SBH HOLIDAY

SBH Holiday - Financial and Strategic Analysis

SBH Holiday - Financial and Strategic Analysis

Question 1: Acting as a consultant to SBH Holidays undertakes a full financial and strategic analysis of the strategic position of SBH within the holiday industry and consider its viability in the current market. Where appropriate critique the limitations of the models employed.

Financial Analysis

The following financial analysis will help in the development of understanding regarding the financial health of the company, which in turn will help in assessing the viability of the company in current market.

SBH Income Statement

 

2008

2009

2010

2011

Sales Volume of Holiday(000s)

 

Beach

376

384

340

350

City Break

75

129

180

190

Total

451

513

520

540

 

 

 

 

Sales Revenue(000s)

 

Beach

£ 127,500 £ 134,050 £ 131,075 £ 129,060

City Break

£ 13,500 £ 23,589 £ 34,200 £ 37,500

Total

£ 141,000 £ 157,639 £ 165,275 £ 166,560

 

 

Direct Cost (000s)

 

Beach

£ 112,500 £ 122,560 £ 125,460 £ 124,900

City Break £ 11,250 £ 20,400 £ 30,600 £ 33,750

Total

£ 123,750 £ 142,960 £ 156,060 £ 158,650

 

 

Indirect Cost (000s)

£ 8,050 £ 8,860 £ 9,550 £ 9,350

 

 

Operating Profit (000s)

£ 9,200 £ 5,819

-£ 355

-£ 1,440

Contribution Margin Ratio

Contribution Margin Ratio

2008

2009

2010

2011

Beach

11.8%

8.6%

4.3%

3.2%

City Break

16.7%

13.5%

10.5%

10.0%

Contribution margin is the difference between the variable cost and the sales cost. It measures the proportion of contribution after the deduction of cost associated with the product. This is calculated after subtracting variable cost from the revenue. This is the amount which is left to cover the fixed expenses of the given organization. This is the amount from which the profit of a company is generated. It is a very important accounting concept which is helpful for the managers in making decisions. The higher the contribution margin the better it is for the company.

The contribution margin of the company Beach and City segment in the year 2011 was the highest. Due to the deteriorating economic situation worldwide and stiff throat competition made this margin to decline on regular basis. The City break contribution margin has in the year 2011 was 16.7%. This declined to 10% in the year 2011. On the other hand the contribution margin of Beach was 11.8% in 2008. This declined to 3.2% in the year 2011. Thus the margins of the company and sector are on a constant decline.

Gross Profit Ratio

Gross Profit Ratio

2008

2009

2010

2011

Total

12.2%

9.3%

5.6%

4.7%

Gross profit ratio is used to determine what extent of selling price is reduced after the subtraction of COGS. This shows the efficiency of the firm. The higher the gross profit the better it is for the company. The total gross profit of the company was around 12.2% in the year 2008. This rate is normal in this sort of sector. But after that stiff competition and economic recession made the company have reduced Gross Profit. In the Year 2011 the gross profit of the company declined to 4.7%.

Net Profit Ratio

Net Profit Ratio

2008

2009

2010

2011

Total

6.52%

3.69%

-0.21%

-0.86%

The net profit percentage shows the ratio of the profit after subtraction of Taxes from the Income. The higher the profit percentage the better it is for the ...