You are on page 1of 75

CHAPTER 5

PROFITABILITY
ANALYSIS OF
HOTEL INDUSTRY

5.1

FINANCIALS
For the given research and analysis we have chosen 6 hotels
from the Golden Triangle 2 from each city, namely as
under:
Name of the Hotel

Registered Office

Jaipur
Shivani

Enclave

Private Goyal

Limited

House

24,

Ajmer

Road, Jaipur

Crafts Palace Hotels (I) Pvt. Plot No. 1, Golimar Garden,


Ltd.

Amber Road, Jaipur

Delhi
Asian

Hotels

(North) Bhikaiji

Limited

Cama

Place,

Mahatma Gandhi Marg, New


Delhi-110066

Tulip Star Hotels Limited

Indra

Palace,

Cannaught

H-Block,

Circus,

New

Hotel

Maan

Delhi-110 001
Agra
Mumtaz Hotels Limited

Located

159

at:

Singh Palace, Vibhav Nagar,


Agra-283 111
Registered Office: 4 Mangoe
Lane, Kolkata-700 001
Jaypee Palace Hotel Agra

Fatehabad Road, Rakabganj


Agra, Uttar Pradesh-282 003

The Financials of the 6 hotels are as under:


JAIPUR
SHIVANI ENCLAVES PRIVATE LIMITED
Balance Sheet
As on 31 s t March, 20XX
(Amount in Lakhs)
2007

2008

2009

2010

2011

SOURCE OF FUND
Shareholders Fund
Share Capital
Reserves and Surplus
Loan Fund
Secured Loan
Unsecured Loan
Deferred Tax Liability

200.00
956.41

200.00
1192.03

200.00
1322.49

200.00
1495.99

200.00
1758.36

857.82
2260.70
59.03

894.92
2096.70
139.59

658.83
1875.70
190.39

692.24
1631.70
235.96

345.74
1364.70
292.81

TOTAL

4333.97

4523.24

4247.41

4255.88

3961.61

APPLICATION OF FUND

160

Fixed Assets
Gross Block
Depreciation
Net Block
Work in Progress (Assets
not put to use)

4846.91
705.08
4141.83

5259.34
991.43
4267.91

5300.45
1303.38
3997.07

5665.62
1598.61
4067.00

5703.77
1874.40
3829.37

0.00

3.59

0.00

4.35

3.48

0.13

0.13

0.13

0.13

0.13

Current Assets, Loans and


Advances
Inventories
Sundry Debtors
Cash and Bank Balance
Loans and Advances
Total Current Assets

38.28
93.36
185.38
100.05
417.08

40.05
109.95
214.90
140.89
505.79

48.96
78.10
183.74
94.96
405.76

56.35
80.55
123.95
95.59
356.44

47.36
90.32
131.68
84.68
354.04

Less: Current Liabilities &


Provisions
Liabilities
Provisions
Total Current Liabilities

191.05
44.45
235.50

208.74
54.51
263.25

126.75
36.51
163.26

164.20
14.19
178.39

196.52
33.88
230.39

Net Current Assets

181.57

242.54

242.49

178.05

123.65

10.44

9.07

7.71

6.35

4.99

4333.97

4523.24

4247.41

4255.88

3961.61

Investment (NSC)

Miscellaneous Expenses
(to the extent not Written off or
adjusted)
TOTAL

Profit and Loss Account


For the year ending 20XX
(Amount in Lakhs)
2007
INCOME
Sales

2008

506.55

161

538.80

2009
569.07

2010
610.42

2011
726.35

Services Rendered
Other Income
Total
EXPENDITURE
Cost of Goods Sold
Employee Remuneration
& Benefits
Other Operating &
Administration Expenses
Selling & Distribution
Expenses
Financial Expenses
Depreciation
Preliminary Expenses
Written Off
Loss on Sale of Fixed
Assets
Total
Net Profit/ (Loss) for the
year (before tax)
Less: Provision for Tax
Profit / Loss after tax
Net Profit/ (Loss) brought
forward from previous year
Net Profit/ (Loss) carried
forward to Balance Sheet

1018.70
183.99
709.24

1142.52
149.88
1831.20

1045.92
168.56
1783.55

1001.13
158.88
1770.43

1139.33
172.93
2038.61

213.48

219.44

233.45

232.86

266.12

203.87

271.69

287.49

277.35

286.54

550.43

561.68

601.24

596.98

671.69

49.33
95.05
310.00

36.93
93.83
286.35

36.15
105.71
311.94

23.67
79.12
295.24

38.35
72.49
291.01

0.01

0.01

0.01

0.01

0.01

0.00
1422.17

0.00
1469.93

0.00
1576.01

0.00
1505.23

2.03
1628.24

287.07
105.22
181.85

361.27
125.65
235.62

207.54
77.08
130.46

265.20
91.71
173.49

410.38
148.01
262.37

-33.93

147.91

383.53

513.99

687.49

147.91

383.53

513.99

687.49

949.86

CRAFTS PALACE HOTELS (I) PVT. LTD.


Balance Sheet
As on 31 s t March, 20XX
(Amount in Lakhs)
2007

2008

SOURCE OF FUND

162

2009

2010

2011

Shareholders Fund
Share Capital
Share Application Money
Reserves and Surplus
Loan Fund
Secured Loan
Unsecured Loan
Deferred Tax Liability

290.00
56.00
15.00

290.00
66.00
15.00

290.00
61.00
15.00

290.00
61.00
15.00

290.00
56.00
15.00

124.44
408.15
-22.12

68.99
444.00
-23.73

7.41
506.60
-25.59

4.18
494.10
-26.25

113.06
544.10
-51.06

TOTAL

871.47

860.25

854.41

838.03

972.09

APPLICATION OF FUND
Fixed Assets
Gross Block
Depreciation
Net Block

948.73
337.71
611.02

964.86
360.22
604.64

976.27
381.54
594.73

972.46
401.86
570.60

1015.78
423.27
592.51

Current Assets, Loans and


Advances
Inventories
Sundry Debtors
Cash and Bank Balance
Loans and Advances
Total Current Assets

9.19
171.11
58.09
84.84
323.23

12.55
176.58
116.45
92.70
398.28

16.21
123.49
133.56
98.51
371.77

17.46
135.86
149.28
112.08
414.68

17.56
149.79
51.28
160.16
378.79

Less: Current Liabilities &


Provisions
Liabilities
Provisions
Total Current Liabilities

190.65
25.44
216.09

180.83
33.53
214.36

179.91
30.28
210.19

181.15
35.55
216.70

230.89
30.69
261.58

Net Current Assets

107.14

183.92

161.57

197.99

117.22

Miscellaneous Expenses
(to the extent not Written off or
adjusted)

153.31

71.69

98.11

69.44

262.37

TOTAL

871.47

860.25

854.41

838.03

972.09

Profit and Loss Account

163

For the year ending 20XX


(Amount in Lakhs)
2007
INCOME
Income from Operations
Other Income
Total
EXPENDITURE
Stores, Supplies, Food &
Beverages & Packing
Consumed
Other Operating Expenses
Employee Remuneration
& Benefits
Administrative, Selling
and Other Expenses
Financial Expenses
Depreciation
Preliminary Expenses
Written Off
Prior Period Adjustment
Total
Net Profit/ (Loss) for the
year (before tax)
Less: Provision for Tax
Profit / Loss after tax
Net Profit/ (Loss) brought
forward from previous year
Net Profit/ (Loss) carried
forward to Balance Sheet

2008

2009

2010

2011

655.55
0.00
655.55

733.07
0.00
733.07

633.79
0.00
633.79

760.55
0.00
760.55

912.66
0.00
912.66

110.51
187.16

116.85
178.91

92.41
224.67

113.21
265.34

138.68
313.36

149.38

180.16

185.40

213.21

245.19

116.24
14.69
22.64

123.71
16.09
23.61

125.65
5.87
24.60

127.85
6.13
20.32

127.85
6.13
21.41

0.00
0.95
601.58

0.00
0.60
639.93

0.00
0.91
659.52

0.00
0.82
746.87

0.00
0.72
853.34

53.98
32.58
21.40

93.14
11.53
81.62

-25.73
0.69
-26.42

13.68
0.41
13.27

59.32
1.78
57.54

-174.71

-153.31

-71.69

-98.11

-84.84

-153.31

-71.69

-98.11

-84.84

-27.30

DELHI
ASIAN HOTELS (NORTH) LIMITED

164

Balance Sheet
As on 31 s t March, 20XX
(Amount in Crores)
2007
SOURCE OF FUND
Shareholders Fund
Share Capital
Preference Share Capital
Reserves and Surplus
Loan Fund
Secured Loan
Unsecured Loan
Deferred Tax Liability

2008

2009

2010

2011

22.80
0.00
1171.68

22.80
20.00
1460.32

22.80
10.00
1452.86

11.40
11.21
770.59

19.45
4.90
790.70

207.76
0.00
0.00

138.49
0.00
0.00

168.39
0.00
0.00

157.15
0.00
0.00

560.44
28.75
0.00

TOTAL

1402.24

1641.61

1654.05

950.35

1404.24

APPLICATION OF FUND
Fixed Assets
Gross Block
Depreciation
Net Block
Work in Progress (Assets
not put to use)

1505.45
118.45
1387.00

1565.27
141.03
1424.24

1616.30
177.36
1438.94

1052.51
72.96
979.55

1058.61
81.37
977.24

26.33

40.12

7.54

9.90

151.39

24.59

230.08

238.18

0.00

391.06

Current Assets, Loans and


Advances
Inventories
Sundry Debtors
Cash and Bank Balance
Loans and Advances
Total Current Assets

8.31
13.30
5.05
120.49
147.15

9.78
16.22
3.02
202.23
231.25

8.87
20.20
4.43
282.87
316.37

5.89
9.69
5.48
41.13
62.19

7.00
10.77
3.25
29.92
50.94

Less: Current Liabilities &


Provisions
Liabilities
Provisions

101.66
81.17

145.18
138.88

222.73
124.25

87.57
13.71

152.49
13.90

Investment (NSC)

165

Total Current Liabilities


Net Current Assets
Miscellaneous Expenses
(to the extent not Written off or
adjusted)
TOTAL

182.83

284.06

346.98

101.28

166.39

-35.68

-52.81

-30.61

-39.09

-115.45

0.00

0.00

0.00

0.00

0.00

1402.24

1641.63

1654.05

950.36

1404.24

Profit and Loss Account


For the year ending 20XX
(Amount in Crores)
2007
INCOME
Room, Food, Beverage
and Services
Other Income
Total

2008

2009

2010

2011

159.04
-0.52
158.52

177.97
-0.94
177.03

158.14
0.90
159.04

147.94
0.05
147.99

173.45
1.44
174.89

15.15

0.00

0.00

0.00

0.00

22.20

26.30

28.74

27.19

33.11

EXPENDITURE
Fuel, power and Water
Employee Remuneration
& Benefits
Other Manufacturing
Expenses
Administrative and
Selling Expense
Miscellaneous Expenses
Financial Expenses
Depreciation
Expenses written off
Extraordinary Items
Total

38.00

54.54

45.64

43.11

50.46

26.55
5.08
18.05
12.42
0.00
-0.68
136.77

27.21
6.74
23.84
12.94
0.32
0.04
151.93

27.83
3.74
27.30
11.51
0.00
0.00
144.76

25.64
4.09
28.38
11.38
0.00
0.00
139.79

29.74
5.35
25.78
12.75
0.00
-0.59
156.60

Net Profit/ (Loss) for the


year (before tax)

21.75

25.10

14.28

8.20

18.29

166

Less: Provision for Tax


Profit / Loss after tax

8.04
13.71

10.45
14.65

4.38
9.90

2.90
5.30

6.27
12.02

TULIP STAR HOTEL LIMITED


Balance Sheet
As on 31 s t March, 20XX
(Amount in Lakhs)
2007
SOURCE OF FUND
Shareholders Fund
Share Capital
Reserves and Surplus
Loan Fund
Secured Loan
Unsecured Loan
Deferred Tax Liability

2008

2009

2010

2011

461.00
3982.67

461.00
3152.99

461.00
2945.60

461.00
2629.28

461.00
2136.29

0.00
596.50
15.57

0.00
1431.10
-5.50

0.00
1739.10
-75.14

0.00
2130.10
-91.19

0.00
3339.60
-7.85

5055.74

5039.59

5070.56

5129.19

5929.04

9.30
8.12
1.18

0.00
0.00
0.00

0.00
0.00
0.00

0.00
0.00
0.00

5.05
1.18
3.87

0.00

0.00

0.00

0.00

0.00

Investment (NSC)

2206.07

2206.07

2206.07

2206.07

2206.07

Current Assets, Loans and


Advances
Inventories
Sundry Debtors
Cash and Bank Balance
Loans and Advances

0.00
0.00
39.82
3728.17

0.00
0.00
79.06
3734.25

0.00
0.00
2.39
3932.17

0.00
0.00
3.46
3904.54

0.00
0.00
4.01
3887.99

TOTAL
APPLICATION OF FUND
Fixed Assets
Gross Block
Depreciation
Net Block
Work in Progress (Assets
not put to use)

167

Total Current Assets


Less: Current Liabilities &
Provisions
Liabilities
Provisions
Total Current Liabilities
Net Current Assets
Miscellaneous Expenses
(to the extent not Written off or
adjusted)
TOTAL

3767.99

3813.31

3934.56

3908.00

3892.00

153.22
766.29
919.50

130.42
849.37
979.78

167.23
902.83
1070.07

431.83
553.05
984.88

73.44
99.46
172.91

2848.49

2833.52

2864.49

2923.12

3719.10

0.00

0.00

0.00

0.00

0.00

5055.74

5039.59

5070.56

5129.19

5929.04

Profit and Loss Account


For the year ending 20XX
(Amount in Lakhs)
2007

2008

2009

2010

2011

INCOME
Profit on Sale of Invetments
Income from Hotel Operations
Interest
Dividend Income
Exchange Fluctuations on Sale
of Investments
Liability written back
Other Income

4005.50
15.17
87.84
3.09

0.00
0.00
41.00
0.20

0.00
0.00
11.90
0.20

0.00
0.00
0.01
0.05

0.00
0.00
0.01
0.20

23.03
10.42
0.04

0.00
0.00
0.00

0.00
0.00
0.00

0.00
0.00
0.02

0.00
0.00
0.00

Total

4145.09

41.20

12.10

0.08

0.21

31.35

32.17

32.35

30.14

36.73

269.07
16.52
0.88
2.73
0.00

63.27
797.66
0.15
7.75
0.00

63.32
214.53
0.00
-24.27
1.70

40.54
263.01
0.00
-2.10
0.85

68.52
304.76
1.18
-1.33
0.00

EXPENDITURE
Employee Remuneration &
Benefits
Administrative and Selling
Expense
Financial Expenses
Depreciation
Expenses written off
Prior Period Adjustment

168

Total
Net Profit/ (Loss) for the
year (before tax)
Less: Provision for Tax
Profit / Loss after tax
Net Profit/ (Loss) brought
forward from previous year
Net Profit/ (Loss) carried
forward to Balance Sheet

320.55

901.00

287.63

332.45

409.86

3824.53
901.03

-859.80
4.50

-275.53
-68.14

-332.37
-16.04

-409.65
83.33

2923.50

-864.30

-207.39

-316.33

-492.99

-151.64

2717.93

1883.17

1675.78

1359.45

2771.86

1853.63

1675.78

1359.45

866.47

AGRA
MUMTAZ HOTELS LIMITED
Balance Sheet
As on 31 s t March, 20XX
(Amount in crores)
2007
SOURCE OF FUND
Shareholders Fund
Share Capital
Reserves and Surplus
Loan Fund
Secured Loan
Unsecured Loan
Deferred Tax Liability
TOTAL
APPLICATION OF FUND
Fixed Assets
Gross Block
Depreciation
Net Block

2008

2009

2010

2011

20.65
29.35

20.65
32.11

20.65
42.31

20.65
58.55

20.65
51.49

65.56
9.12
-3.54

48.21
0.11
3.02

30.86
0.17
9.64

20.17
0.00
13.24

7.20
0.00
12.68

121.14

104.11

103.63

112.61

92.02

129.15
32.75

129.90
37.94

129.96
43.12

130.39
48.54

131.16
52.54

96.40

91.96

86.84

81.85

78.62

169

Work in Progress (Assets


not put to use)

0.04

0.11

0.00

0.00

0.37

0.13

0.13

0.13

0.13

0.13

2.01
8.84
9.73
3.05

2.57
7.45
5.94
4.73

2.51
4.79
12.90
6.46

2.35
5.12
23.34
10.97

2.63
6.14
16.28
16.39

0.35

0.37

0.03

0.01

0.04

23.98

21.07

26.69

41.78

41.48

8.52
0.86

7.75
1.29

6.92
2.99

7.91
3.12

8.17
20.27

9.38

9.04

9.91

11.02

28.44

Net Current Assets

14.60

12.03

16.78

30.76

13.04

Miscellaneous Expenses
(to the extent not Written off or
adjusted)

10.10

0.01

0.01

0.00

0.00

121.14

104.11

103.63

112.61

92.02

Investment (NSC)
Current Assets, Loans and
Advances
Inventories
Sundry Debtors
Cash and Bank Balance
Loans and Advances
Interest Accrued on Fixed
Deposits
Total Current Assets
Less: Current Liabilities &
Provisions
Liabilities
Provisions
Total Current Liabilities

TOTAL

Profit and Loss Account


For the year ending 20XX
(Amount in crores)
2007

2008

2009

2010

2011

INCOME
Guest Accomodation,
Restaurants, Bars & Banquets,
etc.
Other Income

57.53
0.49

170

66.26
0.54

60.91
0.66

58.18
0.50

63.07
0.69

Total

58.02

66.80

61.58

58.68

63.76

3.47

4.07

3.64

3.41

3.60

6.18
7.48

6.60
7.98

7.21
7.53

6.07
7.42

8.26
9.75

11.05
9.72
5.70

13.28
8.26
5.79

12.47
5.33
5.59

11.65
3.08
5.63

12.13
1.07
4.99

0.01
0.07

0.01
0.04

0.01
-0.05

0.01
0.00

0.00
0.00

43.67

46.03

41.73

37.26

39.81

14.35
6.12

20.77
6.73

19.85
7.24

21.43
2.78

23.95
6.98

8.23

14.05

12.61

18.65

16.97

-18.31

-10.08

2.76

12.96

29.20

-10.08

3.97

15.37

31.61

46.18

EXPENDITURE
Consumption of Provisions,
Stores, Wines and Smokes
Employee Remuneration &
Benefits
Upkeep and Service Cost
Administrative, Selling and
Other Expenses
Financial Expenses
Depreciation
Preliminary Expenses Written
Off
Prior Period Adjustment

Total
Net Profit/ (Loss) for the
year (before tax)
Less: Provision for Tax
Profit / Loss after tax
Net Profit/ (Loss) brought
forward from previous year
Net Profit/ (Loss) carried
forward to Balance Sheet

JAYPEE PALACE HOTEL, AGRA


Balance Sheet
As on 31 s t March, 20XX
(Amount in Crores)
2007
SOURCE OF FUND
Shareholders Fund
Share Capital
Reserves and Surplus
Loan Fund

2008

55.49
57.23

171

55.49
65.60

2009

55.49
80.10

2010

55.49
82.02

2011

55.49
87.87

Secured Loan
Unsecured Loan
Deferred Tax Liability

65.45
0.00
0.00

59.72
0.00
0.00

46.51
0.00
0.00

33.84
0.00
0.00

21.51
0.00
0.00

TOTAL

178.16

180.81

182.10

171.34

164.87

APPLICATION OF FUND
Fixed Assets
Gross Block
Depreciation
Net Block
Work in Progress (Assets
not put to use)

231.49
49.74
181.75

239.17
58.75
180.42

245.63
68.25
177.38

256.63
78.09
178.54

290.25
88.70
201.54

1.66

1.30

23.86

27.91

91.83

Investment (NSC)

21.43

19.73

16.73

0.73

0.72

Current Assets, Loans and


Advances
Inventories
Sundry Debtors
Cash and Bank Balance
Loans and Advances
Total Current Assets

7.30
4.46
3.92
25.87
41.55

6.71
6.14
8.58
17.52
38.95

7.12
9.81
2.92
21.38
41.24

9.00
10.80
6.34
26.37
52.51

9.41
11.99
6.58
44.95
72.93

Less: Current Liabilities &


Provisions
Liabilities
Provisions
Total Current Liabilities

63.06
5.17
68.23

52.25
7.35
59.59

50.60
26.51
77.11

53.95
34.39
88.34

162.68
39.47
202.16

-26.68

-20.65

-35.87

-35.83

-129.23

0.00

0.00

0.00

0.00

0.00

178.16

180.81

182.10

171.34

164.87

Net Current Assets


Miscellaneous Expenses
(to the extent not Written off or
adjusted)
TOTAL

Profit and Loss Account


For the year ending 20XX

172

(Amount in Crores)
2007

2008

2009

2010

2011

INCOME
Room, Food, Beverage and
Services
Other Income
Interest Received
Provisions no longer required

39.76
0.98
0.00
0.03

46.86
1.49
0.01
0.02

47.94
1.50
0.01
0.03

52.73
1.65
0.00
0.03

58.00
1.81
0.00
0.04

Total

40.77

48.38

49.48

54.41

59.85

3.55

4.09

4.35

4.79

5.17

5.46
8.71
0.00
5.32

7.96
8.79
2.81
5.53

8.59
8.58
1.28
5.42

9.45
9.44
1.40
5.97

9.83
10.10
1.47
6.68

2.67
5.67
0.01
0.05

2.68
4.97
0.00
0.00

2.36
6.61
0.01
0.00

2.59
5.95
0.00
0.00

2.91
6.69
0.00
0.00

31.44

36.84

37.20

39.59

42.86

9.33
0.00

11.54
0.00

12.27
0.00

14.82
0.00

16.99
0.00

9.33

11.54

12.27

14.82

16.99

EXPENDITURE
Consumption of Food,
Beverages and Tobacco, etc.
Employee Remuneration &
Benefits
Operating Expenses
Repairs and Maintenance
Fuel, power and Water
Administrative and General
Expenses
Depreciation
Financial Expenses
Prior Period Adjustment

Total
Net Profit/ (Loss) for the
year (before tax)
Less: Provision for Tax
Profit / Loss after tax

5.2

SERVICE COSTING
Service costing is that part of operation costing which is
used in all organisations that provide services instead of
producing of goods. For calculating the price of each
service, it is very necessary to collect all the expenses

173

relating to those services. We make a cost sheet in which


we show all the cost relating to specific service. T hese costs
are calculated on the time basis.

[1]

The expense associated with having another person perform a


valuable task for which specialized expertise may be required. When
the service cost to a business of employing independent contractors
to perform necessary tasks reaches a certain critical level, it may
become more economical to hire full time employees to do the
work.[2]
A cost accounting method concerned with establishing the
costs of services rendered
Examples of where service costing is applied:
Transport
Hotels
Tourism
Solicitors
Education
Retail distribution
Financial services

174

Service costing is also applied within a manufacturing


setting
For example: A manufacturer might wish to calculate the
costs of the following services:
Transport
Catering
Computing and IT
Accounting
Human resources
Many organizations have tried to develop service portfolios and
service catalogs, yet most have been unsuccessful. Understanding the
costs of service provisioning is a critical success factor in service
portfolio and service catalog management. Full cost analysis is a
competency that service providers need to develop if theyre to move
beyond an adversarial relationship with their customers and build a
true partnership, delivering the appropriate services at the cost,
quality, and terms the business needs.
Understanding the maturity of your costing models, which either
limits or enables your ability to provide a viable service portfolio and

175

service catalog, will enable you to set more realistic goals and achieve
them more consistently.
In this webcast, learn how to apply full cost analysis to your
organization. Using this proven methodology, developed by Dean
Meyer, service providers can understand their costs and capabilities
and translate that knowledge into meaningful business terms that the
customer understands. Move beyond chargebacks and evolve to full
service transparency, where customers understand the full costs and
value of each of the services they use in their business processes. By
having full cost analysis in place as requirements change, customers
will know when and how they can make changes to their services. [3]
Service costing is used by companies operating in a service industry
or by companies wishing to establish the cost of services carried out
by some of their departments.
Service organizations do not make or sell tangible goods.
Specific characteristics of services:
Simultaneity
Heterogeneity
Intangibility

176

Perishability
The main problem with service costing is the difficulty in defining a
realistic cost unit that represents a suitable measure of the service
provided.
Frequently, a composite cost unit may be deemed more appropriate.
Hotels for e.g. 'occupied bed-night' as an appropriate cost unit for
ascertainment and control.
Calculated using:
Cost per Service Unit

= Total Costs for Period / Number of service units in the period

Service department costing is also used to establish a specific cost for


an internal service which is a service provided by one department for
another, rather than sold externally to customers, e.g. canteen
maintenance. [4]
The Indian food service industry has been going through a tough
time considering the fact that inflation has accelerated to its highest
level this year in September because of fuel.

177

The economic downturn has presented food and beverage companies


with newer challenges and major players have been desperately
looking to trim their operation costs. For hotels (in Andheri and
elsewhere) high costs and low occupancy has dampened profitability
levels and their owners have been feeling the pinch for a while.
This has driven hoteliers to consider passing this excess cost to
customers. But profitability, or even cost-effectiveness, should not be
at the cost of cutting portion sizes, increasing menu prices, or using
low quality ingredients. Companies should ensure complete
diligence while sourcing their ingredients and not compromise their
goodwill and branding of their brands by reducing quality, quantity
or price. This makes it essential for the food service as well as the
hotel industry to employ agencies that will assist them in cost control
and maximize their profits.
Today, it has become necessary for them to imbibe the latest
technologies which will assist them in controlling costs. No
restaurant or hotel owner in today's environment can afford to ignore
technology. If used properly, it can play a major role in growth, costcutting and competitiveness in the F&B and hotel industry. From

178

entertaining guests and planning menus to monitoring employees,


technology has dramatically changed the way the industry works
today.
When discussing costs, there are three factors under consideration:
manpower, materials and finance. Everything else falls under
overheads. The Indian hotel industry, unlike its counterpart abroad,
is an unorganized industry. This means that the accountability factor
is extremely low. There are so many loopholes in the system that it is
very difficult to find any misdoings in the company. This is one of the
major reasons why a dip in profits is very difficult to control.
In order to achieve rationality the models of business excellence also,
in a way, determine whether the criteria have been met, but the
evaluation of Business excellence is based not only on the fulfillment
of the set criteria but also on the determination of the level up to
which the criteria have been fulfilled (Systems of points).
When analyzing the quality of service it is desirable to analyze the
largest possible number of companies supplying the same type of
service. As we have already mentioned, if a company carries out a
research and finds that the results are negative, it can interpret this

179

information in the wrong way and conclude that it provides services


in a totally wrong way. On the other hand, when analyzing a large
number of companies, it is possible to compare data and obtain a
realistic picture of the position of an individual company compared
to others regarding quality.
Cost Accounting Practices in the Service Industry

[5]

In a highly competitive market, service providers are continually


looking for ways to manage their costs and increase productivity.
Although cost accounting was originally developed for the
manufacturing industry, it has proven useful in the service industry
as well. Cost accounting provides an accurate picture of the
connection between specific costs and specific outputs because it
traces resources as they move through the company. By adopting cost
accounting for your service business, you can learn where resources
are being wasted and which resources are most profitable.
Different Costing Methods
Cost accounting describes several different systems of approximating
the cost of producing certain products in the manufacturing industry,
or completing certain jobs in the service industry.

180

Activity-based costing (ABC) is the most widely adopted and wellknown method of cost accounting. ABC is based on the accounting
theory that every output requires certain activities, and every activity
requires certain resources. ABC is a two-step process that first assigns
costs of resources to activities and then assigns activity costs to
outputs. For instance, a waiter makes a specific hourly wage and
serves 10 tables in a single night. Under an ABC system each table
will be assigned a cost depending on what fraction of an hour was
required to wait on that specific table.
Another costing system is job costing. Its calculations depend on the
direct assignment of certain costs to specific jobs. Rather than
determining the cost of creating one unit, as in ABC accounting, job
costing focuses on the cost to serve a batch of customers. For instance,
if you serve a batch of 100 customers, you would calculate the labor,
supplies and power it takes to serve those 100 customers instead of
looking at each unit individually. A batch might be defined by the
number of customers you serve in an hour, day or week.
A third system, process costing, is used by companies that have
consistent production of the exact same product or service. A cost is

181

assigned to processing units. That cost becomes either the input of the
next division in the production chain or part of the final product. For
example, if a division of an ad company is only responsible for
developing concepts, then under a process costing system all costs for
concept development are recorded for a single month. The total
monthly cost of concept development is divided by the number of
clients served to find the cost per client. The cost per client is then
used as an input for determining the cost of the completed and
delivered advertising product.
Finally, standard costing estimates costs based on standard
expectations. For instance, a restaurant owner would calculate the
cost of serving a single table by estimating the time and materials
needed to serve that table and costing each input, labor and
materials, based on its current market price.
Now well calculate and compare the service cost of the 5
Star hotels chosen from the Golden Triangle:
For convenience the following codes are provided to the
hotels and in the further calculations the Hotels w ill be
named with the same:

182

City

Code

Jaipur

SEPL

Shivani Enclave Private Limited

CPH

Crafts Palace Hotels (I) Pvt. Ltd.

AHL

Asian Hotels (North) Limited

TSHL

Tulip Star Hotels Limited

MHL

Mumtaz Hotels Limited

Delhi

Agra

Name of the Hotel

JPH

Jaypee Palace Hotel Agra

CALCULATION OF SERVICE COST: (Room per day)


JAIPUR
SEPL
(Amount in Lakhs)
Particulars
Expenditure:
Cost of Goods Sold
Employee Remuneration &
Benefits
Other Operating &
Administration Expenses
Selling & Distribution
Expenses
Total Expenditure
Total Operating Profit
Total Revenue from
Room, Food and
Beverages (A + B)

(A)
(B)
(C)

2007

2008

2009

2010

2011

213.48
203.87

219.44
271.69

233.45
287.49

232.86
277.35

266.12
286.54

550.43

561.68

601.24

596.98

671.69

49.33

36.93

36.15

23.67

38.35

1017.11
692.13
1,709.24

1089.74
741.46
1,831.20

1158.33
625.22
1,783.55

1130.86
639.57
1,770.43

1262.70
775.92
2,038.61

183

No. of Rooms
No. of Days
No. of Room Nights
Available (D x E)
Room Occupancy (%)
No. of Room nights Sold (F
x G)
Cost per room day (A / H)
Add: Mark up (B / H)
Average Room Rate (I + J)

(D)
(E)
(F)

100
365
36500

100
365
36500

100
365
36500

100
365
36500

100
365
36500

(G)
(H)

68%
24820

70%
25550

71%
25915

73%
26645

75%
27375

(I)
(J)
(K)

4098
2789
6887

4265
2902
7167

4470
2413
6882

4244
2400
6644

4613
2834
7447

CPH
(Amount in Lakhs)
Particulars
Expenditure:
Stores, Supplies, Food &
Beverages & Packing
Consumed
Other Operating Expenses
Employee Remuneration &
Benefits
Administrative, Selling
and Other Expenses
Total Expenditure
Total Operating Profit
Total Revenue from
Room, Food and
Beverages (A + B)
No. of Rooms
No. of Days
No. of Room Nights
Available (D x E)
Room Occupancy (%)
No. of Room nights Sold (F

(A)
(B)
(C)

(D)
(E)
(F)
(G)
(H)

2007

2008

2009

2010

2011

110.51
187.16

116.85
178.91

92.41
224.67

113.21
265.34

138.68
313.36

149.38

180.16

185.40

213.21

245.19

116.24
563.29
92.26

123.71
599.63
133.45

125.65
628.14
5.66

127.85
719.61
40.94

127.85
825.09
87.57

655.55

733.07

633.79

760.55

912.66

72
365

72
365

72
365

72
365

72
365

26280
69%
18133

26280
58%
15242

26280
54%
14191

26280
62%
16294

26280
71%
18659

184

x G)
Cost per room day (A / H)
Add: Mark up (B / H)
Average Room Rate (I + J)

(I)
(J)
(K)

3106
509
3615

3934
875
4809

4426
40
4466

4417
251
4668

4422
469
4891

AHL
(Amount in Crores)
Particulars
Expenditure:
Fuel, power and Water
Employee Remuneration &
Benefits
Other Manufacturing
Expenses
Administrative and Selling
Expense
Miscellaneous Expenses
Total Expenditure
Total Operating Profit
Total Revenue from
Room, Food and
Beverages (A + B)
No. of Rooms
No. of Days
No. of Room Nights
Available (D x E)
Room Occupancy (%)
No. of Room nights Sold (F
x G)
Cost per room day (A / H)
Add: Mark up (B / H)
Average Room Rate (I + J)

(A)
(B)
(C)

(D)
(E)
(F)
(G)
(H)

(I)
(J)
(K)

2007

2008

2009

2010

2011

15.15

0.00

0.00

0.00

0.00

22.20

26.30

28.74

27.19

33.11

38.00

54.54

45.64

43.11

50.46

26.55
5.08
106.98
51.54

27.21
6.74
114.79
62.24

27.83
3.74
105.95
53.09

25.64
4.09
100.03
47.96

29.74
5.35
118.66
56.23

158.52

177.03

159.04

147.99

174.89

275
365

275
365

275
365

275
365

275
365

100375
82%

100375
83%

100375
85%

100375
86%

100375
91%

82308

83311

85319

86323

91341

12998
6262
19259

13778
7471
21249

12418
6223
18641

11588
5556
17144

12991
6156
19147

185

TSHL
(Amount in lakhs)
Particulars
Expenditure:
Employee Remuneration &
Benefits
Administrative and Selling
Expense
Total Expenditure
Total Operating Profit
Total Revenue from
Room, Food and
Beverages (A + B)
No. of Rooms
No. of Days
No. of Room Nights
Available (D x E)
Room Occupancy (%)
No. of Room nights Sold (F
x G)
Cost per room day (A / H)
Add: Mark up (B / H)
Average Room Rate (I + J)

(A)
(B)
(C)

(D)
(E)
(F)
(G)
(H)

(I)
(J)
(K)

2007

2008

2009

2010

2011

31.35

32.17

32.35

30.14

36.73

269.07
106.98
51.54

63.27
114.79
62.24

63.32
105.95
53.09

40.54
100.03
47.96

68.52
118.66
56.23

15.17

0.00

0.00

0.00

0.00

40
365

40
365

40
365

40
365

40
365

14600
5%

14600
0%

14600
0%

14600
0%

14600
0%

730

41154
(39076)
2078

0
0
0

0
0
0

0
0
0

0
0
0

MHL
(Amount in Crores)
Particulars
Expenditure:
Consumption of
Provisions, Stores, Wines
and Smokes

2007

2008

2009

2010

2011

3.47

4.07

3.64

3.41

3.60

186

Employee Remuneration &


Benefits
Upkeep and Service Cost
Administrative, Selling
and Other Expenses
Total Expenditure
Total Operating Profit
Total Revenue from
Room, Food and
Beverages (A + B)
No. of Rooms
No. of Days
No. of Room Nights
Available (D x E)
Room Occupancy (%)
No. of Room nights Sold (F
x G)
Cost per room day (A / H)
Add: Mark up (B / H)
Average Room Rate (I + J)

(A)
(B)
(C)

(D)
(E)
(F)
(G)
(H)

(I)
(J)
(K)

6.18
7.48

6.60
7.98

7.21
7.53

6.07
7.42

8.26
9.75

11.05
28.18
29.84

13.28
31.93
34.87

12.47
30.85
30.73

11.65
28.54
30.14

12.13
33.75
30.02

58.02

66.80

61.58

58.68

63.76

102
365

102
365

102
365

102
365

160
365

37230
67%

37230
68%

37230
56%

37230
79%

37230
72%

24944

25316

20849

29412

26806

11297
11963
23064

12611
13775
26174

14796
14740
29217

9705
10248
19782

12590
11198
23528

JPH
(Amount in Crores)
Particulars
Expenditure:
Consumption of Food,
Beverages and Tobacco,
etc.
Employee Remuneration &
Benefits
Operating Expenses
Repairs and Maintenance
Fuel, power and Water
Administrative and

2007

2008

2009

2010

2011

3.55

4.09

4.35

4.79

5.17

5.46
8.71
0.00
5.32
2.67

7.96
8.79
2.81
5.53
2.68

8.59
8.58
1.28
5.42
2.36

9.45
9.44
1.40
5.97
2.59

9.83
10.10
1.47
6.68
2.91

187

General Expenses
Total Expenditure
Total Operating Profit
Total Revenue from
Room, Food and
Beverages (A + B)
No. of Rooms
No. of Days
No. of Room Nights
Available (D x E)
Room Occupancy (%)
No. of Room nights Sold (F
x G)
Cost per room day (A / H)
Add: Mark up (B / H)
Average Room Rate (I + J)

5.3

(A)
(B)
(C)

(D)
(E)
(F)
(G)
(H)

(I)
(J)
(K)

25.71
15.04

31.86
16.49

30.58
18.86

33.64
20.74

36.17
23.65

40.74

48.36

49.44

54.38

59.82

341
365

341
365

341
365

341
365

341
365

124465
70%

124465
80%

124465
83%

124465
88%

124465
91%

87126

99572

103306

109529

113263

2950
1726
4676

3200
1656
4856

2960
1825
4785

3071
1894
4965

3193
2088
5281

RATIO ANALYSIS
Liquidity Ratio
Liquidity ratios are the ratios that measure the ability of a company
to meet its short term debt obligations. These ratios measure the
ability of a company to pay off its short-term liabilities when they fall
due.
The liquidity ratios are a result of dividing cash and other liquid
assets by the short term borrowings and current liabilities. They show
the number of times the short term debt obligations are covered by

188

the cash and liquid assets. If the value is greater than 1, it means the
short term obligations are fully covered.
Generally, the higher the liquidity ratios are, the higher the margin of
safety that the company posses to meet its current liabilities.
Liquidity ratios greater than 1 indicate that the company is in good
financial health and it is less likely fall into financial difficulties.
Most common examples of liquidity ratios include current ratio, acid
test ratio (also known as quick ratio), cash ratio and working capital
ratio. Different assets are considered to be relevant by different
analysts.

Some

analysts

consider

only

the cash

and

cash

equivalents as relevant assets because they are most likely to be used


to meet short term liabilities in an emergency. Some analysts consider
the debtors and trade receivables as relevant assets in addition to
cash and cash equivalents. The value of inventory is also considered
relevant asset for calculations of liquidity ratios by some analysts.
The concept of cash cycle is also important for better understanding
of liquidity ratios. The cash continuously cycles through the
operations of a company. A companys cash is usually tied up in the
finished goods, the raw materials, and trade debtors. It is not until the

189

inventory is sold, sales invoices raised, and the debtors make


payments that the company receives cash. The cash tied up in the
cash cycle is known as working capital, and liquidity ratios try to
measure the balance between current assets and current liabilities.
A company must posses the ability to release cash from cash cycle to
meet its financial obligations when the creditors seek payment. In
other words, a company should posses the ability to translate its
short term assets into cash. The liquidity ratios attempt to measure
this ability of a company. [6]
1. Current Ratio
The current ratio is a popular financial ratio used to test a
company's liquidity (also referred to as its current or working
capital position) by deriving the proportion of current assets
available to cover current liabilities.
The concept behind this ratio is to ascertain whether a company's
short-term assets (cash, cash equivalents, marketable securities,
receivables and inventory) are readily available to pay off its
short-term liabilities (notes payable, current portion of term debt,

190

payables, accrued expenses and taxes). In theory, the higher the


current ratio, the better. [7]
Formula:

Statement Showing Current Ratios of the selected


Hotels:

Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Current Assets
Current Liabilities
Ratio

Lakhs
417.08

505.79

405.76

356.44

235.50
1.77

263.25
1.92

163.26
2.49

178.39
2.00

CPH
Current Assets
Current Liabilities
Ratio

354.04
230.39
1.54
Lakhs

323.23
216.09
1.50

398.28
214.36
1.86

371.77
210.19
1.77

414.68
216.70
1.91

378.79
261.58
1.45

DELHI
AHL

Crores

Current Assets

147.15

231.25

316.37

62.19

50.94

Current Liabilities
Ratio

182.83
0.80

284.06
0.81

346.98
0.91

101.28
0.61

166.39
0.31

TSHL
Current Assets
Current Liabilities

Lakhs
3767.99 3813.31 3934.56 3908.00 3892.00
919.50 979.78 1070.07 984.88 172.91

191

Ratio

4.10

3.89

3.68

3.97

22.51

AGRA
MHL
Current Assets
Current Liabilities
Ratio

Crores
23.98
9.38
2.56

21.07
9.04
2.33

26.69
9.91
2.69

41.78
11.02
3.79

JPH
Current Assets
Current Liabilities
Ratio

41.48
28.44
1.46
Crores

41.55
68.23
0.61

38.95
59.59
0.65

41.24
77.11
0.53

52.51
88.34
0.59

72.93
202.16
0.36

Norms and Limits


The higher the ratio, the more liquid the company is. Commonly
acceptable current ratio is 2; it's a comfortable financial position
for most enterprises. Acceptable current ratios vary from industry
to industry. For most industrial companies, 1.5 may be an
acceptable current ratio.
Low values for the current ratio (values less than 1) indicate that a
firm may have difficulty meeting current obligations. However, an
investor should also take note of a company's operating cash flow
in order to get a better sense of its liquidity. A low current ratio
can often be supported by a strong operating cash flow.

192

If the current ratio is too high (much more than 2), then the
company may not be using its current assets or its short-term
financing facilities efficiently. This may also indicate problems in
working capital management.
All other things being equal, creditors consider a high current
ratio to be better than a low current ratio, because a high current
ratio means that the company is more likely to meet its liabilities
which are due over the next 12 months. [6]
2. Quick Ratio
The quick ratio is a measure of a company's ability to meet its
short-term obligations using its most liquid assets (near cash or
quick assets). Quick assets include those current assets that
presumably can be quickly converted to cash at close to their book
values. Quick ratio is viewed as a sign of a company's financial
strength or weakness; it gives information about a companys
short term liquidity. The ratio tells creditors how much of the
company's short term debt can be met by selling all the company's
liquid assets at very short notice.

193

The quick ratio is also known as the acid-test ratio or quick assets
ratio.
Calculation (formula)
The quick ratio is calculated by dividing liquid assets by current
liabilities:
Quick ratio = (Current Assets - Inventories) / Current Liabilities
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Liquid Assets
Current Liabilities
Ratio

Lakhs
378.80
235.50
1.61

465.74
263.25
1.77

356.80
163.26
2.19

300.09
178.39
1.68

CPH
Liquid Assets
Current Liabilities
Ratio

306.68
230.39
1.33
Lakhs

314.04
216.09
1.45

385.73
214.36
1.80

355.56
210.19
1.69

397.22
216.70
1.83

361.23
261.58
1.38

DELHI
AHL
Liquid Assets
Current Liabilities
Ratio

Crores
138.84
182.83
0.76

221.47
284.06
0.78

307.50
346.98
0.89

56.30
101.28
0.56

TSHL
Liquid Assets
Current Liabilities
Ratio

43.94
166.39
0.26
Lakhs

3767.99
919.50
4.10

3813.31
979.78
3.89

3934.56
1070.07
3.68

3908.00
984.88
3.97

3892.00
172.91
22.51

AGRA
MHL

Crores

194

Liquid Assets
Current Liabilities
Ratio

21.97

18.49

24.18

39.43

38.85

9.38
2.34

9.04
2.05

9.91
2.44

11.02
3.58

28.44
1.37

JPH
Liquid Assets
Current Liabilities
Ratio

Crores
34.25
68.23
0.50

32.24
59.59
0.54

34.12
77.11
0.44

43.51
88.34
0.49

63.52
202.16
0.31

Norms and Limits


The higher the quick ratio, the better the position of the company.
The commonly acceptable current ratio is 1, but may vary from
industry to industry. A company with a quick ratio of less than 1
can not currently pay back its current liabilities; it's the bad sign
for investors and partners.
3. Cash Ratio
Cash ratio (also called cash asset ratio) is the ratio of a company's
cash and cash equivalent assets to its total liabilities. Cash ratio is a
refinement of quick ratio and indicates the extent to which readily
available funds can pay off current liabilities. Potential creditors
use this ratio as a measure of a company's liquidity and how easily
it can service debt and cover short-term liabilities.

195

Cash ratio is the most stringent and conservative of the three


liquidity ratios (current, quick and cash ratio). It only looks at the
company's most liquid short-term assets cash and cash
equivalents which can be most easily used to pay off current
obligations.
Calculation (formula)
Cash ratio is calculated by dividing absolute liquid assets by
current liabilities:
Cash ratio = Cash and cash equivalents / Current Liabilities
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Cash and Bank Balance
Current Liabilities
Ratio

Lakhs
185.38

214.90

183.74

123.95

131.68

235.50
0.79

263.25
0.82

163.26
1.13

178.39
0.69

230.39
0.57

CPH
Cash and Bank Balance
Current Liabilities
Ratio

Lakhs
58.09

116.45

133.56

149.28

51.28

216.09
0.27

214.36
0.54

210.19
0.64

216.70
0.69

261.58
0.20

DELHI
AHL
Cash and Bank Balance
Current Liabilities
Ratio

Crores
5.05

3.02

4.43

5.48

3.25

182.83
0.03

284.06
0.01

346.98
0.01

101.28
0.05

166.39
0.02

TSHL

Lakhs

196

Cash and Bank Balance


Current Liabilities
Ratio

39.82

79.06

2.39

3.46

4.01

919.50
0.04

979.78
0.08

1070.07
0.00

984.88
0.00

172.91
0.02

AGRA
MHL

Crores

Cash and Bank Balance


Current Liabilities
Ratio

9.73

5.94

12.90

23.34

16.28

9.38
1.04

9.04
0.66

9.91
1.30

11.02
2.12

28.44
0.57

JPH

Crores

Cash and Bank Balance


Current Liabilities
Ratio

3.92

8.58

2.92

6.34

6.58

68.23
0.06

59.59
0.14

77.11
0.04

88.34
0.07

202.16
0.03

Norms and Limits


Cash ratio is not as popular in financial analysis as current or
quick ratios, its usefulness is limited. There is no common norm
for cash ratio. In some countries a cash ratio of not less than 0.2 is
considered as acceptable. But ratio that are too high may show
poor asset utilization for a company holding large amounts of cash
on its balance sheet.

Profitability Indicator ratios


Profitability ratios measure a companys ability to generate
earnings relative to sales, assets and equity. These ratios assess the

197

ability of a company to generate earnings, profits and cash flows


relative to relative to some metric, often the amount of money
invested. They highlight how effectively the profitability of a
company is being managed.
Common examples of profitability ratios include return on sales,
return on investment, return on equity, return on capital
employed (ROCE), cash return on capital invested (CROCI), gross
profit margin and net profit margin. All of these ratios indicate
how well a company is performing at generating profits or
revenues relative to a certain metric.
Different profitability ratios provide different useful insights into
the financial health and performance of a company. For example,
gross profit and net profit ratios tell how well the company is
managing its expenses. Return on capital employed (ROCE) tells
how well the company is using capital employed to generate
returns. Return on investment tells whether the company is
generating enough profits for its shareholders.
For most of these ratios, a higher value is desirable. A higher value
means that the company is doing well and it is good at generating

198

profits, revenues and cash flows. Profitability ratios are of little


value in isolation. They give meaningful information only when
they are analyzed in comparison to competitors or compared to
the ratios in previous periods. Therefore, trend analysis and
industry analysis is required to draw meaningful conclusions
about the profitability of a company.
Some background knowledge of the nature of business of a
company is necessary when analyzing profitability ratios. For
example sales of some businesses are seasonal and they experience
seasonality in their operations. The retail industry is example of
such businesses. The revenues of retail industry are usually very
high in the fourth quarter due to Christmas. Therefore, it will not
be useful to compare the profitability ratios of this quarter with
the profitability ratios of earlier quarters. For meaningful
conclusions, the profitability ratios of this quarter should be
compared to the profitability ratios of similar quarters in the
previous years.
1. Gross Profit Margin

199

Gross profit margin (gross margin) is the ratio of gross profit


(gross sales less cost of sales) to sales revenue. It is the
percentage by which gross profits exceed production costs.
Gross margins reveal how much a company earns taking into
consideration the costs that it incurs for producing its products
or services. Gross margin is a good indication of how profitable
a company is at the most fundamental level, how efficiently a
company uses its resources, materials, and labour. It is usually
expressed as a percentage, and indicates the profitability of a
business before overhead costs; it is a measure of how well a
company controls its costs.
Gross margin measures a company's manufacturing and
distribution efficiency during the production process. The
higher the percentage, the more the company retains on each
dollar of sales to service its other costs and obligations, the
better the company is thought to control costs. Investors use the
gross profit margin to compare companies in the same industry
and also in different industries to determine what are the most

200

profitable. A company that boasts a higher gross margin than


its competitors and industry is more efficient.
Calculation (formula)
Gross margin is calculated as gross profit divided by total sales
(revenue).
Gross profit margin = Gross profit / Revenue
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Gross Profit
Revenue
Ratio

Lakhs
231.97
417.35
56%

276.23
491.13
56%

337.20
520.94
65%

386.27
510.21
76%

CPH
Gross Profit
Revenue
Ratio

420.98
552.66
76%
Lakhs

208.50
655.55
32%

257.16
733.07
35%

131.31
633.79
21%

168.80
760.55
22%

215.43
912.66
24%

DELHI
AHL
Gross Profit
Revenue
Ratio

Crores
83.69
159.04

97.13
177.97

83.76
158.14

77.64
147.94

89.88
173.45

53%

55%

53%

52%

52%

TSHL
Gross Profit
Revenue
Ratio

Lakhs
-16.18
15.17
-107%

-32.17
0.00
-

-32.35
0.00
-

-30.14
0.00
-

-36.73
0.00
-

AGRA
MHL

Crores

201

Gross Profit

40.41

47.61

42.53

41.29

41.45

Revenue
Ratio

57.53
70%

66.26
72%

60.91
70%

58.18
71%

63.07
66%

JPH

Crores

Gross Profit
Revenue
Ratio

16.73
39.76
42%

17.68
46.86
38%

19.71
47.94
41%

21.69
52.73
41%

24.75
58.00
43%

2. Net Profit Ratio


Net profit margin (or profit margin, net margin, return on
revenue) is a ratio of profitability calculated as after-tax net
income (net profits) divided by sales (revenue). Net profit
margin is displayed as a percentage. It shows the amount of
each sales dollar left over after all expenses have been paid.
Net profit margin is a key ratio of profitability. It is very useful
when comparing companies in similar industries. A higher net
profit margin means that a company is more efficient at
converting sales into actual profit.
Calculation (formula)
Net profit margin = Profit (after tax) / Revenue
Code

2007

2008
JAIPUR

202

2009

2010

2011

SEPL
Net Profit
Total Revenue
Ratio

Lakhs
181.85
1709.24
11%

235.62
1831.20
13%

130.46
1783.55
7%

173.49
1770.43
10%

CPH
Net Profit
Total Revenue
Ratio

262.37
2038.61
13%
Lakhs

21.40
655.55
3%

81.62
733.07
11%

-26.42
633.79
-4%

13.27
760.55
2%

57.54
912.66
6%

DELHI
AHL
Net Profit
Total Revenue
Ratio

Crores
13.71
158.52

14.65
177.03

9.90
159.04

5.30
147.99

12.02
174.89

9%

8%

6%

4%

7%

TSHL
Net Profit
Total Revenue
Ratio

Lakhs
2923.50
4145.09
71%

-864.30
41.20

-207.39
-316.33
12.10
0.08
Negative

-492.99
0.21

AGRA
MHL
Net Profit
Total Revenue
Ratio

Crores
8.23
58.02
14%

14.05
66.80
21%

12.61
61.58
20%

18.65
58.68
32%

JPH
Net Profit
Total Revenue
Ratio

16.97
63.76
27%
Crores

9.33
40.77
23%

3. Return on Assets (ROA)

203

11.54
48.38
24%

12.27
49.48
25%

14.82
54.41
27%

16.99
59.85
28%

Return on assets (ROA) is a financial ratio that shows the


percentage of profit that a company earns in relation to its
overall resources (total assets). Return on assets is a key
profitability ratio which measures the amount of profit made
by a company per dollar of its assets. It shows the company's
ability to generate profits before leverage, rather than by using
leverage. Unlike other profitability ratios, such as return on
equity (ROE), ROA measurements include all of a company's
assets including those which arise from liabilities to creditors
as well as those which arise from contributions by investors. So,
ROA gives an idea as to how efficiently management use
company assets to generate profit, but is usually of less interest
to shareholders than some other financial ratios such as ROE.
Return on assets gives an indication of the capital intensity of
the company, which will depend on the industry. Capitalintensive industries (such as railroads and thermal power
plant) will yield a low return on assets, since they must possess
such valuable assets to do business. Shoestring operations
(such as software companies and personal services firms) will

204

have a high ROA: their required assets are minimal. The


number will vary widely across different industries. This is
why, when using ROA as a comparative measure, it is best to
compare it against a company's previous ROA figures or the
ROA of a similar company.
Calculation (formula)
Return on assets is calculated by dividing a company's net
income (usually annual income) by its total assets, and is
displayed as a percentage. There are two acceptable ways to
calculate return on assets: using total assets on the exact
date or average total assets:
ROA = Net Income after tax / Total assets (or Average Total assets)
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Net Income after tax
Total Assets
Ratio

Lakhs
181.85
4333.97
4.20%

235.62
4523.24
5.21%

130.46
4247.41
3.07%

173.49
4255.88
4.08%

CPH
Net Income after tax
Total Assets
Ratio

262.37
3961.61
6.62%
Lakhs

21.40
871.47
2.46%

81.62
860.25
9.49%
DELHI

205

-26.42
854.41
-3.09%

13.27
838.03
1.58%

57.54
972.09
5.92%

AHL

Crores

Net Income after tax


Total Assets
Ratio

13.71
1402.24

14.65
1641.63

9.90
1654.05

5.30
950.36

12.02
1404.24

0.98%

0.89%

0.60%

0.56%

0.86%

TSHL

Lakhs

Net Income after tax


Total Assets
Ratio

2923.50
5055.74
57.83%

-864.30
5039.59

-207.39
-316.33
5070.56 5129.19
Negative

-492.99
5929.04

AGRA
MHL

Crores

Net Income after tax


Total Assets
Ratio

8.23
121.14
6.79%

14.05
104.11
13.49%

12.61
103.63
12.17%

18.65
112.61
16.56%

JPH

16.97
92.02
18.45%
Crores

Net Income after tax


Total Assets
Ratio

9.33
178.16
5.24%

11.54
180.81
6.38%

12.27
182.10
6.74%

14.82
171.34
8.65%

16.99
164.87
10.31%

The need for investment in current and non-current assets


varies greatly among companies. Capital-intensive businesses
(with a large investment in fixed assets) are going to be more
asset

heavy

than

technology

or

service

businesses.

In the case of capital-intensive businesses, which have to carry


a relatively large asset base, will calculate their ROA based on a
large number in the denominator of this ratio. Conversely, noncapital-intensive businesses (with a small investment in fixed

206

assets) will be generally favored with a relatively high ROA


because of a low denominator number.
It is precisely because businesses require different-sized asset
bases that investors need to think about how they use the ROA
ratio. For the most part, the ROA measurement should be used
historically for the company being analyzed. If peer company
comparisons are made, it is imperative that the companies
being reviewed are similar in product line and business type.
Simply being categorized in the same industry will not
automatically make a company comparable. Illustrations (as of
FY 2005) of the variability of the ROA ratio can be found in
such companies as General Electric, 2.3%; Proctor & Gamble,
8.8%; and Microsoft, 18.0%.
As a rule of thumb, investment professionals like to see a
company's ROA come in at no less than 5%. Of course, there
are exceptions to this rule. An important one would apply to
banks, which strive to record an ROA of 1.5% or above.
4. Return of Equity (ROE)

207

Return on equity (ROE) is the amount of net income returned


as a percentage of shareholders equity. It reveals how much
profit a company earned in comparison to the total amount of
shareholder equity found on the balance sheet.
ROE is one of the most important financial ratios and
profitability metrics. It is often said to be the ultimate ratio or
the mother of all ratios that can be obtained from a companys
financial statement. It measures how profitable a company is
for the owner of the investment, and how profitably a company
employs its equity.
Calculation (formula)
Return on equity is calculated by taking a years worth of
earnings and dividing them by the average shareholder equity
for that year, and is expressed as a percentage:
ROE = Net income after tax / Shareholder's equity
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Net Income after tax
Shareholder's Equity
Ratio

Lakhs
181.85
1156.41
15.73%

235.62
1392.03
16.93%

208

130.46
1522.49
8.57%

173.49
1695.99
10.23%

262.37
1958.36
13.40%

CPH

Lakhs

Net Income after tax


Shareholder's Equity
Ratio

21.40
361.00
5.93%

81.62
371.00
22.00%

-26.42
366.00
-7.22%

13.27
366.00
3.63%

57.54
366.00
15.72%

DELHI
AHL

Crores

Net Income after tax


Shareholder's Equity
Ratio

13.71
1194.48

14.65
1503.12

9.90
1485.66

5.30
793.20

12.02
815.05

1.15%

0.97%

0.67%

0.67%

1.47%

TSHL

Lakhs

Net Income after tax


Shareholder's Equity
Ratio

2923.50
4443.67
65.79%

-864.30
3613.99

-207.39
-316.33
3406.60 3090.28
Negative

-492.99
2597.29

AGRA
MHL

Crores

Net Income after tax


Shareholder's Equity
Ratio

8.23
50.00
16.46%

14.05
52.76
26.62%

12.61
62.96
20.03%

18.65
79.20
23.55%

JPH

16.97
72.14
23.53%
Crores

Net Income after tax


Shareholder's Equity
Ratio

9.33
112.72
8.28%

11.54
121.09
9.53%

12.27
135.59
9.05%

14.82
137.51
10.78%

16.99
143.36
11.85%

Norms and Limits


Widely used by investors, the ROE ratio is an important
measure of a company's earnings performance. The ROE tells
common shareholders how effectively their money is being
employed. Peer company, industry and overall market

209

comparisons are appropriate; however, it should be recognized


that there are variations in ROEs among some types of
businesses. In general, financial analysts consider return on
equity ratios in the 15-20% range as representing attractive
levels of investment quality.
While highly regarded as a profitability indicator, the ROE
metric does have a recognized weakness. Investors need to be
aware that a disproportionate amount of debt in a company's
capital structure would translate into a smaller equity base.
Thus, a small amount of net income (the numerator) could still
produce a high ROE off a modest equity base (the
denominator).
5. Return on Capital Employed (ROCE)
Return on capital employed (ROCE) is a measure of the
returns that a business is achieving from the capital employed,
usually expressed in percentage terms. Capital employed
equals a company's Equity plus Non-current liabilities (or Total
Assets Current Liabilities), in other words all the long-term

210

funds used by the company. ROCE indicates the efficiency and


profitability of a company's capital investments.
ROCE should always be higher than the rate at which the
company borrows otherwise any increase in borrowing will
reduce shareholders' earnings, and vice versa; a good ROCE is
one that is greater than the rate at which the company borrows.
Calculation (formula)
ROCE

EBIT / Capital Employed = EBIT / (Equity +


Non-current Liabilities)

=
Code

EBIT / (Total Assets - Current Liabilities)


2007

2008

2009

2010

2011

JAIPUR
SEPL
Net Income after tax
Capital Employed
Ratio

Lakhs
181.85
4333.97
4.20%

235.62
4523.24
5.21%

130.46
4247.41
3.07%

173.49
4255.88
4.08%

CPH
Net Income after tax
Capital Employed
Ratio

262.37
3961.61
6.62%
Lakhs

21.40

81.62

-26.42

13.27

57.54

871.47

860.25

854.41

838.03

972.09

2.46%

9.49%

-3.09%

1.58%

5.92%

DELHI
AHL
Net Income after tax
Capital Employed
Ratio

Crores
13.71
1402.24

14.65
1641.61

9.90
1654.05

5.30
950.35

12.02
1404.24

0.98%

0.89%

0.60%

0.56%

0.86%

211

TSHL
Net Income after tax
Capital Employed
Ratio

Lakhs
2923.50
5055.74
57.83%

-864.30
5039.59

-207.39
-316.33
5070.56 5129.19
Negative

-492.99
5929.04

AGRA
MHL

Crores

Net Income after tax


Capital Employed
Ratio

8.23
121.14
6.79%

14.05
104.11
13.49%

12.61
103.63
12.17%

18.65
112.61
16.56%

JPH

16.97
92.02
18.45%
Crores

Net Income after tax


Capital Employed
Ratio

9.33
178.16
5.24%

11.54
180.81
6.38%

12.27
182.10
6.74%

14.82
171.34
8.65%

16.99
164.87
10.31%

Norms and Limits


The return on capital employed is an important measure of a
company's profitability. Many investment analysts think that
factoring debt into a company's total capital provides a more
comprehensive evaluation of how well management is using
the debt and equity it has at its disposal. Investors would be
well served by focusing on ROCE as a key, if not the key, factor
to gauge a company's profitability. An ROCE ratio, as a very
general rule of thumb, should be at or above a company's
average borrowing rate.

212

Unfortunately, there are a number of similar ratios to ROCE, as


defined herein, that are similar in nature but calculated
differently, resulting in dissimilar results. First, the acronym
ROCE is sometimes used to identify return on common equity,
which can be confusing because that relationship is best known
as the return on equity or ROE. Second, the concept behind the
terms return

on

invested

capital (ROIC)

and return

on

investment (ROI) portends to represent "invested capital" as the


source for supporting a company's assets. However, there is no
consistency to what components are included in the formula
for invested capital, and it is a measurement that is not
commonly used in investment research reporting.
Debt Ratios
Financial leverage ratios (debt ratios) measure the ability of a
company to meet its financial obligations when they fall due.
Financial leverage ratios (debt ratios) indicate the ability of a
company to repay principal amount of its debts, pay interest on its
borrowings, and to meet its other financial obligations. They also give
insights into the mix of equity and debt a company is using.

213

Financial leverage ratios usually compare the debts of a company to


its assets. The common examples of financial leverage ratios include
debt ratio, interest coverage ratio, capitalization ratio, debt-to-equity
ratio, and fixed assets to net worth ratio.
Financial leverage ratios indicate the short-term and long-term
solvency of a company. They give indications about the financial
health of a company. These ratios give indications whether the
company has got enough financial resources to cover its financial
obligations when the creditors and lenders seek their payments.
A company with adverse financial leverages ratios may not be able to
cover its debts and therefore may go bankrupt. These ratios can give
warnings to the shareholders and directors of potential financial
difficulties. The shareholders and directors can take actions to
prevent the company from going bankrupt.
Financial leverage ratios help to determine the overall level of
financial risk faced by a company and its shareholders. Generally
speaking, the greater the amount of debt of a company the greater the
financial risk is. A company with greater amount of debts and
financial obligations is more likely to fail to repay its debts.

214

Financial leverage ratios are of little use in isolation. To draw


meaningful conclusions about the financial health of a company,
trend analysis and industry analysis needs to be done. Trend and
industry analysis will tell how well the financial position is being
managed. Trend analysis will indicate whether the financial position
of a company is improving or deteriorating over time. Industry
analysis will indicate how well the company is performing as
compared to other companies in the same industry.
Companies need to carefully manage their financial leverage ratios to
keep their financial risk at acceptable level. Careful management of
financial leverage ratios is also important when seeking loans from
banks and financial institutions. Favorable ratios can help the
company to negotiate a favorable interest rate.
1. Debt Ratio
Debt ratio is a ratio that indicates the proportion of a company's
debt to its total assets. It shows how much the company relies on
debt to finance assets. The debt ratio gives users a quick measure
of the amount of debt that the company has on its balance sheets
compared to its assets. The higher the ratio, the greater the risk

215

associated with the firm's operation. A low debt ratio indicates


conservative financing with an opportunity to borrow in the
future at no significant risk.
Debt ratio is similar to debt-to-equity ratio which shows the same
proportion but in different way.
Calculation (formula)
The debt ratio is calculated by dividing total liabilities (i.e. longterm and short-term liabilities) by total assets:
Debt ratio = Liabilities / Assets
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Liabilities
Assets
Ratio

Lakhs
3118.52
4333.97
0.72

2991.62
4523.24
0.66

2534.53
4247.41
0.60

2323.94
4255.88
0.55

CPH
Liabilities
Assets
Ratio

1710.44
3961.61
0.43
Lakhs

532.58
871.47
0.61

512.99
860.25
0.60

514.00
854.41
0.60

498.27
838.03
0.59

657.15
972.09
0.68

DELHI
AHL
Liabilities
Assets
Ratio

Crores
207.76
1402.24
0.15

138.49
1641.63
0.08

TSHL

168.39
1654.05
0.10

157.15
950.36
0.17

589.19
1404.24
0.42
Lakhs

216

Liabilities
Assets
Ratio

596.50

1431.10

1739.10

2130.10

3339.60

5055.74
0.12

5039.59
0.28

5070.56
0.34

5129.19
0.42

5929.04
0.56

AGRA
MHL
Liabilities
Assets
Ratio

Crores
40.41
121.14
0.33

47.61
104.11
0.46

42.53
103.63
0.41

41.29
112.61
0.37

JPH
Liabilities
Assets
Ratio

41.45
92.02
0.45
Crores

74.68
178.16
0.42

48.32
180.81
0.27

31.03
182.10
0.17

20.17
171.34
0.12

7.20
164.87
0.04

Norms and Limits


The optimal debt ratio is determined by the same proportion of
liabilities and equity as a debt-to-equity ratio. If the ratio is less
than 0.5, most of the company's assets are financed through
equity. If the ratio is greater than 0.5, most of the company's
assets are financed through debt.
Maximum normal value is 0.6-0.7. But it is necessary to take
into account industry specific, explained in the article about
debt-to-equity ratio.
2. Debt-Equity Ratio

217

The debt-to-equity ratio (debt/equity ratio, D/E) is a financial


ratio indicating the relative proportion of entity's equity and
debt used to finance an entity's assets. This ratio is also known
as financial leverage.
Debt-to-equity ratio is the key financial ratio and is used as a
standard for judging a company's financial standing. It is also a
measure of a company's ability to repay its obligations. When
examining the health of a company, it is critical to pay attention
to the debt/equity ratio. If the ratio is increasing, the company is
being financed by creditors rather than from its own financial
sources which may be a dangerous trend. Lenders and
investors usually prefer low debt-to-equity ratios because their
interests are better protected in the event of a business decline.
Thus, companies with high debt-to-equity ratios may not be
able to attract additional lending capital.
Calculation (formula)
A debt-to-equity ratio is calculated by taking the total liabilities
and dividing it by the shareholders' equity:
Debt-to-equity ratio = Liabilities / Equity

218

Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Liabilities
Equity
Ratio

Lakhs
3118.52
1156.41
2.70

2991.62
1392.03
2.15

2534.53
1522.49
1.66

2323.94
1695.99
1.37

CPH
Liabilities
Equity
Ratio

1710.44
1958.36
0.87
Lakhs

532.58
361.00
1.48

512.99
371.00
1.38

514.00
366.00
1.40

498.27
366.00
1.36

657.15
366.00
1.80

DELHI
AHL
Liabilities
Equity
Ratio

Crores
207.76
1194.48
0.17

138.49
1503.12
0.09

168.39
1485.66
0.11

157.15
793.20
0.20

TSHL
Liabilities
Equity
Ratio

589.19
815.05
0.72
Lakhs

596.50

1431.10

1739.10

2130.10

3339.60

4443.67
0.13

3613.99
0.40

3406.60
0.51

3090.28
0.69

2597.29
1.29

AGRA
MHL

Crores

Liabilities
Equity
Ratio

40.41
50.00
0.81

47.61
52.76
0.90

42.53
62.96
0.68

41.29
79.20
0.52

JPH

Crores

Liabilities
Equity
Ratio

41.45
72.14
0.57

74.68

48.32

31.03

20.17

7.20

112.72
0.66

121.09
0.40

135.59
0.23

137.51
0.15

143.36
0.05

Norms and limits

219

Optimal debt-to-equity ratio is considered to be about 1, i.e.


liabilities = equity, but the ratio is very industry specific
because it depends on the proportion of current and noncurrent assets. The more non-current the assets (as in the
capital-intensive industries), the more equity is required to
finance these long term investments.
For most companies the maximum acceptable debt-to-equity
ratio is 1.5-2 and less. For large public companies the debt-toequity ratio may be much more than 2, but for most small and
medium companies it is not acceptable. US companies show
the average debt-to-equity ratio at about 1.5 (it's typical for
other countries too).
In general, a high debt-to-equity ratio indicates that a company
may not be able to generate enough cash to satisfy its debt
obligations. However, a low debt-to-equity ratio may also
indicate that a company is not taking advantage of the
increased profits that financial leverage may bring.
3. Interest Coverage Ratio

220

The interest coverage ratio (ICR) is a measure of a company's


ability to meet its interest payments. Interest coverage ratio is
equal to earnings before interest and taxes (EBIT) for a time
period, often one year, divided by interest expenses for the
same time period. The interest coverage ratio is a measure of
the number of times a company could make the interest
payments on its debt with its EBIT. It determines how easily a
company can pay interest expenses on outstanding debt.
Interest coverage ratio is also known as interest coverage, debt
service ratio or debt service coverage ratio.
Calculation (formula)
The interest coverage ratio is calculated by dividing a
company's earnings before interest and taxes (EBIT) by the
company's interest expenses for the same period.
Interest coverage ratio = EBIT / Interest expenses
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
EBIT
Interest
Ratio

Lakhs
382.12
95.05
4.02

455.10
93.83
4.85

221

313.26
105.71
2.96

344.32
79.12
4.35

482.87
72.49
6.66

CPH
EBIT
Interest
Ratio

Lakhs
68.67
14.69
4.67

109.23
16.09
6.79

-19.86
5.87
-3.39

19.81
6.13
3.23

65.45
6.13
10.68

DELHI
AHL
EBIT
Interest
Ratio

Crores
39.80
18.05
2.20

48.94
23.84
2.05

41.58
27.30
1.52

36.58
28.38
1.29

TSHL
EBIT
Interest
Ratio

44.07
25.78
1.71
Lakhs

3841.06
16.52
232.46

-62.14
797.66
-0.08

-61.00
214.53
-0.28

-69.36
263.01
-0.26

-104.90
304.76
-0.34

AGRA
MHL
EBIT
Interest
Ratio

Crores
24.07
9.72
2.48

29.03
8.26
3.52

25.18
5.33
4.73

24.51
3.08
7.96

JPH

25.02
1.07
23.36
Crores

EBIT
Interest
Ratio

9.34
0.01
696.25

11.54
0.00
5249.80

12.28
0.01
1125.15

14.82
0.00
NA

16.99
0.00
NA

Norms and Limits


The lower the interest coverage ratio, the higher the company's
debt burden and the greater the possibility of bankruptcy or
default. A lower ICR means less earnings are available to meet
interest payments and that the business is more vulnerable to

222

increases in interest rates. When a company's interest coverage


ratio is only 1.5 or lower, its ability to meet interest expenses
may be questionable. An interest coverage ratio below 1.0
indicates the business is having difficulties generating the cash
necessary to pay its interest obligations (i.e. interest payments
exceed its earnings (EBIT)).
A higher ratio indicates a better financial health as it means that
the company is more capable to meeting its interest obligations
from operating earnings. On the other hand, a high ICR may
suggest a company is "too safe" and is neglecting opportunities
to magnify earnings through leverage.
4. Debt/ EBITDA Ratio
Debt/EBITDA ratio is the comparison of financial borrowings
and

earnings

before

interest,

taxes,

depreciation

and

amortization. This is a very commonly used metric for


estimating the business valuations. It is a good determinant of
financial health and liquidity position of an entity. It is a
measure of the ability of a company to pay off its debts. It
compares the financial obligations of a company, inclusive of

223

debt and other liabilities, to the actual cash earnings exclusive


of the non-cash expenses.
Debt/EBITDA ratio can be used compare the liquidity position
of one company to the liquidity position of another company
within the same industry. A lower debt/EBITDA ratio is a
positive indicator that the company has sufficient funds to meet
its financial obligations when they fall due. A higher
debt/EBTIDA ratio means that the company is heavily
leveraged and it might face difficulties in paying off its debts.
Debt/EBITDA is one of the common metrics used by the
creditors and rating agencies for assessment of defaulting
probability on an issued debt. In simple words, it is a method
used to quantify and analyze the ability of a company to pay
back its debts. This ratio facilitates the investor with the
approximate time period required by a firm or business to pay
off all debts, ignoring factors like interest, depreciation, taxes,
and amortization.
A high debt-EBITDA ratio might result in a lower credit score
for the business. On the contrary, a lower ratio implies the

224

firms desire to take on more debt, if required, thereby warning


with a comparatively high credit rating.
Calculation (formula)
The debt/EBITDA ratio is calculated by dividing the debts by
the

Earnings

before

Interest,

Taxes,

Depreciation,

and

Amortization (EBITDA).
Debt/EBITDA ratio = Liabilities / EBITDA
The main target of this ratio is to reflect the cash available with
the company to pay back its debts, and not how much income
is being earned by the firm.
Code

2007

2008

2009

2010

2011

JAIPUR
SEPL
Debt
EBITDA
Ratio

Lakhs
3118.52

2991.62

2534.53

2323.94

1710.44

692.12

741.45

625.20

639.56

773.88

4.51

4.03

4.05

3.63

2.21

CPH
Debt
EBITDA
Ratio

Lakhs
532.58
91.31
5.83

512.99
132.84
3.86

514.00
4.74
108.40

498.27
40.13
12.42

657.15
86.86
7.57

DELHI
AHL
Debt
EBITDA
Ratio

Crores
207.76
52.22
3.98

225

138.49
61.88
2.24

168.39
53.09
3.17

157.15
47.96
3.28

589.19
56.82
10.37

TSHL
Debt
EBITDA
Ratio

Lakhs
596.50
3841.93
0.16

1431.10
-61.99
-23.09

1739.10
-61.00
-28.51

2130.10
-69.36
-30.71

3339.60
-103.71
-32.20

AGRA
MHL
Debt
EBITDA
Ratio

Crores
40.41
29.76
1.36

47.61
34.82
1.37

42.53
30.77
1.38

41.29
30.14
1.37

JPH
Debt
EBITDA
Ratio

41.45
30.02
1.38
Crores

74.68

48.32

31.03

20.17

7.20

15.02

16.52

18.90

20.77

23.68

4.97

2.93

1.64

0.97

0.30

Norms and Limits


The debt/EBITDA ratio is popular with financial analysts
because it relates the debts of a company to its cash flows by
ignoring non-cash expenses. Ultimately it is the cash flows (as
opposed to profits) that will be used to pay off debts. Entities in
normal financial state show debt/EBITDA ratio less then
3. Ratios higher than 4 or 5 usually set off alarms because they
indicate that a company is likely to face difficulties in handling
its debt burden, and thus is less likely to be able to raise
additional loans required to grow and expand the business.

226

Debt/EBITDA ratio is not usually appropriate for comparison


of companies in different industries. Capital requirements of
other industries are different. Capital structure is different for
companies operating in different industries. Some industries
are capital intensive and require larger amounts of borrowings
to finance their operations. Therefore, debt/EBITDA ratio may
not give reliable conclusions when comparing different
industries.
Usage of Debt/EBITDA ratio
This ratio is helpful in management decisions and can be used
by a company interested in investing in a takeover bid. Besides,
the ratio is also helpful for the potential buyer in estimating the
profitability of the company without the aggressive spending
of the current manager. If, in case, the company does not spend
much on purchase of new equipment or opening up new
stores, it will have a lower depreciation and amortization costs
thereby making the company profitable, not including these
extra costs.

227

However, it is a risky process to use the debt/EBITDA ratio for


analyzing the debt repayment ability of a company. A
company can spend huge amount of money on new offices,
retail stores, and factories in spite of having a high EBITDA.
Besides, EBITDA also presumes that the company collects
whole of the revenue earned from its customers thereby not
counting the uncollectible customer returns and accounts
receivable. Moreover, a higher debt-EBITDA ratio is taken to be
more risky as the company might come prove to be a default.
Composition of Cost of all the selected Hotels
Particulars

2007
Amount

2008
%

Amount

2009
%

Amount

2010
%

Amount

2011
%

Amount

JAIPUR
SEPL
Cost of Goods
Sold
Employee
Remuneration &
Benefits
Other Operating &
Administration
Expenses
Selling &
Distribution
Expenses
Financial
Expenses
Depreciation
Total

213.48

15%

219.44

15%

233.45

15%

232.86

15%

266.12

16%

203.87

14%

271.69

18%

287.49

18%

277.35

18%

286.54

18%

550.43

39%

561.68

38%

601.24

38%

596.98

40%

671.69

41%

49.33

3%

36.93

3%

36.15

2%

23.67

2%

38.35

2%

95.05

7%

93.83

6%

105.71

7%

79.12

5%

72.49

4%

310.00

22%

286.35

19%

311.94

20%

295.24

20%

291.01

18%

1422.16 100%

1469.91 100%

228

1575.99 100%

1505.21 100%

1626.20 100%

CPH
Stores, Supplies,
Food & Beverages
& Packing
Consumed

110.51

18%

116.85

18%

92.41

14%

113.21

15%

138.68

16%

Other Operating
Expenses

187.16

31%

178.91

28%

224.67

34%

265.34

36%

313.36

37%

Employee
Remuneration &
Benefits

149.38

25%

180.16

28%

185.40

28%

213.21

29%

245.19

29%

116.24

19%

123.71

19%

125.65

19%

127.85

17%

127.85

15%

14.69

2%

16.09

3%

5.87

1%

6.13

1%

6.13

1%

22.64

4%

23.61

4%

24.60

4%

20.32

3%

21.41

3%

Administrative,
Selling and Other
Expenses
Financial
Expenses
Depreciation
Total

600.63 100%

639.32 100%

658.60 100%

746.05 100%

852.62 100%

DELHI
AHL
Fuel, power and
Water
Employee
Remuneration &
Benefits
Other
Manufacturing
Expenses
Administrative
and Selling
Expense
Miscellaneous
Expenses
Financial
Expenses
Depreciation
Total

15.15

11%

0.00

0%

0.00

0%

0.00

0%

0.00

0%

22.20

16%

26.30

17%

28.74

20%

27.19

19%

33.11

21%

38.00

28%

54.54

36%

45.64

32%

43.11

31%

50.46

32%

26.55

19%

27.21

18%

27.83

19%

25.64

18%

29.74

19%

5.08

4%

6.74

4%

3.74

3%

4.09

3%

5.35

3%

18.05

13%

23.84

16%

27.30

19%

28.38

20%

25.78

16%

12.42

9%

12.94

9%

11.51

8%

11.38

8%

12.75

8%

137.45 100%

151.57 100%

TSHL

229

144.76 100%

139.79 100%

157.19 100%

Employee
Remuneration &
Benefits
Administrative
and Selling
Expense
Financial
Expenses
Depreciation
Total

31.35

10%

32.17

4%

32.35

10%

30.14

9%

36.73

9%

269.07

85%

63.27

7%

63.32

20%

40.54

12%

68.52

17%

16.52

5%

797.66

89%

214.53

69%

263.01

79%

304.76

74%

0.88

0%

0.15

0%

0.00

0%

0.00

0%

1.18

0%

317.82 100%

893.25 100%

310.20 100%

333.70 100%

411.19 100%

AGRA
MHL
Consumption of
Provisions, Stores,
Wines and Smokes

3.47

8%

4.07

9%

3.64

9%

3.41

9%

3.60

9%

Employee
Remuneration &
Benefits

6.18

14%

6.60

14%

7.21

17%

6.07

16%

8.26

21%

Upkeep and
Service Cost

7.48

17%

7.98

17%

7.53

18%

7.42

20%

9.75

24%

11.05

25%

13.28

29%

12.47

30%

11.65

31%

12.13

30%

9.72

22%

8.26

18%

5.33

13%

3.08

8%

1.07

3%

5.70

13%

5.79

13%

5.59

13%

5.63

15%

4.99

13%

Administrative,
Selling and Other
Expenses
Financial
Expenses
Depreciation
Total

43.59 100%

45.97 100%

41.77 100%

37.25 100%

39.81 100%

JPH
Consumption of
Food, Beverages
and Tobacco, etc.

3.55

11%

4.09

11%

4.35

12%

4.79

12%

5.17

12%

Employee
Remuneration &
Benefits

5.46

17%

7.96

22%

8.59

23%

9.45

24%

9.83

23%

Operating
Expenses

8.71

28%

8.79

24%

8.58

23%

9.44

24%

10.10

24%

Repairs and
Maintainance

0.00

0%

2.81

8%

1.28

3%

1.40

4%

1.47

3%

Fuel, power and


Water

5.32

17%

5.53

15%

5.42

15%

5.97

15%

6.68

16%

230

Administrative
and General
Expenses
Depreciation
Financial
Expenses
Total

1.

2.67

9%

2.68

7%

2.36

6%

2.59

7%

2.91

7%

5.67

18%

4.97

14%

6.61

18%

5.95

15%

6.69

16%

0.01

0%

0.00

0%

0.01

0%

0.00

0%

0.00

0%

31.39 100%

36.84 100%

37.20 100%

39.59 100%

Service Costing. (2010), Accounting Education,

42.86 100%

Available

at:
http://www.svtuition.org/2010/11/service -costing.html.
2.

Definition of Service Cost as provided in the Business


Dictionary, Available at:
http://www.businessdictionary.com/definition/service-cost.html

3.

John Custy (2013), Service Costing: The Missing link in


Service

Portfolio

and

Service

Catalog

Management,

available at:
http://www.thinkhdi.com/topics/library/webinars/2013/june-18.aspx
4.

L Kuek, Service and Operation Costing, Section D, Lesson


9, ACCA Paper F2; Available at:
http://advanceduni.com/resource/course-acca-f2/acca-f2-lesson09.htm#top

231

5.

Erika Waters, Article by Demand Media, Cost Accounting


Practices in the Service Sector, Available at:
http://smallbusiness.chron.com/cost-accounting-practices-serviceindustry-42794.html

6.

Financial Analysis and Accounting Book of Reference:


Statement of Financial Position | IFRS Statements | IFRS
Reports | ReadyRatios.com. 2013. Available at:
http://www.readyratios.com/reference/liquidity/ .

7.

Richard

Loth,

Liquidity

Measurement

ratio:

Ratio Available at:


http://www.investopedia.com/university/ratios/liquiditymeasurement/ratio1.asp

232

Current