Background Information Intercontinental Hotel Group Plc. owns one of the leading brand and chain of hotels and resorts across continents. The group’s registered corporate office is located in Denham, United Kingdom and the group has a history of almost 60 years of delivering the highest level of quality of customer service which has permitted the group to achieve phenomenal growth over the last few decades. The group operates not only by owing hotels and resorts completely and also by entering into franchise agreements with other companies to operate hotels and resources The group has more than 4,500 hotels which are operating in different countries. The group operates hotels brands including Crown Plaza Hotel, Holiday Inn Express, Staybridge Suites, Candlewood Suites and others. These brands are arranged in a way that they reflect both luxury and budget hoteling facilities for guests. The group offers a hotel loyalty program through which it has achieved 63 million members who received updates and discounts on bookings and other privileges (Yahoo Finance, 2012). Financial Ratios Analysis For the purpose of analyzing Group’s financial performance in the last two years, following ratios have been determined and a discussion for them is presented while considering additional supporting information available in the Group’s annual report. It is pertinent to mention here that there are material exceptional items in the financial statements of IHG (InterContinental Hotels Group, 2011). These exceptional items are not considered for the purpose of calculating ratios. However, the impact of these exceptional items has been evaluated at the end of financial analysis. Profitability of IHG Keeping in view the profitability ratios as calculated below for the Group, it is noted that the Group has improved its performance in terms of returns. Apart from the continuing effects of recent global financial distress, the Group has managed to report growth in its profits. As evidenced by the gross and operating margins presented below, the Group has been able to report considerable growth in its gross and operating profits. One of the main reasons for this growth has been increase in total revenues of the Group. On the other hand, it is worth mentioning here that IHG’s cost of sales declined in 2011 whereas revenues climbed up, thus signifying the level of operational efficiency reached by the Group. Following this improvement in cost of sales figure in 2011 and gross profits, the trend translated into operating profits also, due to which the Group has been able to report higher operating margin for the year ended 2011 (Peterson & Fabozzi, 2012; Warren et al., 2011; InterContinental Hotels Group, 2011). Profitability Ratios Ratio 2011 2010 Return on Capital Employed 17.35 % 12.29 % Return on Equity 67.93 % 97.59 % Operating Profit Margin 21.32 % 17.44 % Gross Profit Margin 56.39 % 53.75 % Source: (InterContinental Hotels Group, 2011) In addition to this, the returns on capital employed and on total equity of the Group have also shown favorable changes. With the increase in profits attributable to shareholders of the Group, the return on equity and capital employed also increased, and this increase in net profits for the Group has been such that it overcame the impact of increase in capital employed
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