Calculating the financial viability of a hotel

Shaharu B.

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Calculating the financial viability of a hotel

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Abstract

Tourism industry is one of the fastest growing industries in comparison to other major industries worldwide. The word ‘tour' is a Hebrew word derived from the word "torah", which means learning, studying, and research. The Merriam-Webster's dictionary defines ‘tour' to mean a journey for business, pleasure, education or other purpose, often involving a circular trip where one returns to the starting point. .

The mobilization of physical and human resources will enable the project to enter the operational phase. One of the important features of the operational phase is that the hotel buys and stores raw materials and uses it for production and maintenance. The raw material undergoes transformation through a working process and results in finished goods and services. The hotel also extends credit to some suppliers and patrons. All of these, taken together, form current assets.

Introductoin
Cost of the project
Building and civil works
Plant and machinery
1. Kitchen equipment
2. Air conditioning plant
3. Power equipoment
4. Generator set
5. Furniure and fixtures
6. Miscellaneous expenses
7. Preliminary and pre operative expenses
Manpower requirement and cost
Sales revenue
Working capital requirement
Financing the project
1. Means of financing
Profitability statements
Break even analysis
Cash flow statement
Ratio analysis
1. Debt service coverage ratio (DSCR)
2. Coverage ratio
Conclusion

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[...] of the hotel project To find out the break-even point of the hotel project To find out the rate of return on the investment in the hotel project To find out the preliminary and pre-operating expenses for the hotel project COST OF THE PROJECT The cost of the project includes the working capital requirements. which is separately dealt with later in this study. The capital items which go into project are as follows: 1. Land 2. Building and civil works 3. [...]

[...] For the proposed of hotel project, it is possible to do a break-even analysis with the help of the sales and costs figures computed in preceding paragraphs. To find the break-even percentage, we segregate the various cost elements into the following two categories: 1. Fixed Cost 2. Variable Cost The break-even percentage is given by the following formula: Fixed cost x 100% x Capacity factor Sales variable cost Corresponding to the sales at 75% of occupancy level, the various cost elements can be segregated into the following two categories: Fixed Cost Repairs and maintenance Rates, taxes, and insurance Administrative overheads Depreciation Amortization Interest on long-term loans Variable Cost Food Salary Power, fuel, water Repairs and Maintenance Guest supplies and replenishment Advertising and sales promotion Administrative overheads Interest on working capital Sales occupancy) A x 100 x 0.75 B.E.P. [...]

[...] The total manpower requirement works out to 104 person at a room-staff ratio of 1:149. Annexure III also gives the remuneration payable to employees. A provision of 30% of annual salary bill is made towards employee benefit such as PF, ESI, gratuity, bonus, uniforms, and subsidized food. SALES REVENUE The capacity created, when put to use, will result in sales revenue to the hotel. This will be derived from four sources: 1. Accommodation 2. F & B outlets 3. Banquets 4. [...]

[...] To take care of the vagaries of the state power supply, a generator set will be provided FURNIURE AND FIXTURES The hotel project requires furniture and fixtures of different designs in the following facilities at the hotel: Guest rooms Restaurants and coffee shop Conference and banquet hall Front office and lobby 5. MISCELLANEOUS EXPENSES The project will have certain expenses of capital nature on miscellaneous items as follows: Fire fighting equipment Housekeeping accessories Office furniture and fixtures Vehicle and goods carrier Garden tools and equipment Audio and video equipment Cable TV Cutlery, crockery, glassware, and chinaware Linen Uniforms for the hotel staff 6. [...]

[...] Generally, in order to meet the short-term payment obligations under the current liabilities, a hotel will have funds generated by sales. However, it might happen that sales realization is not sufficient to meet the various needs. The gap between the current assets and the current liabilities needs to be financed, and this is known as working capital funding. In India, the Reserve Bank of India (RBI) lays down the guidelines and norms to commercial banks that extend the working finance to industry and business. [...]

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