Hospitality Management Finance: Analysis of Financial Performance

This report provides a comprehensive analysis of hospitality finance within the context of Belgravia Hotels in the UK. It identifies and evaluates various funding sources available to business and service industries, assessing their contribution to income generation. The report discusses cost and profit elements, emphasizing the role of setting selling prices, and evaluates methods for controlling stock and cash, including their associated costs and benefits. It explains trial balance, assesses business accounts, adjustments, and notes, and discusses budgetary control, analyzing variances to recommend future actions. Furthermore, the report calculates and analyzes financial ratios to interpret business performance and recommends future management strategies for improvement. Finally, it categorizes costs, calculates per-customer contributions, and justifies the importance of break-even analysis for short-term decision-making.

HOSPITALITY MANAGEMENT FINANCE IN THE HOSPITALITY INDUSTRY
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Table of Contents
Introduction.................................................................................................................................. 3
Task 1.......................................................................................................................................... 4
P1.1 & P1.2 Identify and review the sources of funding available to business and services
industries, and using the chosen hospitality organization, evaluate the contribution made by a
range of methods in generating income within the operation.......................................................4
Task 2.......................................................................................................................................... 6
P2.1Discuss the elements of cost and profit and the role of setting selling prices in the service
business environment using your chosen organization as an example........................................6
P2.2 Evaluate the methods of controlling stock and cash and discuss the cost and benefit of at
least two methods used in your chosen organization...................................................................7
Task 3:......................................................................................................................................... 9
P3.1 &P 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 organization......9
P3.3 & P3.4 Discuss the purpose and process of budgetary control in a business and service
environment organization and analyze budgetary variances using a chosen organization to offer
recommendation for future action..............................................................................................10
Task 4:....................................................................................................................................... 12
P4.1 Using the financial ratios provided for the given organization, calculate and analyze to offer
interpretation of the business performance................................................................................12
P4.2 Recommend appropriate future management strategies to improve performance using
your understanding of financial ratios calculated above.............................................................14
Task 5:....................................................................................................................................... 15
P5.1 Categories and explain the cost as variable, fixed and semi-variable with examples drawn
from the chosen organization.....................................................................................................15
P5.2 Calculate per customer or per product contributions and explain the relationship between
cost/profit and volume................................................................................................................ 16
P5.3 Discuss and justify the use and importance of Break-Even analysis for short-term decision
making....................................................................................................................................... 17
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Conclusion................................................................................................................................. 18
Reference List:.......................................................................................................................... 19
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Introduction
In recent years, there has been growth in hospitality industry. Over the years, the level of
competition in the hospitality industry has increased. In order to provide better services to the
customers, it is important for the business organization to have availability of funds. This
assignment will outline source of funding available to the service and business industries.
Additionally, there are various methods of controlling stocks, which will be reviewed in the
assignment. The assignment will also highlight the sources and structure of the trial balance. In
order to analyze the performance, the business organization can analyze the financial ratio.
With the help of the financial ratio, the company will be able to identify its market position. This
assignment will also provide the importance of the break even analysis in decision making
process. This assignment will be conducted by considering Belgravia Hotels, the United
Kingdom.
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Task 1
P1.1 & P1.2 Identify and review the sources of funding available to business and services
industries, and using the chosen hospitality organization, evaluate the contribution made
by a range of methods in generating income within the operation.
Funding is one of the most important aspects of the business organization. The functionality of
the hospitality organization depends on the availability of the funds. There are various source of
funding that is available to the business organization. There are two types of the funds such as
internal source of funds and external source of funds. Additionally, there are three types of
financing in the external source such as short term, medium term and long term. With the help
of the finance the company will be able to operate the business successfully. Given below are
the sources of funds that are available for the hospitality industry.
Issues of equity shares: Equity shares are considered as one of the most important long term
source of funds for the company. Additionally, equity shares indicate the ownership of the
company. The company must issues the shares to the existing shareholder. With the help of
this, the company will be able to retain its existing shareholders and improve its financial
condition. With the help of the issues of the new shares, the company will be able to collect the
amount that is required (Goldstein et al., 2017). One of the main advantage of the issues of
shares is that the company is not entitled to pay any interest and at the same time, it is not
required to sale any assets.
Debentures: Debenture can be defined as the document of the acknowledgement of the debt
that contains the common seal of the company. It contains the terms and condition of the
payment of loan, redemption of the loan and security offered by the company to get the fund
from the source. In this case, the company is required to pay the interest to the debenture
holder. One of the main advantages of the financing through debenture is that it is less costly in
comparison (Kishan and Opiela, 2017). The interest paid on the debentures is less deductible
as compared to other source of funds. One of the main disadvantages of the debenture is that
borrowing capacity of the company is reduced; each company is bound by certain amount of the
borrowing capacity from its sources.
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Retained profit: Retained earnings are considered one of the most safe and easy source of
financing for the company. Retained earnings are the amount of the undistributed profit that the
company keeps in the form of reserve for the use in the future. These funds belong to the equity
shareholders and it helps in increasing the worth of the company (Manneh and Naser, 2015).
One of the most benefits of the retained earnings is that there is no specific cost of capital. The
company is not required any mortgage as in the case of the loans. One of the main limitation of
retained earnings is that increase the level of dissatisfaction among the shareholders, as they
will receive low level of interest.
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Task 2
P2.1Discuss the elements of cost and profit and the role of setting selling prices in the
service business environment using your chosen organization as an example.
There are two important aspects every business organization such as profit and cost. In order
to operate the business effectively, the management of the company should have adequate
knowledge of the percentage of the cost and profit on its products and services. In order to have
knowledge, the management of the company is required to know about the elements of the cost
and profit.
Figure 1: Elements of cost
(Source: Mishan, 2018)
From the above figure it can be stated that there are three elements of the cost such as labor,
material and expenses. Additionally, every element is of indirect and direct. The indirect part of
the elements of costs has three parts such as selling and distribution, work overhead and
administration overhead. Given below is the detailed description of the elements of the cost:
Labor cost: There are two types of labor cost such as direct labor cost and indirect labor cost.
Direct labor cost is directly related to the production in the company and indirect labor cost is not
associated to the production of the company (Asadpoure et al., 2015). In the case of Belgravia
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Hotels, wages and salaries paid is regarded as the direct labor cost and cost of providing salary
is considered as the indirect labor cost.
Material cost: Material cost is one of the most important elements of the cost. There are two
types of material cost such as direct material cost and indirect material cost. Directly material
cost are those cost that is directly related to the production of the company (Baumers et al.,
2016). In the case of Belgravia Hotels, direct material costs are cost of food and beverages.
Indirect material cost is not related to the production of the company such as cost of stationary
items.
Expenses: Expenses is one of important element of the cost. There are also two types of
expenses such as direct and indirect. In the case of Belgravia Hotels, cost of carriage inward is
the direct expenses. On the other hand, office and administration expenses are considered as
the indirect expenses of the company.
Elements of the profits:
Sales or revenue: Revenue is one of the most important elements of the profit that is required
to generate by every business organization. In order to earn the profit, the business organization
is required to earn standard percentage of revenue in each accounting year. If the company is
able to increase the revenue by managing the cost at the standard level, which will help the
company to enhance its level of profit (Lukic, 2015).
Expenses: Expenses is also the important elements of the profit for the business organization.
In order to generate maximum profit, the company needs to reduce its expenses. The company
needs to maintain the expenses at the minimum level.
In order to operate the business effectively, it is important for the company to set effective price.
In the case of Belgravia Hotels, it can be stated that there is the direct impact of selling price on
its operation. If the management of the company is not able to set effective price then the
company will not be able to attract more customers, which will reduce the profitability of the
company. Additionally, the organization needs to implement effective pricing strategy to set
appropriate price for its products and services.
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P2.2 Evaluate the methods of controlling stock and cash and discuss the cost and
benefit of at least two methods used in your chosen organization
In order to have long term sustainability of the business, it is important for the organization to
control the cash and stock. Given below are methods to control stock and cash:
Cost control method:
Standard costing: This is considered as one of the modern method that controls the cash of
the company. Under this method, with the help of proper estimates, the management sets the
cost for each activity. In the end of the accounting year, the management compares standard
cost and actual cost based on which the strategies are developed.
Budgetary costing: This is one of the most effective methods that help the organization to
control its cash. In order to minimize the cash, the organization is required to make budget for
each department. One of the main benefits of budgetary costing is that it helps in developing
effective financial plans and it reduces the waste from the operational system. This method
consumes time of the management. Belgravia Hotels follows this method to control its cash.
Stock control method:
Economic order quantity method: This is another stock control method that is more helpful for
the organization. This method enables the management to order to the quantity of the stock that
will help the company to minimize its holding cost. With the help of this, the company will be
able to reduce the variable inventory cost (Cárdenas-Barrón et al., 2014).
FIFO method: under this method, the stock of the organization is controlled with the help of the
systematic flow of goods to the customers. In this type of method, goods that come first to the
warehouse are supplied first to the customers. With the help of this method, the management of
the company can maintain standard flow of goods. One of the main benefits of FIFO method is
that it is simple to understand and it consumes less time.
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Task 3:
P3.1 &P 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
organization.
Trial balance is the statement that is prepared by the business organization to check the
accuracy of the classification and recording of all the transaction of the book of accounts. This is
mandatory double entry book keeping system, which ensuring that the recording has been done
by following the double entry system (Lloréns et al., 2015). If the total credits are equal to the
total debits then it can be considered that the trial balance is balanced.
The items that need to be included in the trial balance of Belgravia Hotels are derived from the
ledger of the company. Additionally, it has to be considered that the management of the
organization needs to do some adjustments after the original transaction of the company has
taken place. This can be understood with the help of the figure given below:
The above figure provides source and structure of the trial balance. Additionally, the above
figure also highlights the adjustments that are required for the accuracy of the trial balance.
From the above figure, it is clear that the main sources of the trial balance are cash, account
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receivable, equipment, accounts payable, telephone expenses, depreciation charges and
others.
P3.3 & P3.4 Discuss the purpose and process of budgetary control in a business and
service environment organization and analyze budgetary variances using a chosen
organization to offer recommendation for future action.
In the above section of the assignment, it has been stated that the company makes use of the
budgetary control method in controlling cash of the business. Some of the purposes provided by
the budgetary control method are as given below:
 Budgetary control is important as it controls the expenses and income of the business
and it maintains the same at the standard level of the business.
 The main purpose of the budgetary control is that it makes coordination at every
activities of the business. This enables the business process easier for the management.
 Budgetary control comprised of continuous comparison of the actual outcomes with the
planned ones. This helps in taking effective measures for enhancing the services of the
company (Mohamed et al., 2016).
 After considering and evaluating the suggestion of the management of the different
levels of management, budgetary control helps in developing effective budget for all the
department of the organization.
 Belgravia Hotels has made use of the budgetary control method to have a control
process as the centralized one. Additionally, the main aims of the budgetary control are
decentralizing responsibility of the organizational activities.
There are following steps that are involved in the budgetary control, which are as follows:
Step 1: The first step involves recording the performance that is performed by each department
of the organization.
Step 2: The second step involves comparison of actual performance with the planned
performance of the business.
Step 3: Identifying the gap of the actual and planned performance. This will indicate the
negative or positive variance.
Step 4: Developing strategies to control the cash of the business.
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Budgetary control is important, as it indicates the variance on the performance of the business.
This can be better being understood with the help of an example:
Performances Actual
performance
Budgeted
performance
Variances
Direct labor 11000 9000 (2000)
Direct material 12000 16000 4000
Revenue 19000 20000 (1000)
Selling and distribution
overhead
7000 12000 15000
The above table shows the variance of Belgravia Hotels. From the above table, it can be stated
that there are adverse variance in the revenue and direct labor. On the other hand, there is
positive variance in Selling and distribution overhead and direct material. After the consideration
of the above variance, following recommendation is provided to the company:
 The company needs to provide the training and development program to increase the
services of the employees.
 The company should focus on the promotional activities, which will help in attracting
more customers. This will increase the revenue of the company.
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