Individual Assignment

Winter $2024$

Case Study $-$ AyurWhistler

Your role

As a financial consultant for AyurWhistler, you are expected to scrutinize the hotel's financial situation and provide insights that will support its strategic growth and bolster shareholder value, all while ensuring the integrity of its financial practices.

Section A

Jude Peter, a former national$-$level ice hockey player from Abbotsford, British Columbia, underwent a significant career change due to a career$-$ending injury. His father's invitation to manage a boutique hotel in Whistler led him to create 'AyurWhistler', a unique hotel concept blending Ayurvedic principles with the vibrancy of a ski resort. Jude's vision for 'AyurWhistler' included a holistic wellness retreats, Ayurvedic cuisine, and yoga and meditation workshops, all with early$-$bird and bundle pricing deals.

Jude Peter's venture, 'AyurWhistler', has been a collaborative effort from the start, with many of the shareholders being close friends who believe in Jude's vision. His promise to them was simple: as the company flourishes, so would their dividends. This commitment to increase their dividends has been a cornerstone of Jude's approach to business, reflecting both his gratitude for their support and his desire to see them benefit directly from the company's success.

However, the company's recent financial performance has prompted caution from the accounting team. The accountant, looking strictly at the numbers, advises against increasing the dividends under the current fiscal conditions. The concern is clear: the company's dwindling cash reserves and climbing liabilities paint a picture of potential financial strain. This conservative viewpoint, aimed at safeguarding the company's financial stability, conflicts with Jude's initial promise to his shareholders.

Now, Jude is confronted with a tough decision. Should he honor his original promise to increase dividends, thereby maintaining the trust and goodwill of his shareholders, at the risk of straining the company's finances? Or should he consider the accountant's advice to postpone the dividend hike, which could help preserve the company's financial health but might also lead to disappointment among his friends and investors? The path Jude chooses will not only reveal his business acumen but will also test the strength of his personal relationships with those who invested not just their money, but their faith in him

Over the past two years, 'AyurWhistler', has faced a decline in cash reserves, creating anxiety about its liquidity and the ability to cover short$-$term liabilities. Financial statement extracts expose key movements in the company's fiscal position:

$2023$ Financials:

$$ Cash and equivalents reduced from $$50,000$ to $$20,000,$

$$ Short$-$term investments rose from $$20,000$ to $$25,000,$

$$ Accounts receivable grew from $$100,000$ to $$120,000,$

$$ Prepaid expenses went up from $$40,000$ to $$55,000,$

$$ Total current assets inched up from $$210,000$ to $$220,000,$

$$ Accounts payable enlarged from $$80,000$ to $$100,000,$

$$ Accrued expenses went up from $$40,000$ to $$50,000,$

$$ Total current liabilities went up from $$190,000$ to $$230,000.$

Please find below the extracts from the minutes of our most recent meeting:

Trainee Accountant: "Jude, after reviewing the financials, there's been an uptick in revenue to $$550,000.$ Yet, our liquidity has weakened, and notably, our net income has dipped to $$240,988$ from last year's $$280,908."$

Jude: "Are all income sources included in this? And how much has our current ratio fallen?"

Trainee Accountant: "Yes, all income sources are considered. The surge in operating expenses to $$310,000$ is the main reason for our financial pinch, which also led to this year$$s profit decrease."

Jude: "This drastic turn from profit to a lower profit margin is worrying. We must scrutinize our growth strategy and financial controls. Could we have missed something in our accounts?"

Trainee Accountant: "Rest assured, the analysis is accurate. The loss is mainly due to the higher operating costs, especially from upgrading our spa facilities, impacting our earnings."

Jude: "It's a challenging time. Our investment in the wellness experience was substantial. We need to re$-$evaluate our strategies to ensure financial stability while still aiming for our long$-$term goals. We might have overextended financially."

The extracts from the income statement are as follows:

Category $2022-$ Expenses

$($ CAD$)2023$ Expenses $($CAD$)$

Utilities $44,000\mathrm{.}0053,000\mathrm{.}00$

Staff Salaries and Wages $55,000\mathrm{.}0064,000\mathrm{.}00$

Maintenance and Repairs $33,000\mathrm{.}0042,000\mathrm{.}00$

Marketing and Advertising $22,000\mathrm{.}0031,000\mathrm{.}00$

Insurance $11,000\mathrm{.}0020,000\mathrm{.}00$

Food and Beverage Costs $22,000\mathrm{.}0031,000\mathrm{.}00$

Technology Upgrades $11,000\mathrm{.}0020,000\mathrm{.}00$

Training and Development $11,000\mathrm{.}0020,000\mathrm{.}00$

Laundry and Linen $6,600\mathrm{.}0015,600\mathrm{.}00$

Property Taxes and Licenses $4,400\mathrm{.}0013,400\mathrm{.}00$

Total Expenses $220,000\mathrm{.}00310,000$