Financial Performance Analysis Of Sunset Bay Hotel For September 2017

1. Introduce the key measures of performance (eg ARR etc) that you have calculated in the spreadsheet.  The performance measures are from the early weeks of the course as well as in the mid-semester test.

2. Introduce the key variance analysis for revenue (eg variance between actual v budget and actual this month v actual last month) 

Rooms Department Performance

Financial analysis and reporting are important aspects for making operational decisions in hospitality industry. Financial information enables the management to make informed regarding the financial performance (Burgess, 2017). Financial performance shows how effective and efficient an organization is operating financial. A good financial performance indicates that a hotel is able to meet its obligations and maximize owners’ wealth through profit maximization (Tsai, Pan, & Lee, 2011). Financial analysis enables an organization to implement strategic price models, enable effective cost control, prepare more accurate forecasts, and properly manage working capital (Yuan, Chuang, & Gregory, 2017) Therefore, financial analysis and reporting enable hospitality management to make crucial decisions on expected demand, control expenses, adjusting room rates, and marketing of rooms available to potential customers.

The following report will analyze monthly financial performance of Sunset Bay Hotel for the month ending 30^th September 2017. This will involve analyzing the monthly financial performance in rooms department, food and beverages and operational results. The report will also outline several recommendations to the Sunset Bay Hotel with an objective of improving its financial performance.

The following section will analyze the rooms, monthly operating data, and food and beverage data for the month of September 2017. This will also include interpretation of ratios, percentages, and amount in dollars of the Sunset Bay Hotel financial performance.

The Sunset Bay Hotel room department realized a profit amounting to $ 620952. This amount is 7% above the projected profit for the rooms department and 188% of the previous year. The financial performance analysis will involve rooms’ revenues, labour expenses and other expenses analysis in the rooms department

The Sunset Bay Hotel had 200 rooms available for the month of September. They measures of performance will be Average Room Rates (ARR), occupancy and amount variance from the hotel budget and previous year. The ARR calculates average rate of the hotel rooms in the month (Petty et al., 2015). It is the total rooms’ revenue divided by total rooms occupied. Occupancy shows the number of rooms sold per day

The ARR for Sunset Bay Hotel is $159.62 below the budgeted $164 and above the previous year of $132. This shows that each room in the hotel earned revenue of $159.62 per day in the month of September. The average occupancy of Sunset Bay Hotel was 27 rooms per day. The Hotel total revenue for the month was $861948 which was 164% increase from previous year month of September and 12% above the budget forecast.

Food and Beverage Department Performance

The room expenses show the cost of labour incurred by the hotel within the month of September. This will be measured by wages cost per occupied room and variance analysis of the previous year and hotel budget. The wages cost per occupied cost is calculated by dividing total salaries and wages by occupied rooms. The ratio shows the cost of labour per occupancy (Wadongo et al., 2010).

The total salaries and wages for the month were $109940. The wages cost per occupied rooms of Sunset Bay Hotel is $20.36. This means that the hotel incurred labour cost of $20. 36 to the rooms occupied in the month of September. The actual salaries and wages cost for the month were above the budget forecast by 9.6% and was a 66.4% increase from the previous year month of September. This shows that the hotel labour was underestimated by 9% while there was huge increase in labour of the hotel from the previous year.

Other expenses in the hotel represented other expenses incurred in the rooms department apart from the labour input. The performance measures of rooms other expenses with be the ratio of other expense per occupied rooms. The analysis will also involve variance analysis. The other expenses per occupied rooms will show the cost of other expenses as per rooms that were occupied within the month of September.

The other expenses per occupied rooms for Sunset Bay Hotel were $24.27. This indicates that the hotel incurred $24.27 per every occupation in the month of September. The other expenses increased by 191% from the previous year. The expenses incurred also were 42.9% higher than the hotel budget. The variance shows that the other expenses in the hotel budget were underestimated.

The Hotel food and beverage department profit for September was $138029. This is 86% higher than the projected profit in the month. This will include financial performance on food and beverage revenue, salaries and wages expenses and other expenses in the F&B department.

The food & beverage revenue for the month ending 30^th September were $436590 from $140184 in the previous year. The F&B revenue performance measure will be food and beverage cost of sales ratio and budget and pervious year variance analysis. The Food and beverage cost of sales ratio will compare the cost food theta the hotel incurred with the revenue received from food (Bruwer et al., 2017). The variance analysis will show the difference in percentage and amount of revenue received by the hotel in the month of September.

Monthly Operating Data Performance

The F&B cost of sales ratio for Sunset Bay hotel for September was 30.6% while the budgeted was 31.8% and the previous year was 37.6%. This shows that the cost for F&B in September was 30.6% of the food revenue. This amount was less than the budgeted and previous year ratio for the same month.

The Sunset Bay Hotel September revenue was 71% higher than the projected revenue and 211% higher than previous year revenue. This shows that the hotel had increased it operations for the month that led to increased revenue earned.

The performance measure for F&B expense on the hotel labour will be wages cost per revenue earned from food and beverages and the budgeted and previous year variance analysis. The ratio will show the amount of labour cost incurred by the hotel to earn the month revenue (Rowe, & Kim, 2010).

The F&B labour cost to revenue ratio for September was 0.21while budgeted was 0.24 and the previous was 0.38. This shows that the hotel increased it efficiency that wages and salaries only accounted for 22% below budgeted 25% and 38% of the previous year.

The salaries and wages recorded for the month of September were 51% higher than the budgeted cost and 79% higher than previous year cost. This shows that the labour cost for the month was underestimated.

The performances measure for F&B other expense with be cost of other expense of the revenue earned and the expense variance for the month of September. The F&B other expense cost of revenue ratio will indicate the amount incurred to earn the period revenue (Gitman, Juchau, & Flanagan, 2015). The variance analysis will show the amount of in percentage difference from the budged and previous amount.

The F&B other expenses cost of revenue ratio for September was 0.15 while budgeted was 0.14 and previous year was 0.19. This ratio shows that other expenses of food and beverages of the hotel increased to 15% for the month above the 14% projected in the budget. The previous year ratios were higher at 19%. This shows that the hotel expense cost increased from the month and was underestimated though it was much lower compared to previous year performance.

The variance was huge in the month between the month actual expenses and estimated. The other expenses were 92% higher of the predicted expenses for the month. The F&B other expenses were also 158% higher than previous year amount.

Recommendations

The monthly operating revenue of Sunset Bay Hotel amounted to $71500 f. This amount was 3% higher from the projected operating revenue for September and 162% from the previous year. The financial performance analysis will include monthly operating data revenue, salaries and wages expenses, and other expenses analysis from operations in the hotel.

The performance measure and variance of monthly operating data will be measured by operating revenue of the occupied rooms’ ratio and percentage variance of the month of September, projected and previous year amount. The ratio will show the amount of revenue earned as a result of rooms occupied in the month.

The operating revenue to rooms’ occupied show that one room occupied in September earned $20.4 above the estimated $14.75 and previous year $11. This was an improvement where the room revenue increased by $6 indicating an increasing returns from the hotel operating returns.

The operating revenue recorded for September was 3.7% higher than the projected revenue and 162% higher than the previous year. This shows that the actual operating revenue was accurately estimated for the month.

The monthly operating salaries and wages performance will be measured by operating salaries and wages to room occupancy rate and variance analysis of the month of September, budget projections and previous year month performance. The operating salaries and wages to occupancy ratio will indicate the labour incurred on operations of the hotel for the month (Richard et al., 2009).  

The operating salaries and wages expense to room occupancy show that the hotel incurred $39.5 for every occupied in the month of September. This is lower to the projected cost of $36.7 and previous year of $126.3. These ratios show that the hotel was operating efficiently compared to projected and previous year amount.

There hotel recorded an increase by 24.5% of salary and wages for the month of September from projected budget. The September operating expenses was also 32% below the previous year expense. This shows that the hotel was able to minimize the cost of operating labour for the month of September.

The operating expenses for the hotel in September were utility expenses. They will be measured by operating other expenses to room occupancy ratio and amount variance from the budget and previous year. The ratio will show the other expense that the hotel incurred per occupancy (Kizildag, 2015).

The operating other expense to room occupancy for the hotel in September was $7.6 below the estimated $9.44 and previous year $17.46. This means that the hotel had minimal operating cost for the period.

There was decrease in operating other expenses by 5% from the previous year and lower by 7% from the budget. This shows that the hotel was able to minimize operating other expenses.

The Sunset Bay hotel received $1391688 as the total revenue for the month. The following analysis will involve performance measure of profit margin ratio and variance analysis. The operating profit margin ratio will show the hotel ability to earning profits through generation of sales and control of expenses (Fitó, Moya, & Orgaz, 2013). The variance analysis will show the difference in percentage and amount of the hotel performance data for the month.

The operating profit margin ratio for Sunset Bay Hotel for September was 0.37 below projected 0.40. The previous year the hotel did not make any profit. These ratio shows that the hotel has ability to convert 37% of its sales to net operating income (Wahlen, Baginski, & Bradshaw, 2014). The analysis show that the hotel was not able to meet its target of realizing 40% profit from generated total revenue.

The Sunset Bay Hotel room department realized a profit amounting to $ 620952. This amount is 7% above the projected profit for the rooms department and 188% of the previous year. The actual amount was appropriately projected as there was small variation.

The Hotel food and beverage department profit for September was $138029. This is 86% higher than the projected profit in the month. The hotel F&B profit was incorrectly estimated since it had a huge variance with the actual amount recorded.

The monthly operating revenue of Sunset Bay Hotel amounted to $71500. This amount was 3% higher from the projected operating revenue for September and 162% from the previous year. This shows that the projections were accurate in estimating expected operating revenue in the Hotel.

From the analysis of this report, the following is recommended for Sunset financial management;

Expenses should always be overestimated: This ensures that the business does not get affected when there is an increase in an expense within the financial periods (Cull, & Morduch, 2007).

Revenues should always be underestimated: This allows the business to manage it financial risks and avoid financial constrains especially when investing.

The hotel should use ratios to project revenues and expenses: Ratios are enable computation of budget more accurately and are easy to understand (Patiar, 2016).

Sunset Bay Hotel should focus in minimizing expenses to increase it returns margins and become efficient: The business as an opportunity of becoming more efficient (Kim, & Gu, 2009).

The hotel can lower it room rates to increase the number of customers in the hotel: Customers are likely to be attracted by low rooms’ rates enabling the hotel to make higher revenue (Lee, & Jang, 2007).

Conclusion

From the analysis of this report, Sunset Bay hotel is able to realize 38% of its total revenue to net profit. The business is spending more than 60% of its total revenue on exp0enses. The hotel should focus on minimizing expenses in order to increase its profit margin. The Sunset Bay Hotel has it large porting of revenue from room followed by food and beverages. The hotel can increase it profit by increasing it investment on more rooms. Therefore, the hotel should overestimate expenses and underestimate revenue in order to effectively manage financial risks that occur within a financial period. 

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