Financial Ratios From Income Statements

Financial Ratios From Income Statements:

Accounting in hospitality management is carried out to identify and document financial issues and produce information regarding an organization's assets, liabilities, and investments. Through this process, the management of a hospitality establishment understands and interprets financial ratios, which are crucial for basic control of operations in the establishments. Some of the most important financial ratios in hospitality accounting include average daily rate, occupancy percentage, room sales to total sales, cost of food sold percentage, profit margins for rooms and F&B, housekeeping cost per occupied room, and cost of beverage sold percentage. These financial ratios can be determined or worked out from a company's income statements or operational data (Casado, 2006, p.103). For the 310-room hotel in Costa Mesa, California, the Occupancy percentage is 7,755: 310 = 25.02%

Cost of labor percentage for rooms is 103,202: 437,433 = 23% for F&B is 113,349: 302,188 = 37.5%

Cost of food sold percentage is 220,728: 85,840 = 38.9%

Cost of beverage sold percentage is 70, 578: 16, 177 = 23%

Average daily rate is 473, 979: 7, 755 = $61

Profit margin for rooms is 370, 777: 473, 979 = 78% for F&B is 66, 656: 302, 188 = 22%

Total revenue change from budget for rooms is 473, 979 -- 541, 800 = -$67, 821

for F&B is 302, 188-300, 801 = $1,387

Housekeeping cost per occupied room is 58, 229: 7,755 = $7.50

Room sales to total sales is 473, 979: 776, 167 = 61%

Total rooms division payroll per occupied room is 77,052: 7, 755 = $9.9

Based on these calculations from the departmental income statements, the 310-room hotel in Costa Mesa, California seems to be a productive hospitality establishment that is experiencing ongoing success and profitability. The hotel's first indicator of productivity is its average percentage of labor costs for rooms and F&B departments, whose ratios are within the normal ranges of 18 and 22% and 35 and 44% respectively. Secondly, since it is a full-service hotel, the establishment's percentage of cost of food sold is an indicator of profitability that fall within the range of 35 to 45%. The third indicator of its profitability is cost of beverage sold percentage, which fall within the normal range of 20 to 25%.

The success and productivity of this hotel is evident in its average daily rate, which shows that it has kept its costs under control and will increase its bottom line. With profit margins of 78% and 22% for rooms and food and beverages respectively, the hotel's management has demonstrated its ability to generate revenue and control expenses. These profit margins are not only measures of profitability but also show that it is a well-managed hotel.