Finance in Hospitality: Analysis of Belgravia Hotel Finances

This report provides a comprehensive analysis of financial management within the hospitality sector, focusing on Belgravia Hotels. It explores various funding sources, including retained profits, bank loans, and credit purchases, along with their advantages and disadvantages. The report examines methods for generating income, such as sales, commissions, and new product development, and evaluates cost elements, gross profit percentages, and selling price strategies. It delves into cost control and cash management techniques, including cash handling policies and reconciliation systems. Furthermore, the report assesses trial balances, budgetary control processes, and variance analysis. It includes a ratio analysis of Belgravia Hotel, along with recommendations for future management strategies and an in-depth Cost-Profit-Volume (CPV) analysis to justify short-term management decisions. The conclusion summarizes key findings and recommendations for enhancing financial performance in the hospitality industry.

FINANCE IN HOSPITALITY

Table of Contents
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
1.1. Sources of funding available to business and service industries..........................................1
1.2. Methods of generating income and contribution to business & service operations.............2
M1. Various sources of finance and their advantages and disadvantages..................................3
D1. Methods of generating income and best option from it to generate income........................4
TASK 2............................................................................................................................................4
2.1. Elements of costs, gross profit percentage and selling price for products and services......4
2.2. Methods of controlling cost and cash in business and service environment........................5
M2 Identified and applied relevant theories and techniques of setting prices............................6
D2 Take responsibility for managing and organising activities..................................................6
TASK 3............................................................................................................................................6
3.1 Assess the source and structure of the trial balance..............................................................6
3.2 Evaluation of business accounts............................................................................................7
3.3 Purpose and process of budgetary control in a business and service environment
organisation................................................................................................................................9
3.4 Analysation of budgetary variances....................................................................................10
Task 4.............................................................................................................................................10
4.1 Ratio analysis of Belgravia Hotel.......................................................................................10
4.2. Appropriate future management strategies for business and service operation.................11
Task 5.............................................................................................................................................11
5.1 Categorisation of costs of Belgravia Hotel.........................................................................11
5.2 Relation in Cost / Profit / Volume analysis of Belgravia Hotel..........................................11
5.3 Justification of short term management decisions based on CPV analysis........................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Hospitality sector is enclosed with hotel management, restaurants, travel and tourism
firms and so on. In order to deliver quality services to consumers it is must for these
organisations to have enough funds and finance. These two elements can be generated through
various sources. Satisfaction level can be enhanced of customers through delivering products and
service according to their needs. With the help of this, profit margins can be enhanced in an
appropriate manner. Both finance and accounting and its application has helped companies under
hospitality section gained in an appropriate manner (Walker and Walker, 2016). Belgravia Hotels
is an international hospitality firm which is dealing in three different sector which are: Lodging,
contract services and many restaurants. At the moment, they are looking forward to enhance their
profitability and productivity at the same time. Report is going to include various things like,
sources of funding and along with evaluation of different methods that aid in generating heavy
income. Away from this, elements of cost and profit that can help organisation in understanding
business environment. Assessment is also enclosed with trail balance, process of budgetary
control and so on. Many interpretations like ratios which will help in measuring performance of
firm.
Task 1
1.1. Sources of funding available to business and service industries
It has been examined that there are ample number of sources through which both funds
and finance can be generated by organisation in an appropriate manner so that they do not face
any issues related to this while going through a task. It is required for every single firm to look
into different aspects in order to resolve issues right on time which are being faced by
organisation that are related to funds. Belgravia Hotels already have a good name in all over
United Kingdom, in some other countries as well and it is famous for its services they deliver
products and services to consumers with minimal cost which is directly helping them in
maintaining long term relations with them. As per given by Legrand, Chen and Sloan, (2013),
there are various funding elements that are available in business environment which provide
funds whenever it is needed and these are given below:
Retain Profits: One of the most relevant and easy process through which funds can be
raised by organisation. Enhancing revenue and lowering expenditure can help Belgravia Hotels
to generate funds.
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Bank Loans: This is another source which is being utilised by most of firms when they
require funding. It is much needed for Belgravia Hotels to choose Bank which is ready to give
monitory in lower rates of interest. Heavy rate of interest will directly affect the profitability of
this firm. Along with this, it has been analysed that Belgravia Hotels can face issues that are
related to liquidity in near future.
Bank Overdraft facility: This kind of source is for a short term of instance through which
organisations can borrow money. But, this consist of higher rate of interest. Therefore, most of
firms do not prefer this sort of resource and go for others.
Credit purchases: Under this, there are many business firms who are lending funds in
terms of credit. It has been examined that firms like Belgravia Hotels needs to examine and
manage their working capital in which agreements that are related to suppliers so that it do not
get into trouble while paying the cost in order to purchase products.
As per given by Brotherton, (2012), there are some other elements as well that comes
under as an option in order to raise funds and these are: Debenture issue to capitalist,
shareholders, amalgamation of two firms, mortgages and so on. Henceforth, Belgravia Hotels
have different sort of sources through which they can raise both funds and finance whenever it is
needed. It is must for company to have a good reputation so that they do not face any sort of
barrier or issues where banks do not lend money.
1.2. Methods of generating income and contribution to business & service operations
Every single business firm whether it is of hospitality and or any other sector, it is must
for them to generate both revenue and profit in enough amount so that to sustain at marketplace
for a longer period of time. As Belgravia Hotels comes under hospitality section therefore, they
generates income through delivering various sort of services like providing rooms to travellers,
offering them food and beverages and many more. Along side this, as given by Boella and Goss-
Turner, (2013) creating benefits or earning money away with contributing in hospitality
commercial can be evaluated through many ways and these are:
Sales: Belgravia Hotels is offering various sort of services to its clients and guests like
rooms, beverages, foods and other services through which they generates revenue and income.
Through these only a firm can give good rivalry to its competitors. In order to enhance sales,
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Belgravia Hotel's management makes strategies like they give special discounts like first 10
clients that have entered in their hotel, free room services and so on.
Commission: Income can also be generated through this element. Suppliers that comes in
third party vendor commission can be generated and directed by them (Jang and Park, 2011).
Opening new outlets of restaurant: Another major source through which income is being
generated. Opening a whole new branch of a restaurant at a whole new area gives an opportunity
to a firm through which it can generate revenue and income as well. But, it needs heavy
investments and examination should be done in an appropriate way through which they can earn
benefit at maximum level. Belgravia Hotels can go through new places where they are not doing
business and open a new hotel through which they can earn heavy money.
Sale of unused asset: Another way of developing income or gaining finance is through
selling assets which are not coming in use. Through this, it may be not possible to generate high
income through merchandising assets. Therefore, it is must for Belgravia Hotels to use or utilise
them in order to make it more productive.
New product development: Belgravia Hotels should keep on introducing ample number
of products and services so that to gain competitive advantages at marketplace and to generate
high revenue (Suh, West and Shin, 2012).
M1. Various sources of finance and their advantages and disadvantages
Retain Profits:
Advantages Disadvantages
 Belgravia Hotels would not need to
borrow money from any lenders.
 Reduction in profit margins as money
which was earned was directly applied
into the business so that it can get run
in successful manner.
Bank Loans:
Advantages Disadvantages
 Heavy loans may aid firms in attaining
goals and objectives right on time.
 Interest rates stays high that needs to be
paid by Belgravia Hotels.
Bank Overdraft facility:
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Advantages Disadvantages
 Money is being lended in short period
of time (Jones, Hillier and Comfort,
2016).
 Short period of time and interest rates
stays high.
Credit purchases:
Advantages Disadvantages
 If credit amount is being used wisely it
may create favourable conditions for
Belgravia Hotels.
 Time taking process where Belgravia
Hotels needs to look into its books in
every single month.
D1. Methods of generating income and best option from it to generate income
There are ample number of methods which are being used by Belgravia Hotels in order to
generate income. The best sort of method is sales through which this hotel of hospitality sector
keeps on making or generating finance for it in terms of income. Delivering products and
services to consumers according to their needs may aid firm in grabbing good and competitive
advantages at marketplace of United Kingdom and in other countries as well.
It is must for Belgravia Hotels to keep on making marketing strategies through which
promotion is being done of services which that are being offered by this organisation (Hertog,
Gallouj and Segers, 2011).
TASK 2
2.1. Elements of costs, gross profit percentage and selling price for products and services
Basically, there are two kinds of costs, one is known as direct and another is indirect.
Cost which is directly associated with products are termed as direct cost, whereas, if it is not
connected with goods then it is considered as indirect cost. This is generally include into selling
value of items and services. Henceforth, there are some cost which are going to describe here and
this is connected with Belgravia Hotel:
Material cost: It means when some amount is utilized by superior; therefore, they will be
able to produce items or services for company in an effective manner.
Labour cost: there are two elements which will comprise into this, such as salaries as
well as wages which need to be paid by superior to their subordinates.
Expenses: This will consist cost which is associated with depreciation and many others.
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There are some components which will include into gross profit percentage and this is
mentioned as beneath:
Cost of goods sold: It will occurred at time of producing any type of items as well as
services for customers.
Revenue: This is basically connected with organisation which will be either in term of
cash or credit as well. Any kind of allowances, tax or discount will never include into this.
Several factors which are linked with selling price are mentioned as beneath:
Cost: It will include indirect and in addition direct cost. This is termed as that value on
which an individual will buy product and services from organisation. It is considered as foremost
component of selling price (Bharwani and Jauhari, 2013).
Profit: This is not related with cost actually but this is must as it helps to enhance
efficiency of an association. With support of this, enterprise will be able to maintain their
reputation at marketplace in an effective as well as efficient manner.
2.2. Methods of controlling cost and cash in business and service environment
It is not easy for a company to maintain as well as control liquidity in a significant way.
Therefore, if they want to control over cash properly then, there are many methods which will be
used by Belgravia hotel. These are stated as below:
Develop cash handling policy: It is required for an enterprise to develop some strategies
and policies; thus, they will handle cash proficiently. This is essential for an affiliation to adopt it
in an effective manner within the company.
Reconciliation system: Manager of an organisation needs to record cash activities on
regular basis as this helps to maintain liquidity of firm effectually.
Instead of this, it is needed for an enterprise to keep up cash. For above stated aim, there
are some techniques which will be utilized by them. This is defined as beneath:
Economic order quantity: With assistance of this, manager of Hotel will easily decide
that which kind of goods need to be ordered, this aids them to maintain cost of handling in a
proper manner. This is must to calculate it properly and for this, there are some cost which is
essential. For instance: carrying cost, annual quantity and in addition ordering cost (Uyar and
Bilgin, 2011).
Just in time: It is must appropriate tools because this helps to control merchandise
properly. When product is get developed then this will be ordered.
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Bank reconciliation: This is considered as a statement which will be utilized by
company; therefore, they will easily get assured that both balances related to bank is correct.
Like, bank balance of general ledger need to be match with bank balance. This aids to prepare
journal entries in a proper manner.
M2 Identified and applied relevant theories and techniques of setting prices
It is required for an organisation to utilize proper techniques as well as theories; thus,
they will be able to set value of goods and services in an effective manner. They will use pricing
strategy because if cost of their products are affordable then, this will be easy for them to take
benefits from rivals at competitive place. This enables them to maintain customer base as well as
revenues in an effective manner. In addition to this, organisation will keep up their sustainability
at marketplace for maximum time span (Martínez, Pérez and Rodríguez del Bosque, 2013). This
has been analysed that, if value of items and services of an enterprise is reasonable then they will
easily influence buyers to purchase it.
D2 Take responsibility for managing and organising activities
Manager of an enterprise needs to manage overall activities in a systematic manner. For
this, they will formulate plan as this enables them to organise each thing in a proficient way.
Hence, a project management plan will be developed by them as this will assist to guide staff
members so they will complete their work systematically. Along with, coveted targets as well as
goals will be attained by firm within set period of time. They will analyse demands and desires
of clients because this will aid them to maintain sustainability at marketplace for maximum time
duration as well.
TASK 3
3.1 Assess the source and structure of the trial balance
Trial balance is being stated as a argument of various and all debits/credits scores that are
being covered under double entry books of accounting. This also includes with agreements and
disagreements which may aid in showing or pulling out all the errors. This includes various
things and categorised under three ledgers , namely general ledger, sales ledger and the purchase
ledger. It has been evaluated that purchased ledger in enclosed with personal accounts of
creditors. Along with this, sales ledger includes various things like account of debtors. On the
other hand, general ledger dwell impersonal accounts. Real and nominal account two types that
comes under this (Wang, 2013).
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The structure of the trial balance is enclosed with various sort of assets and liabilities:
Current Assets Fixed Assets & Contra Assets
Current Liability Long Term Liability
Owner's Capital Contra Capital
Contra Revenue Revenue
Expenses
Trial balance of Belgravia Hotel is being mentioned beneath:
Current Assets - Bank / Cash / Debtors
Fixed Assets & Contra Assets - Building / Equipment / Acc. Depreciation
Current Liability - Creditors
Long Term Liability - Long term bank loan / Debentures
Owner's Capital - Ordinary share capital / Retained Profit
Contra Revenue - Opening Stock
Revenue - Sales
Expenses - Salaries / Loan interest / Marketing / Energy / Communication / Rates & Insurance /
Purchases
3.2 Evaluation of business accounts
Income statement Belgravia Hotel for the year ended 31st August 2017
Revenue Amount (£)
Total Revenue 18535000
Cost of Revenue 16535500
Gross Profit 1999500
Operating Expenses
Selling General and Administrative 1178900
Total Operating Expenses 17807000
Operating Income or Loss 728000
Income from Continuing Operations
Total Other Income/Expenses Net 351700
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Earnings Before Interest and Taxes 728000
Interest Expense -125200
Income Before Tax 1079700
Income Tax Expense 168800
Minority Interest 594000
Net Income From Continuing Ops 910900
Non-recurring Events
Discontinued Operations -149500
Extraordinary Items -
Effect Of Accounting Changes -
Other Items -
Net Income
Net Income 644800
Preferred Stock And Other Adjustments -
Net Income Applicable To Common Shares 644800
Balance sheet of Belgravia Hotel for the year ended 31st August 2017
Period Ending 30/09/17
Current Assets Amount (£)
Cash And Cash Equivalents 2516100
Short Term Investments -
Net Receivables 848400
Inventory 110200
Other Current Assets 843200
Total Current Assets 4317900
Long Term Investments 1375700
Property Plant and Equipment 3828500
Goodwill 2889500
Intangible Assets 548100
Accumulated Amortization -
Other Assets 1225800
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Deferred Long Term Asset
Charges 323700
Total Assets 14185500
Current Liabilities
Accounts Payable 2653300
Short/Current Long Term Debt 1933100
Other Current Liabilities 3242000
Total Current Liabilities 6534700
Long Term Debt 630900
Other Liabilities 2355900
Deferred Long Term Liability
Charges -
Minority Interest 594000
Negative Goodwill -
Total Liabilities 10651800
Stockholders' Equity
Misc. Stocks Options Warrants -
Redeemable Preferred Stock -
Preferred Stock -
Common Stock 1501600
Retained Earnings -1562500
Treasury Stock 3000600
Capital Surplus -
Other Stockholder Equity 3000600
Total Stockholder Equity 2939700
Net Tangible Assets -497900
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3.3 Purpose and process of budgetary control in a business and service environment
organisation
Budgetary control various sort of planning and coordination of different elements through
which Belgravia Hotel can measure its capital.
Its purpose is to do controlling of budget. This includes various things like:
 Attaining all the targets which are being set by business. Authorising duties to workers so
that tasks can be resolved in short period of time.
 With the help of this, firm can use resources that they have in an optimised manner.
 Future based policies are being formulated in order to create favourable conditions.
 Analysation of performances which is being given by company (Radojevic, Stanisic and
Stanic, 2015).
Process of Budgetary Control and its steps:
Period of Budget: Mostly, firms uses this after completion of one year of doing business.
Approach of Budget: Zero based budgeting can be stated as an approach which is being
chosen by Belgravia Hotel in order to pull out its expenses.
Implementation of Budget: This takes place when organisation plans and hit their targets
by considering time in an effective way.
Performance Measurement: Evaluation of existent performance with expected or
previous production which was given by Belgravia Hotel.
Identification of differences in actual with budgeted performance: By conducting a
variance analysis.
Take corrective action: Corrective procedures required to produce the performances
which are closer to the budgeted performance.
3.4 Analysation of budgetary variances
There are various formulas through which management of Belgravia Hotel can pull up
different sort of variances.
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