Increase in cost of sales has made no large effect on the gross profit in 2013 because the turnover has increased with a greater proportion than the cost of sales. The revenue in 2013 has increased by 3.79% while the increase in cost of sales is just as low as 0.13%. This has caused the gross profit of the company to increase by 6.62% in 2013.
Other operating income of $57 million in 2012 has disappeared in 2013 causing an expense of $3 million in 2013, and the administrative expenses have decreased from $381 million in 2012 to $379 million in 2013. This has contributed towards the favourable effect on the operating profit in 2013.
The finance cost of the company has decreased from $64 million in 2012 to $57 million in 2013. This is due to the decreased proportion of noncurrent liability causing a decrease in the interest liability of the company. However, the finance income has increased from $2 million in 2012 to $3 million in 2013. This is probably due to the increase in long term investments in noncurrent assets. (Kline, 2007)
The current ratio measures ability of a company to pay its debts over the next 12 months or over its business cycle by comparing company’s current assets to its current liabilities. The current ratio of IHG has increased from 0.672 times in 2011 to 0.846 times in 2012. Higher the current ratio, the higher is the ability of the company to pay off its obligations. An increase in current ratio of IHG indicates more efficiency compared to previous period and safe liquidity. This ratio tells about how efficient is the company’s operating cycle and its capability to convert its products into cash.
Quick ratio is also known as the acid test ratio. It takes into account the ability of a company to pay its short term debts. It is a more reliable test of short term solvency than current ratio as it shows the ability of any company to pay its short term debts immediately.