Question 4

The Royal Hotel Ltd is privately owned and situated in Keswick, an inland resort in the English Lake District. It is a medium-sized hotel with 50 bedrooms. Whilst high standards of building maintenance exist, the hotel has been conservatively managed by William Wordsworth, who owns 100% of its share capital. The hotel currently offers accommodation and restaurant facilities only, and has experienced little innovation in services offered during recent years.

William Wordsworth intends to retire in five years’ time, so he has invited Pam Ayres to join him in partnership, with a view to her taking a controlling interest in the hotel on his retirement. She has recently qualified with a Masters Degree from the University of Birmingham, and has some knowledge of the latest approaches to the measurement of business performance. She has conducted a preliminary investigation of the hotel’s performance over the past two years, to form a basis for taking a decision on joining William in partnership. The data she has gathered, based on the balanced scorecard approach to performance measurement, it is presented in Appendix 1 and Appendix 2.

Appendix 1: financial data

Required:

1. Assess the financial performance of the Royal Hotel based only on the information provided in appendix 1.

2. Explain why the information in appendix 2 is likely to give a better indication of future success than the information in appendix 1. [15 Marks] 3. Using all the information at your disposal, assess the future prospects of the Royal Hotel, and advise Pam Ayres on the desirability of becoming a partner in the business.