Assignment
How would you describe a ratio analysis? Is each of its components necessary? Which of the figures would you identify as being more beneficial for the general manager of a major hotel? Why are these figures so important? Choose a classmate's response that is different from yours and provide a convincing argument on why your choice of figures is more important.
Examine the Trend Report on p. 71 (Ch.3) of Hospitality Financial Management. Explain the importance of the trend analysis document. In what ways will this information aid the business owner? Is this information really necessary, or can a hotel owner be successful without it? Explain your reasoning. What additional information do you feel is important enough to add to this report? Is there any information you would take out to make it easier to understand?
The Peabody Hotel is a full service hotel located in a city with a population of 450,000. The hotel recently underwent a major renovation in which all of the guest rooms, the lobby, and meeting rooms were brought up to date. The owner of the property thought the renovation would boost the business, but so far the hotel is not meeting budgeted goals. The owner has challenged the current management to shape up, or he will find a new management company who can meet his expectations.
Ms. Beth Samuelson, the current general manager, is worried she may lose her job if she does not meet the projected goals, so she has turned to her fellow managers for help. The controller mentioned she should look into profit flexing and cost-volume-profit analysis.
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Peabody Hotel
Income Statement
20-Jan-09
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Actual MTD
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Budget
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Occupancy
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75%
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80%
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Average Daily Rate
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$ 125
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$ 175
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Revenue
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Rooms
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843,750
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1,080,000
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Food
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191,000
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370,000
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Beverage
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141,000
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185,000
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Telephone
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56,000
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72,000
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Other
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20,000
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30,000
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Total Revenue
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1,251,750
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1,737,000
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Departmental Expenses
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Rooms
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425,000
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375,000
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Food
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265,000
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280,000
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Telephone
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42,000
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55,000
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Other
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12,000
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5,000
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Total Department Expenses
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744,000
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715,000
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Departmental Profit
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507,750
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1,022,000
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Unallocated Expenses
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Administrative & General
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180,000
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175,000
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Marketing
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65,000
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125,000
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Maintenance Expense
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30,000
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98,000
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Utilities
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100,000
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78,000
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Total Unallocated Expense
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375,000
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476,000
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Gross Operating Profit
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132,750
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546,000
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Fixed Costs
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Property Taxes
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300,000
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300,000
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Insurance
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50,000
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50,000
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Debt Service
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50,000
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60,000
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Capital Reserves
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--
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70,000
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Total Capital Expenses
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400,000
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480,000
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Net Operating Profit/ (Loss)
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(267,250)
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76,000
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Answer the following questions regarding financial statement analysis.
For Questions A-C in total, prepare a 300-500 word response in your own words:
A. Why is revenue management an important tool for hospitality managers? Why is RevPAR(Revenue Per Available Room) a better measure of a hotel's effectiveness than RevPOR (Revenue Per Occupied Room)?
B. What is wrong with capitalizing current operating expenses on your financial statements?
C. Why are the following concepts important to a hospitality manager? Please don't just provide definitions, explain how these tools allows a hospitality manager to be successful. When does a hospitality manager use these concepts?
Profit Flexing
Cost Volume Profit Analysis
D. Utilizing the profit-flexing method to analyze the Peabody Hotel's income statement provided, explain specifically in 150-300 words how the company can reduce expenses or increase revenues to meet budgeted goals. Provide specific actions.
E. Utilize cost-volume-profit analysis to determine how many rooms you would need to sell to reach a revenue goal of $185 per room. Fixed costs for the hotel are $470,000, and the labor cost to maintain each room is $49. You must show all your calculations to get full credit
F. Now pretend you are Ms. Samuelson and the owner requests that you increase net operating profit to $210,000. Is this attainable if the Peabody Hotel only has 160 rooms? Why or why not? (Hint: Use the desired volume calculation and the revenue and cost assumptions from E above.) You must show all your calculations to get full credit.