A brief look at the financial aspects of starting a hotel

Shaharu B.

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A brief look at the financial aspects of starting a hotel

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Abstract

The word financial viability means to find out, whether it is financially viable to start a three star hotel as this project report is based on three star hotels. In simple words, financial viability is to find out whether starting a three star hotel is financially successful or not. Financial planning includes the selection of objectives and selection of policies, programs and procedures to achieve the objectives. The considerations relating to the present capital needs, requirements of investors and possibilities of expansion resolve themselves into a present determination of:

- The amount of capital to be raised.
- The form and proportionate amount of securities to be issued.
- Policies as to the administration of capital.

It is not too much to emphasize the correct estimate of the present and future needs of the capital; a sound capital structure and proper projection of capital will lead to success of the company.

Introduction
Basic factors that should be taken into consideration for a financial projection
Cost of project
1. The total cost of project will estimated on the following aspects
2. Human resources requirement for a hotel industry
Financing the project
1. Sources of finance
2. Share capital
3. Types of share
4. The debt equity ratio works out as
Profitablity statement
Constituents of a profitiblity statement
Interest on loan
The compoments of a cash flow statement
1. Cash flow
2. The components of a balance sheet
3. Break even analysis
4. Debt service and coverage ratio (DSCR)
Ratio analysis
1. Importance of ratio analysis
2. Classification of ratio
Calculation of ratio
1. Operating ratio
2. Net profit ratio
3. Return on share holders investment
4. Return on total assets
5. Operating profit ratio
6. Fixed assets turnover ratio
7. Total assets turnover ratio
8. Gross profit margin ratio
Conclusion

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[...] Advantages: - It is a permanent source of finance for the company. Equity shares usually don't create obligation to pay their fixed rate of dividend. Preference Share: - This share as the name suggests, has a preference as compared to equity shares. There is a preference for payment of dividend, i.e. whenever the company has distributable profits; the dividend is first paid to the preference shareholders. Other shareholders are paid dividend only out of the remaining profit, and also preference shareholders are given priority when the company is in the liquidation stage. [...]

[...] (Please note the figures used are indicative) Exhibits 15.a Assets Valuation for Depreciation Purpose In Million) Assets Basic Share of Share of Total Cost Cost Pre-operative Contingency Expenses Margin Fixture Assets Depreciation Schedule for Company law Purpose (Straight Line Method) Building 0.22 Plant & Machinery 0.11 Furniture & Fixture 0.02 Miscellaneous Fixed Assets 0.26 Annual Depreciation 0.64 Exhibits 15.b INTEREST ON LOAN Year Loan O/S Loan O/S Loan O/S Interest Interest Total at at the at the for the for the interest Beginning end of end of First Second for the First Second half year half year term loan half year half year THE COMPOMENTS OF A CASH FLOW STATEMENT CASH FLOW Cash flow is based on profitability statement; the cash flow statement can be prepared as given in the table. [...]

[...] For the purpose of analysis, individual accounting and financial aspects are studied, their interrelationship with other related figures are established, the data is sometime rearranged in order to have a better understanding of the information with the help of different techniques or tools for the purpose. Analyzing financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of firm's position and performance. Interpretation is drawing of inference and stating what the figure in the financial statements really mean. [...]

[...] 1 Sales & Marketing 1 Assistants Purchaser & Store 1 Supervisor Store Keeper 1 Personnel Manager 1 Secretary 1 Chief Engineer 1 Night Auditor 1 Plumber 2 Electrician 2 Chief Security Officer 1 Security 2 Chief Accountant 1 Cashier 3 Clerk 2 Health Club Supervisor 1 Total Salaries The total cost of hiring the above manpower per year can be calculated by using the formula: No of People * salary person * 12 months FINANCING THE PROJECT SOURCES OF FINANCE The financial requirement of a business can be classified into two categories: Short Term Finance Long Term Finance Short-term funds are required for meeting working capital needs. [...]

[...] Of Cash At Bank & Hand THE COMPONENTS OF A BALANCE SHEET LIABILITIES Share Capital Reserved & Surplus Secured Loans Long Term Working Cap. Adv. Unsecured Loan Promoters fund Current Liabilities Trade Credit Total ASSETS Fixed Assets Gross Block Less Depreciation Net Fixed Assets Current Assets Raw Material Stock In Process Finished Goods Cash & Bank Balance Miscellaneous Exp. Preliminary Exp. Total BREAK EVEN ANALYSIS The break-even point is a level at which a business operation is at no profit no loss situation. [...]

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