Week 2
Hotel Key Performance Indicators
HFR603BM Hotel Finance & Revenue
• Key Performance Indicators
• Financial Analysis
• RM KPIs
• KPIs of the future
• Hotel Maths Fundamentals
• Property data
• Competitor set data
• Industry data
• International issues
2
Weekly Outline
a) Critically evaluate hotel, financial and industry data analytics information for improved
business decision-making.
b) Recommend strategies to achieve revenue targets.
c) Critically analyse the operational requirements of revenue management. 3
Subject Learning Outcomes
Hotel Key Performance
Indicators
HFR603BM – Hotel Finance & Revenue
Financial Analysis
5
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
• Horizontal analysis is a comparison of a company’s financial results across
time.
Horizontal Analysis
• Vertical analysis is a comparison of financial balances to a base account
from the same company.
Vertical Analysis
• Ratio analysis is a comparison of different balances from the financial
statements.
• Ratios are grouped together to assess a company’s profitability, ability to pay
debts, and survival in the long-term.
Ratio Analysis
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
Horizontal Analysis
The percentage analysis of increases and decreases in related items in comparative
financial statements is called horizontal analysis.
6
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
Horizontal Analysis
The percentage analysis of increases and decreases in related items in comparative
financial statements is called horizontal analysis.
Horizontal
Analysis:
Difference $17,000
Base year (2011) $533,000 = 3.2%
7
Horizontal Analysis
8
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
Horizontal Analysis
Horizontal
Analysis:
Difference $25,800
Base year (2011) $64,700
= 39.9%
9
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
10
Horizontal Analysis – Exercise
11
Horizontal Analysis – Exercise (solution)
Vertical Analysis
A percentage analysis used to show the relationship of each component to the total within
a single financial statement is called vertical analysis.
In a vertical analysis of the balance sheet, each asset item is stated as a percent of the
total assets.
Each liability and stockholders’ equity item is stated as a percent of the total liabilities &
stockholders’ equity.
In a vertical analysis of the income statement, each item is stated as a percent of net
sales.
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
12
Vertical Analysis
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
13
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
Vertical Analysis
Vertical
Analysis:
Current Assets
Total Assets
$550,000
$ 1,139,500
= 48.3%
14
Vertical Analysis
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
15
Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018) Managerial Accounting. Cengage Learning, 14th ed.
Vertical Analysis
Vertical Analysis:
Selling expenses $191,000
Net sales $1,498,000 = 12.8%
16
17
Vertical Analysis – Exercise
18
Vertical Analysis – Exercise (solution)
Liquidity Ratios
• evaluate the ability of a company to convert assets into cash.
Solvency Ratios
• evaluate a company’s ability to pay its long-term debts.
Profitability Ratios
• evaluate the ability of a company to generate future earnings.
19
Ratio Analysis
Warren, C., Jones, J. P., & Tayler, W. B. (2019). Financial and managerial accounting (15th ed.). Cengage.
Current Position
Analysis
Current Ratio
Quick Ratio
Accounts Receivable
Analysis
Accounts Receivable
Turnover
Average Collection
Period (Number of Days’
Sales in Receivables)
20
Liquidity Ratios
Warren, C., Jones, J. P., & Tayler, W. B. (2019). Financial and managerial accounting (15th ed.). Cengage.
21
Ratio Analysis – Exercise
22
Ratio Analysis – Exercise (solution)
23
Ratio Analysis – Exercise
24
Ratio Analysis – Exercise (solution)
Solvency Ratio
(Fixed Assets to
Long-Term Liabilities)
Debt to Equity Ratio
Times Interest
Earned
25
Solvency Ratios
Warren, C., Jones, J. P., & Tayler, W. B. (2019). Financial and managerial accounting (15th ed.). Cengage.
Return on Assets
Return on Equity
Profit Margin
26
Profitability Ratios
Warren, C., Jones, J. P., & Tayler, W. B. (2019). Financial and managerial accounting (15th ed.). Cengage.
27
Ratio Analysis – Exercise
Dopson, L. R., & Hayes, D. K. (2016). Managerial accounting for the hospitality industry, 2nd edition. Wiley.
28
Ratio Analysis – Exercise (solution)
Dopson, L. R., & Hayes, D. K. (2016). Managerial accounting for the hospitality industry, 2nd edition. Wiley.
Larry’s Hotel
Mary’s Hotel
Profit Margin
ൌ ଵ,ହ , , = 5%
ൌ ଵଵ ,, , = 10%
Return on Equity
ൌ ଵସ ,, , = 2.5%
ൌ ଵ଼ ,, , = 1.25%
RM Key Performance Indicators
Rev Revenue
OCC % Occupancy %
ADR Average Daily Rate (1 day
RevPAR Revenue per available room
29
Hayes, D. K., & Miller, A. A. (2011). Revenue management for the hospitality industry. Hoboken, NJ: John Wiley & Sons.
RM Performance Measures
Revenue (Rev)
The total amount of sales achieved in a specified time period.
Nº of units sold x unit price
30
Hayes, D. K., & Miller, A. A. (2011). Revenue management for the hospitality industry. Hoboken, NJ: John Wiley & Sons.
RM Performance Measures
Occupancy % (OCC %)
The percentage of all rental units in the hotel that are occupied at a given time.
Total Rooms Sold
Total Rooms Available
31
Hayes, D. K., & Miller, A. A. (2011). Revenue management for the hospitality industry. Hoboken, NJ: John Wiley & Sons.
RM Performance Measures
Average Daily Rate (ADR)
The average (mean) selling price of guest rooms during a specific time period, such as a
day, week, month, or year.
Rooms Revenue
Total Rooms Sold
32
Hayes, D. K., & Miller, A. A. (2011). Revenue management for the hospitality industry. Hoboken, NJ: John Wiley & Sons.
RM Performance Measures
Revenue per available room (RevPAR)
Performance measure of how well a hotel manages its inventory and rates in
order to optimise revenues
Rooms Revenue
Total Rooms Available
or OCC % x ADR
33
Hayes, D. K., & Miller, A. A. (2011). Revenue management for the hospitality industry. Hoboken, NJ: John Wiley & Sons.
KPI of the future
Gross Operating Profit per
available room
GOPPAR
Total Revenue per available
room
TRevPAR
Revenue per available
service/seat-hour
RevPASH
34
Kimes, S. E. (2017). The future of hotel revenue management. Cornell Hospitality Report 17(1): 3-10.
KPI of the future
Gross Operating Profit (GOP) per available room (GOPPAR)
Performance measure of total revenues less operational and marketing expenses per
room used 35
Kimes, S. E. (2017). The future of hotel revenue management. Cornell Hospitality Report 17(1): 3-10.
Total Revenue – Hotel Variable Costs
Total Rooms Available
Total Revenue
Total Rooms Available
KPI of the future
Total Revenue per available room (TRevPAR)
Performance measure of how well a hotel manages its overall rooms, F&B, function space
(and all other revenue centres) inventory and rates in order to optimise revenues 36
Kimes, S. E. (2017). The future of hotel revenue management. Cornell Hospitality Report 17(1): 3-10.
RM Performance Measures
Revenue per available seat/service-hour (RevPASH)
Performance measure of how well a hotel/restaurant manages its inventory and
rates in order to optimise revenues
Seat utilisation % x Average Check
F&B/Other Revenue
Total Seat/Space Available x Hours served
or
Kimes, S. E. (2017). The future of hotel revenue management. Cornell Hospitality Report 17(1): 3-10.
37
Source: STR
2022 © CoStar Realty Information, Inc.
Hotel Metrics Fundamentals
HFR603BM – Hotel Finance & Revenue
Source: STR
2022 © CoStar Realty Information, Inc.
STR obtains most of its data via exports from the hotel companies versus a web UI.
STR performs a large volume of comprehensive error checks upon the raw data.
Any questions sent back to corporate/hotel.
The raw data definitions are based upon the “Uniform System of Accounts for the Lodging
Industry” (USALI).
STR receives three fields of raw data (monthly and daily):
• Supply (Rooms Available) – rooms in a hotel multiplied by the days
• Demand (Rooms Sold) – number of rooms sold, not including complimentary rooms or
“no-shows”
• Room Revenue – revenue generated from the sale of rooms, not including taxes or
F&B, includes service charges not resort fees
Raw Data Fields Obtained by STR
39
Source: STR
2022 © CoStar Realty Information, Inc.
• Data security and confidentiality for our benchmarking
participants.
• STR never comments on or releases the performance
data of any individual property, brand or parent
company.
STR Top Priority
40
Source: STR
2022 © CoStar Realty Information, Inc.
Key Performance Indicators – Formulas
The hotel industry uses three main Key Performance Indicators, also referred to as KPIs.
The KPIs are calculated from the raw data:
ൌ
ௗ ሺோ௦ ௌௗሻ
Occupancy (OCC%) ௌ௨௬ ሺோ ௩ሻ
