PDF Document

Chapter 1
Introduction to
Numbers, Accounting,
and Financial
Analysis
Accounting and Financial Analysis in the Hospitality Industry Copyright ©2011 by Pearson Education, Inc.
Jonathan A. Hales publishing as Pearson [imprint]
LEARNING OBJECTIVES
• To understand the three most common measures of
a company’s success.
• To understand how important effectively using
accounting and finance is to the career of any
hospitality manager.
• To learn about and describe the three fundamental
financial statements.
• To become familiar with fundamental revenue
accounting concepts.
• To understand fundamental profit accounting
concepts.
• To learn the revenue and profit formulas.
INTRODUCTION
• Entry-level hospitality managers need to be able to
understand and use accounting concepts and
methods of financial analysis in conducting the daily
operations of their departments.
• Numbers are also used in measuring a company’s
performance in meeting its goals and objectives.
• Typically, the three most commonly used
measurements of business success are as follows:
– Customer satisfaction
– Employee satisfaction
– Profitability and cash flow
NUMBERS: THE LIFEBLOOD
OF BUSINESS
• Definitions and Formulas
– ACCOUNTING CONCEPT
• “a general understanding of the bookkeeping
methods and financial transactions of a
business.”
– FINANCIAL ANALYSIS
• “the separation of the management of
monetary affairs of a business into parts for
individual study.”
NUMBERS: THE LIFEBLOOD
OF BUSINESS
• Customers, Associates, and
Profitability
– There is a common theme in today’s
business world about how to measure the
success of a company or business.
– It involves satisfied customers, satisfied
employees, and satisfactory profitability
and cash flows.
CAREER SUCCESS MODEL
• Technical Skills
• Management/Lead
ership Skills
• Financial Skills
• Marketing Skills
• High Performance
Organizations
FIGURE 1.1 Career Success Model.
FINANCIAL STATEMENTS
• The Profit and
Loss Statement
– The Profit and Loss
Statement (P&L)
measures the
operating success
and profitability of a
business.
EXHIBIT 1.1 CONSOLIDATED P&L

STATEMENT
• The Balance Sheet
– The balance sheet
measures the value
or worth of a
business.
– Assets = Liabilities +
Owner Equity
EXHIBIT 1.2 BALANCE SHEET
• The Statement of
Cash Flows
– The Statement of
Cash Flows
measures the
liquidity and the flow
of cash of a
business.
EXHIBIT 1.3 STATEMENT OF CASH FLOW
• The Statement of Stockholders

Equity
– This statement provides details of the
structure of owner equity, including the
type of corporation, number of shares
authorized and issued, changes in the
owners’/members’ accounts during the
year, and end of year amounts or values.
J. W. Marriott Desert Ridge Aerial View—Horizontal. Photo Courtesy of J. W. Marriott Desert

Ridge Resort and Spa, Phoenix, Arizona.
REVENUES: THE BEGINNING OF
FINANCIAL PERFORMANCE
• One of the fundamental business concepts is
that a company is in business to make
money.
• The company produces products or services
and exchanges them with customers for an
agreed-upon price.
– This process generates revenues or sales, which
are the monetary amount that customers pay to
purchase a product or service and involves the
following actions:
– The company receives money from customers for
products or services.
– Mode of payment can include cash, credit cards,
debit cards, electronic transfers, personal checks,
traveler’s checks, or company checks.
– The sales transaction is recorded through a
point-of-sale (POS) system, which is the
equipment and system that records the customer
transaction.
– POS systems were previously know as cash
registers and are now referred to as computer
terminals and systems. This completes the sales
transaction.
– The method of payment is balanced to the amount
of product purchased or type of service
experienced.
• Formulas
– Revenues = Rate * Volume
– Room Revenues = Rooms Sold * Room Rates
– Restaurant Revenues = Customers Served *
Menu Prices
– Golf Revenues = Player Rounds * Greens Fees
– Spa Revenues = Treatments * Treatment Prices
– Gift Shop = Merchandise Sold * Price
– Profit = Revenues - Expenses
• Market Segments
– Market segments define the customer in
terms of expectations, preferences, buying
patterns, behavior patterns, and why the
customer is traveling.
• CONTRACT
• GROUP
• TRANSIENT
PROFIT: THE ULTIMATE MEASURE OF
• A hotel has four important levels of

profits, each at a different stage in the
operation of a hotel.
• They are as follows:
– Department Profit
– Total Department Profits
– House Profit or Gross Operating Profit
– Net House Profit or Adjusted Gross
Operating Profit
PROFIT: THE ULTIMATE MEASURE OF
• Department Profit
• Rooms Department
• Restaurant Department
• House Profit or Gross Operating
Profit
• Net House Profit or Adjusted Gross
Operating Profit
• Profit Before and After Tax
Summary
• The use of accounting concepts and methods
offinancial analysis begins with using
numbers to measure financial performance.
Numbers are a language that provides
specific and detailed information that explains
and measures company operations. Numbers
evaluate operational performance, determine
value, measure liquidity, and provide
management with a detailed tool to manage
their business.
Summary
• Hospitality managers need to develop business
financial literacy, which is the ability to understand
numbers and to be comfortable working with
numbers and using them for analyzing business
operations. Numbers are a means to an end; in other
words they help to measure and evaluate business
operations. In order to realize career advancement, it
is equally important that a hospitality manager is able
to understand and use numbers in business
operations and to discuss and explain his or her
operations in financial terms with senior
management, including the General Manager and the
Director of Finance of their hotel.
Summary
• There are three financial statements that are used in
evaluating a company or business. The first and most
important is the P&L Statement (also called the
Income Statement), which measures financial
performance over a period of time. Second is the
Balance Sheet (also called the Asset and Liabilities
Statement), which measures the net worth of a
company or business at a specific time. Third is the
Statement of Cash Flow, which measures the
liquidity and cash balances of a company or business
over a period of time.
Summary
• Four important formulas for hospitality

managers to know and use are the
formulas for revenue, profit, RevPAR,
and retention. They also need to
understand the main profit levels of a
hotel—Total Department Profits, House
Profit or Gross Operating Profit, and Net
House Profit or Adjusted Gross
Operating Profit.

PDF Document

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PDF Document

Uploaded by

Copyright:

Available Formats

Chapter 1

FIGURE 1.1 Career Success Model.

EXHIBIT 1.1 CONSOLIDATED P&L

EXHIBIT 1.2 BALANCE SHEET

• The Statement of Stockholders

J. W. Marriott Desert Ridge Aerial View—Horizontal. Photo Courtesy of J. W. Marriott Desert

• A hotel has four important levels of

• Four important formulas for hospitality

You might also like