Financial Performance in Hospitality


Financial performance management can be defined as evaluation business outcomes on the basis the policies and plans are implemented to enhance profit as well as financial performance. It is very effective process in order to measure efficiency of business. This report presents information for executive board that evaluates validity of investor’s criticisms on Universal Hotel group (Akrani, 2011). In present time, hotel industry implements many change in process of working as well as business structure. In addition to this, every hotel organization makes efforts for development of new kinds of services and innovative process of handling consumer in order to get competitive edge over its competitors. The main aim this report is to determine the causes of criticism on different policies and procedures of the board. This report describes the information about the different issues faced by organization in financial performance.


Revenue per Available Room (REVPAR): This concept measures average revenue generated by every room in particular hotel. In determination of this value, organization is not including various other elements in the form of food, beverages, revenue from retail store as conferencing (Financial Management Tools, 2014). This approach is very useful in order to compare income and financial returns on the basis of past performance. So, management can evaluate different kind of data in terms of time period, target consumers as well as performance.

RevPar = Total Room Revenue / Total Rooms Available

Average daily rate (ADR): With the help of this system, management can evaluate average price paid by consumer for particular room. In this, hotel measures total amount revenue received from the guests for particular time period on the basis of numbers of room are occupied or booked (Lahdenperä and Koppinen, 2009). In this, company uses values of only paid rooms in order to determine average room rate.

ADR = Rooms revenue / paid rooms occupied

Occupancy: It is a very easy and effective tool to analysis hotel performance. Occupancy can be considered as the percentage rooms occupied on the basis of total rooms are available form particular time period.

Occupancy % = Paid rooms occupied / Rooms available

Key performance indicators: KPI can be considered as standards and norms which measure efficiency of business rules and procedures as well as quality of services provided by Universal Hotel Group in order to achieve business objectives. Hotel Company can use these KPI in order to evaluate the success of company as well as its policies. KPI can be divided into section one high level and another one low level (Theeke and Mitchell, 2008). The main aim of high level KPI is to project success and failure of Whole organization. On the other hand, low level KPI determines the performance of single department. Change in value of KPI reflects positive and negative change in organization. With the help of SMART objectives, Hotel organization can estimate its future performance and factors that will provide good returns to firm. SMART reflects KPI in terms of specific, measurable, attainable, relevant as well as time-frame.

Area KPIs
Accommodation Average room rate, occupancy ratio, revenue per available room, cost per occupied room and labour cost ratio
Food Cost of goods sold ratio, gross profit ratio and average spend per customer.
Profitability Operating profit ratio and net profit ratio
Liquidity Current ratio, average payment period, average collection period
Beverages Cost of sales ratio, gross profit ratio, average spend per customer, labour cost ratio

Balance Score card: It is also most important concept which is used in strategic management of an organization for enhancement of efficiency of hotel rules and business system that will provide good result to firm.

  • Financial perspective: This approach is used to enhance effectiveness of business strategies in terms of services as well as other cost reduction processes with utilization of business resources to achieve financial goals (Chen and Schwartz, 2013).
  • Consumer perspective: In this, business entity makes efforts with the help of consumers in order improve service quality and development of unique system that will enhance profit per consumer and revenue form per consumer. The primary aim of this approach is consumer satisfaction.

Benefits of In house training and outside training: Training plays very important for skills development of workers in Hotel Industry. Here, benefits of different kind of training program present.

  • In house training: This approach saves expenses of Universal Hotel Group. Because, it is less costly as compared to outside training. In this process, company can provides the information as well as practical training regarding the process used by organization in it day to day activity (Argouslidis, 2008). Managers of organization can easily customize training process according to latest market trends. This approach develops good relations among new as well as old employees that will provide good returns in the process of team building.
  • Outside training: It is a very effective tool to enhance skills and ability of employees. In this, employees learn new things in other organization form professional and highly experience trainers (Joshi, Al-Mudhaki and Bremser, 2003). This process saves the valuable time of mangers of organization. It develops innovative attitude among people. Seminar or conference training gives an opportunity to employee to interact with people related in similar industry and to gain knowledge form other participant.


On the basis of case study, management of Universal Hotel Group has encountered lots of criticism from various institutional investors. Here, various reasons present below that reflect the validity of such kinds of criticism:

Inflexibility of Business structure: The opinion of investors determines UHG has not implemented such kind of strategies and polices which can enhance flexibility of organization in order to adopt the new technologies as well as business practices. On the other hand, CEO of UHG argued that business entity and its employees cannot afford new things and business practices (Bennouna and 2010). But, investor’s criticism and arguments are valid because employees and other members of UHG are giving their support in order to impalement alteration and put some new thing in organizational set up. Employees believe that new approaches and technology will provide benefits to them. If business entity is adopting changes in business structure then it will increase efficiency of business as well as soundness of organizational practices. Hotel industry is greatly depending on consumed interests and quality of services. This approach makes hotel industry with dynamic in nature (Drake and Fabozzi, 2012). In this, different kinds of hotel companies implement alteration and change business procedure at regular interval on the basis of market trends and requirement of consumers. The level expectation of consumer is going become higher and higher. So, business entity has to develop or facilitate new kinds of facilities and service that will encourage consumer in order to pass the time in hotel. Hotel Company has to manage business practices on the business current market trends which are very essential in order to get competitive advantage and enhance brand value of organization. Use of latest technology assists management for proper utilization of various resource that will boots up outcomes and efficiency of business practices (Wang, 2012).

Deceptive appearance of buildings: The investors give their negative opinion that building structure of UHG is deceptive nature. It is a valid reason of criticism because there are several evidences presents that shows majority of the hotel buildings of Universal Hotel Group are more than 50 years old and some hotels are 100 years old. On the other hand, CEO opinion of this topic is that their hotel premises create a unique architectural beauty and as develop some unique image as compared to other companies (Rouse and Maguire, 2011). But, doing business operations in these kinds of old buildings can increase risk of safety and security of employees as well as visitors. Further they are very expensive to maintain. So, management of UHG needs to implement modification and renovate in infrastructure as well as appearance of buildings in unique way so management can develop good image of organization. The development of special facilities will enhance revenue of organization.

Outdated and effective business model: Investors give their view that business models and practices followed by universal group of hotel are not flexible and not appropriate in sense of present market trends (Ittelson, 2009). Managers failed to enhance effectiveness of current organizational policies and procedures. It is a valid reason and cause of criticism because managers do not have efficient control on various aspects of organization. The management plays key role for organizing, managing and controlling of the workforce. Employees performance and response are highly based on the guidance and learning provided by top managers (Tranter, Stuart-Hill and Parke, 2011). So, manager should manage proper balance between role and responsibilities. So, top management of UHG must have to implement latest business policies and operation on the basis of consumer perception which activities of hotel with latest market trends.

Improper review of the importance of hotel location: The management of UGH is criticized for having improper selection of places for hotels. This criticism is also valid and it is also admitted by the CEO. Location is the most important aspect in hotel industry. It also creates huge impact on outcomes of organization (Cotriss, 2009). Location influences several elements in form of peacefulness, eco-friendly and amazing view as well as pollution free. The place should be easily accessible and reachable. All these factors create huge impact on consumer selection process as well as image of company.

Criticism that not mentioned in case study: The evaluation of case study determines that company has not get criticism on the marketing tactics, satisfaction level of employee as well as human resource management (Stoltz, 2007). All these factors are playing important role in order to meet business objective. It reflects marketing and personal management practices followed by the Universal hotel group are meeting all their objectives. This approach is playing very important role for advancement of business practices. Proper human resource management assists organization in order to get good returns as well as provide support to other organizational operations.


  • By using cost of goods sold ratio and average spending per consumer ratio as well as lobar ratio, management of Universal Hotel Group can measure the cost and spending of company on food and beverages and other service (Bourne, Franco and Wilkes, 2003). With the help of this approach, firm can reduce wastage of food products and other resource in order to reduce cost of services.
  • By using KPI such as average room rate and occupancy ratio, top manager of UHG can reduces buffer time form one bookings to another (Vance, 2002). This approach assists business entity in order to manage room bookings as well as proper management of housekeeping staff.


Profitability: The evaluation of revenue generated by Universal hotel group and its one competitor determined that revenue of UHG is higher than its competitors. The measurement of operating profit of both companies find that UHG is managing extra operating profit as compared to other organization. On the other hand, it case of net profit (Stoltz, 2007). UHS is going to fall below. This thing reflects that competitor of UHG is managing business operations effectively. So, other company has reduced its expenditure and enhance net profit of organization. So, management of UGH entity makes efforts in order to reduce expenses and should develop proper balance among various operation. The calculation of return on capital employed determines that the competitor is getting good returns as compared to Universal Hotel Group (Rouse and Maguire, 2011). In order to improve the ratio and value of returns, managers of UHG have to implement changes in business structure of organization in order to enhance profitability of business organization.

Revenue per available room: The analysis of revenue per rooms' revenue that there is too much difference in number of rooms available in the both companies. Competitor is having better RevPar as theirper room earning is higher. It suggests that their number of customers is higher comparatively (Tranter, Stuart-Hill and Parke, 2011). Competitor has develop various new and innovative approaches that assists organization in order to get success to encourage and attract the people towards their services. On the other side, the administration of UHG has to focus on their business approaches and implement some new tactics that will enhance number of visitors in hotel.

Current ratio: This ratio assists management for evaluation of the liquidity position of the company. It can be calculated by dividing the current assets by current liabilities. The current ratio for UGH is going below 1 that shows the amount of liabilities are exceeding the total value of current assets (Lahdenperä and Koppinen, 2009). The evaluation of competitor’s liquidity of position is having showing better as compared to current ratio of UHG. Competitor is efficiently managing its working capital and it day to day operations. UGH is facing problems in order to manage work related problems.

Debt ratio: The comparison debt ratio UHG and its competitor determine that total of debt is on total assets of UGH is higher than competitor. So, UGH is facing problem in acquisition of new loan due to over-leverage debt. On the other hand, Competitor has enough capacity in order to take new loans. The debt ratio of UHG reflects over-leverage of borrowing (Chen and Schwartz, 2013). So inventors are facing various difficulties in order to deal business operations with the debt financing. The increment in dependency on funding through debt borrowings enhances issues related to cash inflow. This thing enhances imbalance between inflow and outflow of funds. Excessive debts increase level of risk for potential investors of organization. Investors avoid investing the more funds in organization with over leveraged with debt. This thing develops negative reputation of UHG.

Average room rate: This term provides the information average rate charged per paid room occupied. It can be calculated by dividing the total revenue of rooms form number of paid rooms occupied (Theeke and Mitchell, 2008). The average room rates for both the hotels are the same. The main reason behind this similarity is that both companies are belongs form similar industry.

Acid test ratio: This ratio assists management in order to identify the sum of cash and band overdraft and other marketable securities as well as debtors or account receivables on the basis of current liabilities. It examines the ability of business as well as operations of company to pay its short term debts or loans with the help of cash and selling liquid assets of organization. Again the acid test ratio shows that competitor is higher as compared to UGH that reflects competitor has proper management of liquid assets (Bennouna and 2010). It also indicates that the other company is having enough capabilities and assets in order to meet short term obligations. Short term obligations can easily fulfilled by organization when organization proper quick assets working capital.

Average collection period: This ratio shows the average number of days taken by the company in collection of funds form trade debtors. In other words it can be defined as average time period or days are allowed by organization to debtors. It is computed by dividing the trade debtors by the sales in the year (Drake and Fabozzi, 2012). The evaluation this period identified that there is a huge difference between the collection periods of both the hotel groups. In this, the ratio is low that means UGH is showing very effective results because organization is receiving funds form client in less period as compared to its competitors. They are having good account receivables and it won't be written off as bad debts. On the other hand its competitor is facing many problems in order convert the credit sales into cash (Wang, 2012). The poor collection period will create negative impact on the brand value of firm as well as availability of cash. So, management of competitor organization has to improve liquidity position by improve collection period form debtors.

Net profit ratio: With the help of this ratio, organization can develops relationship between the net profit and total revenue is generated by selling services. It is calculated by dividing total net profit of company form total sales of organization. Here the competitor is showing very impressive net profit ratio as compared to UGH (Ittelson, 2009). It shows management of UGH is encountering to convert total sale into profits. The increment in total amount of expenses leads reduction in profit of firm.

Interest coverage ratio: This ratio can be computed by dividing the finance cost form operating profit of organization. The analysis of interest coverage ratio of both organizations identifies that the debt burden of Universal Hotel Group is very high as compared to the other competitor company. This thing enhances chances of bankruptcy. Some legal charges and penalties will be applied or even the bank has the right to acquire the property if the conditions are that much poor and vulnerable (Argouslidis, 2008). So, it is suggested that UGH must have to increase value of revenues in order to meet all interest expenses. On the other hand, the position of competitor organization is very good in terms of burden of debt.

Overall it can be said that financial position of competitor is very good as compared to UHG. So, management of UHG has to implement many alteration in organization to improve financial position.


On the basis of above study, it has been concluded that Universal Hotel Group is facing several problems from improper management practice, lack proper change management system as well as leadership of organization. It finds that the burden of debt is going up because off improper planning of various resources and business activities. Report figures out that business entity needs to implement many changes to increase satisfaction level of workers that will increase profit of organization.


  • Argouslidis, C. P., 2008.Determinants of the speed of elimination decision making in financial services.Journal of Services Marketing.
  • Bennouna, K. and 2010. Improved capital budgeting decision making: evidence from Canada. Management Decision.
  • Bourne, M., Franco, M., and Wilkes, J., 2003. Corporate performance management. Measuring Business Excellence.
  • Chen, C. and Schwartz, Z., 2013. On revenue management and last minute booking dynamics. International Journal of Contemporary Hospitality Management.
  • Drake, P. P. and Fabozzi, J. F., 2012. Analysis of Financial Statements. 3rd ed.
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