Belgravia Hotels: Financial Management, Ratios and Performance

This report provides a comprehensive analysis of finance within the hospitality industry, focusing on Belgravia Hotels as a case study. It identifies and reviews various funding sources and income generation methods available to businesses in the service sector, evaluating their contributions to Belgravia Hotels' operations. The report discusses cost and profit elements, highlighting the importance of setting appropriate selling prices. It evaluates methods for controlling stock and cash, discussing the costs and benefits of chosen methods used by Belgravia Hotels. Furthermore, the report explains the trial balance, assesses the source and structure of business accounts, and evaluates adjustments and notes. It also discusses the purpose and process of budgetary control, analyzing budgetary variances for Belgravia Hotels to offer recommendations for future actions. The report calculates and analyzes financial ratios to interpret the business's performance and recommends future management strategies. Finally, it categorizes costs as variable, fixed, and semi-variable, calculates per customer contributions, and discusses the use and importance of break-even analysis for short-term decision-making.

UNIT 2: FINANCE IN THE HOSPITALITY INDUSTRY
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Table of Contents
Introduction.................................................................................................................................................4
Task 1..........................................................................................................................................................5
1.1 & 1.2 Identify and review the sources of funding available to business and services industries, and
using the chosen hospitality organisation and evaluate the contribution made by a range of methods in
generating income within the operation.......................................................................................................5
Task 2..........................................................................................................................................................6
2.1 Discuss the elements of cost and profit and the role of setting selling prices in the service business
environment using your chosen organisation as an example.......................................................................6
2.2 Evaluate the methods of controlling stock and cash and discuss the cost and benefit of at least two
methods used in your chosen organisation...................................................................................................7
Task 3..........................................................................................................................................................9
3.1 & 3.2 Explain trial balance and assess the source and structure and evaluate business accounts,
adjustments, and notes using a given example or from your chosen organisation.......................................9
3.3 Discuss the purpose and process of budgetary control in a business and service environment
organisation...............................................................................................................................................12
3.4 Analyse budgetary variances using a chosen organisation to offer recommendation for future action.
................................................................................................................................................................... 14
Task 4........................................................................................................................................................15
4.1 Using the financial ratios provided for the given organisation, calculate and analyse to offer
interpretation of the business performance................................................................................................15
4.2 Recommend appropriate future management strategies to improve performance using your
understanding of financial ratios calculated above....................................................................................17
Task 5........................................................................................................................................................18
5.1 Categorise and explain the cost as variable, fixed and semi-variable with examples drawn from the
chosen organisation...................................................................................................................................18
5.2 Calculate per customer or per product contributions and explain the relationship between cost/profit
and volume................................................................................................................................................18
5.3 Discuss and justify the use and importance of Break-Even analysis for short-term decision-making..20
Conclusion.................................................................................................................................................21
Reference list.............................................................................................................................................22
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Introduction
Finance is a significant part of all business irrespective of the industry or the sector within which
the business operates. Be it a profit seeking organization or a not for profit organization, finance
is an important factor in every organization. The organizations operating within the sector of
hospitality also require evaluating their finances. This report discusses about an organization
operating in the hospitality sector named Belgravia Hotels. The Belgravia Hotel is an
international hospitality business based in UK that operates in mainly three segments -
restaurants, contract services and lodging.
The organization is determined for the development and enhancement of the position of the
organization in every division. The objective of the Belgravia Hotels is to be one of the highest
profitable companies and hospitality employer in the hospitality industry. The company has also
devised three financial strategies in order to achieve the objectives of the company. This report
will be helping in understanding the various sources of income generation and funding for the
industry of hospitality along with evaluating the different elements of costs. It will also evaluate
how business accounts of the Belgravia Hotels can be prepared and how its performance can be
evaluated through comparison of financial ratios. The report also applies the concept of marginal
costing in order to analyze how Belgravia Hotels’ finances can be managed.
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Task 1
1.1 & 1.2 Identify and review the sources of funding available to business and services
industries, and using the chosen hospitality organisation and evaluate the contribution
made by a range of methods in generating income within the operation.
Sources of income can be referred to as the sources from which a company or a business can be
deriving funds, either for funding its operations or for using in some other purpose. Sources of
finance in a company can be internal as well as external (Peirson et al., 2014). Belgravia Hotels
can use both internal as well as external sources for generating funds in the company. The
internal sources that can be used in Belgravia Hotels for generating funds is as follows -
 Retained profit - The amount that a company retains as a reserve for future use is called
the retained profit (Elsas et al., 2014). Retained profits can act as a long-term funding
source, thereby helping the company in funding its various operations.
 Sale of assets - The selling of old and non-useful assets can help a company in generating
funds as well. The amount generated from selling old assets can be used as funds for
various purposes.
On the other hand, the following are the external sources of funds that can be used by Belgravia
Hotels for generating funds -
 Issue of new equity shares - Issue of shares help in generating huge amount of funds
without any requirements of repayment. The money paid against purchase of a
company’s shares help it in generating income.
 Bank loans - Loans can also be taken from a bank for a long period such as 15 to 20
years (Philippon and Reshef, 2013). This source helps in generating huge amount of
funds within a short period, which can be repaid over a long time.
The contributions of the range of methods of generating income mentioned above are huge. All
these sources can help the Belgravia Hotels for generating funds for its operations or new
investments. Each of the methods mentioned above can generate short-term, medium-term as
well as long-term funds for the business.
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Task 2
2.1 Discuss the elements of cost and profit and the role of setting selling prices in the service
business environment using your chosen organisation as an example.
Both costs and profits are two important factors within a business. However, there are elements
of both costs and profits. There are three major elements of cost - material, labor and expenses.
Figure 1: Elements of cost
(Source: Wild, 2017)
The three elements of cost, material, labor and expenses can be further divided into direct and
indirect, as indicated in the figure above. Direct ones are the costs spent that can be traced to
costs units while the indirect ones are the costs that cannot be traced into cost units. All these
material costs, labor costs and expenses spent by Belgravia Hotel are cost elements of the
company. On the other hand, there are three elements of profit - revenue, expense and loss.
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Figure 2: Elements of profit
(Source: Frimpong et al., 2017)
As mentioned in the figure above, profit is a combination of revenues, expenses and loss. For
example, the profit of the company Belgravia Hotel increases with decrease in its expenses and
loss and increase in revenues.
It is important for every company to set right product prices including the hospitality and service
organizations. Setting appropriate selling prices help the company in gaining more customers
and grabbing a strong position in the marketplace (Mack and Goretzki, 2017). For example,
Belgravia Hotels will be able to create a strong position in the market with the help of a right
pricing strategy. In order to do so, Belgravia Hotels can be using different pricing strategies such
as the cost led pricing strategy, the ROI pricing strategy or the market led pricing strategy.
However, irrespective of any pricing strategy chosen by the organization, Belgravia Hotels must
ensure that it is providing the highest possible quality services so that customers prefer the
company rather than any other hospitality company.
2.2 Evaluate the methods of controlling stock and cash and discuss the cost and benefit of
at least two methods used in your chosen organisation.
In order to control the cash and stock within an organization, the organization requires adapting
different types of methods and techniques. The Belgravia Hotels can also use these methods in
order to control the cash and stock of the company. The following are the methods with which
the Belgravia Hotels can be controlling its stock -
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 Just in time or JIT - The JIT is an inventory strategy that helps a company in creating
goods only as and when they are required (Swafford et al., 2017). The benefit of
Belgravia Hotels for using this method is that it will be able to increase its efficiency
while decreasing wastes. However, the company might have to pay the cost of losing
customers when inventories are unavailable when they are needed. Economic order quantity or EOQ - This is another strategy according to which
inventories are maintained in the company through determining the right stock quantity
that a company needs to maintain (Stevens et al., 2017). The benefit of using this method
in Belgravia Hotels is controlling excess inventories. However, costs have to be spent for
hiring skilled inventories who can measure the EOQ.
On the other hand, the following are the methods that can be used for controlling the cash of the
company -
 Auditing - Auditing helps in detecting the financial frauds that take place in a company
(Cameran et al., 2015). This will help Belgravia Hotels in reducing its cash management
frauds. However, costs have to be spent on appointing both internal and external auditors.
 Implementation of CCTVs - Implementing CCTVs help a company in noticing the
misplacement of cash within a company (Piza et al., 2015). It will be beneficial for
Belgravia Hotels for detecting the misplacement of cash. However, costs have to be spent
on implementing CCTVs.
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Task 3
3.1 & 3.2 Explain trial balance and assess the source and structure and evaluate business
accounts, adjustments, and notes using a given example or from your chosen organisation.
Trial balance is one of the most essential financial statements of a company that contains the
debit and the credit balances of the double-entry bookkeeping system of the company (Ahmed,
2016). This statement is helpful for finding the errors of the books that are maintained in a
company. Any difference between the debit balance and the credit balance is the indication of an
error.
Source of trial balance
The trial balance of a company is prepared through extracting information from the company’s
books of accounts (Higgins and Smith, 2015). The general ledger accounts of a company, for
example the purchase ledger, sales ledger, etc. act as the source of information for a trial balance.
The information flows from a company’s journal to its ledger accounts and from ledger accounts
to the trial balance.
Structure of trial balance
The following figure shows the structure of a trial balance along with adjustments -
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Particulars Debit (in £)Credit (in £)
Cash and cash equivalents *** ***
Accounts receivable *** ***
Accounts payable *** ***
Accumulated depreciation on fixed assets *** ***
Accrued interests *** ***
Prepaid insurance *** ***
Capital *** ***
Long-term loans *** ***
Sales *** ***
Outstanding rent *** ***
Interest expenses *** ***
Stock in hand *** ***
Drawings *** ***
Salaries & wages *** ***
The above figure shows the structure of a trial balance including the adjustments that can be
made in the trial balance of a company. Business accounts can be of different types. There are
five main business accounts prepared in a company, which are the asset account, the liability
account, the equity account, the revenue account and the expense account. However, the main
business accounts of a company are its profit and loss account, also called the income statement
and the balance sheet of a company.
For example, Pineapples Tours and Travel Limited is a tourism company that offers different
types of tourism goods and services. The following is the adjusted trial balance of the company -
Trial balance Adjusted Trial
Balance
Final Trial
Balance
Debit Credit Debit Credit Debit Credit
Bank 1950 1950
Capital 9000 9000
Cash 2000 2000
Client (Sally) 500 500
Long term loans 2000 2000
Machinery 5000 5000
Purchase 6400 6400
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Rent 1200 1200
Salaries 2500 2500
Sales 7000 7000
Shop expenses 1100 1100
Goods supplier 5150 5150
Machinery supplier 1000 1000
Equipment supplier 0 0 0 0
Van 3100 3100
Opening stock 0 0
Closing stock 3600 3600 3600 3600
Amortization 1120 1120 1120 1120
Provision for doubtful
debts
250 250 250 250
Prepayment 500 500
Accruals 100 100
Total 29220 29220
As per the trial balance and the adjustments presented below, the following the business accounts
that can be prepared in an organization -
Profit and loss account -
Particulars Amount (in
pounds)
Sales 7000
Opening stock 0
Purchases 6400
Closing stock 3600
Gross profit 4200
Rent 1200
Shop expenses 1100
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Salaries 2500
Amortization 1120
Provision for bad and doubtful debts 250
Net profit (loss) -1970
Statement of financial position -
Particulars Amount (in
pounds)
Assets
Machinery 5000
Van 3100
Amortization 1120
Closing stock 3600
Debtors 500
Provision for doubtful clients 250
Bank 1950
Cash 2000
Prepayment 500
Total Assets 15280
Liabilities
Capital 9000
Net profit (loss) 1970
Long term loan 2000
Van supplier 0
Machinery supplier 1000
Goods suppliers 5150
Accruals 100
Total Liabilities 15280
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As per the trial balance and the business accounts of Pineapples Tours and Travel Limited
presented above, the Belgravia Hotels can also prepare its trial balance and business accounts in
order to analyze its financial situation.
3.3 Discuss the purpose and process of budgetary control in a business and service
environment organisation
Budgetary control can be referred to the system that facilitates a company’s management in
controlling its expenses and income through comparison of actual and standard income and
expenses (Mack and Goretzki, 2017). The budgetary control can be executed within an
organization through a particular process. The process is as follows -
Figure 1: Budgetary control process
(Source: Created by author)
The first step in the budgetary control procedure is developing plans that can help in devising the
standard performance of a company followed by the identification of the actual performance in
the second step. In the third step, comparison is made between the standard set and the actual
performance of the company. In the fourth step, a company’s management derives the variances
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Plan development
Identifying the actual performance
Comparing the actual and standard performance
Variance analysis
Strategies development