Accounting Accounting and Financial Analysis in the ...

1 Accounting and Financial Analysis in the Hospitality IndustryAccounting andFinancial Analysis in the HospitalityIndustryJONATHAN A. HALESAMSTERDAM BOSTON HEIDELBERG LONDONNEW YORK OXFORD PARIS SAN DIEGOSAN FRANCISCO SINGAPORE SYDNEY TOKYOE lsevier Butterworth Heinemann30 Corporate Drive, Suite 400, Burlington, MA 01803, USAL inacre House, Jordan Hill, Oxford OX2 8DP, UKCopyright 2005, Elsevier Inc. All rights part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or byany means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permissionof the publisher.

2 Permissions may be sought directly from Elsevier s Science & Technology Rights Department in Oxford, UK:phone: (+44) 1865 843830, fax: (+44) 1865 853333, e-mail: You may also completeyour request on-line via the Elsevier homepage ( ), by selecting Customer Support and then Obtaining Permissions. Front Cover Photo Credits L RFour Seasons Resort, Scottsdale, AZOrlando World Center Marriott Resort and Conference Center, Orlando, FLOtesaga Hotel, Cooperstown, NYBack Cover Photo Credit WeKoPa Golf Club in Fort McDowell, Fountain Hills, AZRecognizing the importance of preserving what has been written, Elsevier prints its books on acid-free paperwhenever of Congress Cataloging-in-Publication DataHales, and Financial Analysis in the Accounting industry / Jon 0-7506-7896-81.

3 Hospitality industry Accounting . I. Title. 2005657 .837 dc222005009790 British Library Cataloguing-in-Publication DataAcatalogue record for this book is available from the British : 978-0-7506-7896-4 ISBN: 0-7506-7896-8 For information on all Elsevier Butterworth Heinemann publications visit our Web site at in the United States of America 05060708091010987654321 Wor king together to grow libraries in developing | | ..ixForeword ..xiiiChapter 1 Introduction to Numbers, Accounting , and Financial Analysis1 Numbers: The Lifeblood of Business ..3 Career Success Model ..6 The Three Main Financial Statements.

4 9 Revenues: The Beginning of Financial Performance ..15 Profit: The Ultimate Measure of Financial Performance ..20 Summary ..23 Hospitality Manager Takeaways ..24 Key Terms ..24 Formulas ..25 Review Questions ..26 Chapter 2 Foundations of Financial Analysis ..27 Fundamental Methods of Financial Analysis ..28 Comparing Numbers to Give Them Meaning ..30 Measuring Change to Explain Performance ..32 Using Percentages in Financial Analysis ..34 Four Types of Percentages Used in Financial Analysis ..35 Trends in Financial Analysis ..39 Summary ..41 Hospitality Manager Takeaways ..42 Key Terms.

5 42 Formulas ..43 Review Questions ..43 Problems ..43 Chapter 3 Accounting Department Organization and Operations ..47 Organization Charts ..48 Accounting Operations in Full-Service Hotels ..57 Accounting Operations in Restaurants and Smaller Hotels ..62 Summary ..64 Hospitality Manager Takeaways ..65 Key Terms ..65 Review Questions ..66 Chapter 4 The Profit and Loss (P&L) Statement ..67 Hotel Consolidated P&L Statements ..69 Formats for a Consolidated P&L ..75 Department P&L Statements ..82 Summary ..84 Hospitality Manager Takeaways ..85 Key Terms ..86 Review Questions ..87 Chapter 5 The Balance Sheet (A&L) and Statement of Cash Flow.

6 89 The Balance Sheet or Asset and Liability (A&L) Statement ..90 Working Relationships between the Balance Sheet and the P&L Statement ..99 The Statement of Cash Flow ..101 Summary ..107 Hospitality Manager Takeaways ..108 Key Terms ..108 Review Questions ..109 Chapter 6 Hotel Management Reports .. 111 Internal Hotel Management Reports ..112 Daily Reports ..113 Weekly Internal Management Reports ..125 Monthly Internal Management Reports ..127 Summary ..131 TABLE OF CONTENTSviTABLE OF CONTENTSviiHospitality Manager Takeaways ..132 Key Terms ..132 Review Questions ..133 Chapter 7 Revenue Management.

7 135 REVPAR: Revenue per Available Room ..136 Rate Structures and Market Segments ..141 Revenue Management Systems ..143 Selling Strategies ..147 Summary ..149 Hospitality Manager Takeaways ..150 Key Terms ..150 Review Questions ..151 Chapter 8 Comparison Reports and Financial Analysis .. 153 Profitability: The Best Measure of Financial Performance ..154 Review of Chapter 2: Foundations of Financial Analysis ..159 Variation Analysis ..161 STAR Market Report ..167 Summary ..170 Hospitality Manager Takeaways ..170 Key Terms ..171 Review Questions ..171 Chapter 9 Forecasting: A Very Important Management Tool.

8 173 Forecasting fundamentals ..175 Types and Uses of Forecasts ..176 Revenue Forecasting ..182 Wage Forecasting and Scheduling ..184 Summary ..185 Hospitality Manager Takeaways ..186 Key Terms ..186 Review Questions ..187 Problems ..187 Chapter 10 Budgets .. 229 The Use of Budgets in Business Operations ..231 Annual Operating Budgets ..234 Formulas and Steps in Preparing a Budget ..236 Capital Expenditure Budgets ..240 Summary ..243 Hospitality Manager Takeaways ..243 Key Terms ..244 Review Questions ..244 Problems ..245 Chapter 11 Corporate Annual Reports .. 249 The Purpose of Corporate Annual Reports.

9 251 The Message to Shareholders ..254 The Content of the Corporate Annual Report ..257 Financial Results for the Year ..261 Summary ..262 Hospitality Manager Takeaways ..263 Key Terms ..263 Review Questions ..264 Chapter 12 Personal Financial Literacy .. 265 Personal Financial Literacy ..266 Managing Personal Finances ..271 Evaluating Assets and Sources of Income ..274 Summary ..276 Hospitality Manager Takeaways ..277 Key Terms ..277 Review Questions ..278 Glossary ..279 Index ..287 TABLE OF CONTENTS viiiixPrefaceMost hospitality programs in the United States require several Accounting classes as partof their curriculum.

10 Although these Accounting classes are important and provide theknowledge and skills that every hospitality manager will need, students are generallyafraid of, do not like, have high anxiety levels about, and do not do well in these the result is that they just try to survive the class and do not try to understand andlearn the Accounting and finance concepts presented in the class that will help them intheir hospitality textbook seeks to reduce students fears and anxieties by focusing on the funda-mentals of using numbers in operating a business. This means focusing on the essentialfundamentals that are easier to understand and apply.