how to read & analyse hotel income statement

Hospitality
Finance A-Z
How to Read and Analyse Hotel Income
Statements
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Channel and Facebook Page linked in description to support

Introduction
• How to Read and Analyse Hotel Income Statements
• Basic Fundamentals of accounting
• Accruals
• Allocation
• Prepayments
• Revenue Terms
• Quantitative (Occupancy, covers, guests)
• Value (Average rate, Rev Par, Ave Check)
• Segmentation (Room Revenue Segments, F&B Revenue)
• Hotel Profit & Loss Standard Templates as per International Standards
(Uniform System of Accounting for Lodging Industries)
• Analysis Fundamentals
• Marketing Reports to support analysis
• Room Segmentations Report
• Nationality Reports
• Booking Source, Booking Pace Reports
• Market Benchmark Reports
• Menu Engineering
• F&B Revenue Analysis
• Expenses Nature & Classification
• Method of Analyzing Expenses
• Complete P&L Analysis
• Presentation in front of Top Management / Owners

Hospitality Operations and Cost Structure
General
Management
Rooms Division
Front Office
House Keeping
Concierge &
Other Services
Food &
Beverage
Department
All Day Dining
Speciality
Restaurants
Kitchens
Administrative
Depts
Other Operating
Departments
Spa
Laundry
Transportation
Gift Shops
Administration
Finance &
Procurement
Human
Resources
Information
Technology
Executive Office
Sales &
Marketing
Reservations
Marketing
Revenue
Management
Sales
Maintenance
Department
Preventive
Maintenance
Repairs

What is USALI
and why its
necessary
Uniform
System of
Accounting
for Lodging
industries
• Provides standards for accounting
and terms used in the industry
• Uniformity for the purpose of
comparison
• year on year
• within peers
• Lot of management companies use
USALI as a basis of accounting to
avoid disputes in different
accounting treatment of various
transactions & practices.

Hotel
Financial
Reports -
Components
GrandP&L
Rooms Division
Occupancy and Rate
Statistics
Revenue
Segmentation
F&B Division
Outlet wise Results
Cover Analysis
Food Cost Reports
Other Operating
departments
Departmental P&Ls
Departmental
Operating Statistics
Administration &
General
Sales & Marketing
Information
Technology
Maintenance &
Utilities

Fundamentals
of Accounting
• Accruals
• Allocation
• Prepayments

Accruals
Basis of Accounting
Cash Basis
Recognise Income
When Received
Impossible to analyse
Revenue
Recognise Expenses
when Paid
Incomplete Recording
of Expenses
No Matching Concept
Income or Expenses
related to other period
can be reported
Accrual Basis
Record Income or
Expenses whether paid
or Not
International
Standards does not
recognize Cash Basis
any More
Match Expenses &
Revenue to the Period
of Reporting
Need to Maintain
Records of Unpaid or
uncollected Invoices
What are the
Example of
Accrued Expenses

Allocation
Common Expenses are recorded at one cost center
Allocated to each cost center to calculate
profitability metrices
Common Examples in Hospitality
• Laundry Expenses
• Flower & Decoration
• Canteen operations
• Room Amenities by Kitchen
• Main Common Kitchen expenses to individual
outlets
• Stewarding expenses

Prepayments
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Expenses which are paid in advance for the
period of service
It is different from Advance (which is
recoverable for some value or goods or
services)
Amortised over the period of Services to be
received
Aimed to match revenue with related cost

Key Revenue
Terms
Quantitative
(Occupancy,
covers, guests)
Value (Average
rate, Rev Par, Ave
Check)
Segmentation
(Room Revenue
Segments, F&B
Revenue)

Rooms Division
Revenue – Key Drivers
Total Number of Rooms
Not available for sale
Available / Saleable Rooms
Room vs Room Night
Occupied Room Night
Complimentary / House Use Room Nights
Permanent Rooms
Out of Order Rooms
Quantity
Rack / Retail Rates
Special Rates
Average Daily Rate
Average House Rate
Revenue Per Available Room (Rev Par)
Package Price
Gross and Net Rates
Value /
Price
No of Operating Days in Month 30 20
Rooms Room Nights Room Nights
Total Available Rooms 100 3000 2000
Under Renovation 4 120 80
Used for Internal Use 5 150 100
Rooms Not Available 9 270 180
Saleable Rooms / Available Room 91 2730 1820
Total Rooms nights Occupied 1200 1200
Complimentary Rooms 200 200
Rooms Sold 1000 1000
Occupancy % 36.6% 54.9%
Total Charged 110,000
Tax & Svc Charge 10,000
Total Revenue 100,000
Average Daily Rate 100Total Revenue / Room Sold
Rev PAR 37Total Revenue / Available Room

No of Seats Available
Total Seats Available
Covers / Guests
Seat Capture Ratio / Seat Turnover
Table Utilization / efficiency
Quantity
Menu Prices
Average Check Price
Average Revenue per Bill / Table
Gross and Net Rates
Value /
Price
F&B Division
Revenue – Key Drivers

Rooms Division
Revenue – Presentation
• Transient Rooms Revenue
• FIT Room Revenue
• Discount – Packages /Advance Purchase or with
other sort of discount based on rules.
• Qualified – Special rates depending on meeting
some criteria such as government employee
• Wholesale an be offline or online
• Groups Room Rev (Min 10 Rooms)
• SMERF – Social, Military, education, religion, fraternity
• Contract Room Revenue / Permanent Room
Revenue - (More than 30 days in one contract)
• Other Revenues
• No Show
• Day Use
• Early / Late Departure
• Extra Bed

Food & Beverage Division
Revenue – Presentation
• Outlet wise breakdown
• Food Revenue
• Whether coffee / tea is food revenue?
• Beverage Revenue
• Audio Visual
• Cover Charges
• Equipment Rental
• Gross Recording or Net margin?
• Allowances
Meal Periods and
menu types in next
video

Hotel Profit & Loss Standard
Templates as per
International Standards
(Uniform System of
Accounting for Lodging
Industries)

Grand P&L

Room Division P&L

RoomDivisionP&L

F&B Division P&L

Revenue Analysis
Measures
Type of Analysis
• Horizontal Analysis / Variance Analyses
• Vertical Analysis
• Ratio Analysis
Aids in Revenue Analysis
• Market Segmentation
• Booking Sources
• Guest Nationality
• Booking Lead Period
• Booking pace
• Competitors (Rev Par) (Market Benchmark Report)
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Horizontal Analysis
• Compares two periods
• Need comparative P&L
• Simplest approach
• Shows the absolute change in dollars
between two periods
• Shows percentage change

Vertical
Analysis
• Often referred to as common size
analysis
• Calculating the % of individual revenue
to total Revenue
• When completed the total Revenue
would equal 100%
• Expenses are also analyzed with
reference to total Revenue

Ratio Analysis
Assist in measuring the
effectiveness of how the
business is being operated
Examples for Room
Division
•Mix of Sales
•Average Room Rate
•Revenue Per Available
Room
For other
departments
•Average Food Service
Check
•Food Cost Percentage
•Beverage Cost Percentage
•Labor Cost Percentage
•Revenue Per Seat Available

Ratio Analysis –
Things to Remember
Limitations
• Do Not Resolve Problems
• Only Indicate That There May Be a
Problem
• Uses Historical Data - May Not Tell
the Whole Story
• There are no “rules of thumb” that
apply to interpretation of ratios
Things to remeber
• Comparisons Must Be From Related
Numbers
• Most Useful When Compared to a
Standard
• When Comparing to Other
Businesses - Must Be Comparable

Operating and Marketing Reports
Revenue by
Business Source /
Distribution
Channels
Nationality
Breakdown.. Why
its important
Booking Lead
Period & Booking
pace
Competitors (Rev
Par) (Market
Benchmark Report)
Upselling &
Upgrades
Menu Engineering
Report

Revenue by Business Source /
Distribution Channels
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• Direct Bookings & Enquiries
• Online Travel Agents
• Offline Travel Agents
• Contracted Companies
• Own Website Bookings
• Regional Sales Offices or Representation
companies
What
are
business
sources

Guest Nationality
Know your guests
guests to customise
offerings based on
individual
preference
01
Cultural differences
& spending habits
based on nationality
and working profile
02
Understand reasons
for increase /
decrease in business
and where to
promote based on
economic and
political
circumstances
03
is this geographical
profile of hotel
fixed?
04
To understand if
you are dependent
on one market and
make contingency
plans
05

Booking Lead Period and Pace
Lead period means how advance the
booking is generally made
• Usually important to understand
when to promote certain
businesses and when guests make
decisions of purchase
• Each segment, geography has
different lead periods due to
nature & purpose of business
Booking pace means how much
business is being booked for this
month of next months
• Useful only when compared with
other periods to ascertain if
booking pace has slowed down or
improved to yield / maximize
business

Competitor
Bench
Marketing
Report

Upselling /
Upgrading
• Guest pay for one room type but stay in another room
type
• Upselling is paid
• Upgrade is free due to many possible reasons
• Upselling is revenue maximization opportunity
• Upgrade is considered as value add service, usually
offered to convert potential sales into business.
• Upgrades should be controlled though paid and stay
statistics

Menu Engineering
Helps to Identify
Best Selling menus
items
Most profitable items
Popular items but less
profitable
Profitable items but
not popular
Not popular and not
profitable
Periodicity – Monthly,
Quarterly
Affected by
Seasonality,
Geographical
breakdown of guests

Expenses – Labor Cost
Management & Non Management
Management
Directors
Asst Directors
Managers
Non- Management
Supervisors
Associates
Why do we
segregate
like this?
What are the
factors to
remember

Expenses – Labor Cost
Segregation by Department on Non Management
Non- Management
Front Office
Guest Services
Housekeeping
Reservations
Transportation
Complimentary F&B
F&B Service
F&B Kitchen
Non- Management
Laundry
Accounting & Finance
Security
General Support
Purchasing & Store
Human Resource
Marketing Services
Sales
Maintenance
Why do we
segregate
like this?

Rooms
Division
Expenses –
Labor Cost
Service
Charge
Distribution -
Treatment
What is service charge?
What are different
accounting treatments for
collection and distribution
of service charge
100% distribution vs
partial distribution
Compulsion vs voluntary
payment

Contract &
Casual Labour
Bonus &
Incentives
Upselling
incentive
Reservation
incentive
Annual bonus
provisions
Payroll Related
Expenses
Payroll Tax
Employee
Benefits
Meal Allowance
Accommodation
Travelling /
Ferry
Social Security
Benefits
Rooms Division
Expenses – Labor Cost Other Components

Labour Cost Analysis
What is labour cost ? Fixed, Variable, Semi Variable
Productivity Reports
• Customer Served per staff
• Arrival (Checkin/Checkout)
• Rooms Cleaned
• Occupied rooms handled by concierge
Zero Base Manning

Expenses –
Other
Departmental
Costs
• Nature – Variable & Fixed
• Expense Control Reports

Variable & Fixed
Expenses
Variable expenses
increase or
decrease in relation
with revenue or
occupancy or cover
changes.
Variable expenses
are analyse in
relation to revenue
or quantity i.e % to
revenue or per
occupied room cost
or per cover cost
Fixed Expenses
does not change or
change very small
irrespective of level
of business.
Fixed Expenses are
analysed in
absolute terms
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Facebook Page linked in description to support
Variable
Expenses
Fixed
Expenses
Food & Beverage
Cost
Labour Cost
Guest Supplies &
Complimentary gifts
Maintenance
contracts
Operating Supplies Entertainment
Cost of Sales Marketing Expenses
Commission /
Reservation Cost
Administrative
expenses
What are other Examples?

Expenses Control Reports
• List of items used in operations
with Qty and Price
• Compare with previous period
quantity
• Compare ratio of consumption in
relation with occupied room nights
Inventory
Management
Reports
• Analyze Food cost for each outlet.
• Check for Breakages, Wastage,
Damage, Spoilage
• Prices of imported items
• Potential Cost Report
Food Cost
Reports
• Amenities Supplies Report compare
to Guest in house & trends
• Details of Expenses Report and
monthly comparison.
• Control Linens and other operating
equipment's
• Timely replace damaged items to
ensure it does not impact P&L in
one month
Operating
Equipment
Reports

Profit & Loss Analysis - Steps
Understand the
Overall P&L to
identify Area of
Concerns
Drill Down to
Marketing
Reports for
Revenue
Analysis
Drill to detailed
P&L to narrow
down expense
variances
Get More
details of
itemized cause
of unfavorable
expenses
Plan Action to
remediate
concerns

Step 1 & 2

Step 3 – Room Division

Step 3 – F&B
Division

Cost
Management
Ideas
• Productivity Reports to schedule the leaves
• Control the Overtime
• Control Casual & Contract labour
• Automate processes
• Get Help from other departments
Labour cost
• Inhouse Production
• Replace imported items with local items
• Control Spoilage / spillage & cut waste
• No Over-ordering
Other expenses

Thank you so Much
• Questions please post to Q&A sessions
• Did I missed any topic? Please post in Q&A
Session
• Please Review the course.

how to read & analyse hotel income statement

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