KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT (KUSOM)

Balkumari, Lalitpur

ACCOUNTING PROJECTREPORT ON

CASH FLOW ANALYSIS OF HOTEL INDUSTRY OF NEPAL

SUBMITTED TO:

Mr. Hari Gopal Risal

SUBMITTED BY:

Group: 6

Preshika Rajya Laxmi Shah (20326)

Ashma Sharma(20327)

BinduGaire Sharma(20328)

Britika Sharma (20329)

Mihika Shrestha (20330)

Submission Date: 10th July, 2020

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 ACKNOWLEDGEMENT

We sincerely present gratitude towards the Kathmandu University School of Management

(KUSOM) for including Accounting for Financial Decisions as part of our course.

Also, we would like to thank our faculty Mr. Hari Gopal Risal Sir for his guidance for this course
and to perform this project as part of our course. Your guidance has been one that helped us
patch our project success. This project helps us to enhance our knowledge and competence
towards this subject and field.

Then, I would like to thank our friends who have helped us with their valuable suggestions and
guidance and have been helpful in various phases of the completion of the project as well as Mr.
Rakesh Jha the operational manager of Fairfield Marriot hotel Thamel for his time and inputs.

Lastly, we would like to thank each and everyone who have helped us directly and indirectly to
complete this project successfully.

Group 6

MBA Spring 2020

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 ABBREVIATION

F&D Food and Beverage

GDP Gross Domestic Products

HAN Hotel Association of Nepal

KUSOM Kathmandu University School of Management

Ltd. Limited

MBA Master in Business Administration

Mr. Mister

% Percentage

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 TABLE OF CONTENTS

ACKNOWLEDGEMENT ............................................................................................................... i
ABBREVIATION ......................................................................................................................... ii
Tables ........................................................................................................................................ iv
Figures....................................................................................................................................... iv
EXECUTIVE SUMMARY ............................................................................................................ v
CHAPTER I.................................................................................................................................1
INTRODUCTION ........................................................................................................................1
Hotel Industries in Nepal..........................................................................................................2
Purpose of the Study ...............................................................................................................3
Research Methodologies .........................................................................................................4
Limitations ...............................................................................................................................4
CHAPTER II ................................................................................................................................5
ANALYSIS AND FINDINGS ........................................................................................................5
Cash Flow Analysis of the Hotels of Nepal ..............................................................................5
Horizontal Analysis ..................................................................................................................5
Trend Analysis.........................................................................................................................9
Ratio Analysis........................................................................................................................11
Cash Flow Adequacy Ratio ................................................................................................11
Operating Cash Flow Ratio ................................................................................................11
Cash Flow from Operations to Capital Expenditure Ratio ...................................................12
Impact of COVID-19 on Hotel Industry of Nepal ....................................................................13
The Recovery of the Hotel Industry .......................................................................................14
CHAPTER III .............................................................................................................................16
CONCLUSION AND RECOMMENDATIONS ............................................................................16
Conclusion ............................................................................................................................16
Recommendations.................................................................................................................16
Bibliography...........................................................................................................................18

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Tables

Table 1 Horizontal Analysis of Cash flow statement of Oriental Hotel Kathmandu .....................6

Table 2 Horizontal Analysis of cash flow statement of Soaltee Hotel Limited .............................7

Table 3 Horizontal Analysis of cash flow statement of Hyatt Regency Kathmandu .....................8

Table 4 Cash Flow Adequacy ratio ............................................................................................ 11

Table 5 Operating Cash Flow Ratio ........................................................................................... 11

Table 6 Cash Flow from Operations to Capital Expenditure Ratio ............................................. 12

Figures

Figure 1 Trend Analysis of Hotel Soaltee Crown Plaza ...............................................................9

Figure 2 Trend Analysis of Hyatt Regency Hotel ...................................................................... 10

Figure 3 Trend Analysis of Oriental Hotels Ltd. ........................................................................ 10

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 EXECUTIVE SUMMARY

The goal of every organization is always to improve its performance. Thus, managers in
corporate organizations do all that is necessary to improve their performance and especially their
profitability. The users of an enterprise’s financial statement are interested in how the enterprise
generates and uses cash and cash equivalents. As cash management is equally important for hotel
industry also so it is necessary to see how the cash is being used in the industry to conduct
operations, to pay the obligations and to provide returns to the investors. The aim of this report is
to analyze the cash flows of the hotel industry of Nepal to understand how they are performing in
term of cash. The report seeks to see how efficiently hotels are using cash generated in the
business to invest and finance their business.

The study data is based on secondary data collected through websites, published annual report
and other information available online. For this analysis cash flow statement of three hotel that is
Hyatt Regency, Soaltee and Radisson were taken into consideration. For understanding the
impact of COVID-19 on hotel industry an interview was taken with Mr. Rakesh Jha, the
operational manager of Fairfield Marriott hotel. The report seeks to analyze the cash flow of
hotel industry using various analysis like horizontal, vertical, trend and ratio analysis.

The findings from the report show that the hotel industry is doing quite efficient in terms of cash
management. All the ratio analysis shows that the hotel industry is generating enough cash to
meet all its short term expenses and the hotels are not much dependent on equity funding. The
horizontal analysis and trend analysis shows that the hotels have favorable cash flows in both the
year 2018 and 2019. The cash generated from the operations of the hotels is enough for the
hotels to finance their company without raising any equity and to invest in assets acquisition.
Thus, we can see that the liquidity management in the hotel industry is quite satisfactory.

Even profitable hotels can experience cash flows problems when their debts are due before they
have collected enough money from sales to cover their bills. The most important part of
improving cash flow is having a reliable and up to date cash flow forecast so that the hotels can
know their main cash flow issues. As the current scenario of COVID-19 has challenged the cash
management of hotel industry, so it is very essential for management of different hotels to focus
and manage the cash flows of the business in order to meet their short term obligations
efficiently.

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 CHAPTER I

INTRODUCTION

Cash Flow - An Introduction

Cash flows are inflows and outflows of cash and cash equivalents. The cash flow particularly
arises when the net effect of a transaction is either to increase or to decrease the amount of cash
or cash equivalent. Cash comprises cash on hand and demand deposits with banks. Cash
equivalents are short term, highly liquid investments that are readily convertible into known
amounts of cash and are exposed to an insignificant risk of changes in values, mainly held
mainly for short term purpose (Tulsian, 2013).

The users of an enterprise’s financial statement are interested in how the enterprise generates and
uses cash and cash equivalents. Business needs cash to conduct operations, to pay the obligations
and to provide returns to the investors. Success of every business depends on its cash
management. The supply of cash is frequently a limitation on the successful execution of many
plans and policies. So, cash flow analysis is very essential to every organization (Gelda, 2014).
The Cash Flow Analysis refers to the examination or analysis of the different inflows of the cash
to the company and the outflow of the cash from the company during the period under
consideration from the different activities which include operating activities, investing activities
and financing activities (Tulsian, 2013).

 Operating Activities: Operating activities are the principal revenue-producing activities of

the enterprise and other activities that are not investing or financing activities. It includes
Cash receipts from the sale of goods and rendering of services and payments to suppliers for
goods and services received, cash receipts and cash payments of an insurance enterprise for
premiums and claims, annuities and other policy benefits. Cash receipts and payments
relating to future contracts, forward contracts, option contracts and swap contracts when the
contracts are held for dealing or trading purposes.
 Investing Activities: Investing activities are the acquisition and disposal of long term assets
and other investments not included in cash and cash equivalents. Some of its examples
include: Cash payments to acquire fixed assets and receipts from disposal of fixed assets

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 (including intangible assets), cash payments to acquire or dispose of shares, warrants or debt
instruments and interest in joint ventures. Cash payments for and from future contracts,
forward contracts, option contracts and swap contracts except when such contracts are held
for trading or dealing purposes, or the payments are classified as financing activities.
 Financing Activities: Financing activities are those activities that result in changes in the
size and structure of the owner's capital or equity (including preference share capital in the
case of the company) and borrowings of the enterprise. Examples include: Cash proceeds
from issuing shares, debentures, notes, bonds and other instruments, cash proceeds from
short or long-term borrowings and cash payments for Buy back of Equity Shares and
redemption of Preference shares.

Hotel Industries in Nepal

Having a scenic natural beauty, historic cultural heritage and diverse religion, Nepal has long
been one of the major tourist destinations for people all over the world. This has been an
important reason that the Hospitality Industry of Nepal is considered as the most booming
industries of Nepal. The Nepalese Hospitality Industry along with tourism are the key segments
that drive the growth of the service sector in the Nepalese Economy and are helping to shape the
economy of Nepal. Few travel websites like Lonely Planet and Trip Advisor have listed Nepal
among the most favorable destinations for global travelers which have also added to the upswing
of the Hotel Industry in Nepal. So recently different international chains like Marriott, Radisson
hotel are operating in Nepal.

With an exception in the year 2020, Nepal’s GDP from the Hotels and Restaurants show an
upward trend with each passing year. We have seen an expansion in the hotel business with the
number of star rated hotels reaching 135 in the Fiscal Year 2019 compared to 117 in the year
2011 and the number of 5-hotels have reached 14 in number. According to the Hotel Association
of Nepal (HAN), we have about 40856 rooms with the capacity to accommodate approximately
twenty five lakh guests. The number of tourist standard hotels and homestays are also increasing
every year (CEIC, n.d.).

Currently, the hotels of Nepal are providing four lakh direct jobs and ten lakh indirect jobs.
According to HAN, 25% of the total government revenue of Nepal is generated from the Hotels

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and they contribute about 3% to the GDP of the country. Also, 20% of Nepal’s total foreign
currency earnings are from the Hotels alone. We can say that the current new wave in the Hotel
Industry looked very much sustainable had it not been the outbreak of the Covid-19 pandemic.
Even though the Hotel Industry of Nepal is at a climbing stage, it faces few problems. The
investment scenario has various risks due to the lack of proper vision and the execution of proper
rules and regulations from the Government. As compared to other countries, the cost of setting
up a new hotel project is very high in Nepal, especially due to the lack of various infrastructures.
The import of input materials is expensive. The investment needed is very high and it takes a
long time to collect the returns due to improper cash management.

Financial statement analysis helps to get a clear picture of a business enterprise and Cash Flow
analysis is one of them. This report analyzes the performance and growth of hotel industry
through cash flows of various hotels. With the hotel industry being a general one, and cash being
the king of any business it is extremely important to understand the cash trends of hotels to
analyze the entire scenario of the industry.

Purpose of the Study

The purpose of this study is to investigate the cash flow of the hotel industry of Nepal by using
horizontal, vertical, trend analysis and using some cash flow ratios. And also, the situation of the
hotel industry during and post the COVID-19 pandemic. We also intend to look at the future
scenarios and how the hotels are planning to cope up with this unprecedented event. Some of the
specific objectives of the study are:

1. To understand and analyze the cash flow and to know the cash trends of the hotel
industry of Nepal.
2. To understand the impact of the pandemic instigated by COVID-19 in Nepal’s hotel
industry.
3. To find out how the hotels plan to tackle the situation and uplift their growth in the
industry.

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Research Methodologies

Soaltee hotel, Radisson hotel and Hyatt Regency are the samples which were used in this study
for the analysis. The samples were selected on the basis of availability of the annual report.
Secondary data is used to make the analysis of cash flow and a comparative study is done to
know about the cash performance of the hotels. Similarly, to know about the impact of COVID-
19 on the hotel industry an interview was done. The data used were of two years that is 2019
and 2018 only. Horizontal analysis, Trend analysis and Ratio analysis were used to analyze the
cash flow of the hotel industry.

Limitations

The Data available for the analysis are subjected to few limitations which are as follows:
● Due to the concern of privacy of different hotels the Annual reports were not available
online. So analysis is done using data of just two year 2018 and 2019.
● As the analysis is only for the two periods from 2018-2019, so the changes that took
place before and after this period were not taken into consideration.
● The reliability and correctness of the analysis depends on the information taken from the
annual reports of the hotels. So as the report is entirely based on secondary data it may
not be reliable.

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 CHAPTER II

ANALYSIS AND FINDINGS

Cash Flow Analysis of the Hotels of Nepal

In this report, we tend to analyze the Cash Flow of three major Hotels of the nation in terms of
cash management as well as study the impact of the Covid-19 on these hotels. The hotels that we
chose for the study include:

a) Hotel Soaltee Crowne Plaza: Hotel Soaltee Crowne Plaza is a five star hotel located in
Soalteemode, Kathmandu. Crowne Plaza is a multinational chain of full service hotels with
headquarters in the United Kingdom. It was founded in Nepal in 1965 and was inaugurated
in 1966 with 104 rooms. From the time of its establishment itself, it has stood as a pioneer in
the luxury hotel industry.

b) Radisson Hotel: Oriental Hotels Ltd, Radisson Hotel, is an international hotel chain with
headquarters in the United States. The Radisson Hotel Kathmandu is located in Lazimpat,
Kathmandu, adjacent to the Royal Palace. It has about 260 well-appointed rooms. The hotel
has been operating in Nepal since 27 years and is listed and traded on the Nepal Stock
Exchange.

c) Hyatt Regency Hotel: Hyatt Regency Kathmandu is a five star luxury hotel and resort in
Kathmandu created in the traditional Newari style of Nepalese architecture, located near the
BoudhanathStupa. It started its operation in the year 2000 and has been doing business ever
since. It is operated by Taragaon Regency Hotels and employs about 400 workers. It is also
listed in the Nepal Stock Exchange.

Horizontal Analysis

Horizontal analysis is used in financial statement analysis to compare historical data, such as
ratios, or line items, over a number of accounting periods. Horizontal analysis can either use
absolute comparison or percentage comparison. It allows user of financial statements to easily
spot trends and growth patterns.

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Summary of Horizontal Analysis of Cash Flow Statement of Oriental Hotels Limited Kathmandu
Particulars July 16 2019 July 16 2018 Rupee Change Percent
change

Cash flow from operating activities 519,275,853 426,966,898 92,308,955 22%

Cash flow from investing activities (178,901,840) (48,427,452) (130,474,388) 269%
Cash flow from financing activities (199,775,154) (287,458,776) 87,683,622 -31%
Net Increase in Cash and Cash
Equivalents(A+B+C) 140,598,859 91,080,670 49,518,189 54%
Cash and Cash Equivalents at the beginning
393,874,791 302,794,120 91,080,671 30%
Cash and Cash Equivalents at the end
534,473,650 393,874,791 140,598,859 36%

Table 1 Horizontal Analysis of Cash flow statement of Oriental Hotel Kathmandu

From above table 1 we can see that Radisson Hotel Limited has positive operating cash flows
with percent increase by 22% from July 16, 2018 to July 16, 2019. Overall, this data show more
cash was collected from customers than spent on regular recurring expenses in year 2019
compared to 2018. Some accounts that led to this increase are a significant increase in non-
current employee benefits by 17007%, increase in other liabilities by 834%, increase in current
loan and borrowings by 128%, decrease in finance cost by 36%.

Similarly, Radisson has negative investing cash flows with percent increase by 269% from July
16, 2018 to July 16, 2019. Although there are no cash inflows in investing activities, the only
account that affected this increase is the increase in Acquisition of Property, Plant and
Equipment by 269%. A negative investing cash flow is desirable, as when we compare the
amount from two consecutive years 2019 and 2018, we find out a negative dollar change of Rs.
130,474,388.

Radisson has negative financing cash flows with percent decrease by 31% from July 16, 2018 to
July 16, 2019. The reduction in financing activities resulted from decrease in finance cost by
36%, proceeds from non-current borrowings by 69% and a significant increase in cash and cash
dividend for tax purpose by 115%.

The overall cash flow statement Analysis of Radisson Hotel Limited with the positive operating
cash flows and negative investing and financing cash flows depicts desirable situations for the
company.

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 Summary of Horizontal Analysis of Cash Flow Statement of Soaltee Hotel Limited
Particulars July 16 2019 July 16 Rupee Percent
2018 change change

Cash flow from operating activities 414,400,235 405,562,451 8,837,784 2%

Cash flow from investing activities (280,843,101) (428,052,355) 147,209,254 -34%
Cash flow from financing activities (107,786,458) (36,240,576) (71,545,882) 197%
Net Increase in Cash and Cash
Equivalents(A+B+C) 25,770,676 58,730,480 (32,959,804) -56%
Cash and Cash Equivalents at the
beginning 169,383,147 228,113,627 (58,730,480) -26%
Cash and Cash Equivalents at the
end 195,153,823 169,383,147 25,770,676 15%

Table 2 Horizontal Analysis of cash flow statement of Soaltee Hotel Limited

From above table 2, we can see that:

As reported on the cash flow statement of Soaltee Crowne Plaza, there is an increase in cash flow
from operating activities. As we can see there is a change of Rs. 8,837,784 i.e. 2% change in
2018 and 2019. It is the result of decrease in trade and other, prepayments, employee benefits,
bonus paid and increases in inventories, trade and other payables and income tax paid. It shows
an increase in current assets and current liabilities of the Soaltee Crowne Plaza.
Similarly, there is decrease in investing activities from Rs. 428,052,355 to Rs. 280,843,101 i.e.
change of Rs. 147,209,254 and 34% this is the result of increase in proceeds from sale of PPE
and interest income on term and call deposits and decrease in acquisition of PPE, investment
property and intangible assets and investments and dividend income is remain same in year 2018
and 2019. It shows the decrease of long term assets with the decrease in investing activities.
Finally, there is an increase in net cash flow from financing activities from Rs. 36,240,576 to Rs.
107,786,458 i.e. change of Rs. 71,545,882 and 197% of financing activities. This is the result of
increase in repayments of borrowings, dividend paid and decrease in finance cost and slight
change in recovery of cash for fractional bonus shares. It shows an increase in long term liability
and shareholder’s equity.
In conclusion, we can say there is a change of Rs. 32,959,804 i.e. 56% in net cash flow of
Soaltee Crowne Plaza. There was Rs. Rs. 58,730,480 in 2018 and Rs. 25,770,676 in 2019. There
is increase in overall net cash flow of Soaltee Crowne Plaza.

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 Summary of Horizontal Analysis of Cash Flow Statement of Hyatt Regency Kathmandu
Particulars July 16 2019 July 16 Rupee Percent
2018 change change

Cash flow from operating activities 388,630,336 523,397,563 (134,767,227) -26%

Cash flow from investing activities (227,820,845) (188,360,429) (39,460,416) 21%
Cash flow from financing activities (123,355,687) (69,867,891) (53,487,796) 77%
Net Increase in Cash and Cash 37,453,804 265,169,244 (227,715,440) -86%
Equivalents(A+B+C)
Cash and Cash Equivalents at the 337,949,024 72,779,781 265,169,243 364%
beginning
Cash and Cash Equivalents at the 375,402,828 337,949,024 37,453,804 11%
end

Table 3 Horizontal Analysis of cash flow statement of Hyatt Regency Kathmandu

Looking at the horizontal analysis of Hyatt Regency Hotel (Taragaun Regency Hotels Limited),
we can see that there is a decrease in the cash flow generated from the operating activities by
26% from the year 2018 to the year 2019. This decrease in cash flow might be due to the
increase in the non-financial liabilities by about 277% and increase in the closing stock account
by 668%. Also, the trade creditors’ account has increased by about 226%. Prepaid expenses have
decreased by 166%. The amount of trade receivables has also increased. So, in this regard, the
cash collected are lesser than the cash paid in the year 2019 as compared to the year 2018.
Inversely, the cash flow from investing activities has increased by 21% from the year 2018 to the
year 2019. This increase indicates that the hotel had a better investment scenario in the year
2019. The amount of fixed assets purchased decreased by about 83% but the hotel invested a
huge amount in the fixed deposits increasing it by 110% in the year 2019 as compared to 2018.
Some amount of cash inflow has been from the sales of fixed assets but the amount is lower as
compared to the previous year. Comparing the two years, the hotel has spent more cash in the
investing activities resulting in negative cash flow in the year 2019 with the dollar change of Rs.
39460416
Talking about the financing activities of Hyatt Regency, there is a 77% increase in the cash flow
from financing activities as compared to the year 2018. The decrease in the long term loan
amount has increased by 7% and the amount of dividend paid has also increased by 81%. Thus,
overall, there is a negative cash flow from the financing activities.
Looking at the overall cash flows, the amount of net increase in the cash and cash equivalents
has decreased by 86% in the year 2019 as compared to 2018. But as the cash equivalents at the

8
beginning of 2019 was higher, the amount of cash and cash equivalents at the end of 2019 has
increased by 11% which explains that the hotel has more cash at the end as compared to the
previous year.

Trend Analysis

The trend analysis below is of different hotels Hotel Soaltee Crowne Plaza, Hyatt Regency
Hotel and Oriental Hotels Ltd. of year 2018 and 2019. From the following trend analysis of cash
flow we can conclude the following:

Figure 1 Trend Analysis of Hotel Soaltee Crown Plaza

From the figure 1, we can see that the Net cash flow of operating activities of Soaltee has
increase from Rs. 405,562,451 to Rs. 414,400,235, similarly net cash flow from investing
activities has decrease from Rs. 428052,355 to Rs.280, 843,101 and net cash flow of financing
activities has increase from Rs. 36,240,567 to Rs. 107,786,458. There was Rs. 58,730,480 net
cash in 2018 and Rs. 25,770,676 in year 2019. From above data it is clearly seen that this
decrease in the Net Cash Flow of Soaltee Crowne Plaza from due to increase in the financing
expenditure of the company.

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Figure 2 Trend Analysis of Hyatt Regency Hotel

From figure 2, we can see that the Net cash flow from operating activities of Hyatt Regency has
decrease from Rs. 523,397,563 to Rs. 388,630,336. Similarly net cash flow of investing
activities has decrease from Rs. 227,820,845 to Rs.188, 360,429 and net cash flow of financing
activities has increase from Rs. 69,867,891to Rs. 123,355,687. We can see a decrease in net cash
flow of Hyatt Regency Hotels. There was Rs. 265,169,244 net cash in 2018 and Rs. 37,453,804
in year 2019. This decrease is basically due to decrease in the cash generated from the
operational activities and increase in financing activities of the company.

Figure 3 Trend Analysis of Oriental Hotels Ltd.

From figure 3, we can see that the Net cash flow from operating activities of Oriental Hotel
(Radisson) has increase from Rs. 426,966,898 to Rs. 519,275,853.Similarly, net cash flow of
investing activities has increase from Rs. 48,427,452 to Rs. 178,901,840 and net cash flow of
financing activities has decrease from Rs. 287,458,776 to Rs. 199,775,154. The increase in cash
flow from operations and decrease in financing expenditure of the company has resulted in an

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 increase in net cash flow of Oriental Hotels Ltd. There was Rs. 91,080,670 net cash in 2018 and
in year 2019 it was Rs. 140,598,859.

Ratio Analysis

Cash Flow Adequacy Ratio

Hotel Soaltee Radisson Hyatt

years 2019 2018 2019 2018 2019 2018
Cash flow from 414,400,235 405,562,451 519,275,853 426,966,895 388,630,336 523,397,563
Operations
Long term debt 932,008 845,838 53,674,174 174,759,891 4,899,310 4,563,170
paid
Fixed assets 276,514,019 358,363,490 178,901,840 48,427,452 17,465,190 100,230,350
purchased
Cash dividend 106,129,368 34,583,465 105,716,223 49,170,336 118,456,377 65,304,721
Cash flow 1.08 1.03 1.53 1.57 2.76 3.07
adequacy ratio

Table 4 Cash Flow Adequacy ratio

Findings: Cash flow adequacy is a liquidity ratio that measures the company’s ability to meet its
short term cash expenses. The cash flow adequacy ratio of more than 1 means that the company
is making enough money to cover for all its short term expenses. In above table, the cash flow
adequacy ratio of all the hotels for both the year 2019 and 2018 is above 1. This means that all
the hotels are generating sufficient cash flow to maintain themselves without acquiring additional
debt or equity funding. The cash flow adequacy of Radisson and Hyatt is decreasing in 2019
from 2018. For Hyatt it might be due to decrease in cash flow from operations and for Radisson
it is due to increase in purchase of assets and dividend payment. From the above cash flow
adequacy ratio we can see that the cash flow of the hotel industry in Nepal is quite satisfactory.

Operating Cash Flow Ratio

Hotels Soaltee Radisson Hyatt

Particulars 2017-2018 2018-2019 2017-2018 2018-2019 2017-2018 2018-2019
Numerator
Cash Flow from 405562451 414400235 426966898 519275853 523397563 388630336
Operations
Denominator
Current Liabilities 409298526 442624257 375518196 4157240912 728993642 768184686
Operating Cash 0.99 0.94 1.14 0.12 0.72 0.51
Flow Ratio

Table 5 Operating Cash Flow Ratio

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Findings: The amount of cash flows arising from operating activities is a key indicator of the
extent to which the enterprise has generated sufficient cash flows to maintain the operating
capability of the enterprise. The operating cash flow ratio shows the extent to which operating
cash flows can be used to cover the current liabilities. Generally, ratio greater than 1 is
preferable. Radisson has the highest operating cash flow ratio of them all. However its trend is
slowly decreasing in the year 2019. Similarly, Hyatt has the lowest ratio; however there is an
upward trend which means it has successfully covered its current liabilities with its operating
cash flows in 2019 than in the previous year. Soaltee has maintained stable ratios in both the
years and its closer to preferable ratio.

Cash Flow from Operations to Capital Expenditure Ratio

Hotels Soaltee Hotel Radisson Hotel Hyatt Regency Hotel

Year 2018 2019 2018 2019 2018 2019
Cash Flow from Operations 405562451 414400235 426966898 519275853 523397563 388630336
Dividend Paid (34583465) (106129368) (49170336) (105716223) (65304721) (118456377)
Cash paid for Acquisition 439563490 296514019 48427452 178901840 202630350 232765190

Cash Flow from Operations 0.84 1.04 7.80 2.31 2.26 1.16
to CapEx Ratio

Table 6 Cash Flow from Operations to Capital Expenditure Ratio

Findings: Cash Flow from Operations to Capital Expenditure Ratio shows the ability of a
company to finance its long term assets acquisitions from operations. In the table, we can see that
except Soaltee Hotel in 2018, all the others have the ratio greater than 1 indicating that they did
not require any external financing to acquire long term assets. For Soaltee Hotel, the ratio was
not so good in 2018 but it has increased in the year 2019 as cash flow from operation has
increased and less assets is acquired in the year 2019. For Radisson hotel, the ratio has decreased
in the year 2019 though the cash flow from operations has increased. This is because it paid more
dividend in the year 2019 and invested higher amount for the acquisition of assets. In Hyatt
Regency also, there is a decline in the ratio from 2.26 to 1.16 from 2018 to 2019 due to the
decrease in cash flow from operations and increase in the amount of dividend paid. Looking at
the overall scenario, the hotels seem to be doing fine as of 2019. All the ratios are higher than 1
and the Cash Flow from Operations to Capital Expenditure Ratio hotels are able to cover their
capital expenditures from operations

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Impact of COVID-19 on Hotel Industry of Nepal

The start of Visit Nepal Year 2020 ushered excitement and joy amidst tourism entrepreneurs.
However, the outbreak of the novel Corona virus in the very starting month of Visit Nepal Year
2020 has affected Nepal and the whole world. COVID-19 has affected nearly every industry and
everyone living and working across the globe, and the hotel industry is among the hardest hit.
The pause of tourism activities and halt of travelers’ mobility due to COVID-19 has invited a
crisis in the industry. As pandemic and economy are interlinked the financial trouble has spread
like a virus too. The impact of COVID has influence factors like length of shelter-in-place
restrictions, change in company travel policies, consumer sentiment and willingness to travel and
structural change in demand such as video conferences in place of in-person events. Hotels were
one of the first industries to be affected by the pandemic and also will be the last one to recover.

Hotels dangling on the edge amid the corona virus closure have decided to shut their business for
six months to cut their losses as they don’t expect tourists to visit Nepal for at least another year.
More than three thousand hotels have sent their staff home as they cannot pay salaries with no
revenue coming due to lockdown. Binayak Shah, senior vice-president of HAN has mentioned
that it is hard for operators to keep paying the employees as nobody knows how long the
pandemic will last. Even after the lockdown has lifted the tourism industry will take time to
recover because travelers will not immediately book trips and by the time tourism rebounds most
of the hotels are likely to be bankrupt as they have to make salary payments without any source
of income. According to the Hotel Association of Nepal 95 percent of its 3000 member hotels
have earned nothing in these past few months (Joshi, 2020)

In an interview with Mr. Rakesh Jha, the operational manager of Fairfield Marriott hotel, talked
about how because of the dramatic downturn in travel, hotels that remain open are operating with
minimal staffing. Today only a few five star hotels like Soaltee and Marriott Naxal are operating
with minimal staffing after the government has made the lockdown a little flexible. These hotels
are generating a little revenue from limited business meetings, political gatherings and people
staying in hotels for quarantines .The main challenge for these hotels right now has been the
payment of salary to its staff. Almost all of the hotels in Nepal have not made full salary
payment to their staff after the government announced the lockdown and hotels under Hotel
association of Nepal are asked to pay 12.5 percent of the basic salaries to the employees for next

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six months while asking the government to pay the employees through social security fund. But
until today no decisions have been made from the government’s side.

Not just the salary, these hotels have not made any kind of payment as in general since then.
From basic utility charges like water and electricity bills to rent, taxes, interest and loan payment
has been in a halt since the month of Chaitra. The government has mentioned in the budget of the
year 2076-77 to provide loans with 5 percent interest from Nepal Rastra Bank to the hotels so
they could pay salaries to their staff but no decision has yet been approved. So the industry has
not yet received any other kind of subsidies from the government.

Mr. Rakesh Jha also mentioned that one of the options for the hotels right now is to open up for
quarantine purposes. The government has asked different hotels to make rooms available for
quarantine and charge a minimum amount for the people staying in quarantine. HAN has listed
out the hotels available for quarantine as well as the special COVID-19 rate to be charged.
However, many reputed hotels are refusing to provide rooms for quarantine because of the fear
that people might associate the brand with COVID in coming days which may have a negative
impact on their brand image.

So, the COVID-19 has already brought a huge downfall in the hotel industry financially in a
short period of time. Mr. Jha also talked about how some hotels have certain reserves where a
limited portion of profit is deposited every year so that this reserve could be used for future
uncertainty such as the current COVID-19. Hotels like Soaltee and Annapurna have been
collecting money on such reserves for many years so it might not be that difficult for them to pay
salaries to staff and survive for a few more months. However, with the cases increasing every
day and no information about the vaccines the recently established hotels are on the verge of
closure if they are to remain closed for more than six months.

The Recovery of the Hotel Industry

Travel is bound to return sooner or later. But the recovery will likely take longer than in other
industries, and will vary across segments. The next normal will be marketed by structural shifts,
especially around customer expectation for hygiene and flexibility. In the interview with Mr.
Rakesh Jha, he mentioned that the hotels, specially five stars hotels, like Marriott are thinking of

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starting their restaurant’s operations and are considering online food delivery so that they could
cover their basic operational costs and pay salaries to their staff.

As hoteliers see there is less cash coming in, it’s critical to focus on how much money is
following the bottom line such as gross operating profit per available room, to benchmark
performance. The best way to improve the performance of hotels by less revenue is to decrease
their operating cost and increase productivity. They can cut costs where there is possible by
reexamining the unnecessary cost. Making the customers safety and experience a priority that
means for hoteliers it's a time to reexamine spaces and invest in subtle changes that will create a
more pleasant customer experience (Djeebet, 2020). Hoteliers can adopt the following strategy to
make customer feels safe:

● Sanitation Stations: Visitors will have germs on their minds for long after the COUID-19
is over. By adding sanitation stations at entrances and exits and other public spaces,
hoteliers can encourage better hygiene and peace of mind.
● Self-service payment systems: Hoteliers don't need to eliminate cash altogether, but
adding self-service payment options keeps hotel guests from passing germs on to
employees. Plus, it adds a layer of convenience for guests who want independence.
● F&B mobile app deliveries: By adding mobile ordering options to F&B or other room-
service functions, hoteliers don't just ease the fears of guests who are uncomfortable
congregating.

Hotels must plan now to do a soft-opening with one or two with only essential facilities and staff.
The essential services could include housekeeping, a section of the kitchen, the coffee
shop/dining room, a bar, front desk and security. This will ensure social distancing as fewer
people will be at the same place. All the staff should continue to wear surgical gloves and masks
to promote safety and give confidence to the guests. This way domestic corporate travel could be
encouraged until the pandemic lasts (Andrews, 2020). If there comes any vaccine of Covid-19
then only there is some hope for the hotel industry to recover soon. Because then only people
will be travelling freely and the hotels can again start their normal operations. This will help
them to earn revenue for the hotels.

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 CHAPTER III

CONCLUSION AND RECOMMENDATIONS

Conclusion

The overall review of the analysis states that the Hotel industry in Nepal is doing quite efficiently
in terms of cash management. Out of the three hotels taken as samples, all of the hotels have
shown positive cash flows in two of the three categories consisting of operating, investing and
financing activities. Similarly all the hotels have more or less resemblance to the preferred ratios
indicating that no additional funding is required. Likewise the trend analysis shows that hotels
have been maintaining a steady and well-grounded health year by year in terms of Net Cash
flows. Hence, we can conclude that the hotels have been able to thrive in this boom and
competitive industry for the same.

Until the outbreak of Covid-19, the hotels were doing quite well and improving their business
but due to the pandemic, the hotels have been forced to shut down their business. A very few
hotels have started operation after a few months of lockdown but their business is not even 10%
as compared to their normal operating days. This has led to a cash crunch in the hotel industry.
As per one of the officials of a major Hotel chain, it might take at least 2 years for them to
recover from all these losses but they are still skeptical about their expectations. For many well
established hotels while it may take a few months or years to recover its revenue, it may take
several years to recover its profitability. But for newly operated hotels, it's close to impossible
for them to bounce back into the industry without additional support and funding.

Recommendations

Proper cash management is key to the success of a business over the long term. Cash
management requires same attention as income, expenses and profit of the company. Although a
business may appear profitable, it can incur serious problems and even have to cease operations
if the company grows beyond its capacity. So some recommendation to maintain positive cash
flow for these hotels would be to create monthly projections. The hotels when projecting sales
for cash flow purposes shall curb their excessive optimism. A best practice for them would be to
use worst case scenario estimated sales figures. Another thing hotels should do is plan for the
unforeseen. COVID-19 is the best example for this recommendation as it has brought some

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serious cash issues to these businesses. So, the hotels should factor unforeseen scenarios into any
cash flow forecast to ensure that, when such event arises, the business is in position to minimize
the impact on business. This mean that there should be a “slush fund” to account for potential
new opportunities or challenges.

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Bibliography

Andrews, S. (2020, april 28). Impact of COVID-19 on the hotel industry and suggestions for post-
pandemic recovery. Indiatimes.

CEIC. (n.d.). From Ceicdata: https://www.ceicdata.com/en/nepal/sna93-gdp-by-industry-200001-

price/gdp-200001p-hotels--restaurants

Djeebet, H. (2020, april 9). Hospitalitynet. From Hospitalitynet:

https://www.hospitalitynet.org/opinion/4098062.html

Gelda, K. a. (2014). A comparative study on cash flow statements of Tata Chemicals Ltd. and Pidilite
Chemicals Ltd. Indian Journal of Research.

Joshi, E. (2020, March 17). Restaurants and bars in Thamel are looking at staff layoffs and ultimately, a
shutdown. The Kathmandu Post.

Tulsian, P. (2013). Tulsian's Financial Management . S. Chand Publishing.

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