Financial Management in Hospitality: A Case Study of Hilton Hotels

This report provides a detailed financial analysis of Hilton Hotels & Resorts. It begins by exploring various sources of finance available to businesses, including venture capital, public share issues, bank loans, retained earnings, and business angels, with a focus on factors to consider when accessing these sources. The report then discusses sales promotion, commission, and grants as revenue streams, and it defines and provides examples of cost elements, including fixed, variable, and semi-variable costs. It further delves into methods for controlling stock and cash, and it explains the structure and purpose of a trial balance, including adjustments and budgetary control. Financial ratios are calculated to determine financial performance, and recommendations are provided for future management strategies. The report concludes with a solution to a given case study, offering a comprehensive overview of financial management within the hospitality industry.

Finance in the Hospitality
Industry

Table of Contents
INTRODUCTION ...............................................................................................................................3
MAIN BODY.......................................................................................................................................3
TASK 1.................................................................................................................................................3
AC1.1 Various sources of finance available for funding to different business and service
industries. ........................................................................................................................................3
The factors which should have the consideration when accessing the sources of financing...........4
AC 1.2 Discussing...........................................................................................................................4
TASK 2.................................................................................................................................................5
AC 2.1..............................................................................................................................................5
b. Explaining following with the help of example...........................................................................8
AC 2.2 Methods of Controlling Stock & Cash...............................................................................9
TASK 3...............................................................................................................................................10
AC 3.1 Trial Balance.....................................................................................................................10
AC 3.2 Trial balance.....................................................................................................................13
a. Explaining adjustments..............................................................................................................13
b. Preparation of trial balance........................................................................................................13
AC 3.3 Budgetary control..............................................................................................................14
AC 3.4 Calculation ................................................................................................14
TASK 4 – DISCLOSED IN POWERPOINT PRESENTATION.......................................................15
TASK 5...............................................................................................................................................15
AC 5.1 Categorising......................................................................................................................15
AC 5.2 Contribution per unit.........................................................................................................16
AC 5.3 Justify................................................................................................................................17
CONCLUSION..................................................................................................................................18
REFERENCES...................................................................................................................................19

INTRODUCTION
Finance is considered as one of the main business aspect without which no business organisation
can undertake its business operations. By managing financial activities of the company, it helps in
ensuring proper flow of cash as well as fund thereby making right allocation of financial resources
to the different business department. The present report is based on Hilton Hotels & Resorts which
is one of the global as well as multinational company with its buisness operations across the globe.
It will emphasises on different sources of funding for new and existing business firms. Also,
explanation will be made regarding to elements of cost with cash and stock controlling methods.
Furthermore, focus will be made on defining source and main structure of Trial Balance with
formation of new Trial Balance of ABC Traders after considering all the adjustments. Financial
ratios will be calculated for determining the financial performance of the business along with
recommendation related to appropriate future management strategies required. At last, it will
streamline about proper solution of the given case study.
MAIN BODY
TASK 1
AC1.1 Various sources of finance available for funding to different business and service industries.
The sources of finance have been termed as the significant facto in different business and
service organization. There is the need for the development of different sources to arise the finance
for the further growth and prosperity of business. There are various sources which are having their
availability to business that can be described such as-
Venture capital: the company should be aware of the venture capitalist who will promise
carrying out risky project. The venture capitalist are looking for the business which are
technological driven along with high level of potentiality over growth ( Balaban, Župljanin. and
Ivanović., 2016..). Venture capitalist have the taken the position of equity sources of financing as
they have the expectancy of healthy return on investment. Hotel Hilton can have look for investors
who can help in brining relevant gains and knowledge to business. More risk management is
involved turns to be benefit. On other hand funding is retentively scarce and difficult to obtain.
Public share issue: it is regarding the collection of the firm fund by issuing of share to the
public and raise the fund. Thorough this sources of raising fund the company can collect the large
amount of fund for longer period which helps in achieving vision and mission of organization. As
the type of financing don't have the risk of debt but the company has to be enlisted in the stock
exchange.

Bank loan: There is the collection of necessary funds from the commercial banks at low
interest rate for a particular period. Banks loan has been termed as the most preferable resources
fort a business company in a particular short period (Jerzmanowski, 2017. ). The commercial banks
used to provide the bank overdraft facility to various activities established by business. On the other
hand the there is high interest rate are charged by bank on overdraft. The company has enhanced the
overdraft facility for a particular period for the accomplishment of task.
Retain earnings: The earned surplus or the accumulated earnings can be termed as the
financing use for the company as it reduces the level of dependence in the funds derived from
external sources in order to have regulation business company can have the option of self-financing
or ' ploughing back of profits. This is powerful strategy to have control over business as it involves
a long process of decision-making.
Business angels: the company should have the identification of professional investors which
have the investment as well as their time for the growth and potentiality of business, this helps I the
quantum of angel investment (Amornkitvikai and Harvie, 2018). There is less level of risk as
compare to debt financing but the having the angel investors is loss of complete control as part of
owner.
The factors which should have the consideration when accessing the sources of financing
Debt/equity- while assessing the source of finance there will be quite level of understanding
whether the capital raise in debt of equity. This will help in having proper analysing the requirement
of business.
Control- the investor should have the proper analysis the control over the business s
expansion of the requirement of business in later end period to have proper control and evaluation.
Security- the company should have the access over the level of security in having proper
finding of finance in regular examination of business.
Legal authorities- The company should be aware about the legal requirement which the
company should have address in the market along with government.
Time: Time is the essential requirement which is to capable for worst and best happening of
the different development of business.
AC 1.2 Discussing
1. Sales Promotion – A process which assist in persuading as well as influencing the target
customer group in the market place so as to purchase a particular product or service of the
company thereby boosting the sales as well as profitability aspects of the company. With the
help of sales promotion techniques, it supports the company in formulating a base or reason

for buying such thing. Hilton Hitel by making focus on its marketing strategies and
approaches can capture the current market opportunities along with increase in customer
base. Hilton by offering discounted products, coupon, branded gifts can attracts large
number of customers towards itself (Arkan, 2016). Also, by providing schemes such as buy
more - save more, points of loyalty, pricing strategy matching promise etc. Can assist the
company in generating more and more revenue along with increase in market share.
2. Commission – A type of revenue which is taken by all the financial institutions from the
customers in relation to charges for providing account related services. Such type of charges,
commission and fees mostly includes non – sufficient nature of fund fees, over the limit
fees, late fees etc. Hilton Hotels by charging montly service charges or commission from its
customer dolding membership earns their revenue for the year. For hospitality industries, it
is very much essential to manage their revenue part with the help of strategic planning,
distribution as well as sound pricing tactics for selling its own property or inventory at the
right time to the right guest so as to increase the sales level. With the help of revenue
management, it provides company in making unique as well as creative innovation related to
the products and services which are being offered by them in the market place.
3. Grants – Is considered as one the most important type of income which is received in by
the company in form of financial aids for which nothing has to paid in return. The amount as
received in by the company in form of grants has to be spend on particular activities for
which it is received in stead of using it in for some other business purpose. However, in case
of Hilton Hotels the grant amount as received by it will be treated as income for the
company as it is provided for the business expansion as well as for increasing the sales level
along with increase in the customer and market share.
TASK 2
AC 2.1
a. Describing following elements of cost with example:
The term elements of cost is basically related with the total amount of cost which has been incurred
for producing or manufacturing a particular product of the company. Thus, these are divided into
three main types viz.
1. Material – Is related with the cost amount which has been incurred for producing a specific
product or service. Is basically of direct as well as indirect types. Example – raw material.
2. Labour – Human efforts which has become part of production function so as to convert
material into finished goods and products. Example – Labour and workers wages (Tian and
Yu, 2017).

3. Expenses – The cost of service as provided to the company along with notional amount
related to the owned assets used in production operations of the company. Example – Power,
fuel used in carrying own operational fuctions.
Graphs of Fixed , variable and Semi-variable costs
1. Fixed Cost – A type of cost amount which remains fixed and donot changes with change in
sales as well as production level.
2. Variable Cost – Brings in changes as per the changes in the level of activities consumed.

3. Semi – variable Cost – Is a mixture of both the fixed as well as variable cost which is fixed
for some specific production level and becomes variable once that level of production is
attained.

b. Explaining following with the help of example.
1. Gross Profit Percentages – Is a profitability aspect which helps in measuring the overall
company's efficiency in converting its sales into revenue with the help of marketing
strategies as well as plans so as to capture current market oppotunities (Guo and Yang,
2018).
Formula = (Gross profit/ Total sales)* 100
Example – X limited is having total sales of $150000, with its gross profit of $58000 for the year
2018. The gross profit percentage will be calculated as follows:

Gross profit percentage = (Gross profit/ Total sales)* 100
Gross profit percentage = (58000/150000)* 100
Gross profit percentage = 38.67%
2. Selling Price – A price amount which is charged by the company for its products and
services from the customer in the market place. It is the sum total of cost price and profit
margin which is left after sell is done for the seller.
AC 2.2 Methods of Controlling Stock & Cash
Stock control is considered as one of the most important aspect of business which helps in
making correct valuation of inventory level so as to minimize business loss. Following are the
methods of stock control level:
1. Re – order lead time – Helps in identifying time in between order placed and its receiving.
2. Economic order quantity – Optimum quantity which a company should ordered so as to
minimize annual cost of both ordering and carrying it thereby increasing profitability aspects

of the business (Shibli and Wilson, 2018).
3. First in, frst out – It helps in selling out persihable nature stock so as to protect it from
getting deteriorate. Stock produced first is move out for selling as per strict oder.
Cash control is a process of managing as well as controlling the flow of cash in and out of
the business. It is also related with monitoring credit policies, debtor collection strategies, allocation
of cash resources etc. Following are the methods for controlling cash:
1. Documentation and records – Ensures safeguarding to the company by making proper
records and documents of the cash transactions of the business.
2. Segregation of duties – Cash related duties i.e. Maintaining of cash registers, recieving
cash, recording cash receipts transaction should be assigned to different employees for
minimizing theft or such activities.
3. Proper authorization – Handling cash related transactions should be assigned to only
limited people for maintaining its accuracy level.
TASK 3
AC 3.1 Trial Balance
Definition – An accounting report depicting about list of general ledger account balances on debit
as well as credit side.
Purpose – The main aim of preparing trial balance is:
1. To check arithmetical accuracy of ledger accounts.
2. To identify mathematical errors done in double entry accounting system (Liang and et.al., 2016).
3. Provides base for preparation of financial statement.
Source and structure -
A trial balance is having a list containing two columns i.e. Debit and credit in which
balances of all the ledger accounts are disclosed.
Structure of trial balance
It contains five columns:
1. Serial number
2. Heads of accounts
3. References
4. Debit balance

5. Credit balance
Sample trial balance -

Procedure – It includes:
1. All the ledger accounts are closed at accounting period end.
2. Ledger balances are posted to the trial balance.
3. Trial Balance is checked so as to identify any errors done.

4. Suspense account is created to match trial balance totals on temporary basis until errors
are identifed and corrected.
5. Rectification is done by posting corrective entries.
6. Adjustments are made if required for transactions which are not recorded earlier.
AC 3.2 Trial balance
a. Explaining adjustments
In case of machine purchased on credit terms from M/s Ramsay machine tools for £200,000
the machine account will be increased from £200,000 as it is purchased and will be recorded on the
debit side of trial balance. Being purchase on credit, the creditors side will be increased and credited
by £200,000 as well.
Wages which is recorded incorrectly as Salaries will be deducted from salaries by £43000 and
added to wages by £43000. Both adjustments will be done on debit side of trial balance.
b. Preparation of trial balance
Trial balance of ABC Trade as of 31st August 2015
Serial
No. Particulars L/F Debit Amount
(in £)
Credit Amount
(in £)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Opening Stock
Purchases
Salaries
Wages
Carriage Inwards
Trading Charges
Carriage Outwards
Rent received
Cash
Capital
Bank (Overdraft)
Commission
Creditors
Sales
Debtors
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86,000
1,136,000
110,000
61,000
26,900
64,000
52,500
62,500
42,780
256,000
178,300
344,700
37,980
468,000
1,548,700

16 Machinery – 6,80,000
Total 2577680 2577680
AC 3.3 Budgetary control
A process which helps in determining deviation of actual results from the budgetary
framework made or estimate done and measures to be undertaken for resolving it.
Process – It encompassess of following steps:
1. Defining financial plan or target.
2. Recording of actual results.
3. Making comparison of actual performance with budget formed (Penman, 2015).
4. Evaluating deviation in between actual and budgeted fgures.
5. Taking remedial measures.
Purpose – It helps managers in defining financial plan for the company by setting budgetary goals
and making futuristic estimates i.e. Budgetary figures and making comparison of it with the actual
result so as to ascertain deviation and changes required if any.
AC 3.4 Calculation
a) Material total variance
Material total variance
= Direct material price
variance + Direct
material usage variance
Direct
material price
variance 17600
Direct
material
usage
variance
-20400
ADVERSE -2800

b) Direct material price variance
Direct material price variance
= (Actual Quantity x Actual
Price) - (Actual Quantity x
Standard Price)
Actual prices 140
Actual Quantity 1000
Standard Price 102
Standard
Quantity 1200
Actual Quantity x
Actual Price 140000
(Actual Quantity
x Standard Price 122400
FAVORUABLE 17600
c) Direct material usage variance
Material usage variance =
(Actual Quantity – Standard
Quantity) x Standard Price
Actual Quantity 1000
Standard Quantity 1200
Standard Price 102
ADVERSE -20400
TASK 4 – DISCLOSED IN POWERPOINT PRESENTATION
TASK 5
AC 5.1 Categorising
1. Fixed cost - £380 for order taken
2. Variable cost - £15.50 per guest including catering cost
3. Sales - £25.00 per guest for event

Guests required for restaurant to attain breakeven point.
Break even Point (in Units) = Fixed Costs/(Price – Variable Costs)
Sales £25
less Variable cost £15.5
Contribution £9.5
Fixed cost £380
Break even point
(units) = Fixed
cost/contribution
40
Guests required for restaurant to reach breakeven is 40.
Value of revenue
Revenue = Units x Sales Price
Revenue = 40 guests x £25.00 per guest
Revenue = £1000
AC 5.2 Contribution per unit
Sales £25
less Variable cost £15.5
Contribution £9.5
Cost/profit/volume relationship defines the relationship in between cost, volume of sales and
profit margin which its main focus on determining how sales price, level of sales, fixed as well as
variable cost along with the mix of such product being sold is affecting the overall profitability
aspect of the company. In this case scenario, the restaurant is hasving its sales price £25 per guest
which is yielding a profit of £1000 on delivering its services to 40 guests.
If 80 guest booked profit made and Margin Of Safety
Revenue
Revenue = Units x Sales Price
Revenue = 80 guests x £25.00 per guest
Revenue = £2000
Margin Of Safety

Margin Of Safety = (Actual sales – break - even point)/ Actual sales
Particulars Amount (in £)
Actual sales 2000
Break even point 40
Margin Of Safety
= (Actual sales –
break - even
point)/ Actual
sales
0.98
If 100 guest booked profit made with price £22 per guest and Margin Of Safety
Revenue
Revenue = Units x Sales Price
Revenue = 100 guests x £22.00 per guest
Revenue = £2200
Margin Of Safety
Margin Of Safety = (Actual sales – break - even point)/ Actual sales
Particulars Amount (in £)
Actual sales 2200
Break even point 58
Margin Of
Safety = (Actual
sales – break -
even point)/
Actual sales
0.97
AC 5.3 Justify
For making effective short - term management decisions on the basis of profit / loss
potentials as well as risk or break - even calculations, it can be concluded that on making booking
of 100 guests the margin of profit at the price level of £22 per guest will be £2200.
Margin Of Safety helps the company in measuring as well as assessing the total amount of
sales which has exceeded the break – even point of the business. In case of 80 guest with its selling

price of £25 per guest, the margin of safety determined is 0.98 which is considered better as
compared to serving to 100 guests.

CONCLUSION
From the above file it can be concluded that by making proper and effective financial plans
along with sound business strategies, it will help the company in gaining competitive advantages.
Hilton Hotels in the market place with the help of innovative as well as creative marketing
processes has been able to capture the market share along with high customer base. Thus, with the
help of financial ratio analysis the overall financial performance of the business can be ascertained
by making use of profitability aspects, efficiency as well as solvency ratio. Also, with the help of
liquidity as well as solvency aspects the capability of company in meeting its coming obligations
can be resolved.