Part (b)

Calculation of financial ratios:

Following are the companies we choose from the Muscat securities market (MSM):

• SAHARA HOSPITALITY COMPANY SAOG
• SALALAH BEACH RESORT
• UBRA HOTELS & RESORTS

Liquidity & profitability ratios of SAHARA HOSPITALITY Company

Following is the formulas use to calculate the ratios:

Current ratio = current assets / current liabilities

= 10803025 / 2958622

= 3.65

The current ratio of SAHARA Company is good. The current ratio equals 2 shows that the company's liquidity position is good but more than 2 shows that the company is not using its assets properly.

Quick ratio = cash + A/R / current liabilities

= 5924473 + 4842366 / 2958622

= 3.63

Gross profit margin = gross profit / sales * 100

= 3375374 / 12326457 * 100

= 27.38

Higher the gross profit more it is good for the company.

Net profit margin = net income / sales * 100

= 2547744 / 12326457 * 100

= 20.66

Return on assets = net income / total assets * 100

= 2547744 / 27592985 * 100

= 9.23

Company is earning profit of 9.23% from its assets. Higher the profit more it is good.

Return on equity = net income / shareholders equity

= 2547744 / 6737500

= 37.81

The return on equity of SAHARA company is also is in a good position.

Financial risk ratios

Following is the financial risk ratios of SAHARA HOSPITALITY LIMITED Company:

Debt to capital ratio = total debt / total debt + shareholders equity

= 3189635 / 3189635 + 6737500

= 32.13

Debt to equity ratio = short term debt + long term debt + other fixed payments / shareholders equity

= 3189635 / 6737500

= 47.34

The debts of the company are less than 0.50 consider the more good.

Calculate Z-score

A= working capital / total assets

= 7817403 / 27592985

= 28.3

B = retained earnings / total assets

= 15420017 / 27592985

= 55.88

C = Earnings before interest & tax / total assets

= 2998605 / 27592985

= 10.86

D = market value of equity / total liabilities

= 24403350 / 3189635

= 7.65

E = sales / total assets

= 12326457 / 27592985

= 44.67

Z-score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

= 1.2 (0.283) + 1.4 (0.5588) + 3.3 (0.1086) + 0.6 (0.0765) + 1.0(0.4467)

= 0.336 + 0.77 + 0.33 + 0.042 + 0.44

= 1.918

Z-score if positive value than it is well & good. plus 1 Z-score ratio shows the company has no risk of bankruptcy or any other thing.

Liquidity & profitability ratios of SALALAH BEACH RESORT Company

Following is the formulas use to calculate the ratios:

Current ratio = current assets / current liabilities

= 1.32

The current ratio of the company is less than the 2. This is the company has fewer current assets.

Quick ratio = cash + A/R / current liabilities

= 1.30

Gross profit margin = gross profit / sales * 100

= -92.20

The gross profit of the company shows a negative value which shows the company's financial health is not good.

Net profit margin = net income / sales * 100

= -152.68

Return on assets = net income / total assets * 100

= -8.10

Return on equity = net income / shareholders equity

= -9.14

Financial risk ratios

Following is the financial risk ratios of SALALAH BEACH RESORT Company:

Debt to capital ratio = total debt / total debt + shareholders equity

= 961 / 961 + 8294.7

= 10.38

Debt to equity ratio = short term debt + long term debt + other fixed payments / shareholders equity

= 961 / 8294.7

= 11.58

The company debts shows very less but the company liquidity & profitability ratio is not good.

Calculate Z-score

A= working capital / total assets

= 155 / 9255.7

= 0.016

B = retained earnings / total assets

= -1159.9 / 9255.7

= -0.125

C = Earnings before interest & tax / total assets

= -951.8 / 9255.7

= -0.10

D = market value of equity / total liabilities

= 65 / 961

= 0.067

E = sales / total assets

= 520.3 / 9225.7

= 0.056

Z-score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

= 1.2 (0.016) + 1.4 (-0.012) + 3.3 (-0.10) + 0.6 (0.067) + 1.0(0.056)

= 0.0192 + (-0.0168) + (-0.33) + 0.0402 + 0.056

= -2.96

The Z-score of SAHARA Company is negative this mean company has solvency risk

Liquidity & profitability ratios of UBRA HOTELS & RESORTS Company

Following are the formulas used to calculate the ratios:

Current ratio = current assets / current liabilities

= 0.21

The current ratio of this company is in very bad position

Quick ratio = cash + A/R / current liabilities

= 0.17

Gross profit margin = gross profit / sales * 100

= -28.70

Net profit margin = net income / sales * 100

= -40.76

Return on assets = net income / total assets * 100

= -8.10

Return on equity = net income / shareholders equity

= -9.80

Financial risk ratios

Following is the financial risk ratios of UBRA HOTELS & RESORT Company:

Debt to capital ratio = total debt / total debt + shareholders equity

= 18.28

Debt to equity ratio = short term debt + long term debt + other fixed payments / shareholders equity

= 22.37

Calculate Z-score

A= working capital / total assets

= -2069.7 / 11158.9

= -0.18

B = retained earnings / total assets

= 436.7 / 11158.9

= 0.039

C = Earnings before interest & tax / total assets

= -844.4 / 11158.9

= -0.07

D = market value of equity / total liabilities

= -210 / 3275.4

= 0.064

E = sales / total assets

= 1993.9 / 11158.9

= 0.17

Z-score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

= 1.2 (-0.18) + 1.4 (0.039) + 3.3 (-0.07) + 0.6 (-0.065) + 1.0(0.17)

= -0.216 + 0.0546 + (-0.231) + (-0.39) + 0.17

= -0.75

The company has a lower Z score which means the company has a higher chance of bankruptcy. A negative Z score shows the bad position of the company.