Reference no: EM131273577

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.

Peabody Hotel Income Statement 20-Jan-09
	Actual MTD	Budget
Occupancy	75%	80%
Average Daily Rate	$ 125	$ 175
Revenue
Rooms	843,750	1,080,000
Food	191,000	370,000
Beverage	141,000	185,000
Telephone	56,000	72,000
Other	20,000	30,000
Total Revenue	1,251,750	1,737,000
Departmental Expenses
Rooms	425,000	375,000
Food	265,000	280,000
Telephone	42,000	55,000
Other	12,000	5,000
Total Department Expenses	744,000	715,000
Departmental Profit	507,750	1,022,000
Unallocated Expenses
Administrative & General	180,000	175,000
Marketing	65,000	125,000
Maintenance Expense	30,000	98,000
Utilities	100,000	78,000
Total Unallocated Expense	375,000	476,000
Gross Operating Profit	132,750	546,000
Fixed Costs
Property Taxes	300,000	300,000
Insurance	50,000	50,000
Debt Service	50,000	60,000
Capital Reserves	--	70,000
Total Capital Expenses	400,000	480,000
Net Operating Profit/ (Loss)	(267,250)	76,000

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.