Question 2 Ratio analysis

Question 2 continued:

Use the attached financial statement for City Lodge.

1. Discuss the performance of City Lodge over the years 2016, 2017 and 2018. Assume that shareholders are expecting a minimum Return on Equity of 18% per annum. Calculate the ratios that you think you need to use to make this determination.

[10 Marks]

1. Show how the levers that drive ROE are changing from one year to the next between 2016, 2017 and 2018. Comment on what you see. [10 marks]

Note on Formulas:

Do your calculations using the following formulas:

ROE = PAT/ Total Equity x 100

RONA = EBIT/ Net Assets x 100

• Use the numbers in the income statement and balance as they appear of the surface. There is no need to make accounting adjustments.
• Do not use averages in your calculations.

Balance sheet 30-Jun-16 30-Jun-17 30-Jun-18