj which provides clothes and utensils to the
impoverished.

LTH has donated gifts to students of the Ramanujan Society for successfully
clearing the IIT entrance exam.

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1.4 SERVICES PROFILE

Lemon tree hotels offers and vacation packages are ideal for families, couples and
business travelers and provide excellent value for money.

1.4.1 Rooms: All rooms offer:

WIFI net access

Full sized working desk with ergonomic executive chair.

Complimentry daily newspaper and mineral water.

Cable television

Minibar

Well appointed bathrooms

1.4.2 Food and Beverages

Citrus caf

Slounge

Room service 24*7

1.4.3 Conference Facilities

Top-of-the-line, fully equipped with:

WIFI/Broadband net access

Surround sound system

Built-in lcd projector with screen

Large screen television

DVD player

Board room: WIFI/Broadband net access

White board

Seats 4

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1.4.4 Other services

24*7 reception, housekeeping, room service and coffee shop.

Fitness centre

Outdoor swimming pool

Business centre

Travel assistance, currency exchange and safe deposit lockers.

Commitment to right price extends not just to the room rate but to all services, including
Meals, business centre facilities and telecommunications.
Tariff
Type of Room

Single(in Rs.)

Double(in Rs.)

Superior Room

6000

7000

Executive Room

7000

8000

Studio Room

8000

9000

Executive Suite

10000

10000

Features of Room
Well sized with king/queen/twin
beds.
Spacious
beds.DVD

room

with

player,

electronic safe.
Large
room,

DVD

bathtubs,
player,

electronic safe.
Extra large rooms, seperate sitting
rooms, dvd player, microwave
ovens, bathtubs, electronic safe,
airport pickup included.

21

king

2.1 REVIEW OF LITERATURE

2.1.1 Meaning of finance
A branch of economics concerned with resource allocation as well as resource
management, acquisition and investment. Simply, finance deals with matters related to
money and the markets.
In general term finance means management of money for your expenses. In broad term
finance is the science of funds management. Finance includes saving money and often
includes lending money. The general areas of finance are business finance, personal
finance, and public finance. Finance is also a money budget management. The field of
finance deals with how money is spent and budgeted. It also deals the concepts of time,
money and risk and how they are interrelated. Finance is used by individuals as personal
finance, by governments as public finance, by businesses as corporate finance, as well as
by a wide variety of organizations including schools and non-profit organizations.
Finance is the need of the today world economy.

2.1.2 Types of Finance

There

are

mainly

two

type

of

finance

found

in

the

current

economy.

1. Personal finance: In this finance decisions may involve paying for education,
financing durable goods such as real estate and cars, buying insurance, e.g. health and
property insurance, investing and saving for retirement. Personal financial decisions may
also involve paying for a loan, or debt obligations.
2. Corporate finance: It is the task of providing the funds for a corporation's activities.
Corporate finance can easily categorized in two category. First one is Short term finance
which generally involves balancing risk and profitability, while attempting to maximize
an entity's wealth and the value of its stock.
22

Long term funds are provided by ownership equity and long-term credit, often in the
form of bonds. The balance between these forms the company's capital structure. Short
term funding or working capital is mostly provided by banks extending a line of credit.
Another business decision concerning finance is investment, or fund management. An
investment is an acquisition of an asset in the hope that it will maintain or increase its
value.

2.1.3 Meaning of Financial performance

Financial performance analysis (also referred to as financial statement analysis or
accounting analysis) refers to an assessment of the viability, stability and profitability of a
business, sub-business or project.
It is performed by professionals who prepare reports using ratios that make use of
information taken from financial statements and other reports. These reports are usually
presented to top management as one of their bases in making business decisions.
Research into data relating to the stability and profitability of businesses, especially to
guide one's investing practices. At its most basic, financial analysis involves looking at
financial statements to determine if a company is healthy. Balance sheets are important to
financial analysis as they provide a ready-made means of investigating performance.

2.1.4 Importance of Financial performance

Analyzing financial statements, investors review important factors in a company's
economic status.

These elements include solvency, liquidity, risk management and profitability.

A financial statement is an accounting document summarizing an organization's
economic events and their impacts on the firm's competitive position.

There are four types of economic data summaries: balance sheets or statements of
financial position, statements of profit and loss, statements of cash flows and
reports on shareholders' equity, also known as statements of retained earnings.
23

Securities exchange players review financial statements to identify factors that may
undermine a company's operating efforts. These statements enable investors to raise
questions about how carefully corporate management formulates operating plans.
Competitors also take a peek at corporate performance data to see how other
companies are turning struggling businesses around. Business partners, such as
lenders and suppliers, also appraise a firm's performance information before
advancing funds or extending trade credit.

2.1.5 Types of Financial performance

Financial statements can be referred to as representation of the financial status of a
company in a systematically documented form.
There are different types of financial statements. Financial statements, are required to be
audited by authentic, efficient audit firms to avoid manipulation of numbers.
Statements are usually audited by the accounting firms after a thorough study of the
company records.
Basically, there are four different types of financial statements. The different types of
financial statements indicate the different activities occurring in a particular business
house.

Balance Sheet

Income statement

Statement of retained earnings

Statement of cash flow or Cash flow statement

2.1.5(a) Balance sheet: The balance sheet provides an insight into the financial status of
a company at a particular time. The balance sheet, type of financial statement is different
in comparison to the other types of financial statements. Other financial statements are
prepared by taking into account the financial health of the company over a considerable
span of time.

24

2.1.5(b) Income statements: Also known as the P&L statement or the Profit And Loss
Statement. This statement, ascertains the profit and loss of any business. This
can be again of two types:

Single Step Income Statement

Multi Step Income Statement

Income statements are basically classified into single step income statements and
multi step income statements. Single step statement is a type of income statement
which uses a single formula to derive the net income. The formula used is Net Income
= (Revenues + Gains) (Expenses + Losses). A multiple income statement which has
uses multiple formulas and has multiple steps to derive at the net income, however
this method is the one which is mostly used as it gives a detailed report which
includes cost of the goods sold, operating expenses, non-operating expenses which
are finally deducted from gross sales to conclude on the net income.

2.1.6 Statements of Retained earnings

This financial statement denotes alterations in the title rights of equities, in any business.

2.1.7 Meaning of Working Capital Management

Working capital measures how much in liquid assets a company has available to build its
business. The number can be positive or negative, depending on how much debt the
company is carrying. In general, companies that have a lot of working capital will be
more successful since they can expand and improve their operations. Companies with
negative working capital may lack the funds necessary for growth. also called net current
assets or current capital.
Working capital is how much in liquid assets that a company has on hand. Working
capital is needed to pay for planned and unexpected expenses, meet the short-term
obligations of the business, and to build the business. A lack of working capital makes it
hard to attract investors or to get business loans or obtain credit.
25

The accounting formula used to calculate the available working capital of a business is:
Current Assets - Current Liabilities = Working Capital
Working capital can be reflected as a positive or negative number depending on how
much debt the business is carrying.
Sources of Working Capital: From an accounting standpoint, working capital comes
from:

Net income;

Long-term loans (non-current liabilities);

Sale of capital (non-current) assets; and

Funds contributed by the owners and investors.

Working capital means the funds (i.e., capital) available and used for day to day
operations (i.e., working) of an enterprise. It consists broadly of that portion of assets
of a business which are used in or related to its current operations. It refers to funds
which are used during an accounting period to generate a current income of a type
which is consistent with major purpose of a firm existence.

2.1.8 Objectives of Working Capital

Every business needs some amount of working capital. It is needed for following
purposes For the purchase of raw materials, components and spares.
To pay wages and salaries.
To incur day to day expenses and overhead costs such as fuel, power, and office
expenses etc.
To provide credit facilities to customers etc.

2.1.9 Factors that determine working capital

26

The working capital requirement of a concern depend upon a large number of factors
such as

Size of business.

Nature of character of business.

Seasonal variations working capital cycle.

Operating efficiency.

Profit level.

2.1.9(a) Sources of working capital: The working capital requirements should be

met both from short term as well as long term sources of funds. Financing of working
capital through short-term funds has the benefits of lower costs and establishing close
relationship with banks.
Financing of working capital through long term sources provides the benefits of
reduces risk and increases liquidity.
2.1.9(b) Types of working capital: Working capital an be divided into two
categories

Permanent working capital: It refers to that minimum amount of investment in

all current assets which is required at all times to carry out minimum level of
business activities.

Temporary working capital: The amount of such working capital keeps on

fluctuating from time to time on the basis of business activities.

Advantages of working capital:

It helps the business concern in maintaining the goodwill

It can arrange loans from banks and others on easy and favourable terms.

It enables a concern to face business crisis in emergencies such as depression.

It creates an environment of security, confidence, and all over efficency in a

business.

It helps in maintaining solvency of the business.

27

Disadvantages of working capital:

Rate of return on investments also fall with the shortage of working capital.

Excess

working

capital

may

result

into

over

all

inefficiency

in

organization.Excess Working capital means idle funds which earn no profits.

2.1.10 Management of working capital

A firm must have adequate working capital, i.e.; as much as needed the firm. It should
be neither excessive nor inadequate. Both situations are dangerous. Excessive
working capital means the firm has idle funds which earn no profits for the firm.
Inadequate working capital means the firm does not have sufficient funds for running
its operations. It will be interesting to understand the relationship between working
capital, risk and return. The basic objective of working capital management is to
manage firms current assets and current liabilities in such a way that the satisfactory
level of working capital is maintained, i.e.; neither inadequate nor excessive. Working
capital some times is referred to as circulating capital. Operating cycle can be said
to be t the heart of the need for working capital. The flow begins with conversion of
cash into raw materials which are, in turn transformed into work-in-progress and then
to finished goods. With the sale finished goods turn into accounts receivable,
presuming goods are sold as credit. Collection of receivables brings back the cash to
cycle.

The company has been effective in carrying working capital cycle with low working
capital limits. It may also be observed that the PBT in absolute terms has been
increasing as a year to year basis as could be seen from the above table although
profit percentage turnover may be lower but in absolute terms it is increasing. In
order to further increase profit margins, SSL can increase their margins by extending
credit to good customers and also by paying the advance get better rates.

28

2.1.11 Meaning of Altman Z-score

The Altman Z-Score is a quantitative balance-sheet method of determining a companys
financial health. Safe companies, i.e. companies that have a low probability of
bankruptcy, have an Altman Z-Score greater than 3.0.
The Altman Z-Score is a measure of a companys health and likelihood of bankruptcy.
Several key ratios are used in the formulation of an Altman Z-Score Value.
The Altman Z-Score, developed by finance professor Edward Altman, is a mathematical
formula that generates a number that tells how likely a company is to head toward serious
financial difficulty in about two years or less. The measure uses financial data from a
company's income statement and balance sheet. The formula is based on a company's
assets, earnings, revenue and market value.
A company's Altman Z-Score is easy interpreted. The rule of thumb is that a company is
in big trouble if its Altman Z-Score is less than 1.8. If a company's score is 3.0 or greater,
it's believed to be in decent health based on the financial data.

2.1.12 Review on Financial analysis

Financial ratios are widely used for modelling purposes both by practitioners and
researchers. The firm involves many interested parties, like the owners, management,
personnel, customers, suppliers, competitors, regulatory agencies, and academics, each
having their views in applying financial statement analysis in their evaluations.
Practitioners use financial ratios, for instance, to forecast the future success of companies,
while the researchers' main interest has been to develop models exploiting these ratios.
Many distinct areas of research involving financial ratios can be discerned. Historically
one can observe several major themes in the financial analysis literature. There is
overlapping in the observable themes, and they do not necessarily coincide with what
theoretically might be the best founded areas, ex post. The existing themes include

the functional form of the financial ratios, i.e. the proportionality discussion,

distributional characteristics of financial ratios,

29

classification of financial ratios,

comparability of ratios across industries, and industry effects,

time-series properties of individual financial ratios,

bankruptcy prediction models,

explaining (other) firm characteristics with financial ratios,

stock markets and financial ratios,

forecasting ability of financial analysts vs financial models,

estimation of internal rate of return from financial statements.

The history of financial statement analysis dates far back to the end of the previous
century (see Horrigan, 1968). However, the modern, quantitative analysis has developed
into its various segments during the last two decades with the advent of the electronic
data processing techniques. The empiricist emphasis in the research has given rise to
several, often only loosely related research trends in quantitative financial statement
analysis. Theoretical approaches have also been developed, but not always in close
interaction with the empirical research.
Technically, financial ratios can be divided into several, sometimes overlapping
categories. A financial ratio is of the form X/Y, where X and Y are figures derived from
the financial statements or other sources of financial information. One way of
categorizing the ratios is on the basis where X and Y come from (see Foster, 1978, pp.
36-37, and Salmi, Virtanen and Yli-Olli, 1990, pp. 10-11 In traditional financial ratio
analysis both the X and the Y are based on financial statements. If both or one of them
comes from the income statement the ratio can be called dynamic while if both come
from the balance sheet it can be called static. The concept of financial ratios can be
extended by using other than financial statement information as X or Y in the X/Y ratio.
For example, financial statement items and market based figures can be combined to
constitute the ratio.
In this paper reviewed the existing trends in financial statement analysis literature by
focusing primarily on the theoretical and empirical basis of financial ratio analysis. This
is an important task to carry out since the ratios are often used intuitively, without
30

sufficient consideration to their theoretical meaning and statistical properties. In doing

this it is our purpose to pinpoint the different directions taken in quantitative ratio based
research. By critically considering financial ratio literature, we also aim to help the
decision makers to use ratios in an efficient way.
The research areas listed above. The primary areas of the literature concerning the
theoretical and empirical basis of financial ratio analysis are the functional form of the
financial ratios, distributional characteristics of financial ratios, and classification of
financial ratios. These three research avenues are reviewed in Section 2. All the major
financial ratio research avenues cannot be tackled within the limited space of this paper.
Therefore, the estimation internal rate of return from financial statements as the fourth
area. A fundamental task of financial analysis is evaluating the performance of the
business firm.

2.1.13 Review on working capital management

Robert A. Rudzki, discussed certain working capital improvements should be
spearheaded by procurement professionals. In the process, real value can be to the
company while demonstrating that you are able to drive strategic value across both costrelated and non-cost dimensions.
Payment terms are a great area for leadership by procurement. But there are some pitfalls
to avoid. Partly driven by their financial office, many procurement departments are
pursuing objectives of extending DPO year after year. The objective is typically to better
match DPO with DSO. In other words, balancing the cash cycle time tied up in accounts
receivable with the cash cycle time contributed by supplier payment terms.
A single-minded focus on DPO extension can, however, be counterproductive. In
particular, it can leave untested the willingness of suppliers to entertain aggressive
discount payment terms in exchange for early payment by the customer.
In this credit-constrained environment numerous examples of suppliers offering
aggressive discount terms in order to better manage their own cash flow cycle. If
procurement department is focused solely on extending net payment terms,
31

never

uncover the potential for better discounts. It is better, and more valuable, to obtain the
option of paying either discount or NET terms, at the companys discretion. Then, based
on the companys finances and liquidity objectives, your Treasury department will have
the flexibility to pay earlier and earn the discount, or pay on a net basis and hold on to
cash.
Jakob Weber in his article considers why corporates should take a strategic approach to
working capital, starting with a comprehensive financial review of all their business
processes. Cash is king, as they say, and now, more than ever, corporates need to make
sure that they have effective cash management and working capital processes in place.
Current market turbulence due to the knock-on effects of the sub-prime mortgage crisis in
the US and the increased attention to working capital and cash flows has led to a renewed
focus on effective working capital management and optimised cash management
processes. This is certainly the right idea but other management tools are needed. At the
core of this approach should be a strategic financial review of all business processes.
Companies should ask their banks to help them perform such analysis in order to support
management and the Board in outlining the organisation's final working capital strategy.
All companies want to increase the value of their business as much as possible and there
are at least three different ways to reach this objective. First, a company can raise its
margins; assuming, of course, that customers will still find the goods attractive. Second,
an organisation can change the company's loan portfolio or the combination of loans. The
third method could be to focus on working capital management, which basically
translates into getting money in as fast as possible, using it effectively and paying
suppliers as late as possible.
Over the past few years, companies and their advisers have increasingly concentrated on
working capital management. The optimal strategy will often comprise elements from the
above-mentioned three methods but it must always be based on a thorough, strategic,
financial analysis of the company. The company has to choose its drivers and should only
consider working capital when it is the driver with the greatest potential.

2.1.14 Review on Altman Z score calculation

32

M.S.Ramaratnam&R.Jayaraman

studied on

measuring the financial soundness

of

select firms with special reference to Indian steel industry - An empirical view with Z
score.
Measuring financial soundness of a firm has become an imperative and imminent need
in the context of emerging hyper competition at almost every sector of the business.
Financial soundness of a firm is reflected through various financial parameters which
are closely associated with

each

other.

general

belief

is

that a firms

operating performance depends on certain key financial factors viz., turnover, profit, asset
utilization etc and the variables which are found in profit and loss account and balance
sheet of a firm have a direct or indirect relation with each other. By establishing a
close relationship between the variables, a firm can analyze its financial performance in
terms

of

liquidity,

profitability,

to measure the performance,

ratios,

viability

and sustainability.

the indicators,

are normally

In

used to

order
identify

the financial health of the firm. As far as ratios are concerned, there are more than
40 different types of ratios are available to analyze and predict the financial soundness of
a firm.

Since single ratio

does

not convey

much

of

the sense,

Altman

combined a number of accounting ratios to form an index of profitability, which is

regarded as an effective indication of corporate performance in predicting financial
soundness of a firm. By keeping this in view, this article has made an attempt
to analyze and predict the financial health by way of applying Altmans Z- Score in
the select companies of Indian steel industry.
Indian steel industry is witnessed as one of the most crucial sectors of our
economic growth and the industry occupies a significant proportion in terms of industrial
output of

our

country.

In

the light

at the same time adopting a series

of

LPG,

including upgradation

the steel
of

industry

turned in

technology.

Financial

operations, they are not in a position to improve their debt servicing ability by
reducing debt

levels.

The major

factors

have been

pulling back of steel industry and they are as follows:

Long gestation period

Power supply
33

identified as

reasons

for

Apart

from

Input cost

Lack of effective logistics and

Impact of global economic slowdown

the above factors,

and low R&D investment

inadequate infrastructure,

have also

emerged as

dependence on

coal

undisputable reason

for

further weakening of Indian steel industry.

Therefore application of financial management technique is absolutely necessary
which in

turn

would help the steel

companies

and profitability.

34

in

increasing their

productivity

2.2 NEED FOR THE STUDY

Analyzing and calculating the company financial fitness.

Measuring the financial position and working capital management of the firm.

Measuring the companys health using the Altman Z- score.

Analyzing the fiscal fitness of the firm.

35

2.3 OBJECTIVES OF THE STUDY

2.3.(a) PRIMARY OBJECTIVE

To study on financial performance and Fiscal fitness of Lemon tree Hotels.

2.3(b) SECONDARY OBJECTIVES

To study the financial performance of the company.
To analyze fiscal fitness using altman z score.
To measure the companys effectiveness.
To access the working capital employed by the company.
To identify the financial strength and weakness of the company.

36

2.4 SCOPE OF THE STUDY

The study aims at identifying Financial performances and Fiscal fitness of Lemon tree.
It analyses the financial position of the firm based on the financial position of the firm
based on the financial results of the company in the previous year. This study helps the
company to take appropriate financial decision in the future.
The z score is calculated by multiplying each of several financial ratios by an appropriate
Co-efficient and then summering the results.

37

2.5 LIMITATIONS OF THE STUDY

The analysis is made from the annual reports which is not enough to analyze the
appropriate measure.

As the data is from the secondary sources they might have chances of biased
information.

Financial statements are prepared on the basis of certain accounting concepts and
conventions.

Any change in the methods or procedures of accounting systems limits the utility
of financial statements.

Ratios of the past are not true indicators of future.

38

3.1 RESEARCH METHODOLOGY

3.1.1 Research-Meaning
Research is a structured enquiry that utilizes acceptable scientific methodology to solve
problems and create new knowledge that is generally applicable. The term research is
defined as systematic investigative process employed to increase or revise current
knowledge by discovering new facts. It is divided into two general categories: (1) basic
research is inquiry aimed at increasing scientific knowledge, and (2) applied research is
effort aimed at using basic research for solving problems or developing new processes,
products, or techniques.

3.1.2 Research Methodology

Research methodology is a way to systematically solve the research problem.
Researchers not only need to know how to develop test, how to calculate chi-square,
coefficient of correlation, weighted average ,analysis of variance , how to apply research
techniques , but they also need to know which of these methods or techniques are
relevant and which are not, and what would they mean and indicate and why. Researchers
also need to understand the assumptions underlying various techniques and they need to
know the criteria by which they can decide that certain techniques and procedure will be
applicable to certain problems and others will not. All this means that it is necessary for
the researcher to design his methodology for his problem as the same may differ from
problem to problem

3.1.3 Research Design

A plan outlining how information is to be gathered for an assessment or evaluation that
includes identifying the data gathering method(s), the instruments to be used/created,
how the instruments will be administered, and how the information will be organized and
analyzed. The research design used in this study is the analytical research.

39

3.1.4 Analytical research

Analytical research is a type of research that utilizes critical thinking to find out facts
about a given topic and from the answers obtained develop new and useful ways of doing
things. Critical thinking is a method of thinking that puts assumptions into question to
decide whether a given claim is true or false.
The process of evaluating data using analytical and logical reasoning to examine each
component of the data provided. This form of analysis is just one of the many steps that
must be completed when conducting a research experiment. Data from various sources is
gathered, reviewed, and then analyzed to form some sort of finding or conclusion. There
are a variety of specific data analysis method, some of which include data mining, text
analytics, business intelligence, and data visualization

3.1.5 Source of Data

Secondary Data are those which have already been collected by someone else and
which have been passed through the statistical process.
The type of data collection for this research was secondary data which is collected from
the companys balance sheet journals and pre-historical data.

3.1.6 Tools Used for Analysis

3.1.6(a) Financial ratios
A financial ratio is a relationship that indicates something about a company's activities,
such as the ratio between the company's current assets and its current liabilities or
between its debtors and its turnover.
The basic source of these ratios is the company's profit & loss account and balance sheet
that contain all kinds of important information about that company. The ratios really help
to bring those details to light and identify the financial strengths and weaknesses of the
company.
40

When assessing ratios, it is important that the results are compared with other companies
in the same industry and not to be taken in isolation.
3.1.6(b) Current Ratio
Current Assets
One

of

the

Current Liabilities

most

universally known ratios, which reflect the Working Capital situation, indicates the ability
of a company to pay its short-term creditors from the realisation of its current assets and
without having to resort to selling its fixed assets to do so.
Ideally the figure should always be greater than 1, which would indicate that there are
sufficient assets available to pay liabilities, should the need arise. The higher the ratio the
better.
For those industries such as transport where the majority of assets are tangible fixed
assets, then a figure of 0.6 would be acceptable. In retail and manufacturing we would
expect figures between 1.1 to 1.6; in wholesale and construction 1.1 to 1.5 and motor
vehicles 1.2 to 1.6. Generally where credit terms and large stocks are normal to business,
the current ratio will be higher than, for example, a retail business where cash sales are
the norm.

41

3.1.6(c) Liquidity Ratio

Current Assets Stock
Current Liabilities
This ratio indicates the ability of a company to pay its debts as they fall due. It is
generally considered to be a more accurate assessment of a company's financial health
than the current ratio as it excludes stock, thus reducing the risk of relying on a ratio that
may include slow moving or redundant stock.
Figures of this ratio are lower than the current ratio. Supermarkets can, for example,
easily survive on ratios as low as 0.4 with cash being received for goods sold, before the
goods are actually paid for. Plant hire contractors would also expect ratios as low as 0.6
to 0.8. Clothing retailers also operate at very low levels, with average figures being
between 0.2 and 0.6 and retail as a whole between 0.3 and 0.7. In manufacturing figures
between 0.7 and 1.1 are seen as acceptable and for wholesalers 0.7 to 1.0. Construction
should operate at between 0.6 and 1.0.
3.1.6(d) Solvency Ratio
Shareholders Funds x 100
Total Assets
This ratio measures if the total liabilities of a business (both secured and unsecured) are
too high, indicating a possible over dependency on outside sources for long-term
financial support. By comparing shareholders funds to total assets we can produce a
confidence factor for unsecured creditors to the business. As a general rule, the higher the
result the better, although results for new companies are distorted as the business would
not have had the trading history to develop high levels of net worth. An average score
would be between 30% and 50% whilst poor performers can generate scores of below
10% or even have a negative score. Exceptionally performing businesses could reach a
value in excess of 65%.

42

3.1.6 (e) Debtors Collection Period

Debtors x365 (days)
Turnover
Measures the length of time a company takes to collect its debts and is measured in days.
In general terms the figure indicates the effectiveness of the company's credit control
department in collecting monies outstanding.
Apart from strictly cash businesses like supermarkets with virtually zero debtors, normal
payment terms are at the end of the month following delivery, giving an average credit of
between 6 and seven weeks. Clothing retailers show some of the lowest figures with
averages of around 7 days. In manufacturing average figures are around 63 days, with 42
being experienced at the top end and 84 days at the lower end. Average for wholesalers is
around 56 days, whilst in construction the figures are lower, at around 45 days.
3.1.6(f) Creditor Days
Creditors x 365 (days)
Turnover
This ratio measures the length of time it takes a company to pay its creditors.
Generally the average figure is around 30 days. In the construction industry the average is
around 31 days, rising to 54 days at the bottom end and down to 17 days at the top. For
wholesalers the average rises to 37 days, with top and bottom figures being 18 and 61
days respectively. For retail the average figure drops to 23 days with 40 days being in the
bottom sector. For food retailers as low as 8 - 12 days is the norm. In manufacturing
averages tend to be around 37 days, with the worst performers rising to 55 days and the
best showing creditor days of around 22 days.
3.1.6(g) Stock/Turnover
Turnover
Stock
43

Measures the number of times a company converts its stock into sales during the year.
When examining this ratio it should be borne in mind that different companies will have
varying levels of stock turnover depending on what they produce and the industry they
operate in.
Low figures are generally poor as they indicate excessively high or low moving stocks.
At one end of the scale, and apart from advertising agencies and other service industries,
ready mixed concrete companies probably have one of the better stock/turnover figures.
At the other end companies that maintain depots of finished goods and replacement parts
will have much poorer figures. For example, a manufacturing company with
stock/turnover ratio of around 25 - 30 would be reasonable, decreasing with the larger
and more complex the goods being made. For retail and wholesale, average figures would
be lower at around 9 - 10. For construction, average stock/turnover figures would be
around 16 and for industries such as transport, where overall stock figures are low, it
would produce results of around 80 - 90.
3.1.6(h) Profit Margin (Return on Sales)
Profit Before Tax x 100
Turnover
Measures the margin of profitability on sales throughout the year. This is the main
indicator when measuring the efficiency of the operation, a very good indicator of the
business's ability to withstand falling prices, rising costs or declining sales.
A normal figure for a manufacturing industry would be between 6% and 8%, while high
volume/low margin activities like food retailing can run very satisfactorily at around 3%.
Retailers generally will have a lower profit margin than most industries.
Highest margins of all are usually experienced in service industries where margins above
10% are enjoyed.

44

The percentage should be relatively constant and any reason for decline investigated.
Reasons for change could be a reduction in selling prices or increase in cost of sales.

3.1.7 Working Capital Statement

Working capital measures how much in liquid assets a company has available to build its
business. The number can be positive or negative, depending on how much debt the
company is carrying. In general, companies that have a lot of working capital will be
more successful since they can expand and improve their operations. Companies with
negative working capital may lack the funds necessary for growth. It is also called net
current assets or current capital.
Working capital is how much in liquid assets that a company has on hand. Working
capital is needed to pay for planned and unexpected expenses, meet the short-term
obligations of the business, and to build the business.
A lack of working capital makes it hard to attract investors or to get business loans or
obtain credit.
The accounting formula used to calculate the available working capital of a business is:
Current Assets - Current Liabilities = Working Capital

3.1.8 Altman z-score

Edward I. Altman, Professor and Vice-Director of New York University's Salomon
Center, Leonard N. Stern School of Business. Dr. Altman is known as the founding father
of using statistical techniques to predict company failure. He developed the Z-Score
analysis almost 30 years ago, and is the author of several books, including The Z-Score
Bankruptcy Model: Past, Present, and Future (New York: John Wiley & Sons, 1977), and
45

Corporate Financial Distress and Bankruptcy, 2nd edition (New York: John Wiley &
Sons, 1993).
3.1.8(a) Altman's Z-score calculates five ratios:

Return on total assets,

Sales to total assets,

Equity to debt,

Working capital to total assets, and

Retained earnings to total assets.

These ratios are then multiplied by a predetermined weight factor, and the results are
added together. The final number--the Z-score--yields a number between -4 and +8.
Financially-sound companies show Z-scores above 2.99, while those scoring below 1.81
are in fiscal danger, maybe even heading toward bankruptcy. Scores that fall between
these ends indicate potential trouble.
Although the numbers that go into calculating the Z-score (and a company's financial
soundness) are sometimes influenced by external factors, it provides a good quick
analysis of where your company stands compared to the competition, and a good tool for
analyzing the ups and downs of your company's financial stability over time.
The Altman Z-Score Analysis - 5 Ratios.
RATIO

FORMULA

WEIGHT FACTOR

WEIGHTED RATIO

x. 3.3

-4 to +8.0

x 0.999

-4 to +8.0

x 0.6

-4 to +8.0

x 1.2

-4 to +8.0

Earnings Before Interest and

Return on Total Assets

Taxes
----------------------------------------Total Assets
Net Sales

Sales to Total Assets

----------------------------------------Total Assets
Market Value of Equity

Equity to Debt

----------------------------------------Total Liabilities

Working Capital to Total

Assets

Working Capital
----------------------------------------Total Assets

46

Retained Earnings to Total

Assets

Retained Earnings
-----------------------------------------

x1.4

-4 to +8.0

Total Assets

Z-SCORE ABOVE 2.99--COMPANY IN GOOD SHAPE.

Z-SCORE BETWEEN 2.99 and 1.81--WARNING SIGNS.

Z-SCORE BELOW 1.81--BIG TROUBLE--COULD BE HEADING TOWARD

BANKRUPTCY.

3.1.8(b) Altman Z Score: Formula

Model B Z-Score for private general companies: this model analyzed the characteristics
and accuracy of a model without X5 - sales/total assets.
Model B Z-Score = 6.56X1 + 3.26X2 +6.72X3 +1.05X4
X1 = working capital/total Assets. It measures the net liquid asset of a company
relative to the total assets.
X2 = retained earnings/total Assets. It measures the financial leverage level of a
company.
X3 = earnings before interests and taxes/total Assets. It measures productivity of a
companys total assets.
X4 = market value of equity/book value of total liabilities. It measures what portion
of a companys assets can decline in value before the liabilities exceed the assets.
X5 = sales/total Assets. It measures revenue generating ability of a companys assets.

3.2 DATA ANALYSIS &INTERPERTATION

3.2.1 Table showing the Current Ratio.
FORMULA: current assets /current liabilities=
YEAR

CURRENT

CURRENT

CURRENT

ASSETS

LIABILITIES

RATIO

47

2009-2010
2010-2011
2011-2012

3962082570
40261.43
58098.53

1713020445
14450.50
17448.86

2.3:1
2.8:1
3.33:1

INFERENCE: From the above table it was inferred that current ratio in 2009 to 2010 is
2.3:1 and 2009 to 2010 is 2.8:1 and from 2010 to2011 is 3.33:1.
FINDING: From the above table analyzed that the current ratio for the following 3 years
is not ideal ratio for this company.

3.2.1 Chart showing the Current Ratio for 3 years.

3.2.2 Table showing the Liquid Ratio.

FORMULA: Current assets-stock/current liabilities
YEAR

CURRENT ASSETS-STOCK

2009-2010
2010-2011
2011-2012

(3962082570-496353336)
(40261.43-4343.44)
(580898.53-543809)
48

CURRENT

LIQUID

LIABILITIES
1713020445
14450.50
17448.86

RATIO
2.07:1
2.5:1
3.021

INFERENCE: From the above the liquid ratio in the year 2009 to 2010 is 2.07:1 and in
the year 2009 to 2010 is 2.5:1 and in the year 2010 to 2011 is 3.02:1.
FINDING: From this table the liquid ratio for the following 3 years is not ideal ratio for
this company.

3.2.2 Chart showing liquid ratio for the following 3 years.

3.2.3 Table showing Solvency Ratio

FORMULA: share holder funds/total assets *100

YEAR

SHARE HOLDER

TOTAL ASSETS

SOLVENCY

2009-2010
2010-2011
2011-2012

FUNDS
19400254911
205414.59
210287.71

48119741508
533866.09
632826.91

RATIO
40%
38%
33.23%

49

INFERENCE: From the above table found that the solvency ratio for the tear 2009 to
2010 is 40% and in the year 2009 to 2010 is 38% and in the year 2010 to 2011 is 33.23%
FINDING: From this table analyzed that the solvency ratio for the following 3 years is
the ideal ratio for the company.

3.2.3 Chart showing solvency ratio for 3 years.

3.2.4. Table showing Debtors Turnover Ratio.

FORMULA: Debtors*365/turn over
YEAR

DEBTORS

TURN OVER

2009-2010
2010-2011
2011-2012

315099080*365
3790.17
4930.21

5821646172
43012.18
52528.34

50

COLLECTION
PERIOD
19.76
32.16
34.22

INFERENCE: From the above table found that from the debtor turn over ratio in the
year 2009 to 2010 is 19.76 and in the year 2009 to 2010 is 32.16 and in the year 2010 to
2011 is 34.22
FINDING: From this table found that the debtor turn over ratio is not ideal to the
company.

3.2.4 Chart showing debtors turnover ratio.

3.2.5. Table showing Creditors Turnover Ratio

FORMULA: creditors*365/turn over ratio
CREDITOR
YEAR
2009-2010
2010-2011
2011-2012

CREDITOR
703740997
5704.59
509224

51

TURN OVER

TURNOVER

5821646171
43012.18
52582.34

RATIO
4.461
48.41
35.35

INFERENCE: From the above ratio found that the creditor turn over ratio in the year
2009 to 2010 is 4.461 and in the year 2009 to 2010 is 48.41 and in the year 2010 to 2011
is 35.35
FINDING: It is inferred that the creditor turn over ratio is ideal to this company.

3.2.5 Chart showing creditors turnover ratios.

3.2.6. Table showing Stock Turnover Ratio.

FORMULA : Turnover /stock

YEAR

TURNOVER

STOCK

2009-2010
2010-2011
2011-2012

5821646172
43012.18
52582.34

419635336
4343.33
5438.09

52

STOCK TURN
OVER RATIO
13.87
9.90
9.67

INFERENCE: From the above table found that from the stock turn over ratio in the year
2009 to 2010 is 13.87 and in the year 2009 to 2010 is 9.90 and in the year 2010 to 2011 is
9.67
FINDING: From this table found that the stock turn over ratio is ideal to this company.

3.2.6 Chart showing the stock turnover ratio for 3 years.

3.2.7. Table showing Profit Margin Ratio.

FORMULA: Profit before tax*100/turn over
YEAR
2009-2010
2010-2011
2011-2012

PROFIT
BEFORE TAX
1834531.829
6464.24
5762.37

TURN OVER
5221646172
4301218
525282.34

PROFIT
MARGIN RATIO
33.23
15.03
10.96

INFERENCE: From the above table found that from the profit margin ratio in the year
2009 to 2010 is 33.23 and in the year 2009 to 2010 is 15.03 and in the year 2010 to 2011
is 10.96
53

FINDING: From this table analyzed that the profit margin ratio for the following 3 years
is ideal ratio for the company.

3.2.7. Chart showing profit margin ratio for 3 years

Altman z- score model B calculation

Model B z- score calculation = X1 + X2 + X3 + X4 + X5
3.2.8 Table showing X1 ratio.
FORMULA: X1=working capital /total assets
YEAR
2009-2010
2010-2011
2011-2012

WORKING
CAPITAL
2249062125
25810.93
40649.67

TOTAL ASSETS

X1

48119741508
533866.09
632826.97

0.047
0.0483
0.064

INFERENCE: From the above table found that from the x1 ratio in 2009 to 2010 is
0.0483 and in the year 2009 to 2010 is 0.0483 and in the year 2010 to 2011 is 0.064
54

FINDING: From this table analyzed that the majority of working capital is high in year
2011-2012

3.2.8 Chart showing X1 ratio

3.2.9 Table showing X2 ratio.

FORMULA: X2=Retained earnings/total assets
YEAR
2009-2010
2010-2011
2011-2012

RETAINED
EARNINGS
1449846113
399.13
783.85

TOTAL ASSETS

X2

48119741508
533866.09
632826.97

0.030
0.0007
0.006

INFERENCE: From the above table we found that from the x2 ratio in the 2009 to 2010
is 0.030 and in the year 2009 to 2010 is 0.0007 and in the year 2010 to 2011 is 0.006

55

FINDING: From the above table it was found that the retained earnings and total assets
are high during the year 2009-2010

3.2.9 Chart showing X2 ratio.

3.2.10 Table showing X3 ratio.

FORMULA: X3=Earnings before int & taxes/total assets
EARNING
YEAR

BEFORE INT &

TOTAL ASSETS

X3

2009-2010
2010-2011
2011-2012

TAXES
2201811653
891105
111524.70

48119741508
533866.09
632826.97

0.046
0.0161
0.018

INFERENCE: From the above table we found that in the year 2009 to 2010 is 0.046 and
in the year 2009 to 2010 is 0.0161 and in the year 2010 to 2011 is 0.018

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FINDING: The majority of earnings before int & taxes and the total assets are high in the
year 0.098

3.2.10 Chart showing X3 ratio

3.2.11. Table showing X4 ratio.

FORMULA: Market value of equality/book value of total liabilities
MARKET

BOOKVALUE OF

YEAR

VALUE OF

TOTAL

X4

2009-2010
2010-2011
2011-2012

EQUALITY
755649984
7556.5
7756.5

LIABILITIES
48119741508
533866.09
632826.97

0.016
0.014
0.012

INFERENCE: From the above table we found that in the year 2009 to 2010 is 0.016 and
in the year 2009 to 2010 is 0.014 and in the year 2010 to 2011 is 0.012
FINDING: From this table analyzed the majority of market value of equality and total
liabilities are high in the year 2008-2009
57

3.2.11. Chart showing X4 ratio

3.2.12. Table showing X5 ratio.

FORMULA: X5=Sales/total assets
YEAR
2009-2010
2010-2011
2011-2012

SALES
4522349001
43012.18
52582.34

TOTAL ASSETS
48119741508
533866.09
632826.97

X5
0.094
0.081
0.083

INFERENCE: From the above table we found that in the year 2009 to 2010 is 0.094 and
in the year 2009 to 2010 is 0.081 and in the year 2010 to 2011 is 0.083.
FINDING : From the table we analyzed that the majority of sales are high in 2008-2009

3.2.12 Chart showing X5 for 3 years.

58

MODEL B calculation for 3 years.

2008-2009=X1 + X2 + X3 + X4 + X5=0.73
2009-2010=X1 + X2 + X3 + X4 + X5=0.45
2010-2011=X1 + X2 + X3 + X4 + X5=0.57
FINDING: From the table we found that from the all years the company is heading to
bankruptcy.

3.2.13 Working Capital Statement

PARTICULARS
Current assets
Inventories
Sundry debtors
Cash & bank
balance
Current
liabilities

2009

2010

INCREASE

386675989
386295761

419635336
315099080

32959347

295583119

303946405

932880832

1713020445

TOTAL

71196681
2651884714

32959347
NET
DECREASE

DECREASE

3503221008
3470261661

INFERENCE: From the above table we found that net decrease in the working capital is
3470261661rs

59

FINDING: From this following table analyzed that there is a decrease in the working
capital in the year 2009 to 2010

3.2.14 Working capital statement for the year 2010-2011

PARTICULARS
Current assets
Inventories
Sundry debtors
Cash & bank
balance
Current
liabilities

2010

2011

INCREASE

419635336
315099080

43434000
379017000

14708664
63917920

303946405

13477600

1713020445

144505000

267970445

TOTAL
NET

346597029

INCREASE

DECREASE

16970405

16970405

177426624

INFERENCE: From the above table we found that the net increase in the working
capital is 177426624 rs
FINDING: From the following table analyzed that there is a increase in the working
capital in the year 2010-2011

60

3.2.15 Working capital statement for the year 2011-2012.

PARTICULARS
Current assets
Inventories
Sundry debtors
Cash & bank
balance
Current
liabilities

2011

2012

INCREASE

434344000
379017000

5343809000
493021000

109465000
114004000

134776000

560523000

435747000

144505000

174488600
TOTAL
NET
DECREASE

DECREASE

299836000
649216000

299836000

349380000

INFERENCE: From the above table we found that the net increase in the working
capital is 349380000rs
FINDINGS: From the following table we analyzed that there is net decrease in the
working capital in the year 2011-2012.
61

3.3 FINDINGS OF THE STUDY

The companys current ratios for the 3 years are not ideal for this company.

The liquid ratios of the company for the 3 years are marginally low.

The solvency ratios for the following 3 years are ideal for the company.

The Companys debtor turn over ratio is not maintained properly.

The creditors turnover ratio is ideal to this company.

The stock turnover ratio is ideal to this company.

The profit margin ratio for the 3 years is ideal ratio for the company.

The majority of working capital is high in year 2011-2012

From the table of x2 ratio, the retained earnings and total assets are high in the
year 2009-2010

The majority of earnings before interest & taxes and the total assets are high in
the year 2010-2011 is 0.098.

From the table X5 ratio, the majority of sales are high in 2009-2010.

All x5 ratios we found that from the all years the company is heading to
bankruptcy.

There is a decrease in the working capital in the year 2009 to 2010.

There is a increase in the working capital in the year 2009-2010.

There is net decrease in the working capital in the year 2011-2012.

62

3.4 SUGGESTIONS & RECOMMENDATIONS

From the analysis of this study suggested that the companys financial ratio is not
ideal to the mark. So to develop that the company should maintain proper current
assets and current liabilities.

From the analysis of working capital statement the company has net increase in
the year 2010-2011, but it has got net decrease in 2009-2010 and in 2011-2012 to
maintain the good working capital in the firm there should be adequate cash
flows.

From the analysis of the altman z score ratios in all the 3 years the company is
heading to the bankruptcy. To avoid this firm should overcome the bad debts.

The company should try to avoid investing more on assets which affects the
requirement of working capital to operate the company. By reducing the
investments on assets , the company can reduce the its working capital
requirements.

The should try reduce its debts to ensure profitability in the company.

Though it is beneficial to have surplus retained earnings to avoid having excess

retained earnings to avoid any financial difficulties in future.

63

3.5 CONCLUSION
The present study FINANCIAL PERFORMANCE AND FISCAL FITNESS OF
LEMON TREE HOTELS was conducted with help of annual report. Various financial
tools are used in the study from the ratio analysis it has been found that the average
collection period of the company is high and current ratio is marginally low. It is the part
of the company to accept the suggestions suggested.
Profitability position was deteriorated year by year, liquidity position also moderate due
to high debts, the firms efficiency in utilizing assets is also very low.
Finally the study helped me to acquire practical knowledge that was only over by books
and papers alone. I take up thus opportunity to thank one and all for making study a
complete one.

64

BIBLIOGRAPHY

Books Referred

Financial Management I. M. Pandey Ninth EditionVikash Publishing housePvt

ltd.

Financial Management Theory and Practice Prasanna Chandra

S i x t h Edition Tata Mc Graw Hill Publishing company.

Management Accounting

Principles and Practice R. K. Sharma Sahashi

K.Guptha Eigth edition kalyani publishiers

Websites Visited:
www.cliffsnotes.com
www.financial_education.com

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