Finance in Hospitality: Analyzing Hilton Hotel's Finances

This report delves into the financial aspects of the hospitality industry, using Hilton Hotel as a case study. It explores various financing options, including equity and lease financing, and analyzes income generation methods such as fee-for-service, product offerings, and discounts. The report examines cost elements like cost of sales, operating costs, and business costs, along with profit elements such as gross margin, operating margin, and net profit. It further discusses cash control methods, stock control techniques (specifically the just-in-time method), and the preparation and significance of trial balances. The report also covers business accounts, budget preparation, and variance analysis, providing a comprehensive overview of financial management within the hospitality sector.

FINANCE IN HOSPITALITY
INDUSTRY

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1...........................................................................................................................................1
1.2...........................................................................................................................................1
TASK 2............................................................................................................................................2
2.1...........................................................................................................................................2
2.2...........................................................................................................................................3
TASK 3............................................................................................................................................4
3.1...........................................................................................................................................4
3.2...........................................................................................................................................5
3.3...........................................................................................................................................5
3.4...........................................................................................................................................6
TASK 4............................................................................................................................................6
4.1...........................................................................................................................................6
4.2...........................................................................................................................................8
TASK 5............................................................................................................................................8
5.1...........................................................................................................................................8
5.2...........................................................................................................................................9
5.3...........................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................10

INTRODUCTION
Increasing difficulties in the business will also increases the scope of the overall finance
as this is that source which will improve the existing conditions of an enterprise. Hilton Hotel
has been selected for this project report fore explaining the situation in utilising various sources
of finance and determination of different cost elements. Cost and financing requirements are
properly fulfilled throughout the report.
TASK 1
1.1
Hospitality industry is the fastest growing sectors which needs to upgrade their services and
expanding their business on global level which requires huge amount of finance which can be
arranged by hospitality Hilton Hotel from given below options:
Equity financing- It is the best suitable form of financing for Hilton hotel for expanding their
business and it's accompanying services in order to attract wide number of customers. The
candidates are invited to buy the shares in exchange they get company's ownership which in turn
strengthens the company (Hooper, 2016). It is the best source of investment for an individual by
taking up shares of Hilton hotel and indirectly become part of the organisation in form sharing
the company's profit. It is regarded as effective source of funding as there is less risk involves in
taking this sources as company need not to pay whole invested amount to the shareholders but
only at the stage of wound up (Kinyua and Ali, 2016). The shareholders gain ownership which
increases the strength of the firm. The shareholders get voting rights in return to become part of
the overall business process and majority of them can intervene in the overall process.
Lease financing- Another most important method that can be used in the hospitality industry is
leasing in which the assets can be used on a temporary basis by paying short amount. The
temporary contract can be done among the Hilton hotel and the supplier of equipment for limited
time with all terms and conditions which includes the pricing and other interest to be charged the
asset taken. It is effective methods as there is nor risk of using the asset as the defective title of
asset the borrower has liability of paying the amount.
1.2
Income is the final outcome of all the efforts made by an enterprise by arranging funds and apply
that funds perfectly in an organisation (Henard and McFadyen, 2012). There are various ways
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and methods which are helpful for an enterprise in generating higher amount of sales and the
revenue in Hilton hotel which are given as below:
Fee for service- It is common practice followed in hospitality sectors in which all there valuable
services will be offered to the clients at some specific charges in order to earn income. Hotel
Hilton can provide various amenities such bas cub facility, doctor clinics, laundry facilities,
lunch, entertainment for kids by charging some rates to earn twin benefit such as money in return
and attention of clients.
Products- Offering wide range of products and services top all the clients is a direct weapon in
order to meet the expectations of all the clients. Charging room rates will be helpful for the
owner of this institution as the stability of the room rates will determine the occupancy rates that
may get higher or lower than per the rates designed by the enterprise.
Packages and discounts- In Hilton hotel discounts are given to all the clients in order to retain
them with the enterprise to gain popularity among the clients which in turn increases the income
of the business (Hooper, 2016). Discounting offers and packages which involves all the services
such as rooms, food and beverage, amenities are all coupled in a bundle called package which is
generally offered in order to attract wide number of customers.
TASK 2
2.1
Cost form part of every business which helps in order determine the complete profit by
deducting all the cost element involved in the business enterprise some of which are given as
below:
Cost elements
Cost of sales-It is a collection of all the expenses incurred by an enterprise in operating its
business operations successfully with a common goal to achieve all the objectives in a given time
frame to earn profit (Haynes and Hitt, 2015). It includes expenses such as purchases, along with
different fixed costs and certain amount of variable costs.
Operating costs- It includes all those expenses which equally contributes in the success of an
enterprise by smoothing all the business process. Deficiency in these expenses nay affect the
overall profitability of an enterprise.
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Business costs- Other than above two categories all the expenses incurred by the business owner
will form part of this category in which all costs incurred in bulk quantity in the business. These
are those costs which is essential to be incurred in an enterprise to sell the products and services
of the firm.
Profit elements
Gross margin-It is also known as raw amount of profit as the cost of sales deducted from the
total sales generated by an enterprise will able to produce the gross margin which shows the
relationship among net sales in proportion to the cost of goods sold in an entity.
Operating margin-This form of profit will able to ascertain the efficiency of total operating
expenses in order to increase or decrease the final outcome.
Net profit- The basic and complete profit which is normally considered by an entity in order to
assess its profitability as it excludes all the expenses and the taxation figure from the gross profit.
Price is that weapon which helps an enterprise in order to gain or lose the attention of
their clients as it is considered as one of the integral part of the business (Grant, 2016). It is
important for the business as it helps to generate higher profit margins by setting low and
differentiate pricing. The volume of the sales will also get increases by changing in the prices in
specific time interval. The position of an entity can be improved by charging discounted pricing
and expensive pricing as per the buying capacity of all the buyers.
2.2
Methods of controlling cash
Cash control account-In the business the cash is regraded as most important basset that shows
the liquidity of an enterprise which needs to be monitored properly that fraud with the cash may
reduce the profitability of an enterprise. It can be improved by applying various methods covered
under this cash control system. Petty cash expenses are prepared to ensure the safety of all petty
expenses from that particular account (Hooper, 2016). The petty cash can be safeguarded by
restricting the access of unauthorised users to access the accounts and see their available
balances in order to leak the confidential business information.
Methods of stock control
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Just in time method- It is commonly used method for controlling the total stock held by an
enterprise in which controlling of inventory in the business for completing the orders on time. It
delivers that exact quantity which is required for completing the order and no pile up of
inventories in the business.
Benefits of cash control
 It helps to ensure availability of funds with the business enterprise by keeping proper
safety of all the balances.
 The prioritisation of all the expenses will be fruitful for an enterprise by meting the need
of the business by spending on most essential aspects of the business.
 The business expenses are accomplished in a systematic order.
Benefits of just in time
 No wastage of inventories by storing in the business
 It helps in reducing the warehouse costs by storing bulk quantity
TASK 3
3.1
Trial balance is integral part of the business which covers all the general ledgers that forms part
of the business which is commonly used in the tallying of balances in order to match all the
balances of the accounts. It includes three different kinds of accounts such as real, nominal and
personal accounts that major form part of the current business. This is prepared as one of the
basis for preparing financial statements like trading and profit and loss statements and especially
the balance sheet (Henard and McFadyen, 2012). The basic purpose of preparing this trial
balance is to prove that all the values of debit will equal to the credit side of the same statements.
The main purpose of these statements is to match both the sides of the accounts. The structure
and format of preparing this trial balance account in two different formats such as traditional
methods and modern method which are given as below:
Traditional method- It is prepared in order to present the total of debit balances and credit
balances by relating them by each ledger account in the relevant columns in the prepared trial
balance.
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Illustration 1: Traditional trial balance
(Source: Grant, 2016)
Modern method- It is one of the derivative of the traditional trial balance method in which the
total of debit and credit balances are not shown but only the amount which would be set off will
be shown and the net balances will be shown by the ledger account.
3.2
There are various business accounts which will incorporated in order to ascertain the true
performance of an entity (Fusi and González-García, 2016). Various business accounts are
categorised as per the major entities sued as separate category are sales, purchases, expenses,
operating costs, petty expenses, cash and bank. The adjustment are also formed part of the
accounting statements as it will reveal minor changes takes place in the business which have
material effect on the business efficiency. Notes to accounts are prepared to consider every issue
of shares purchase and sale of equipment as the met balance are shown in the balance sheet and
complete details can be accessed by any person from the notes to accounts.
3.3
Budgets are prepared to ensure the safety of existing business operation sin near future by
application of various tool used for predictive analysis in an organisation (Hooper, 2016). Budget
is a formal statement that obtained financial projections regrading the current state of the
business that helps an entity in order to define various financial resources to be used by the entity
ion order complete all their goals and the objectives in given time span. It is that controlling
technique which compare actual results by the standard guidelines in order to make corrective
actions. The process of budgets will be totally based on different kinds of responsibility centres
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such as revenue centres, expenses centres, profit and investment centres (Hill and Jones, 2014).
The defining of these centres will help an enterprise owner in ascertaining their business
performance.
It is beneficial for an entity to make budgets for enhancing their business efficiency as it is also
known as virtual management who seek the good business performance in the absence of the
management by taking care about the future results by preparing itself in the current situations.
It helps to promote coordination by good communication skills of a person. It clearly defines
areas of responsibility that requires managers of different budget centres.
3.4
The budgets are prepared as per the different functions in the business such as
production, labour, operating, cash budgets. The primary aim of the budget is to find out
different variances which will be helpful for the enterprise owner to find variances that can be of
two kinds that is favourable or adverse which affect the overall business performance of an entity
(Hooper, 2016). The favourable balances in the budget reflects the ability of the firm and at the
same time adverse balances is the negative balances that shows deficiency of an enterprise which
should be removed by an enterprise owner. Favourable balances arises due to the higher actual
figures as compared to the budgeted figures. On the contrary, adverse figures takes place in the
business by low actual balances than compared to the standard values decided by an enterprise
owner than per the business efficiency (Kaplan and Atkinson, 2015). It is recommended to the
management to apply the standard costing techniques which will help in determining various
aspects of business as per the determined rates.
TASK 4
4.1
Table 1: Calculation of ratios
Ratios Formula 2014(values in a
million Pound)
2015(values in a
million Pound)
Profitability
GP ratio GP/Net sales*100 6483/10502*100 7207/11272*100
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= 61.73% =63.93%
NP ratio NP/Net sales*100 673/10502*100
=6.4%
1404/11272*100
=12.45%
Liquidity
Current ratio Current asset/current
liabilities
1921/3060
=0.63
1384/3233
=0.42
Efficiency
Asset turnover Total asset/Net sales 6865/10502
=0.65
6082/11272
=0.53
Interpretations
Profitability- The ratio's comes under this category will be helpful for an enterprise in order to
ascertain the profitability of an entity by considering all the expenses and taxation effect in two
forms which are given as below:
 Gross profit- It is that profit which helps to determine the raw figure of profit by just
excluding the cost of sales expenses from it (Kinyua and Ali, 2016). The GP ratio has
increases from the one period to another period due to the decreasing amount of cost of
sales. The business efficiency has increases from period to period.
 Net profit ratio- Net profit ratio has increases from 2014 to 2015 with almost double of
the previous ratios is due to the less effect of taxation on the enterprise which can be due
to the tax exemption provided to an entity.
Liquidity- The cash balance held by an entity in order to meet all their basic obligations with a
clear motive to meet all the expenses and losses to increase their income and gains.
 Current ratio- The proportion among the current assets and current liabilities are
ascertained which reflects the ability of current assets to handle the immense pressure of
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all the current liabilities. The decreasing current ratio will show that the current liabilities
of Hilton hotel are increasing in form trade creditors.
Efficiency-These ratios will reveal the capabilities of an enterprise to strengthen its existing
business performance (Lemieux and Thompson, 2013). The efficiency ratios will act like traffic
lights which prepare the entity by showing green lights to that symbolises the protection guards.
 Asset turnover- the contribution of the asset has been assessed in the ratios which is
decreasing from its earlier year that shows the less contribution of all the assets I
generating higher sales and the revenue.
4.2
The existing business performance can be improved by utilising technology in order to
strengthen the existing state of the business. The changing external dynamic environment can be
regulated by utilising one of the external factor that is the changing technology in the business
entity (Kaplan and Atkinson, 2015). The user of different technological methods in the business
operations which will reduce the errors and mistakes which will occur due to the manual
systems. The application of various technological methods will help an enterprise in ensuring
bits success by adding the touch of different technical measures in their business operations
(Lemieux and Thompson, 2013). In the hospitality industry, the technology play a significant
role as all the services will get specialised flavour of technological which will uplift the status of
the services and overall organisation in terms of innovative technology.
TASK 5
5.1
Cost is that element which is major concern of an entity as all the business decision are totally
based on the cost factor as every management will think of reducing its overall costs by
increasing the amount of profit. Following are some primary category of the costs which are
given as below:
Variable cost- It is that costs which is changes along with changes takes place in the overall
production activity of an enterprise (Lin and Madu, 2015). The production units will able to
determine the higher or lower costs that takes place in an entity. There are various variable costs
involved in an enterprise in the hospitality industry such as rates of room will be range according
to the income and budget level of a person.
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Fixed costs- It is that costs which is of fixed nature as it may incur in an enterprise without
getting affected with the production level of an enterprise. The utilities expense remains fixed as
there is no relation ship between the production and fixed costs.
Semi-variable cost- It is that cost which have characteristics of both the costs that is both fixed
and variable costs (Minola and Cogliati, 2016). The electricity bill is fixed but the division of the
business in several parts will generate different bills for both the units then it is considered as
variable costs.
5.2
Contribution margin is an important term used in the break even analysis concept in which break
even point has been calculated in order to determine the contribution made by the client. The
formula of the contribution margin is given as below:
Contribution= Sales-variable costs
Contribution per unit= Revenues per unit- variable cost per unit
The above information is helpful in identifying the break even point as this pointy is revealed the
actual information which will be used in an enterprise that at this point the enterprise will earn no
profit or loss.
Cost profit or volume is an analysis which helps to determine the specific rate of changes takes
place in costs and volume which will directly affect the overall profitability of an enterprise.
5.3
Break even analysis is that effective tool which is one of the widely used business tool in
evaluating the business performance in terms of costs (Meyer and Estrin, 2009). It helps to
determine all the short term costs. This tool is used in making short term decisions as all short
term related costs are determined in this kind of process which results in increasing profitability
of an entity. The ascertainment costs will assist an entity in monitoring their business
performance. The determination of adequate point in the business enterprise will help an entity in
return to increase their sales and the revenue by minimising their costs which will enhances the
overall business performance of an entity (Rintala and Karppinen, 2016). This break even
analysis is also called as controlling tool which used to analyse the trends and patterns of fixed
costs in relation to the sales.
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CONCLUSION
It can be summarised from the above project report that the positive impacts of different
financial resources will be proves beneficial for Hilton hotel. The different financial resources
will bring opportunities for an enterprise in terms of expanding the overall business with another
strong entity with less prospective risks.
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