feasibilty study for holiday inn (6)
DESCRIPTION
Done as coursework for the Marketing Management for the Service Industry module at IHTTI School of Hotel Management, Neuchâtel Switzerland.TRANSCRIPT
Feasibility Study for Holiday Inn6
Marketing Management for the Service Industry (MK301)
Information Systems 2 (IS301)
Managerial Accounting (AC301)
Lecturer: Mr. Evangelos Vantzos
Word Count: 3526
Date:16/05/2011
Group Members:
Denis Sulimkin (3B)
Francesca Pat-Ekeji (PG B)
Alina Raab (3B)
Rehan Mustafa (3B)
1
Executive Summary:
The aim of this feasibility study is to determine which improvements can be made to
reinforce the position of HolidayInn6 hotel in the market. In order to detect the enhancements
the was a critical analysis carried out for financial and marketing areas of hotel’s activities
along with the analysis of competitors and current market position. The analysis conducted
has shown the HolidayInn6 has a better overall performance in such aspects as market share,
occupancy, daily rate and condition of facilities.
In addition to it there was an evaluation of past financial data executed in order to define and
forecast the budgeting and timelines for application of additional facilities. The impact of
sound marketing strategy on the performance of the hotel can be seen in year 1, and the
management is expecting the same result in relation to the projected extensions of facilities.
The addition of a conference center together with an extension of 100 rooms is forecasted to
sustain high profitability of operations, while an upgrade of car parking and introduction of
business center will add value to services and positively affect hotel’s reputation. In addition,
numerous evaluations of the project have been executed and in accordance to them the
project was proven as feasible.
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Contents 1: Introduction:........................................................................................................................................ 6
2: Market Analysis: ................................................................................................................................. 7
2.1: Current Facilities’ Analysis: ........................................................................................................ 7
2.2: Analysis of Existing Clients and Existing Business: ................................................................... 7
3. Site, Area and Hotel Website Evaluation ............................................................................................ 8
3.1 Location, Space and Area ............................................................................................................. 8
3.2 Hotel Website ................................................................................................................................ 8
3.2.1Design Principles ........................................................................................................................ 8
3.2.2 Structure and Content ................................................................................................................ 9
3.2.3 Colour Scheme ........................................................................................................................... 9
4. Supply, Demand and Competitive Considerations ........................................................................... 10
4.1 Past Occupancy Trends ............................................................................................................... 10
4.2 Hotels Currently Serving the Local Market ................................................................................ 10
4.3 Competitive Information of the Key Competitors ...................................................................... 10
4.4 Supply and Demand Analysis ..................................................................................................... 10
5: Marketing Strategy ........................................................................................................................... 11
5.1: Desired Clients and Market Potential ........................................................................................ 11
5.2: Sales and Sales Actions ............................................................................................................. 11
5.3: Advertisement and Promotional Tactics .................................................................................... 12
6. Proposed Extension of Facilities and Services ................................................................................. 13
6.1 General Concept and Changes needed ........................................................................................ 13
6.2 Proposed Future Extension ......................................................................................................... 13
7. Financial Assessment, Projections & Viability ................................................................................. 14
7.1 Trend Analysis ............................................................................................................................ 14
7.2 Ratio Analysis ............................................................................................................................. 14
7.3 Capital Investment Required & Financing .................................................................................. 15
7.4 Operations and Capital Budgeting .............................................................................................. 16
7.5 Cost - Benefit Analysis ............................................................................................................... 16
7.6 Evaluation of projections ............................................................................................................ 17
8 Sensitivity Analysis ........................................................................................................................... 18
9. Conclusion & Recommendations...................................................................................................... 19
10 References: ....................................................................................................................................... 20
11 Appendices ....................................................................................................................................... 21
11.1 Appendix: General Information of Holiday Inn6 ...................................................................... 21
11.1.1 Appendix: Nice –Space, Location and Area ..................................................................... 21
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11.1.2 Appendix Nice, Ambiance and Scenery ............................................................................ 22
11.1.3 Appendix: Hotel Location .................................................................................................. 23
11.1.4 Appendix Economical Background of the Hotel ............................................................... 24
11.1.5 Appendix: Hotel Facilities ................................................................................................. 25
11.1.6 Appendix: Current facilities’ condition ............................................................................. 26
11.1.7 Appendix: In Room Entertainment and Complimentary Items ......................................... 27
11.1.8 Appendix: Comments from Monthly Indicator Report Year 1 to Year 2 .......................... 28
11.1.9 Appendix: Guest Comments: Week 82 to week 149 ......................................................... 29
11.2 Website Layout ......................................................................................................................... 30
11.2.1 Appendix: Homepage ........................................................................................................ 30
11.2.2 Appendix: Reservation ....................................................................................................... 31
11.2.3 Appendix: Photo Gallery ................................................................................................... 32
11.2.4 Appendix: Rooms .............................................................................................................. 33
11.2.5 Appendix: Contact Us ........................................................................................................ 34
11.2.6 Appendix: Privacy Policy .................................................................................................. 35
11.3 Marketing Analysis ................................................................................................................... 36
11.3.1 Appendix: Advertising Media and their Effectiveness ...................................................... 36
11.3.2 Appendix: Management decisions Year-1 ......................................................................... 37
11.3.3 Appendix: Management decisions Year-2 ......................................................................... 39
11.3.4 Appendix: Management decisions Year-3 ......................................................................... 41
11.3.5 Appendix: Weekend VS. Weekday: Year 3 ....................................................................... 43
11.3.6 Appendix: Market Segments .............................................................................................. 45
11.3.7 Appendix: Average Room Rate vs. Room Occupancy for Year 3 ..................................... 46
11.3.8 Appendix Competitors ....................................................................................................... 47
11.3.9 Appendix: Competitor Status Report December Year 3 .................................................... 48
11.3.10 Appendix: Local Diary Events ......................................................................................... 49
11.4 Performance Indicator from Year1 to Year3 ............................................................................ 50
11.4.1 Appendix: HOTS Scorecard Year 1 ................................................................................... 50
11.4.2 Appendix: HOTS Scorecard Year 2 ................................................................................... 51
11.4.3 Appendix: HOTS Scorecard Year 3 ................................................................................... 52
11.4.4 Appendix: F&B Departmental Income Statement- Year 1 ................................................ 53
11.4.5 Appendix: F&B Departmental Income Statement- Year 2 ................................................ 54
11.4.6 Appendix: F&B Departmental Income Statement- Year 2 ................................................ 55
11.4.7 Appendix: Indicator Average Year 1 ................................................................................. 56
11.4.8 Appendix: Indicator Average Year 2 ................................................................................. 57
11.4.9 Appendix: Indicator Average Year 3 ................................................................................. 58
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11.5 Proposed Extension of Facilities & Service .............................................................................. 59
11.5.1 Proposed Alternatives A & B ............................................................................................. 59
11.5.2 Appendix: Pre-Opening Expenses ..................................................................................... 60
11.6 Analysis of Past Financial Statements ...................................................................................... 62
11.6.1 Appendix: Comparative Horizontal Analysis – Income Statement Year 0 to Year 4 ........ 62
11.6.2 Appendix: Comparative Horizontal Trend Analysis – Income Statement Year 0 to Year 4
...................................................................................................................................................... 63
11.6.3 Appendix: Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4 .............. 64
11.6.4 Appendix: Comparative Horizontal Trend Analysis – Balance Sheet Year 0 to Year 4 ... 65
11.6.5 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4 ................... 66
11.6.6 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4 ................... 67
11.6.7 Appendix: Trend analysis – Total Revenue ....................................................................... 68
11.6.8 Appendix: Trend Analysis – Income after taxes ................................................................ 69
11.6.9 Appendix: Trend Analysis – Average daily rate ................................................................ 70
11.6.10 Appendix: Trend analysis – RevPAR .............................................................................. 71
11.6.11 Appendix: Trend analysis – Market index image ............................................................ 72
11.6.12 Appendix: Trend analysis – Cash at bank ........................................................................ 73
11.6.13 Appendix: Current Ratio .................................................................................................. 74
11.6.14 Appendix: Debt-Equity Ratio .......................................................................................... 75
11.6.15 Appendix: Profit Margin Ratio ........................................................................................ 76
11.6.16 Appendix: Gross Operating Profit ................................................................................... 77
11.6.17 Appendix: ROCE ............................................................................................................. 78
11.6.18 Appendix: Occupancy ...................................................................................................... 79
11.6.19 Appendix: Rooms Market Share ...................................................................................... 80
11.6.20 Appendix: Gearing Ratio ................................................................................................. 81
11.7 Capital Investments & Financing .................................................................................................. 82
11.7.1 Appendix: Capital Investment & Financing ...................................................................... 82
11.7.2 Appendix: Outstanding loan at the End of Year 3 ............................................................. 83
11.7.3Appendix: Loan Financing –Bank ...................................................................................... 84
11.7.4 Appendix: Loan Financing – Investors .............................................................................. 85
11.7.5 Appendix: Depreciation – Conference Center ................................................................... 86
11.7.6 Appendix: Depreciation – Business Center ....................................................................... 87
11.7.7 Appendix: Depreciation – Parking ..................................................................................... 88
11.8 Appendix Pro-Forma Statements .............................................................................................. 89
11.8.1 Appendices Financial Targets and estimations for Years 4-8. ........................................... 89
11.8.2 Appendix: Forecasted Revenues ........................................................................................ 90
11.8.3 Appendix: Pro-Forma Summary Income Statement .......................................................... 92
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11.8.4 Appendix: Forecasted Tendency Departmental Income Statement: Rooms ...................... 93
11.8.5 Appendix: Pro Forma Departmental Income Statement Rooms ........................................ 94
11.8.6. Appendix: Forecasted Tendency Departmental Income Statement: Food & Beverage .... 95
11.8.7. Appendix: Pro-Forma Income Statement F&B ................................................................. 96
11.8.8 Appendix: Forecasted Tendency Departmental Income Statement Other ......................... 97
11.8.10. Appendix: Pro Forma Departmental Income Statement other ........................................ 98
11.8.11 Appendix: Forecasted Tendency Departmental Income Statement Central Administration
...................................................................................................................................................... 99
11.8.12 Appendix: Pro Forma Departmental Income Statement Central Administration .......... 100
11.8.13 Appendix: Staff and Training - Department Income Statement Conference Center ..... 101
11.8.14 Appendix: Pro Forma departmental Income Statement Conference Center .................. 102
11.8.15 Appendix: Pro Forma Summary Income Statement: Conference .................................. 103
11.8.15 Appendix Pro-Forma Cash Flow: New Facilities .......................................................... 104
11.9 Cost Beneficial Analysis ......................................................................................................... 105
11.9.1 Appendix: Payback Period ................................................................................................... 105
11.9.2 Appendix: Net Present Value ............................................................................................... 106
11.9.3 Appendix: Internal Rate of Return .................................................................................. 107
11.10 Sensitivity Analysis .............................................................................................................. 108
11. 10.1 Appendix: Sensitivity Analysis: Rooms Year 8 ............................................................ 108
6
1: Introduction:
The aim and objective of the following feasibility assessment is to provide information of the
Holiday Inn Hotel and its strategy in marketing and financial development. The overview of
the Hotels current situation as well as the changes it has gone through in the past will ease the
evaluation of its viability and justify the addition of extra facilities to Holiday Inn Hotel. With
the facilities mentioned in the following study Holiday Inn wishes to add further value to the
hotel and thereby strengthening their stance in the corporate market segment.
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2: Market Analysis:
2.1: Current Facilities’ Analysis:
Holiday Inn6 is a full service hotel, with its services including restaurant, bar and 24 hours
front desk services along with 250 guest rooms, which can accommodate doubles, families
and singles (Appendix 11.3.9). All these facilities have been continuously renovated to upto
date condition. The management tried to keep these facilities in the excellent level, which can
be seen by decisions taken in years1 to 3 (Appendices 11.3.2-11.3.4). The rooms have air-
conditioning systems, private luxury bathrooms, and offer a wide range of complimentary
items and in-room entertainment services (Appendix 11.1.7 & 11.3.9) along with high-quality
amenities to guarantee that rooms produce admirable impression and fulfil diversified
guests’ needs and expectations (Appendix 11.1.8). In addition to these services and facilities,
to attract more guests and widen the range of attractions at the hotel, Holiday Inn6 has a
swimming pool and offers parking facility, which is capable of accommodating 120 cars
(Appendix 11.1.5).
2.2: Analysis of Existing Clients and Existing Business:
HolidayInn6’s management decided to divide its market to effectively target all the segments
so that the marketing plan would be implemented efficiently (Kotler et al., 2010).
HolidayInn6 determined corporate clients as its major market segment and for the past three
years has created an image of a mainly business hotel. Due to seasonality factor, HolidayInn6
implements certain changes in the marketing strategy in the 2nd
quarter of each year, when the
majority of clients belong to leisure segment. This restrategizing does not affect the ability of
the hotel to attract corporate clientele; it shows that management can successfully project
sound tactics of adaptation to the leisure segment as well as responding to peaks and dips in
seaonality. As HolidayInn6’s quality index is the highest among competitors in year 3 with
an index of 42.29 (Appendix 11.4.3), it affects average occupancy which, by the end of year
3, was 70.30% (Appendix 11.3.6). It can be seen from rooms analysis that corporate sector
was the major consumer of the rooms sold during weekdays with 72% occupancy (Appendix
11.3.5.1) and leisure sector is dominating in rooms sold during weekend with 48% occupancy
(Appendix 11.3.5).
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3. Site, Area and Hotel Website Evaluation
3.1 Location, Space and Area
HolidayInn6 hotel is located in Nice, a port city located in the South of France at the Côte
d’Azure, the French part of the Mediterranean Sea (Appendix 11.1.1). It has a population of
145,000 residents and with its sheltered location it is one of the warmest cities in France even
during winter months. The hotel’s location has a view on the “Promenade des Anglais”, the
main coastal road which also leads directly to the closest airport, only 7 km away (Appendix
11.1.1). When the hotel was built in the 1950s, coastal trips as well as off-season breaks grew
in attractiveness to leisure and business travelers. At this time, due to the growing interest,
other hotels also entered the market (Appendix 11.1.3 – 11.1.4). Nice has convenient
transportation with its airport being one of the biggest air transportation hubs in Europe and a
high-speed rail service operating to and from Paris. (nicefrance.ca, 2011).
3.2 Hotel Website
The divisions below will provide a thorough clarification of the decisions involved in
creating the hotel’s website. Three major areas will be looked at, in order to elucidate the
purpose and meaning behind the design that was chosen for HolidayInn6.
3.2.1Design Principles
Following the statements of Williams and Tollett (2006) there are four principles that are the
fundamental features of every piece of design: alignment, repetition, contrast and proximity.
They make the difference between a website that will hurt or bore the eyes and one that looks
fresh, well-ordered and professional. The alignment of a website can be left, right or centered.
The key to a well-structured website is to choose one alignment and keep it throughout the all
pages (Williams and Tollett, 2006). Repetition refers to a visual piece or element being
repeated on every page of the website, e.g. the hotel logo or the color schemes. This creates a
relation between each page and binds them together to form a whole, organized and over
viewable website (Bennett, 2005).
Gary et al. (2009) argues that the contrast is of importance for a website to catch the viewers’
attention by implementing a color choice and text styles that are clear and set themselves off
from the background clearly. The proximity on a website denotes that two items or sections
that are put close to each other are supposed to belong together. With these four basic
principles in mind, HolidayInn6 has designed the website’s layout and content. The repetition
has been implemented by keeping the same background and alignment of text and pictures as
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well as the link bar on every page. The proximity has been kept by keeping the picture close
to its relevant text and having the main information in a separate box right next to the link
bar. The alignment of information on the website is left sided and through the use of light and
dark colors, the pictures and text formats give a strong contrast to attract the viewer’s
attention.
3.2.2 Structure and Content
As Williams and Tollett (2006) wrote, it is important to consider the web audience, in other
words, the targeted clients when planning and building a website. To gain the customers
attention and make our hotel as attractive as it can be through online marketing, HolidayInn6
has created a website structure that is simultaneously elegant and modern as well as easy to
use and organized.
To ease understanding of the website, the pages have been made available in the three most
commonly spoken languages of the EU: English, French and German. (ECM, 2010)
(Appendix 11.2.1 – 11.2.6) The left side holds the main body with vivid colored pictures
and/or text. To the right of the main body, the navigation bar is easy to use and over
viewable, consisting of the main links such as rooms, restaurant, events and reservation along
with extra features such as a photo gallery.(Appendix 11.2.1 – 11.2.6)
The contact details and career link located at the bottom of the navigation bar gives the
viewer the chance to get in touch with the staff of our hotel for any inquiries or to view
available positions in our hotel as we strive to give rising hoteliers the chance to improve
their experiences as part of our team.
3.2.3 Colour Scheme
As Davis (2008) said, color is essential to having a good design as it can raise the mood, gain
quick attention or be used to recognize a product. The choice of colors on our pages were
dependent on the meaning and mood that is conveyed by them. For our main color, the
background which was the same on every page, we decided to use brown tones because the
color represents simplicity, friendliness and dependability, which are feelings we would like
our customers to connect with our hotel. The color also radiates warmth and is neutral.
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4. Supply, Demand and Competitive Considerations
4.1 Past Occupancy Trends
By looking at the past occupancy trends of HolidayInn6, an increase in overall occupancy
percentage can be seen as it rose from 50.99% in Year1 to 70.30% in Year3 (Appendix 11.4.1
– 11.4.3). This growth can be related to the simultaneous increase in market share from
9.73% after Year1 up to 13.06% after Year3 as well as the decrease in the daily rate from $
103.51 in Year1 to $ 101.07 in Year3. Though in Year2 the hotel had a slight increase in its
daily rate to $ 104.26, the overall occupancy for the same year had an increase of 8.75% to
59.74% (Appendix 11.4.1 – 11.4.3).
4.2 Hotels Currently Serving the Local Market
There are six hotels located in the same area and competing with HolidayInn6 (Appendix
11.3.8). Nevertheless, HolidayInn6 is ranked highest on an overall review of performances
after Year3. Its strongest competitor, Sol Melia, has stayed behind with 1.42% of market
share in Year3 compared to HolidayInn6 (Appendix 11.4.3). The amenities accessible in the
hotel are similar for all competitors yet the competition has not been able to present strongly
on the market which can be seen in the ranking where HolidayInn6 remained on first place in
years 1 and 3, with a minor downfall to second rank in Year2 (Appendix 11.4.1 – 11.4.3).
4.3 Competitive Information of the Key Competitors
Regarding the RevPAR (Revenue per Available Room) the two strongest competitors to
HolidayInn6 are SolMelia closely followed by Radisson. SolMelia is laid only $ 4.15 lower
from HolidayInn6s RevPAR of $71.06 while team 2 is $ 8.81 lower, at the end of Year3
(Appendix 11.4.3). HolidayInn6 also has the highest percentage when it comes to Staff and
Guest satisfaction at the end of Year3. The hotel is leading with 80% staff and 75% guest
satisfaction, followed by SolMelia with 70% guest satisfaction and Radisson with a very
close 79% in staff satisfaction (Appendix 11.4.3).
4.4 Supply and Demand Analysis
The high demand by HolidayInn's target market is shown through the constant increase in
overall occupancy from year 1 to 3 (Appendix 11.4.1 - 11.4.3). It can be expected that the
demand will increase further throughout the upcoming years as the hotel will gain more
market presence and add extra facilities .
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5: Marketing Strategy
5.1: Desired Clients and Market Potential
It can been seen in last three years that Holiday Inn6 has positioned itself as a corporate hotel
because there is always a higher occupancy in weekday rooms (93.5%) than weekend rooms
(39.4%) in Year3(Appendix 11.6.18). In respect to future marketing plans and to maximize
Holiday Inn6’s profitability, management will strategize to broaden its target market and will
include leisure sector to sell its weekend rooms and raise its room occupancy during weekend
(Pickton & Broderick, 2005). In upcoming years, according to projections, it is clear that
there will be an increase in corporate guests. The increase will provide a chance of huge
financial growth. Other than business sector, management will target weddings and social
events during weekends to utilize conference rooms to get full benefits out of them. In
addition to Rooms Department, restaurant at property has gained popularity and became one
of the most frequented dining venues (Appendix 11.1.8).
5.2: Sales and Sales Actions
Throughout the three years, with the help of on-going refurbishments, Holiday Inn6 has
determined to focus on pricing policy, restaurant and bar and implementation of extra
facilities such as concierge, in-room utilities and complementary items to maximize its profits
by increasing sales. Even though the hotel is ranked first in guest satisfaction survey, its
average room rate is not the highest compared to the rest of the competitors at the end of
Year3 (Appendix 11.4.2-11.4.4). This is the reason why Holiday Inn6’s average occupancy
is the highest among all competitors.
As described by Trehan & Trehan (2007), sales and sales actions are apprehensive with
selection of best substitute among the diverse available substitutes. Due to better quality of
menu products different suppliers were tried out during the three years (Appendix 11.3.2-
11.3.4). Finally one type of menu and the best supplier were selected in Year2 to maintain
services and give best services and quality with consistency. With all the enhancements done
during the period the price of the menu was increased by only $6.50. Likewise liquor prices
were changed to Level2 and Level3. The best pricing level was level 2, so that is why during
all the period liquor prices were kept at Level2 (Appendix 11.3.2-11.3.4). This increase in
prices in food and beverages did not affect negatively the F&B sales. Au contraire,
departmental contribution towards total net income increased from 39.9% in Year1 to 43.9%
Year3 in Food & Beverage Departmental Income Statements (Appendix 11.4.4-11.4.6), along
with receiving appraisals in Year2 and Year3 (Appendix 11.1.8-11.1.9).
12
5.3: Advertisement and Promotional Tactics
It is crucial to make major decisions before implementing the actual advertising plan: set the
objectives, the message to be delivered, budgets, and the adverting campaign’s evaluation
(Kotler et al., 2003). Throughout the three years Holiday Inn6’s management has reinforced
its competitiveness as a business hotel to draw more attention of the targeted segments, which
was done through adapting marketing tactics and tolls. The amount spent on advertising was
calculated according to the situation, period of the year and requirements (Appendix 11.3.10
& 11.3.2-11.3.4, Kotler et al., 2010). The media of advertising were selected judging by
efficiency and effectiveness to the targeted segment of the market (Appendix 11.3.1).
Together with tactics previously mentioned, direct mail, telemarketing and website have been
applied to successfully attain corporate sector’s guests. The success of Holiday Inn6’s
advertising and promotion can be seen from the enhancement in public awareness index from
Year1 to Year3 which increased gradually from 36.4% to 46.8% (Appendix 11.4.7-11.4.9).
13
6. Proposed Extension of Facilities and Services
6.1 General Concept and Changes needed
Analyzing the overall performance for the last 3 years, the management has agreed on the
fact that HolidayInn6 has achieved its projected targets and has enough potential to progress
and expand in the market. In the conditions of growing competition HolidayInn6 has faced a
need in extending its facilities to conform to the targeted market segment- corporate clients.
Therefore there were two projects analyzed on the presence of such criteria as suitability,
profitability, stability and sustainability.
6.2 Proposed Future Extension
The accepted project provides space for sustainable growth in overall activity and is
considered to be the most effective and suitable area for investment. The project implies the
construction of a conference centre and an extension of 100 rooms. Moreover, the project
presumes an addition of a business centre and an upgrade of the car parking. The augmenting
need of corporate segment in conferencing facilities is the reason for construction of the
conference centre. An extension of rooms is necessary for accommodating the increased flow
of corporate clients for the future years, whereas business centre and parking area will add
benefits to business customers, room sales along with adding value to HolidayInn6’s services.
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7. Financial Assessment, Projections & Viability
7.1 Trend Analysis
Looking at the trend analysis conducted on the financial statements of HolidayInn6, the
progression since the change of management is apparent (Appendices 11.6.1. – 11.6.6.).
Despite the decreases in year 2 that can be attributed to major capital expenditures,
HolidayInn6 was able to regain a healthy cash figure in the following year.
7.2 Ratio Analysis
In order to more clearly illustrate the financial position of HolidayInn6, several ratios have
been carried out (Appendices 11.6.7. – 11.6.20.) and they include:
Liquidity:
- Current Ratio
Solvency:
- Debt-Equity Ratio
Profitability:
- Profit Margin Ratio
- Gross Operating Profit Ratio
- ROCE
Activity:
- Occupancy Percentage
- Rooms Market Share
Gearing Ratio.
From the ration analysis, it can be seen that the performance of HolidayInn6 is on the incline
with only the Current Ratio & Debt-Equity ratio, showing slight decreases in year 2 due to
the capital expenditure (Appendices 11.6.13 – 11.6.14). Both ratios show improvements in
year 3 however. The decrease in the profit margin ratio can be attributed to more
refurbishments carried out during year 3, as well as an increases in total other direct costs,
fixed costs and business tax(Appendices 11.6.1 – 11.6.6.). These increases however, do not
15
impact the financial stability of the hotel as they only account for a 1% decrease in the ROCE
(Appendix .11.6.17).
7.3 Capital Investment Required & Financing
The goal of the HolidayInn6’s management is to establish the hotel as the top hotel for
weekday business travellers and it is in accordance with this goal that most strategic
management decisions have been carried out over the past 3 years.
It is for this reason that HolidayInn6 has decided to choose the proposed project A, which
combines the additions of a conference room, extra rooms, a business centre and a parking
area. It is our belief that these additions will be invaluable to our target market and will
translate into higher profit margins for our hotel.
In order to carry out these infrastructural expansions, the management requires an investment
of $1,300,000 (Appendix 11.7.1), $800,000 of which will be financed through a bank loan
and $500,000 to be invested by shareholders. HolidayInn6 is prepared to offer shareholders
an annual rate of 6%, which is 4.75% higher than the current French bank rate of 1.25%
(Trade economics, 2011) with a loan repayment period of 36 months. Stemming from this,
HolidayInn6 will make the following capital payments:
- Investors: $ 22,653.06/ monthly ( Appendix 11.7.4)
- Bank: $ 15,210.97/ monthly (Appendix 11.7.3)
- Outstanding Loan: $ 8298.92/ monthly (Appendix 11.7.2)
The annual depreciation charge for each of the new facilities has calculated as follows:
- Conference Centre: $19,000 (3.8%) / annually (Appendix 11.7.5.)
- Parking Area: $2,750 (3.33%) / annually ( Appendix 11.7.7)
- 100 Guest Rooms: $70,875 (2.25%) / annually (2.25% of Rooms Construction
Cost)
The rooms are depreciated using the French property depreciation rate of 2.25% for property
being depreciated over a period longer than 6 years (Deloitte, 2010)
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7.4 Operations and Capital Budgeting
The pro-forma financial statements were forecasted using the naïve method in conjunction
with the growth trends experienced from year 0 to year 4 in order to apply a level of
credibility to the calculations. A pertinent growth trend used in the forecasting is the
occupancy percentage as it directly affects the revenues to be expected and the costs that will
be incurred in the (estimated) revenue generation (Burton & Bragg, 2001).
In regards to the operational budget, it can be seen that the estimates reflect a continuous
growth pattern (Appendix 11.8.2.) with the room occupancy projected to increase from
60.23% in year 4 to 90.23% in year 8; the F&B revenue projected to increase by 50% from
year 4 to year 8(Appendix 11.8.2) and the average (weekday and weekend) conference
centre utilization projected to increase over the 4 years, from a revenue of $904,800.00 (year
4) to $2,036,320.00 (Year 8) (Appendix 11.8.2.)
7.5 Cost - Benefit Analysis
In order to appraise the viability of the proposed extension project, methods of investment
appraisal have been carried out:
- Payback Period ( Appendix 11.9.1)
- Net Present Value ( Appendix 11.9.2)
- Internal Rate of Return ( Appendix 11.9.3)
The payback period of 2.07 years is shorter than the forecast of 3 years(Appendix 11.9.1,
Appendix 11.7.4); however it is important for the concept of prudence in accounting to
allow for a safety level, which is provided by the forecast of 3 years. The NPV and the IRR,
which according to (Schmidgall 2006) is a better of the value of an investment project as
they consider the time value of money and the cash flows to be generated by the project;
both back up the result of the Payback Period i.e. they support the decision to invest in the
project. The NPV is greater than zero and the IRR greater than the interest rate given to
investors.
17
7.6 Evaluation of projections
According to the evaluations carried out, the management believes that the project will
contribute substantially to overall profitability of HolidayInn6. It is a vital step to be taken for
hotel’s progression towards domination on the corporate market segment.
18
8 Sensitivity Analysis
As a safety measure, HolidayInn6 has carried out an analysis, the purpose of which was to
define how sensitive are the operations if the hotel fails to meet its occupancy objectives
(Appendix 11.10). Taking Year 8 Rooms Departmental Income Statement (Appendix
11.10.1) the management has found out that decreases in occupancy do not affect negatively
the net income, thus approving the business to be capable of withstanding drastic decreases in
activity.
19
9. Conclusion & Recommendations
In order for HolidayInn6 to capitalise on the popularity of conferences in the area of both in
and out of season (Appendix 11.1.4) and expand further into its target market of corporate
clientele it is essential for the hotel to be revitalised to match the facilities provided by the
competitors such as The Palace Hotel, The Park Hotel & The Mariner who all operate on
much the same scale as HolidayInn6 in terms of number of rooms, but who unlike
HolidayInn6 have the added value of providing their customers with conference facilities and
business services. (Hots Background Document, p.8)
As can be seen from the past financial statements to the pro-forma statements and investment
appraisal calculations (Appendix 11.6.1 – 11.8.15), HolidayInn6 is a hotel that shows not
only potential but has translated and can continue to translate this potential into increased
earnings and an continuously progressive occupancy percentage.
Accordingly, the management therefore recommends to the shareholders to invest into the
proposed expansion project.
20
10 References:
Bennett, J. G. 2005. Design Fundamentals for New Media. Florida: Thomson
Cengage Learning.
Burton, J. E. & Bragg, M. S. (2001) Accounting and Fincancefor your
SmallBusiness. 2nd ed. John Wiley & Sons Inc.
Davis G., 2008. The Designer's Toolkit - 1000 Colors: Thousands of Color
Combinations. San Francisco: Chronicle Books.
Deloitte. (2010). International Tax and Business Guide: France. Deloitte.
European Commission Multilingualism. (2010). EU Languages and Language
Policies.[online] Available at: <http://ec.europa.eu/education/languages/languages-of-
europe/index_en.htm> [Accessed 05 March 2011]
Kolter, P; Bown, J.T; and Makens, J. C. (2003), Marketing for Hospitality and
Tourism, 3rd
Ed., New Jersey: Pearson Prentice Hall.
Gary, B. et al., 2009.Web Designs: Introductory Concepts and Techniques. USA:
Cengage Learning.
Kotler, P; Bowen, J. T; and Makens, J. C. (2010), Marketing for Hospitality and
Tourism, 5th
Ed., New Jersey: Pearson Prentice Hall.
Pickton, D. and Broderick, A., (2005), Integrated marketing communications, 2nd
Ed.,
England: Prentice Hall.
Schmidgall, R. S., (2006), Hospitality Industry Managerial Accounting,6th
ed.
Michigan: American Hotel & Lodging Educational Institute
Trading Economics (2011) TRADING ECONOMICS: FRANCE INTEREST RATE
[online]. Available at: <http://www.tradingeconomics.com/france/interest-rate>
[Accessed 2 May 2011]
Trehan, M., & Trehan, R. (2007). Advertising and Sales Management. New Delhi: V.
K Enterprises.
Williams, R; and Tollett, J. 2006. The Non-Designer’s Web Book, 3rd
Ed., Berkley:
Peachpit Press.
21
11 Appendices
11.1 Appendix: General Information of Holiday Inn6
11.1.1 Appendix: Nice –Space, Location and Area
Source: Google Maps (2011) Nice, France [Online] Available through: <
http://maps.google.ch> [Accessed on: 20 April 2011]
Source: Google Maps (2011) Holiday Inn, nice, France [Online] Available through:
<http://maps.google.ch> [Accessed on: 20 April 2011]
22
11.1.2 Appendix Nice, Ambiance and Scenery
1st Picture: Panoramic
view of Coastal line and
the city of Nice, France.
Source: Self Captured
(July, 2010)
2nd
Picture: A beautiful
view of beach on a sunny
day in Nice, France$
Source: Deviant Art (2011)
Available at:
http://browse.deviantart.com/?q=nice, beach france&order=9&offset=24#/d1dt541 [Accessed
on: 20 April 2011]
3rd
Picture: View of the Beach from Holiday Inn
Resort, Nice, France.
Source: Self Captured.
23
11.1.3 Appendix: Hotel Location
Source: HOTS Background Information, Spring 2011 pp.4
24
11.1.4 Appendix Economical Background of the Hotel
Hotel Economic Background
1970's – Tourism Growth
In the 1970's, increased affluence and the desire for regional and national travel produced a boom for
this seaside town as it developed into a popular destination for coastal vacations and off-season
breaks. This influx encouraged the establishment of annual tourism and recreational events, which, in
turn attracted increased levels of tourism. Many hotels entered the market during this period offering
traditional facilities in well-constructed buildings and conveniently situated for both the sea and the
town.
1980's – Small Industry Growth
The town grew to a city of 200,000 residents and in the 1980's the city economy began to diversify
into service and soft industry, which generated a small market for commercial room nights. The
combination of regional tourist events and commercial growth prompted one of the established hotels
to build an excellent conference centre. With a diversified economy, a seafront location, and good
hotel facilities, the city seemed to be in a strong position.
1990's – Decline
Unexpectedly, in the late 1980's the tourism market in the city began to soften as tourists looked for
new venues and new types of tourist experiences. There was also public criticism of the city's hotel
facilities, which had not kept up with the times. By 1995, only 50% of the previous levels of tourism
remained and this was largely due to the annual tourist events which had become very well
established. No longer a boomtown, and short on tax funds to maintain its infrastructure, the town was
also losing its appeal for small industry relocation as well.
2000's – Revitalisation Plan
In the late 1990's, many companies were looking to relocate to areas that offered lower commercial
costs, lower taxes, and a higher quality of life. The local authority decided to offer an exceptionally
favorable economic relocation package to small and medium size firms. This plan has been very
successful and many companies have relocated or have committed to relocate. The council has
planned to use tax income from these commercial developments to re-establish the seafront facilities
to meet the highest expectations of modern tourists.
Up to this point, there has not been a great deal of interest from the major hotel companies, but many
smaller hotel developer/operators have been attracted to the town looking for low cost property. They
have been to purchase older hotel properties at a cheap price, demolish them, and replace them with
modern facilities. However, while the town council has been keen to support redevelopment, they
have insisted on one condition - the old hotels must be refurbished, not replaced.
Source: HOTS Background Information, Spring 2011 pp.5
25
11.1.5 Appendix: Hotel Facilities
Source: HOTS Background Information, Spring 2011 pp.7
26
11.1.6 Appendix: Current facilities’ condition
CURRENT CONDITION OF FACILITIES: (rated on a scale of 1, very poor, to 100%,
Excellent)
Facility Rating (%)
Rooms 65.5
Bar 98.4
Restaurant 80.5
Front Desk 79.9
Source: HOTS Market Research: Business Advice by 3rd
Year December.
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Rooms Bar Resturant Front Desk
Facility Rating
27
11.1.7 Appendix: In Room Entertainment and Complimentary Items
Source: HOTS User Guide pp.25
28
11.1.8 Appendix: Comments from Monthly Indicator Report Year 1 to Year 2
Most Recent Customer Comments
You never see the same member of
staff twice
There is always a friendly face
No one seems to be in charge There are always plenty of staff
around to serve you
Everywhere is clean and in a good
state of repair
The hotel has a good image
I will always go back I have been occasionally
Excellent food - well done
Source: Monthly Indicator Report December Year2
Most Recent Customer Comments
You never see the same member of
staff twice
There is always a friendly face
I never see my manager There are always plenty of staff
around to serve you
Everywhere is clean and in a good
state of repair
You often hear folk talk of it
They provide value for money I hear it is the most successful hotel in
the area
Not many people go there The best restaurant in town
Source: Monthly Indicator Report June Year 3
Most Recent Customer Comments
You never see the same member of staff
twice
There is always a friendly
face
No one seems to be in charge The service is excellent
A very comfortable hotel - a home from
home
You often hear folk talk of it
I will always go back I prefer to go somewhere else
Excellent food - well done
Source: Monthly Indicator Report December Year 3
29
11.1.9 Appendix: Guest Comments: Week 82 to week 149
Week Comments
149 The hotel has a great reputation
144 It's good value all year round
137 It's so quiet there, it’s embarrassing
120 Not many people go there
113 They provide value for money
105 The hotel has been refurbished to a high standard
101 I am proud to be a member of this team
96 There is no ownership - nobody wants to know
94 Everywhere is clean and in a good state of repair
92 hear it is the most successful hotel in the area
89 It's so quiet there, it’s embarrassing
82 You often hear folk talk of it
Source: HOTS Simulation
30
11.2 Website Layout
11.2.1 Appendix: Homepage
31
11.2.2 Appendix: Reservation
32
11.2.3 Appendix: Photo Gallery
33
11.2.4 Appendix: Rooms
34
11.2.5 Appendix: Contact Us
35
11.2.6 Appendix: Privacy Policy
36
11.3 Marketing Analysis
11.3.1 Appendix: Advertising Media and their Effectiveness
Source: Self created
Weekday
Room
Weekend
Room
Meal Beverage Conference Tours Weddings
Etc.
Local
Newspaper
10.00 10.00 50.00 50.00 10.00 10.00 40.00
Local Radio 20.00 15.00 50.00 50.00 20.00 10.00 40.00
Sunday
Newspaper
35.00 25.00 10.00 5.00 30.00 15.00 15.00
Business Press 50.00 50.00 10.00 5.00 40.00 15.00 20.00
Posters, and
Point of Sale
10.00 15.00 30.00 35.00 10.00 5.00 10.00
Direct Mail 30.00 30.00 20.00 20.00 35.00 35.00 30.00
Direct Sales
Force
20.00 20.00 40.00 25.00 40.00 35.00 35.00
Telemarketing
& Web
40.00 40.00 20.00 10.00 40.00 20.00 25.00
Local Visitor
Guide
20.00 30.00 40.00 50.00 5.00 5.00 5.00
PR Agency 55.00 55.00 55.00 35.00 45.00 30.00 25.00
37
11.3.2 Appendix: Management decisions Year-1
January Price
General Decisions:
Advertising:
Training:8$-10$
Restaurant= Level 2
20 Bedrooms= Level 2
Supplier= Choice 2
Menu= Type 2
Weekend= 2500$
Weekday=3000$
Meals= 24.50 $
Liquor Price= Level 2
February Price
General Decisions:
Advertising:
Bar = Level 2
In Room Entertainment= Level 3
Room Service
Training: 8$-10$
Tours=2000$
Weekday=8000$
Weekend=3000$
Local visitor Guide=200$
Corp Wd=120$
Corp We=110$
Leis Wd=100$
Leis We= 95$
If occupancy would be $less than
60% occupancy, quote price 95%
normal
March Price
General Decisions:
Advertising:
Front desk= Level 2
10 rooms= Level 2
Training= 10$-14$
Staff Changing:
Hotel Services decreased by4 to 18
Front Office increased by2 to 12
No Change
Liquor= Level 3
Meals=25.00$
Tours=70$
April Price
General Decisions:
Advertising:
Pay level of Hotel Services, F&B,
and Front Desk increased to level 2
Training= 10$-15$
Meals=1000$
Corp Wd=111.50$
Corp We=97.00$
Leis Wd=97.00$
Leis We= 100.50$
Liquor= Level 2
May Price
General Decisions:
Advertising:
No change
Meals=1500$
No change
June Price
General Decisions:
Advertising:
Concierge
Hotel services Staff increased by 3
to 21
No Change
Leis Wd=116.50$
Meals=27$
38
July Price
General Decisions:
Advertising:
Complimentary Items=Level 3
Weekday=19,800$
Weekend=14,750$
Liquor= 2000$
Corp Wd= 100.50$
Leis Wd= 115.50$
Leis We= 110.50$
Tours= 80$
August Price
General Decisions:
Advertising:
Training: 11$-15$
Staff Changing:
Department Head increased by 1 to
7
F&B staff increased by 8 to 25
Hotel Services staff increased by 4
to 25
No Change
No Change
September Price
General Decisions:
Advertising:
25 rooms= Level 2
Training= 12$-16$
Supplier= Choice 3
Menu= Type 3
Meals= 5000$
Hotel Marketing Consortium /
Website
No Change
October Price
General Decisions:
Advertising:
Training= 15$-19$
10 Rooms= Level 2
No Change
Corp Wd=97.50$
Corp We=97.50$
Tours=70$
November Price
General Decisions:
Advertising:
Training 13$-18$
Staff Changing:
F&B decreased by 5 to 20
Front Office decreased by 2 to 10
Hotel Services decreased by 3 to
22
No Change
Corp Wd= 111.50$
Leis Wd= 116.50$
Leis We= 97$
Tours= 70$
December Price
General Decisions:
Advertising:
Training decreased to 0$
Weekday =14,800$
Weekend=14,800$
No Change
Source: Self Created
39
11.3.3 Appendix: Management decisions Year-2
January Price
General Decisions:
Advertising:
Supplier= Choice 2
Menu= Type 2
No Change
No Change
February Price
General Decisions:
Advertising:
Front Office Staff increased by 2 to
12
Weekday=3300$
Weekend=2000$
Liquor=1500$
If occupancy would be less than
45 % - price 90%
If occupancy would be less than
50% - price 95%
March Price
General Decisions:
Advertising:
No Change
Meal=1500$
No Change
April Price
General Decisions:
Advertising:
No Change
No Change
No Change
May Price
General Decisions:
Advertising:
No change
Weekday=9900$
Weekend=4500$
Meals=3300$
Corp Wd=118$
If occupancy would be less than 45
% - price 100% If occupancy would be less than
50 % - price 100%
June Price
General Decisions:
Advertising:
No Change
Meals=900$
Corp Wd= 110.00$
Corp We= 105.00$
Leis Wd= 100.00$
40
July Price
General Decisions:
Advertising:
40 Rooms= Level 3
Training= 10 $
Guest Comfort= Level 4
Weekday=9,900$
Weekend=9,900$
Liquor=1,600$
No Change
August Price
General Decisions:
Advertising:
40 Rooms = Level 2
Staff Changing:
Hotel Services decreased by 2 to
20
Department heads decreased by 1
to 6
No Change
No Change
September Price
General Decisions:
Advertising:
40 Rooms= level 3
Staff Pay= Level 3
Liquor=1600$
No Change
October Price
General Decisions:
Advertising
40 Rooms= Level 3
Restaurant= Level 3
Front Desk= Level 3
No Change
If occupancy would be below 55%
- Price 95 %
If occupancy would be below 60%
- Price 97 %
If occupancy would be above 70%
- Price 105 %
November Price
General Decisions:
Advertising:
40 Rooms = Level 2
Training 18$-20$
Meals= 1600$
No Change
December Price
General Decisions:
Advertising:
40 Rooms= Level 3
Bar= Level 3
Training= 28$ - 30$
Changing in Staff:
Department Head increased by 1 to
7
No Change
No Change
Source: Self Created
41
11.3.4 Appendix: Management decisions Year-3
January Price
General Decisions:
Advertising:
Training=18$ to 20$
No Change
No Change
February Price
General Decisions:
Advertising:
No Change
No Change
No Change
March Price
General Decisions:
Advertising:
40 Rooms= Level 2
Training= 8$-10$
No Change
Corp Wd=102.50$
Corp We=99.00$
Leis Wd=115.0$
Leis We= 112.50$
Tours= 65$
April Price
General Decisions:
Advertising:
20 Rooms= Level 2
Tour=1600$
Local Visitor’s Guide=250$
Tours=70$
May Price
General Decisions:
Advertising:
Training=10$-20$
No Change
No Change
June Price
General Decisions:
Advertising:
Restaurant=Level 3
Front Desk= Level 3
Liquor=1600$
No Change
42
July Price
General Decisions:
Advertising:
25 Room= Level 2
No Change
No Change
August Price
General Decisions:
Advertising:
20 Rooms = Level 2
Training=8$-10$
Weekday=8,800$
Weekend=8,800$
Meals=27.50$
September Price
General Decisions:
Advertising:
20 Rooms= level 2
No Change
No Change
October Price
General Decisions:
Advertising
20 Rooms= Level 2
Paid off 100,000 $ of the
loan
No Change
No Change
November Price
General Decisions:
Advertising:
No Changes
No Changes
No Change
December Price
General Decisions:
Advertising:
20 Rooms= Level 2
Bar= Level 3
Paid off 120,905 $ of the
loan
Meals=2,000$
No Change
Source: Self Created
43
11.3.5 Appendix: Weekend VS. Weekday: Year 3
11.3.5.1 Appendix: Weekday Rooms analysis
Source: self Created
72%
21%
7%
Weekday
Corporate
Leisure
Tours
Weekday Rooms Analysis
Year 3
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Total Weekday 2966 5053 4077 4006 5133 4183 4107 5128 3994 3758 4973 2744
Corporate 1854 4628 2923 1680 1716 2230 3040 4206 2870 3162 4898 2565
Leisure 844 317 856 1714 2542 1416 776 663 830 446 55 134
Tours 268 108 298 612 875 537 291 259 294 150 20 45
Corporate 63% 92% 72% 42% 33% 53% 74% 82% 72% 84% 98% 93%
Leisure 28% 6% 21% 43% 50% 34% 19% 13% 21% 12% 1% 5%
Tours 9% 2% 7% 15% 17% 13% 7% 5% 7% 4% 0% 2%
Average 72% Corporate 21% Leisure 7% Tours
44
11.3.5.2 Appendix: Weekend Rooms Analysis
Source: Self created
32%
48%
20%
Weekend
Corporate
Leisure
Tours
Weekend Rooms Analysis
Total weekend 1218 900 1414 2441 3365 2144 1324 1312 1324 856 558 413
Corporate 188 495 313 165 159 232 312 441 282 330 486 239
Leisure 743 288 780 1620 2269 1337 700 596 728 367 52 127
Tours 287 117 321 656 937 575 312 275 314 159 20 47
Corporate 15% 55% 22% 7% 5% 11% 24% 34% 21% 39% 87% 58%
Leisure 61% 32% 55% 66% 67% 62% 53% 45% 55% 43% 9% 31%
Tours 24% 13% 23% 27% 28% 27% 24% 21% 24% 19% 4% 11%
Average 32% Corporate 48% Leisure 20% Tours
45
11.3.6 Appendix: Market Segments
Source: Self created
62%
28%
10%
Market Segments
Corporate
Leisure
Tours
Market Segments
Year3
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Total Guests 4184 5953 5491 6447 8498 6327 5431 6440 5318 4614 5531 3157
Corporate 2042 5123 3236 1845 1875 2462 3352 4647 3152 3492 5384 2804
Leisure 1587 605 1636 3334 4811 2753 1476 1259 1558 813 107 261
Tours 555 225 619 1268 1812 1112 603 534 608 309 40 92
Corporate 49% 86% 59% 29% 22% 39% 62% 72% 59% 76% 97% 89%
Leisure 38% 10% 30% 52% 57% 44% 27% 20% 29% 18% 2% 8%
Tours 13% 4% 11% 20% 21% 18% 11% 8% 11% 7% 1% 3%
Average 62% Corporate 28% Leisure 10% Tours
46
11.3.7 Appendix: Average Room Rate vs. Room Occupancy for Year 3
Source: Self Created; HOTS Monthly Indicator Jan-Dec Year 3
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
Average Room Rate
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Room Occupancy
47
11.3.8 Appendix Competitors
1. Holiday Inn 6
2. Möve n Pick 7
3. Radisson 8
4. Sol Melia 9
5. Westin 10
6. Palace Hotel
7. The Park Hotel
8. The Mainer
48
11.3.9 Appendix: Competitor Status Report December Year 3
COMPETITOR STATUS REPORT
Information for the last week of December Year 3
Teams 1 2 3 4 5
Refurbishment
Rooms Good Excellent Good Average Poor
Bar Excellent Excellent Excellent Excellent Excellent
Restaurant Excellent Excellent Excellent Good Excellent
Front Desk Excellent Excellent Excellent Excellent Excellent
Extra Services & Facility Status
Concierge
Room/Lounge Service
In-Room Entertainment Level 4 Level 4 Level 4 Level 4 Level 3
Complimentary Items Level 4 Level 4 Level 4 Level 4 Level 3
Room Mini-Bar
Internet Access
Quick Check In/Out
Business Services
Extra Car Parking
Hotel Shop
Health Club
Conference Facility
Second Bar
Room Extension
Restaurant Extension
Teams 1 2 3 4 5
Source: HOTS Competitor status Report December Year 3
49
11.3.10 Appendix: Local Diary Events
Source: HOTS Background Information pp.10
50
11.4 Performance Indicator from Year1 to Year3
11.4.1 Appendix: HOTS Scorecard Year 1
HOTS SCORECARD
COMPARISON OF TEAM RESULTS End of Year 1
KEY INDICATORS
TEAM1 TEAM2 TEAM3 TEAM4 TEAM5
Average Rank Average Rank Average Rank Average Rank Average Rank
OPERATIONS:
REVPAR $ 52.78 1 30.01 4 34.58 3 46.65 2 26.79 5
Gross Operating Profit (IBFC %) 26.31 2 19.96 4 22.60 3 29.92 1 8.22 5
Rooms Market Share % 9.73 1 5.94 4 9.03 2 8.79 3 5.41 5
OWNER:
ROCE % - Pretax profit/Capital Employed 15.15 1 0.99 4 2.81 3 15.13 1 -6.66 5
GUEST:
Guest Satisfaction Survey (%) 60 1 49 4 53 3 58 2 47 5
STAFF:
Staff Satisfaction survey (%) 59 2 58 3 55 4 66 1 46 5
OVERALL RANKING 1 4 3 2 5
PERFORMANCE AT A GLANCE TEAM1 TEAM2 TEAM3 TEAM4 TEAM5
FINANCES:
Total Revenue ($) 8,225,652 4,527,804 4,650,075 7,252,722 4,047,461
Room Revenue ($) 4,789,432 2,729,101 3,143,133 4,223,041 2,431,174
Income Before Fixed Costs, IBFC ($) 2,163,876 903,845 1,050,848 2,170,305 332,697
Income Before Fixed Costs (IBFC %) 26.3 20.0 22.6 29.9 8.2
Fixed Property & Equipment ($) 7,466,375 7,466,375 7,466,375 7,497,615 7,466,375
Working Capital ($) 1,376,646 493,602 597,527 1,403,127 -54,709
EBITDA (earnings before interest, taxes &
depn)($)
1,753,583 493,552 640,555 1,760,012 -77,596
Profit before Taxes ($) 1,340,002 78,510 226,974 1,346,301 -493,354
Owners' Equity ($) 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
Income Tax Rate (%) 30 30 30 30 30
Income after Taxes ($) 938,001 54,957 158,882 1,027,969 -493,354
OPERATIONS:
Average Daily rate ($) 103.51 94.24 95.04 101.36 97.28
Occupancy % 50.99 31.84 36.39 46.02 27.54
Public Awareness 36.45 23.93 34.63 31.57 25.46
Market Image Index 25.76 14.60 19.30 23.96 12.92
Hotel Quality Index 21.83 15.46 14.75 23.04 14.17
Annual Staff Turnover (%) 68.6 69.2 77.5 61.2 98.9
Rooms Available 90,744 90,942 90,884 90,527 90,734
Number of Rooms Sold 46,272 28,959 33,070 41,663 24,992
Source: HOTS Scorecard Year1
51
11.4.2 Appendix: HOTS Scorecard Year 2
HOTS SCORECARD
COMPARISON OF TEAM RESULTS End of Year 2
KEY INDICATORS TEAM1 TEAM2 TEAM3 TEAM4 TEAM5
Average Rank Average Rank Average Rank Average Rank Average Rank
OPERATIONS:
REVPAR $ 62.29 2 46.61 3 44.93 4 66.15 1 34.43 5
Gross Operating Profit (IBFC
%)
36.71 2 20.84 4 28.60 3 39.41 1 20.84 4
Rooms Market Share % 11.05 2 8.54 4 10.61 3 11.91 1 8.23 5
OWNER:
ROCE % - Pretax profit/Capital
Employed 24.83 2 8.37 4 12.42 3 28.89 1 4.62 5
GUEST:
Guest Satisfaction Survey (%) 66 1 62 3 63 3 66 2 58 5
STAFF:
Staff Satisfaction survey (%) 72 2 69 3 68 4 72 1 45 5
OVERALL RANKING 2 4 3 1 5
PERFORMANCE AT A GLANCE
Source: HOTS Scorecard Year2
TEAM1 TEAM2 TEAM3 TEAM4 TEAM5
FINANCES:
Total Revenue ($) 9,632,866 7,256,269 6,630,267 10,224,374 5,591,976
Room Revenue ($) 5,475,100 4,213,544 4,069,802 5,952,822 3,133,500
Income Before Fixed Costs, IBFC ($) 3,536,466 1,512,339 1,895,957 4,029,405 1,165,134
Income Before Fixed Costs (IBFC %) 36.7 20.8 28.6 39.4 20.8
Fixed Property & Equipment ($) 11,876,287 7,211,982 7,131,213 8,019,847 7,101,500
Working Capital ($) -1,227,208 1,195,606 1,621,640 3,080,575 622,145
EBITDA (earnings before interest, taxes & depn)($) 3,119,972 1,095,845 1,479,463 3,612,911 748,640
Profit before Taxes ($) 2,644,340 703,702 1,086,901 3,206,657 356,959
Owners' Equity ($) 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
Income Tax Rate (%) 30 30 30 30 30
Income after Taxes ($) 1,851,038 492,591 823,629 2,244,660 356,959
OPERATIONS:
Average Daily rate ($) 104.26 100.83 97.10 107.78 84.38
Occupancy % 59.74 46.22 46.27 61.38 40.81
Public Awareness 45.82 41.45 37.15 40.85 40.29
Market Image Index 42.77 29.92 30.29 41.10 24.04
Hotel Quality Index 29.39 21.72 23.00 32.21 16.46
Annual Staff Turnover (%) 57.3 59.5 59.6 57.2 102.5
Rooms Available 87,901 90,402 90,576 89,986 91,000
Number of Rooms Sold 52,516 41,788 41,914 55,233 37,135
52
11.4.3 Appendix: HOTS Scorecard Year 3
HOTS SCORECARD
COMPARISON OF TEAM RESULTS End of Year 3
KEY INDICATORS
TEAM1 TEAM2 TEAM3 TEAM4 TEAM5
Average Rank Average Rank Average Rank Average Rank Average Rank
OPERATIONS:
REVPAR $ 71.06 1 62.25 3 52.36 4 66.91 2 29.81 5
Gross Operating Profit (IBFC %) 34.01 3 34.82 2 10.28 4 42.64 1 -1.98 5
Rooms Market Share % 13.06 1 9.58 4 11.81 2 11.64 3 7.50 5
OWNER:
ROCE % - Pretax profit/Capital Employed 23.83 3 27.71 1 0.58 4 27.22 2 -13.22 5
GUEST:
Guest Satisfaction Survey(%) 75 1 68 3 65 4 70 2 60 5
STAFF:
Staff Satisfaction survey (%) 80 1 70 3 79 2 65 4 45 5
OVERALL RANKING 1 3 4 2 5
PERFORMANCE AT A GLANCE
Source: HOTS Scorecard Year3
TEAM1 TEAM2 TEAM3 TEAM4 TEAM5
FINANCES:
Total Revenue ($) 11,733,522 10,253,411 8,312,104 10,474,969 5,342,834
Room Revenue ($) 6,418,246 5,521,913 4,680,527 5,995,558 2,698,339
Income Before Fixed Costs, IBFC ($) 3,991,099 3,570,612 854,473 4,466,267 -105,824
Income Before Fixed Costs (IBFC %) 34.0 34.8 10.3 42.6 -2.0
Fixed Property & Equipment ($) 11,452,295 10,424,809 8,026,446 9,936,093 6,782,716
Working Capital ($) 974,800 -391,060 527,569 3,143,998 26,845
EBITDA (earnings before interest, taxes & depn)($) 3,568,313 3,147,826 431,687 4,043,481 -528,610
Profit before Taxes ($) 2,961,185 2,779,857 50,021 3,560,997 -900,153
Owners' Equity ($) 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
Income Tax Rate (%) 30 30 30 30 30
Income after Taxes ($) 1,341,006 2,043,785 35,015 2,602,881 -900,153
OPERATIONS:
Average Daily rate ($) 101.07 105.62 83.34 108.35 73.99
Occupancy % 70.30 58.94 62.84 61.76 40.29
Public Awareness 46.84 47.61 43.23 42.85 41.32
Market Image Index 59.55 46.62 40.83 49.15 26.46
Hotel Quality Index 42.29 33.70 28.12 37.31 18.85
Annual Staff Turnover (%) 51.8 58.2 52.5 62.4 103.7
Rooms Available 90,327 88,701 89,383 89,600 90,509
Number of Rooms Sold 63,501 52,281 56,165 55,335 36,468
53
11.4.4 Appendix: F&B Departmental Income Statement- Year 1
DEPARTMENTAL INCOME STATEMENT - Page 2 $
Team - HolidayInn6 Year 1
FOOD & BEVERAGE DEPARTMENT
Food Revenue
Restaurant 1,258,996 59.7%
Conferences 0 0.0%
Tours 348,690 16.5%
Wedding/Social 0 0.0%
Room Service 500,903 23.8%
Total Food Revenue 2,108,589 69.2%
Beverage Revenue
Bar 938,406 100.0%
Mini-bars 0 0.0%
Total Beverage Revenue 938,406 30.8%
Total Food & Beverage Revenue 3,046,995 100%
Cost of Sales
Food 798,416 37.9%
Beverage 402,485 42.9%
Total Cost of Sales 1,200,901 39.4%
Gross Profit
Food 1,310,173 62.1%
Beverages 535,921 57.1%
Total Gross Profit 1,846,094 60.6%
Payroll and Related Expenses
Food & Beverages 485,995 15.9%
Conference & Banqueting 0 0.0%
Total Payroll and Related Expenses 485,995 15.9%
Other Direct Costs
China & Glassware 36,660 1.2%
Laundry 95,867 3.1%
Training 12,843 0.4%
Total Direct Costs 145,370 4.8%
Departmental Contribution 1,214,729 39.9%
Source: HOTS F&B Departmental Income Statement Year 1
54
11.4.5 Appendix: F&B Departmental Income Statement- Year 2
DEPARTMENTAL INCOME STATEMENT - Page 2 $
Team - HolidayInn6 Year 2
FOOD & BEVERAGE DEPARTMENT
Food Revenue
Restaurant 1,609,065 64.3%
Conferences 0 0.0%
Tours 310,105 12.4%
Wedding/Social 0 0.0%
Room Service 584,929 23.4%
Total Food Revenue 2,504,099 67.6%
Beverage Revenue
Bar 1,198,313 100.0%
Mini-bars 0 0.0%
Total Beverage Revenue 1,198,313 32.4%
Total Food & Beverage Revenue 3,702,412 100%
Cost of Sales
Food 944,896 37.7%
Beverage 515,247 43.0%
Total Cost of Sales 1,460,143 39.4%
Gross Profit
Food 1,559,203 62.3%
Beverages 683,066 57.0%
Total Gross Profit 2,242,269 60.6%
Payroll and Related Expenses
Food & Beverages 555,549 15.0%
Conference & Banqueting 0 0.0%
Total Payroll and Related Expenses 555,549 15.0%
Other Direct Costs
China & Glassware 37,458 1.0%
Laundry 97,800 2.6%
Training 13,920 0.4%
Total Direct Costs 149,178 4.0%
Departmental Contribution 1,537,542 41.5%
Source: HOTS F&B Departmental Income Statement Year 2
55
11.4.6 Appendix: F&B Departmental Income Statement- Year 2
DEPARTMENTAL INCOME STATEMENT - Page 2 $
Team - HolidayInn6 Year 3
FOOD & BEVERAGE DEPARTMENT
Food Revenue
Restaurant 2,056,388 64.9%
Conferences 0 0.0%
Tours 407,122 12.9%
Wedding/Social 0 0.0%
Room Service 703,781 22.2%
Total Food Revenue 3,167,291 66.6%
Beverage Revenue
Bar 1,589,545 100.0%
Mini-bars 0 0.0%
Total Beverage Revenue 1,589,545 33.4%
Total Food & Beverage Revenue 4,756,836 100%
Cost of Sales
Food 1,201,033 37.9%
Beverage 683,477 43.0%
Total Cost of Sales 1,884,510 39.6%
Gross Profit
Food 1,966,258 62.1%
Beverages 906,068 57.0%
Total Gross Profit 2,872,326 60.4%
Payroll and Related Expenses
Food & Beverages 618,219 13.0%
Conference & Banqueting 0 0.0%
Total Payroll and Related Expenses 618,219 13.0%
Other Direct Costs
China & Glassware 41,551 0.9%
Laundry 110,725 2.3%
Training 13,760 0.3%
Total Direct Costs 166,036 3.5%
Departmental Contribution 2,088,071 43.9%
Source: HOTS F&B Departmental Income Statement Year 3
56
11.4.7 Appendix: Indicator Average Year 1
INDICATOR AVERAGES
Team - HolidayInn6 Year 1
Indicators (Averages for period shown)
Room Occupancy (%) 51.0
Average Room Rate $ 103.51
Guest Occupancy (%) 36.0
Annual Staff Turnover (%) 68.6
Average weekly training spend per staff member($) 11.2
Rooms Market Share (%) 9.7
Market Image Index 25.8
Public Awareness Index 36.4
External Meal Sales (%) 24.8
External Liquor Sales (%) 20.9
Monthly Rooms Revenue ($000's) 399.1
Monthly Food & Beverage Revenue ($000's) 253.9
Monthly Revenue ($000's) 685.5
Monthly Net Income ($000's) 111.7
Weekday Room Occupancy (%) 67.3
Weekend Room Occupancy (%) 29.3
Weekday Guest Occupancy (%) 43.2
Weekend Guest Occupancy (%) 26.4
Refurbishment (total for period shown)
Rooms 65@2
Bar 1@2
Restaurant 1@2
Front Desk 1@2
Source: HOTS Indicator Average Year 1
57
11.4.8 Appendix: Indicator Average Year 2
INDICATOR AVERAGES
Team - HolidayInn6 Year 2
Indicators (Averages for period shown)
Room Occupancy (%) 59.7
Average Room Rate $ 104.26
Guest Occupancy (%) 42.0
Annual Staff Turnover (%) 57.3
Average weekly training spend per staff member($) 13.0
Rooms Market Share (%) 11.0
Market Image Index 42.8
Public Awareness Index 45.8
External Meal Sales (%) 30.1
External Liquor Sales (%) 60.0
Monthly Rooms Revenue ($000's) 456.3
Monthly Food & Beverage Revenue ($000's) 308.5
Monthly Revenue ($000's) 802.7
Monthly Net Income ($000's) 220.4
Weekday Room Occupancy (%) 77.8
Weekend Room Occupancy (%) 35.7
Weekday Guest Occupancy (%) 49.6
Weekend Guest Occupancy (%) 31.9
Refurbishment (total for period shown)
Rooms 40@2, 210@3
Bar 2@3
Restaurant 1@3
Front Desk 1@3
Source: HOTS Indicator Average Year 2
58
11.4.9 Appendix: Indicator Average Year 3
INDICATOR AVERAGES
Team - HolidayInn6 Year 3
Indicators (Averages for period shown)
Room Occupancy (%) 70.3
Average Room Rate $ 101.07
Guest Occupancy (%) 48.5
Annual Staff Turnover (%) 51.8
Average weekly training spend per staff member($) 12.7
Rooms Market Share (%) 13.1
Market Image Index 59.6
Public Awareness Index 46.8
External Meal Sales (%) 27.7
External Liquor Sales (%) 67.8
Monthly Rooms Revenue ($000's) 534.9
Monthly Food & Beverage Revenue ($000's) 396.4
Monthly Revenue ($000's) 977.8
Monthly Net Income ($000's) 246.8
Weekday Room Occupancy (%) 93.5
Weekend Room Occupancy (%) 39.4
Weekday Guest Occupancy (%) 58.8
Weekend Guest Occupancy (%) 34.7
Refurbishment (total for period shown)
Rooms 170@2
Bar 1@3
Restaurant 1@3
Front Desk 1@3
Source: HOTS Indicator Average Year 3
59
11.5 Proposed Extension of Facilities & Service
11.5.1 Proposed Alternatives A & B
PROPOSED PROJECT A
Conference & Function Rooms, 100 Guest Room Extension, Business Services and Parking Area
Capital Investment Required
Capital Cost: Conference & Function Rooms $500000.00
Capital Cost: 100 Guest Rooms $3150000.00
Capital Cost: Business Services $57750.00
Capital Cost: Parking Area $82500.00
Interest on construction expenses $188098.73
Pre-opening expenses $325522.80
Initial working capital (10%) $97480.00
$4,401,351.53
PROPOSED PROJECT B
Conference & Function Rooms, Spa & Health Club and Parking Area
Capital Investment Required
Capital Cost: Conference & Function Rooms $500000.00
Capital Cost: Spa & Health Club $825000.00
Capital Cost: Parking Area $82500.00
Interest on construction expenses $188098.73
Pre-opening expenses $242176.40
Initial working capital (10%) $97480.00
$1,935,255.13
Source: Self Created
60
11.5.2 Appendix: Pre-Opening Expenses
PRE-OPENING EXPENSES FOR PROPOSED PROJECT A
Direct Impacts Add.
Staff
Salary
(Payroll 3)
Recruitment
Cost (10%)
Total
Staffing
Costs
Training Total
Training
Marketing Grand
Opening
Overall
Total
Conference & Function
Rooms
3 23660 2366 78078 447.2 1341.6 10000 10000 99419.6
100 Guest Rooms 3 23660 2366 78078 447.2 1341.6 10000 10000 99419.6
Business Services 1 23660 2366 26026 447.2 447.2 5000 5000 36473.2
Parking Area 0 0 0 0 0 0 5000 5000 10000
Indirect Impacts
Restaurant 1 23660 2366 26026 447.2 447.2 5000 0 31473.2
Department Heads 1 43900 4390 48290 447.2 447.2 0 0 48737.2
325522.80
PRE-OPENING EXPENSES FOR PROPOSED PROJECT B
Direct Impacts Add.
Staff
Salary
(Payroll 3)
Recruitment
Cost(10%)
Total
Staffing
Costs
Training Total
Training
Marketing Grand
Opening
Overall Total
Conference &
Function Rooms
3 23660 2366 78078 447.2 1341.6 10000 10000 99419.6
Spa & Health
Club
4 25220 2522 110968 447.2 1788.8 10000 10000 132756.8
Parking Area 0 0 0 0 0 0 5000 5000 10000
242176.40
Source: Self Created
61
INTEREST ON CONSTRUCTION EXPENSE
Monthly Payment Weekly Payment
Interest - Bank Loan $ 22,653.06 $ 5,115.21
Interest - Equity Financing $ 15,210.97 $ 3,434.74
Total Weekly Payment $ 8,549.94
Contraction Period 22 weeks
Construction Expense $ 188,098.73
Working Capital = Current Assets – Current Liabilities
Working Capital = $3,600,221 - $2,625,421
Working Capital = $974800
Initial Working Capital = $974,800*10%
Initial Working Capital = $974,80
Source: Self Created
62
11.6 Analysis of Past Financial Statements
11.6.1 Appendix: Comparative Horizontal Analysis – Income Statement Year 0 to Year 4
Comparative Horizontal Analysis – Income Statement Year 0 to Year 4
Year 0 Year 1 Year 2 Year 3
Sales
Room $1,991,890 $5,062,139 $5,796,253 $6,812,102
Food & Beverage $914,797 $3,046,995 $3,702,412 $4,756,836
Other $50,360 $116,518 $134,201 $164,584
$2,957,047 $8,225,652 $9,632,866 $11,733,522
Cost of Sales
Room - - - -
Food & Beverage $ 385,851 $1,200,901 $1,460,143 $1,884,510
Other $32,713 $75,713 $87,205 $106,950
$418,564 $1,276,614 $1,547,348 $1,991,460
Payroll & Related
Room $831,878 $850,093 $926,823 $998,882
Food & Beverage $411,162 $485,995 $555,549 $618,219
Other - - - -
$1,243,040 $1,336,088 $1,482,372 $1,617,101
Gross Profit Less Wages
Room $1,160,012 $4,212,046 $4,869,430 $5,813,220
Food $117,784 $1,360,099 $1,686,720 $2,254,107
Other $17,647 $40,805 $46,996 $57,634
$1,295,443 $5,612,950 $6,603,146 $8,124,961
Central Admin Payroll $ 429,214 $492,545 $526,151 $551,549
Total Other Direct Costs $609,790 $2,956,529 $2,540,529 $3,582,313
Income Before Fixed Charges $256,439 $2,163,876 $3,536,466 $3,991,099
Total Fixed Costs $906,249 $823,874 $892,126 $1,029,914
Trading Profit $649,810 $1,340,002 $2,644,340 $2,961,185
Other Income - - -
Income Before Taxes - $649,810 $1,340,002 $2,644,340 $2,961,185
Business Tax - $402,001 $793,302 $1,620,179
Income After Business Tax - $649,810 $938,001 $1,851,038 $1,341,006
Source: Self Created; HOTS Summery Income Statements Year 0, Year 1, Year 2, Year 3, Year 4
63
11.6.2 Appendix: Comparative Horizontal Trend Analysis – Income Statement Year 0 to Year 4
Comparative Horizontal Trend Analysis – Income Statement Year 0 to Year 4
% YEAR 0 TREND 0-1 TREND 0-2 TREND 0-3
Sales
Room 100% 254.14% 290.99% 341.99%
Food & Beverage 100% 333.08% 404.72% 519.99%
Other 100% 231.37% 266.48% 326.81%
100% 278.17% 325.76% 396.80%
Cost of Sales
Room - - - -
Food & Beverage 100% 311.23% 378.42% 488.40%
Other 100% 231.45% 266.58% 326.93%
100% 305.00% 369.68% 475.78%
Payroll & Related
Room 100% 102.19% 111.41% 120.08%
Food & Beverage 100% 118.20% 135.12% 150.36%
Other - - - -
100% 107.49% 119.25% 130.09%
Gross Profit Less Wages
Room 100% 363.10% 419.77% 501.13%
Food 100% 1154.74% 1432.05% 1913.76%
Other 100% 231.23% 266.31% 326.59%
100% 433.28% 509.72% 627.20%
Central Admin Payroll 100% 114.76% 122.58% 128.50%
Total Other Direct Costs 100% 484.84% 416.62% 587.47%
Income Before Fixed Charges 100% 843.82% 1379.07% 1556.35%
Total Fixed Costs 100% 90.91% 98.44% 113.65%
Trading Profit 100% 206.21% 406.94% 455.70%
Other Income - - - -
Income Before Taxes 100% 206.21% 406.94% 455.70%
Business Tax 0% 100.00% 197.34% 403.03%
Income After Business Tax 100% 144.35% 284.86% 206.37%
Source: Self Created, Appendix 11.6.1
64
11.6.3 Appendix: Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4
Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4
YEAR 0 YEAR 1 YEAR 2 YEAR 3
CURRENT ASSETS
Cash at Bank $-687,673 $2,364,493 $95,177 $3,185,228
Accounts Receivable $83,747 $299,250 $360,387 $354,693
Inventories $11,976 $46,263 $56,344 $60,300
TOTAL CURRENT ASSETS $-591,950 $2,710,006 $511,908 $3,600,221
PROPERTY & EQUIPMENT
Net Property & Equipment $7,846,829 $7,466,375 $11,876,287 $11,452,295
TOTAL ASSETS $7,254,879 $10,176,381 $12,388,195 $15,052,516
CURRENT LIABILITIES
Accounts Payable $163,145 $931,359 $945,814 $1,005,242
Business Tax Owed 0 $402,001 $793,302 $1,620,179
TOTAL CURRENT LIABILITIES $163,145 $1,333,360 $1,739,116 $2,625,421
LONG-TERM LIABILITIES
Long Term Debt $306,544 $405,020 $360,040 $98,916
OWNERS' EQUITY
Share Capital $7,500,000 $7,500,000 $7,500,000 $7,500,000
Retained Earnings $-714,810 $938,001 $2,789,039 $4,828,179
TOTAL OWNERS' EQUITY $6,785,190 $8,438,001 $10,289,039 $12,328,179
TOTAL LIABILITIES & OWNERS'
EQUITY
$7,254,879 $10,176,381 $12,388,195 $15,052,516
Source: Self Created; HOTS Balance Sheets Year 0, Year 1, Year 2, Year 3
65
11.6.4 Appendix: Comparative Horizontal Trend Analysis – Balance Sheet Year 0 to Year 4
Comparative Horizontal Analysis – Balance Sheet Year 0 to Year 4
YEAR 0 TREND YEAR
0-1
TREND YEAR
0-2
TREND YEAR
0-3
CURRENT ASSETS
Cash at Bank 100% 343.84% 13.84% 463.19%
Accounts Receivable 100% 357.33% 430.33% 423.53%
Inventories 100% 386.30% 470.47% 503.51%
TOTAL CURRENT ASSETS 100% 457.81% 86.48% 608.20%
PROPERTY & EQUIPMENT
Net Property & Equipment 100% 95.15% 159.06% 96.43%
TOTAL ASSETS 100% 140.27% 170.76% 207.48%
CURRENT LIABILITIES
Accounts Payable 100% 570.88% 579.74% 616.16%
Business Tax Owed 100.00% 197.34% 403.03%
TOTAL CURRENT
LIABILITIES
100% 817.29% 1065.99% 1609.26%
LONG-TERM LIABILITIES
Long Term Debt 100% 132.12% 117.45% 32.27%
OWNERS' EQUITY
Share Capital 100% 100.00% 100.00% 100.00%
Retained Earnings 100% 131.22% 390.18% 675.45%
TOTAL OWNERS' EQUITY 100% 124.36% 151.64% 181.69%
TOTAL LIABILITIES &
OWNERS' EQUITY
100% 140% 170.76% 207.48%
Source: Self Created, Appendix 11.6.3
66
11.6.5 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4
Comparative Horizontal Trend Analysis – Balance Sheet Year 0 to Year 4
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Operating Receipts
Cash Sales $2,084,728 $5,840,223 $6,839,332 $8,330,785
Collection of Accounts Receivable $843,572 $2,086,179 $2,732,397 $3,402,254
Total Operating Receipts $2,928,300 $7926402 $9,571,729 $11,733,039
Operating Disbursements
Payroll and Related Expenses $1,687,454 $1,856,898 $2,043,038 $2,212,540
Food, Beverage & Other Inventories $508,067 $1,180,283 $1,544,431 $2,001,871
Operating Expenses $386,543 $1,827,781 $2,300,864 $2,577,193
Total Operating Disbursements $2,582,064 $4,864,962 $5,888,333 $6,791,604
Cash from Operations $346,236 $3,061,440 $3,683,396 $4,941,435
Fixed Charges
Interest $95,086 $29,956 $26,974 $21,532
Other Fixed Costs $485,367 $804,466 $620,187 $1,323,749
Total Fixed Charges $580,453 $834,422 $647,161 $1,345,281
Other Receipts
Proceeds from Outside Borrowing 0 0 0 0
Other Cash Receipts 0 0 0 0
Other Disbursements
Capital Expenditure 0 0 $4,858,570 $111,913
Debt Service (Principal) $253,456 $44,980 $44,980 $262,854
Tax and other payments 0 0 $402,001 0
Increase in Cash $-487,673 $2,182,038 $-2,269,316 $3,221,387
Cash Balance, Beginning of Period $-200,000 $182,455 $2,364,493 $-36,159
Cash Balance, End of Period $-687,673 $2,364,493 $95,177 $3,185,228
Loan at Start of Period $560,000 450,000 $405,020 $361,770
Proceeds from Outside Borrowing 0 0 0 0
Debt Service (Principal) $253,456 $44,980 $44,980 $262,854
Loan at End of Period $306,544 $405,020 $360,040 $98,916
Source: Self Created; HOTS Cash Flow Year 0, Year 1, Year 2, Year 3
67
11.6.6 Appendix: Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4
Comparative Horizontal Analysis – Cash Flow Year 0 to Year 4
YEAR 0 TREND YEAR
0-1
TREND YEAR
0-2
TREND YEAR 0-
3
Operating Receipts
Cash Sales 100% 280.14% 328.07% 399.61%
Collection of Accounts Receivable 100% 247.30% 323.91% 403.32%
Total Operating Receipts 100% 270.68% 326.87% 400.68%
Operating Disbursements
Payroll and Related Expenses 100% 110.04% 121.07% 131.12%
Food, Beverage & Other
Inventories
100% 232.31% 303.98% 394.02%
Operating Expenses 100% 472.85% 595.24% 666.73%
Total Operating Disbursements 100% 188.41% 228.05% 263.03%
Cash from Operations 100% 884.21% 1063.84% 1427.19%
Fixed Charges
Interest 100% 31.50% 28.37% 22.64%
Other Fixed Costs 100% 165.74% 127.78% 272.73%
Total Fixed Charges 100% 143.75% 111.49% 231.76%
Other Receipts
Proceeds from Outside
Borrowing
- - - -
Other Cash Receipts - - - -
Other Disbursements
Capital Expenditure - - 100.00% 2.30%
Debt Service (Principal) 100% 17.75% 17.75% 103.71%
Tax and other payments - - 100.00% -
Increase in Cash 100% 347.44% -465.34% 560.56%
Cash Balance, Beginning of Period 100% 191.23% 1282.25% 81.92%
Cash Balance, End of Period 100% 443.84% 113.84% 563.19%
Loan at Start of Period 100% 80.36% 72.33% 64.60%
Proceeds from Outside Borrowing
Debt Service (Principal) 100% 17.75% 17.75% 103.71%
Loan at End of Period 100% 132.12% 117.45% 32.27%
Source: Self Created, Appendix 11.6.5
68
11.6.7 Appendix: Trend analysis – Total Revenue
The results of the trend analysis show an increase in total revenue for the past 3 years. Due to a
consistent strategy of development the total revenue grew by 397% in Year 3 compared to Year 0.
Source: HOTS Monthly Indicators Y0, Y1, Y2 and Y3
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Total Revenue
Total Revenue
TREND ANALYSIS
YEAR 0 YEAR 1 YEAR 2 YEAR 3
TOTAL REVENUE 2,957,047.00 8,225,652.00 9,632,866.00 11,733,522.00
Trend 100% 278% 326% 397%
69
11.6.8 Appendix: Trend Analysis – Income after taxes
In Year 3 the Net Income decreased by 79%, as there was a massive refurbishment campaign
launched in the hotel: 165 rooms refurbished to Level 2, restaurant, bar and front desk were
refurbished to Level 3. This resulted in $ 953.700 total refurbishment expenses for Year 3. As
refurbishment is considered to be revenue expenditure, it affected the net income.
Source: HOTS Summary Income Statement Y0, Y1, Y2, and Y3
0%
50%
100%
150%
200%
250%
300%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Income After Taxes
Income After Tax
TREND ANALYSIS
YEAR 0 YEAR 1 YEAR 2 YEAR 3
INCOME AFTER TAX -649,810.00 938,001.00 1,851,038.00 1,341,006.00
Trend 100% 144% 285% 206%
70
11.6.9 Appendix: Trend Analysis – Average daily rate
TREND ANALYSIS
YEAR 0 YEAR 1 YEAR 2 YEAR 3
AVERAGE DAILY
RATE
99.15 103.51 104.26 101.07
Trend 100% 104% 105% 102%
During the period of 4 years the average daily rate did not undergo any drastic changes. The highest
peak was achieved in Year 2, when the management was implementing a new pricing policy. Due to
insignificant results of this change and increased promotion expenditures, HolidayInn6 has decided to
return to previous policy, which was more successful.
Source: HOTS Monthly Indicators Y0, Y1, Y2 and Y3
97%
98%
99%
100%
101%
102%
103%
104%
105%
106%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Average Daily Rate
Average Daily Rate
71
11.6.10 Appendix: Trend analysis – RevPAR
TREND
ANALYSIS
YEAR 0 YEAR 1 YEAR 2 YEAR 3
RevPAR 21.79 52.78 62.29 71.06
Trend 100% 242% 286% 326%
A gradual growth of RevPAR was achieved by a number of actions undertaken by HolidayInn6’s
management. The value was added to rooms through increased levels of guest comfort, refurbishment
and auxiliary services implemented in the hotel.
Source: HOTS Monthly Indicators Y0, Y1, Y2 and Y3
0%
50%
100%
150%
200%
250%
300%
350%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
RevPAR
RevPar
72
11.6.11 Appendix: Trend analysis – Market index image
Due to immense advertising efforts the Market Image Index has increased significantly from 4.72 in
Year 0 to 59.55 in Year 3. According to guest comments the hotel has strengthened its position in the
market and became a popular place for both local clients and tourists.
Source: HOTS Monthly Indicators Y0, Y1, Y2 and Y3
0%
200%
400%
600%
800%
1000%
1200%
1400%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Market Image Index
Market Image Index
TREND ANALYSIS
YEAR 0 YEAR 1 YEAR 2 YEAR 3
MARKET IMAGE
INDEX
4.72 25.76 42.77 59.55
Trend 100% 546% 906% 1262%
73
11.6.12 Appendix: Trend analysis – Cash at bank
TREND ANALYSIS
YEAR 0 YEAR 1 YEAR 2 YEAR 3
CASH AT BANK -687,673.00 2,364,493.00 95,177.00 3,185,228.00
Trend 100% 344% 14% 463%
In Year 2 HolidayInn6 had 160 rooms, bar, restaurant and front desk refurbished to Level 3. The
cash balance was affected, as the total cost of Level 3 refurbishment resulted in $ 3.628.075 of capital
expenditure. There were Level 2 refurbishments carried out in Year 2, but these were revenue
expenditures and had no influence on cash balance.
Source: HOTS Cash Flow Y0, Y1, Y2 and Y3
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
500%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Cash at Bank
Cash at Bank
74
11.6.13 Appendix: Current Ratio
CURRENT RATIO
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Current Assets -$591,960.00 $2,710,006.00 $511,908.00 $3,600,221.00
Current Liabilities $163,145.00 $1,333,360.00 $1,739,116.00 $2,625,421.00
Current Ratio -3.63 2.03 0.29 1.37
In Year 2 for each $ 1 of Current Liabilities HolidayInn6 had only $ 0.29 of Current Assets. Such a
decrease in CR was caused by extensive Level 3 refurbishment of the hotel, which influenced
negatively Cash at Bank and consequently the current assets.
Source: HOTS Balance Sheet Y0, Y1, Y2 and Y3.
-4
-3
-2
-1
0
1
2
3
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Current Ratio
Current Ratio
75
11.6.14 Appendix: Debt-Equity Ratio
Debt-Equity Ratios for all the years show that HolidayInn6 was not financing its activities
aggressively through debt. In the last 3 years the Debt-Equity Ratio was fluctuating between 0.20 and
0.22. These fluctuations were caused by refurbishment in Year 2, which increased total assets, and
hence influenced directly both total liabilities and owners’ equity.
Source: HOTS Balance Sheet Y0, Y1, Y2 and Y3
0%
5%
10%
15%
20%
25%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Debt-Equity Ratio
Debt-Equity Ratio
DEBT-EQUITY RATIO
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Total Liabilities $469,689.00 $1,738,380.00 $2,099,156.00 $2,724,337.00
Total Owner's Equity $6,785,190.00 $8,438,001.00 $10,289,039.00 $12,328,179.00
Debt-Equity Ratio 0.07 0.21 0.20 0.22
76
11.6.15 Appendix: Profit Margin Ratio
PROFIT MARGIN
RATIO
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Net Income -$649,810.00 $938,001.00 $1,851,038.00 $1,341,006.00
Total Revenue $2,957,047.00 $8,225,652.00 $9,632,866.00 $11,733,522.00
Profit Margin Ratio -21.97% 11.40% 19.22% 11.43%
In Year 3 the profit margin has declined by 7.79% compared to Year 2. This happened because of an
increase in total other direct costs: from $ 2'540'529 in Year 2 to $ 3'582'313 in Year 3. The increase
of $ 1.041.784 or 141% had its reason in refurbishment expenditures, which influenced the net
income negatively in Year 3.
Source: HOTS Summary Income Statement Y0, Y1, Y2 and Y3.
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Profit Margin Ratio
Profit Margin Ratio
77
11.6.16 Appendix: Gross Operating Profit
GROSS OPERATING
PROFIT
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Gross Operating Profit $256,439.00 $2,163,876.00 $3,536,466.00 $3,991,099.00
Total Revenue $2,957,047.00 $8,225,652.00 $9,632,866.00 $11,733,522.00
Gross Operating Profit
Ratio
8.67% 26.31% 36.71% 34.01%
A slight decrease of 2.7% in GOP ratio in Year 3 corresponds to a decrease in prices for rooms from $
104.26 in Year 2 to $ 101.07 in Year3, without decreasing the costs per room. The GOP ratio was also
decreased due to an increase in total other direct costs, which was discussed previously.
Source: HOTS Summary Income Statement Y0, Y1, Y2 and Y3
0.00%
10.00%
20.00%
30.00%
40.00%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Gross Operating Profit Ratio
Gross Operating Profit Ratio
78
11.6.17 Appendix: ROCE
YEAR 0 YEAR 1 YEAR 2 YEAR 3
ROCE -9.20% 15.15% 24.83% 23.83%
Through the last 3 years HolidayInn6’s ROCE has been growing gradually, the highest ROCE
achieved was 24.83% in Year 2, and it decreased by 1% in Year 3. In general, the hotel shows good
trends of financial growth and stability.(change-sounds stupid)(Some say that an acceptable ROCE
has to be slightly higher than the rank loan rate. Ours is many times higher.)
Source: HOTS Summary Income Statement Y0, Y1, Y2 and Y3
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
ROCE
ROCE
79
11.6.18 Appendix: Occupancy
OCCUPANCY
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Weekday Room Occupancy N/A 67.3 77.8 93.5
Weekend Room Occupancy N/A 29.3 35.7 39.4
Occupancy 22.00% 51.00% 59.70% 70.30%
In Year 3 HolidayInn6 has achieved an Occupancy Percentage of 70.30%, thus achieving a final
number targeted for the end of Year 3.
Source: HOTS Background Information, Monthly indicator Y0; HOTS Scorecard Y1, Y2 and Y3;
HOTS Indicator Averages Y1, Y2 and Y3.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Year 0 Year 1 Year 2 Year 3
Occupancy Percentage
Weekday Rooms Weekend Rooms Occupancy
80
11.6.19 Appendix: Rooms Market Share
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Rooms Market Share 4.72% 9.73% 11.05% 13.06%
In Year 3 room market share has augmented by 2.01% over Year 2 due to an increase of the
occupancy percentage of weekday rooms by 15.7%. Thus HolidaInn6 had 93.5% weekday room
occupancy, which constituted 234 rooms.
Source: HOTS Monthly Indicator Reports Y0, Y1, Y2 and Y3.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Rooms Market Share
Rooms Market Share
81
11.6.20 Appendix: Gearing Ratio
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Long-Term
Liabilities
$306,544.00 $405,020.00 $360,040.00 $98,916.00
Shared Capital
+ Reserves +
Long-Term
Liabilities
$6,785,190.00 $8,438,001.00 $10,289,039.00 $12,328,179.00
Gearing Ratio 4.52% 4.80% 3.50% 0.80%
In Year 3 HolidayInn6 has managed to pay its long-term liabilities back to creditors. Thus the gearing
ratio in Year 3 has reached 0.80%, which means that HolidayInn6 is not vulnerable to sales downturns
that may happen.
Source: HOTS Balance Sheet Y0, Y1, Y2 and Y3.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
YEAR 0 YEAR 1 YEAR 2 YEAR 3
Gearing Ratio
Gearing Ratio
82
11.7 Capital Investments & Financing
11.7.1 Appendix: Capital Investment & Financing
PROPOSED PROJECT A
Conference & Function Rooms, 100 Guest Room Extension, Business Services and Parking
Area
Capital Investment
Required
Own Capital Equity Investors Debt-Bank
Capital Cost: Conference &
Function Rooms $500,000.00 $500,000.00
Capital Cost: 100 Guest Rooms $3,150,000.00 $1,850,000.00 $500,000.00 $800,000.00
Capital Cost: Business Services $57,750.00 $57,750.00
Capital Cost: Parking Area $82,500.00 $82,500.00
Interest on construction
expenses $188,098.73 $188,098.73
Pre-opening expenses $325,522.80 $325,522.80
Initial working capital (10%) $97,480.00 $97,480.00
$4,401,351.53 $3,101,351.53 $500,000.00 $800,000.00
100% 70.46% 11.36% 18.18%
Source: Self Created, HOTS User Guide
83
11.7.2 Appendix: Outstanding loan at the End of Year 3
Loan amount $98,916.00
Term 12
Rate 0.0125
Payment $8,298.92
Date Month Interest Capital Payment Interest Capital Capital
rate outstanding
begin
outstanding
end
January Year 4 1 1.25% $98,916.00 $8,298.92 $103.04 $8,195.88 $90,720.12
February Year 4 2 1.25% $90,720.12 $8,298.92 $94.50 $8,204.42 $82,515.70
March Year 4 3 1.25% $82,515.70 $8,298.92 $85.95 $8,212.96 $74,302.74
April Year 4 4 1.25% $74,302.74 $8,298.92 $77.40 $8,221.52 $66,081.22
May Year 4 5 1.25% $66,081.22 $8,298.92 $68.83 $8,230.08 $57,851.13
June Year 4 6 1.25% $57,851.13 $8,298.92 $60.26 $8,238.66 $49,612.48
July Year 4 7 1.25% $49,612.48 $8,298.92 $51.68 $8,247.24 $41,365.24
August Year 4 8 1.25% $41,365.24 $8,298.92 $43.09 $8,255.83 $33,109.41
September Year 4 9 1.25% $33,109.41 $8,298.92 $34.49 $8,264.43 $24,844.98
October Year 4 10 1.25% $24,844.98 $8,298.92 $25.88 $8,273.04 $16,571.94
November Year 4 11 1.25% $16,571.94 $8,298.92 $17.26 $8,281.66 $8,290.28
December Year 4 12 1.25% $8,290.28 $8,298.92 $8.64 $8,290.28 $0.00
Source: Self Created, HOTS Balance Sheet Year 3
84
11.7.3Appendix: Loan Financing –Bank
PROPOSED PROJECT A
Conference & Function Rooms, 100 Guest Room
Extension, Business Services and Parking Area
Amortization Table - Bank
Loan amount $ 800,000.00
Term 36
Rate 1.25%
Payment $ 22,653.06
Date Month Interest Capital Payment Interest Capital Capital
rate Outstanding
begin
outstanding
end
January Year 4 1 1.25% $800,000.00 $22,653.06 $833.33 $21,819.73 $778,180.27
February Year 4 2 1.25% $778,180.27 $22,653.06 $810.60 $21,842.46 $756,337.81
March Year 4 3 1.25% $756,337.81 $22,653.06 $787.85 $21,865.21 $734,472.60
April Year 4 4 1.25% $734,472.60 $22,653.06 $765.08 $21,887.99 $712,584.61
May Year 4 5 1.25% $712,584.61 $22,653.06 $742.28 $21,910.79 $690,673.82
June Year 4 6 1.25% $690,673.82 $22,653.06 $719.45 $21,933.61 $668,740.21
July Year 4 7 1.25% $668,740.21 $22,653.06 $696.60 $21,956.46 $646,783.75
August Year 4 8 1.25% $646,783.75 $22,653.06 $673.73 $21,979.33 $624,804.42
September Year 4 9 1.25% $624,804.42 $22,653.06 $650.84 $22,002.23 $602,802.19
October Year 4 10 1.25% $602,802.19 $22,653.06 $627.92 $22,025.14 $580,777.05
November Year 4 11 1.25% $580,777.05 $22,653.06 $604.98 $22,048.09 $558,728.96
December Year 4 12 1.25% $558,728.96 $22,653.06 $582.01 $22,071.05 $536,657.91
January Year 5 13 1.25% $536,657.91 $22,653.06 $559.02 $22,094.05 $514,563.86
February Year 5 14 1.25% $514,563.86 $22,653.06 $536.00 $22,117.06 $492,446.80
March Year 5 15 1.25% $492,446.80 $22,653.06 $512.97 $22,140.10 $470,306.71
April Year 5 16 1.25% $470,306.71 $22,653.06 $489.90 $22,163.16 $448,143.54
May Year 5 17 1.25% $448,143.54 $22,653.06 $466.82 $22,186.25 $425,957.30
June Year 5 18 1.25% $425,957.30 $22,653.06 $443.71 $22,209.36 $403,747.94
July Year 5 19 1.25% $403,747.94 $22,653.06 $420.57 $22,232.49 $381,515.45
August Year 5 20 1.25% $381,515.45 $22,653.06 $397.41 $22,255.65 $359,259.79
September Year 5 21 1.25% $359,259.79 $22,653.06 $374.23 $22,278.83 $336,980.96
October Year 5 22 1.25% $336,980.96 $22,653.06 $351.02 $22,302.04 $314,678.92
November Year 5 23 1.25% $314,678.92 $22,653.06 $327.79 $22,325.27 $292,353.64
December Year 5 24 1.25% $292,353.64 $22,653.06 $304.54 $22,348.53 $270,005.12
January Year 6 25 1.25% $270,005.12 $22,653.06 $281.26 $22,371.81 $247,633.31
February Year 6 26 1.25% $247,633.31 $22,653.06 $257.95 $22,395.11 $225,238.19
March Year 6 27 1.25% $225,238.19 $22,653.06 $234.62 $22,418.44 $202,819.75
April Year 6 28 1.25% $202,819.75 $22,653.06 $211.27 $22,441.79 $180,377.96
May Year 6 29 1.25% $180,377.96 $22,653.06 $187.89 $22,465.17 $157,912.79
June Year 6 30 1.25% $157,912.79 $22,653.06 $164.49 $22,488.57 $135,424.22
July Year 6 31 1.25% $135,424.22 $22,653.06 $141.07 $22,512.00 $112,912.22
August Year 6 32 1.25% $112,912.22 $22,653.06 $117.62 $22,535.45 $90,376.78
September Year 6 33 1.25% $90,376.78 $22,653.06 $94.14 $22,558.92 $67,817.85
October Year 6 34 1.25% $67,817.85 $22,653.06 $70.64 $22,582.42 $45,235.43
November Year 6 35 1.25% $45,235.43 $22,653.06 $47.12 $22,605.94 $22,629.49
December Year 6 36 1.25% $22,629.49 $22,653.06 $23.57 $22,629.49 $0.00
Source: Self Created
85
11.7.4 Appendix: Loan Financing – Investors
Date Month Interest Capital Payment Interest Capital Capital
Rate outstanding
begin
outstanding
end
January Year 4 1 6.00% $500,000.00 $15,210.97 $2,500.00 $12,710.97 $487,289.03
February Year 4 2 6.00% $487,289.03 $15,210.97 $2,436.45 $12,774.52 $474,514.51
March Year 4 3 6.00% $474,514.51 $15,210.97 $2,372.57 $12,838.40 $461,676.11
April Year 4 4 6.00% $461,676.11 $15,210.97 $2,308.38 $12,902.59 $448,773.52
May Year 4 5 6.00% $448,773.52 $15,210.97 $2,243.87 $12,967.10 $435,806.42
June Year 4 6 6.00% $435,806.42 $15,210.97 $2,179.03 $13,031.94 $422,774.49
July Year 4 7 6.00% $422,774.49 $15,210.97 $2,113.87 $13,097.10 $409,677.39
August Year 4 8 6.00% $409,677.39 $15,210.97 $2,048.39 $13,162.58 $396,514.81
September Year 4 9 6.00% $396,514.81 $15,210.97 $1,982.57 $13,228.39 $383,286.41
October Year 4 10 6.00% $383,286.41 $15,210.97 $1,916.43 $13,294.54 $369,991.88
November Year 4 11 6.00% $369,991.88 $15,210.97 $1,849.96 $13,361.01 $356,630.87
December Year 4 12 6.00% $356,630.87 $15,210.97 $1,783.15 $13,427.81 $343,203.05
January Year 5 13 6.00% $343,203.05 $15,210.97 $1,716.02 $13,494.95 $329,708.10
February Year 5 14 6.00% $329,708.10 $15,210.97 $1,648.54 $13,562.43 $316,145.67
March Year 5 15 6.00% $316,145.67 $15,210.97 $1,580.73 $13,630.24 $302,515.43
April Year 5 16 6.00% $302,515.43 $15,210.97 $1,512.58 $13,698.39 $288,817.04
May Year 5 17 6.00% $288,817.04 $15,210.97 $1,444.09 $13,766.88 $275,050.16
June Year 5 18 6.00% $275,050.16 $15,210.97 $1,375.25 $13,835.72 $261,214.44
July Year 5 19 6.00% $261,214.44 $15,210.97 $1,306.07 $13,904.90 $247,309.54
August Year 5 20 6.00% $247,309.54 $15,210.97 $1,236.55 $13,974.42 $233,335.12
September Year 5 21 6.00% $233,335.12 $15,210.97 $1,166.68 $14,044.29 $219,290.83
October Year 5 22 6.00% $219,290.83 $15,210.97 $1,096.45 $14,114.51 $205,176.31
November Year 5 23 6.00% $205,176.31 $15,210.97 $1,025.88 $14,185.09 $190,991.22
December Year 5 24 6.00% $190,991.22 $15,210.97 $954.96 $14,256.01 $176,735.21
January Year 6 25 6.00% $176,735.21 $15,210.97 $883.68 $14,327.29 $162,407.92
February Year 6 26 6.00% $162,407.92 $15,210.97 $812.04 $14,398.93 $148,008.99
March Year 6 27 6.00% $148,008.99 $15,210.97 $740.04 $14,470.92 $133,538.07
April Year 6 28 6.00% $133,538.07 $15,210.97 $667.69 $14,543.28 $118,994.79
May Year 6 29 6.00% $118,994.79 $15,210.97 $594.97 $14,615.99 $104,378.79
June Year 6 30 6.00% $104,378.79 $15,210.97 $521.89 $14,689.07 $89,689.72
July Year 6 31 6.00% $89,689.72 $15,210.97 $448.45 $14,762.52 $74,927.20
August Year 6 32 6.00% $74,927.20 $15,210.97 $374.64 $14,836.33 $60,090.87
September Year 6 33 6.00% $60,090.87 $15,210.97 $300.45 $14,910.51 $45,180.35
October Year 6 34 6.00% $45,180.35 $15,210.97 $225.90 $14,985.07 $30,195.28
November Year 6 35 6.00% $30,195.28 $15,210.97 $150.98 $15,059.99 $15,135.29
December Year 6 36 6.00% $15,135.29 $15,210.97 $75.68 $15,135.29 $0.00
Source: Self Created
PROPOSED PROJECT A
Conference & Function Rooms, 100 Guest Room Extension, Business Services
and Parking Area Amortization Table – Invester
Loan amount $ 500,000.00
Term 36
Rate 6.00%
Payment $15210.97
86
11.7.5 Appendix: Depreciation – Conference Center
Depreciation Straight-Line
Conference
Centre
Useful Life: 25 Salvage Value: 25000
Book value at
beginning of year
Depreciation
Expense
Accumulated
Depreciation
Book value at end
of year Year
1 $500,000 $19,000 $19,000 $481,000
2 $481,000 $19,000 $38,000 $462,000
3 $462,000 $19,000 $57,000 $443,000
4 $443,000 $19,000 $76,000 $424,000
5 $424,000 $19,000 $95,000 $405,000
6 $405,000 $19,000 $114,000 $386,000
7 $386,000 $19,000 $133,000 $367,000
8 $367,000 $19,000 $152,000 $348,000
9 $348,000 $19,000 $17,100 $329,000
10 $329,000 $19,000 $190,000 $310,000
11 $310,000 $19,000 $209,000 $291,000
12 $291,000 $19,000 $228,000 $272,000
13 $272,000 $19,000 $247,000 $253,000
14 $253,000 $19,000 $266,000 $234,000
15 $234,000 $19,000 $285,000 $215,000
16 $215,000 $19,000 $304,000 $196,000
17 $196,000 $19,000 $323,000 $177,000
18 $177,000 $19,000 $342,000 $158,000
19 $158,000 $19.000 $361,000 $139,000
20 $139,000 $19.000 $380,000 $120,000
21 $120,000 $$19000 $399,000 $101,000
22 $101,000 $19,000 $418,000 $82,000
23 $82,000 $19,000 $437,000 $63,000
24 $63,000 $19,000 $456,000 $44,000
25 $44,000 $19,000 $475,000 $25,000
Source: Self Created
87
11.7.6 Appendix: Depreciation – Business Center
Depreciation Straight-Line
Business Services
Useful Life: 10 Salvage Value: -
Book value at
beginning of year
Depreciation
Expense
Accumulated
Depreciation
Book value
at end of
year Year
1 $57,750 $5,775 $5,775 $51,975
2 $51,975 $5,775 $11,550 $46,200
3 $46,200 $5,775 $17,325 $40,425
4 $40,425 $5,775 $23,100 $34,650
5 $34,650 $5,775 $28,875 $28,875
6 $28,875 $5,775 $34,650 $23,100
7 $23,100 $5,775 $40,425 $17,325
8 $17,325 $5,775 $46,200 $11,550
9 $11,550 $5,775 $51,975 $5,775
10 5,775 $5,775 $57,750 $0
Source: Self Created
88
11.7.7 Appendix: Depreciation – Parking
Depreciation Straight-Line
Parking Area
Useful Life: 30 Salvage Value: -
Book value at
beginning of year
Depreciation
Expense
Accumulated
Depreciation
Book value at end of
year Year
1 $82,500 $2,750 $2,750 $79,750
2 $79,750 $2,750 $5,500 $77,000
3 $77,000 $2,750 $8,250 $74,250
4 $74,250 $2,750 $11,000 $71,500
5 $71,500 $2,750 $13,750 $68,750
6 $68,750 $2,750 $16,500 $66,000
7 $66,000 $2,750 $19,250 $63,250
8 $63,250 $2,750 $22,000 $60,500
9 $60,500 $2,750 $24,750 $57,750
10 $57,750 $2,750 $27,500 $55,000
11 $55,000 $2,750 $30,250 $52,250
12 $52,250 $2,750 $33,000 $49,500
13 $49,500 $2,750 $35,750 $46,750
14 $46,750 $2,750 $38,500 $44,000
15 $44,000 $2,750 $41,250 $41,250
16 $41,250 $2,750 $44,000 $38,500
17 $38,500 $2,750 $46,750 $35,750
18 $35,750 $2,750 $49,500 $33,000
19 $33,000 $2,750 $52,250 $30,250
20 $30,250 $2,750 $55,000 $27,500
21 $27,500 $2,750 $57,750 $24,750
22 $24,750 $2,750 $60,500 $22,000
23 $22,000 $2,750 $63,250 $19,250
24 $19,250 $2,750 $66,000 $16,500
25 $16,500 $2,750 $68,750 $13,750
26 $13,750 $2,750 $71,500 $11,000
27 $11,000 $2,750 $74,250 $8,250
28 $8,250 $2,750 $77,000 $5,500
29 $5,500 $2,750 $79,750 $2,750
30 $2,750 $2,750 $82,500 $0
Source: Self Created
89
11.8 Appendix Pro-Forma Statements
11.8.1 Appendices Financial Targets and estimations for Years 4-8.
General Information:
Business Tax is 33, 33% (French Tax Office 2011)
The Rooms supply will increase from 250 to 350. The occupancy will
decrease from 70.30% to 50.23% respectively.
The construction period is 22 weeks.
Forecasts
- Due to the construction period the opening of the conference center does not match
the high corporate season. Hence the management expects the increase in occupancy
to be the following.
- To be able to balance the increase in expenses, HolidayInn6 will augment the prices
by $3 every year.
- Based on the tendency, F&B sales are forecasted to increase as follows.
- Other revenue is projected to increase accordingly.
90
11.8.2 Appendix: Forecasted Revenues
91
Assumed that with an increase by 100 rooms the average occupancy will decrease
from 70.30% in Year 3 down to 50.23%.
Assumed that average occupancy increases by a projected percentage respectively of
the year. Revenue increases by a projected percentage each year.
Assumed that average occupancy increases by a projected percentage respectively of
the year. Revenue increases by a projected.
The management assumes that the prices will increase by $ 2.5 each year.
Assumed that weekday and weekend yearly conference room’s occupancy will
increase by 5% and 3% respectively.
Source: Self Created, HOTS Background Year 0, 1, 2, 3, Appendix 11.8.2
92
11.8.3 Appendix: Pro-Forma Summary Income Statement
In year 4 business tax in France is applied which is 33.3% of total Income.
http://www.worldwide-tax.com [Accessed on: 12th May 2011].
Source: Self-Created; HOTS Summary income statement Year 3, Appendix all departments' pro-forma.
93
11.8.4 Appendix: Forecasted Tendency Departmental Income Statement: Rooms
Weekday's Percentage of Total Room Revenue decrease as Conference Revenue
Increases
Weekend's Percentage of Total Room Revenue decrease as Wedding/ Social
Increases
Tours are going to continuously contribute 2% to total rooms revenue
Guest Comfort is evaluated to minimize to 10%
Laundry is evaluated to maximize at 3%
Source: Self Created; HOTS Summary Income Statement Year 0, Year 1, Year 2, Year 3, & Appendix
11.8.2
94
11.8.5 Appendix: Pro Forma Departmental Income Statement Rooms
Year 4:
1 Front office / Uniformed Staff was hired
3rd
year payroll of Front office + (1*weekly salary of Front Office*number of weeks in a
year)
2 Housekeeping staff was hired
3rd
year payroll of housekeeping + (2*weekly salary of hotel Service*number of weeks in a
year)
Year 7:
1 Front office / Uniformed Staff was hired
6th
year payroll of Front office + (1*weekly salary of Front Office*number of weeks in a
year)
1 Housekeeping staff was hired
6th
year payroll of housekeeping + (1*weekly salary of hotel Service*number of weeks in a
year)
Source: Self-Created, Hots Departmental Income Statement Y3, Appendix 11.8.5.
95
11.8.6. Appendix: Forecasted Tendency Departmental Income Statement: Food & Beverage
Food cost of sales in Year 4 onwards is average of food cost of sales of Year 0 to Year 3
Beverage cost of sales in Year 4 onwards is average of beverage cost of sales of Year 0 to Year 3
China and Glassware cost has been increased to 1% total F&B revenue
Laundry cost has been increased to 3% total F&B revenue
Training cost has been increased to $20,000 from year 4 to year 8
96
11.8.7. Appendix: Pro-Forma Income Statement F&B
Year 4:
1 staff of Food & Beverage was hired
3rd
year payroll of Food and Beverage + (1*weekly salary of Food & Beverage*number of
weeks in a year).
Year 7:
1 staff of Food & Beverage was hired
3rd
year payroll of Food and Beverage + (1*weekly salary of Food & Beverage*number of
weeks in a year).
Source: Self-Created, HOTS Departmental Income Statement Food and Beverage Y3; See
Appendix 11.8.6
97
11.8.8 Appendix: Forecasted Tendency Departmental Income Statement Other
In year 4 other revenue has been increased to 2.50% of total room revenue.
In year 4 costs of sales has been increased to 65% of total telephone revenue.
Source: Self-created; HOTS Departmental Income Statement: Other Y0, Y1, Y2, and Y3;
Appendix 11.8.2
98
11.8.10. Appendix: Pro Forma Departmental Income Statement other
As Holiday Inn6 is not charging its guests for provided business room facilities, hotel
will not be generating revenues out of business but the payroll of business room
attended would be an expense to Other Department.
Payroll of Business Room Attendant would be calculated:
o Number of Staff*weekly pay of other *Number of Weeks in a Year
Source: Self-created; HOTS Departmental Income Statement Other Y3; Appendix 11.8.9
99
11.8.11 Appendix: Forecasted Tendency Departmental Income Statement Central
Administration
Total Revenues are calculated by adding total rooms revenue, total F&B revenue, and total
other revenue. Appendix 11.8.6, 11.8.8 & 11.8.10.
Marketing expenses will form 12% of total revenue from Year 4 onwards.
Miscellaneous expenses are supposed to increase in year 4 with the opening of new
projected facilities.
Because of purchase of uniforms, printing materials, Stationary, menus etc. From Year 5
Miscellaneous expenses will start decreasing.
Source: Self Created, HOTS Departmental Income Statement Central Administration Year 0 to
Year 3, see Appendix 11.8.2
100
11.8.12 Appendix: Pro Forma Departmental Income Statement Central Administration
Refurbishment investment is increased to $1,200,000 from Year 4 to year 8 because
Holiday Inn6 will have more facilities.
It is presumed that property tax will increase by 50% because of new facilities.
Insurance is in respect to all property and as Holiday Inn6 has extended its facilities,
insurance will increase by 50%.
Old Building’s depreciation is $585,596 per year, and will increase $98,400 of new
facilities.
Rooms' depreciation is calculated:
Cost of new rooms * 2.25%. 2.25% is French straight line depreciation if more than 6
years (Intl tax and business guide: France).
Bank charges in year 3 are $ 21,532, and interest is $ 34229.35, $ 21247.75, $
6101.24 for year 4, 5, 6 respectively.
Source: Self-created; HOTS Departmental Income Statement Central Administration Y3;
Appendix 11.8.11
101
11.8.13 Appendix: Staff and Training - Department Income Statement Conference Center
Source: Self-Created; Appendix 11.8.5 & 11.8.7
102
11.8.14 Appendix: Pro Forma departmental Income Statement Conference Center
Payroll and related expenses were calculated basing on staff needed (see pre-opening
expenses).
Laundry cost consists of 3% of total Conference revenue.
Training Costs are calculated through the usage of percentage of total staff.
Source: Self-created, Appendix 11.8.13 & 11.8.2
103
11.8.15 Appendix: Pro Forma Summary Income Statement: Conference
50% increase in property tax has occurred through conference center.
50% increase in insurance has occurred through conference center.
Depreciation is for the conference center only.
Bank Charges are assumed to be 50% of total bank charges.
Business tax is 33.33% of total conference revenue.
Source: Self created, Appendix 11.8.14.
104
11.8.15 Appendix Pro-Forma Cash Flow: New Facilities
Total net income consists of net income of new rooms (100 units) and conferences net
income.
The net new rooms income is calculated through multiplication of total rooms revenue by
0.2850 (100/350=28.5% contribution of rooms added to total revenue).
Source: Self created, Appendix 11.8.14.
105
11.9 Cost Beneficial Analysis
11.9.1 Appendix: Payback Period
Source: Self Created; Schmidgall (2006); Appendix 11.8.15
PAYBACK PERIOD Years 1 2 3 4 5
Cash Flow 1748141.68 2461466.20 2886250.67 3797419.02 4310434.52
Proposed project
cost
4401351.53
Outstanding balance 2653209.85 191743.65 0.07
The payback period is 2.07 years
106
11.9.2 Appendix: Net Present Value
NET PRESENT VALUE
Years Cash Flow Present Value Factor
(6%)
Present value of Cash Flow
0 $-4,401,351.53 1.0000 $-4,401,351.53
1 $1,748,141.68 0.9434 $1,649,190.26
2 $2,461,466.20 0.8900 $2,190,696.16
3 $2,886,250.67 0.8396 $2,423,351.72
4 $3,797,419.02 0.7921 $3,007,911.54
5 $4,310,434.52 0.7473 $3,221,007.42
Net Present Value $8,090,805.57
Source: Self Created; Schmidgall (2006); Appendix 11.8.15
107
11.9.3 Appendix: Internal Rate of Return
IRR
49.75%
Years Cash Flow Present Value
Factor (1)
Present value of Cash Flow (1)
0 $-4,401,351.53 1.0000 $-4,401,351.53
1 $1,748,141.68 0.6678 $1,167,373.41
2 $2,461,466.20 0.4459 $1,097,640.73
3 $2,886,250.67 0.2978 $859,475.60
4 $3,797,419.02 0.1989 $755,129.08
5 $4,310,434.52 0.1328 $572,383.22
$50,650.52
50.50%
Years Cash Flow Present Value
Factor (2)
Present value of Cash Flow
(2)
0 $-4,401,351.53 1.0000 $-4,401,351.53
1 $1,748,141.68 0.6645 $1,161,555.93
2 $2,461,466.20 0.4415 $1,086,728.05
3 $2,886,250.67 0.2934 $846,690.23
4 $3,797,419.02 0.1949 $740,188.82
5 $4,310,434.52 0.1295 $558,262.62
$-7,925.88
The IRR therefore lies somewhere between 49.75% and 50.50%.
Source: Self Created; Schmidgall (2006) Appendix11.8.15.
k= 0.06
cost= $-4,401,351.53
Annual Cash Flow
Year 4 $1,748,141.68
Year 5 $2,461,466
Year 6 $2,886,251
Year 7 $3,797,419
Year 8 $4,310,435
NPV= $8,090,805.57
IRR= 50.40%
108
11.10 Sensitivity Analysis
11. 10.1 Appendix: Sensitivity Analysis: Rooms Year 8
Year 8
65.23% 70.23% 80.23% 85.23% 90.23% 95.23%
Revenues
Weekday $4,743,794.56 $6,102,847.74 $6,703,526.63 $7,335,160.66 $5,638,086.00 $5,919,990.30
Weekend $1,010,972.61 $1,200,560.21 $1,208,832.67 $1,202,485.35 $1,180,064.60 $1,239,067.83
Conferences $933,205.49 $2,401,120.42 $2,857,240.86 $3,366,958.99 $3,933,548.65 $4,130,226.08
Tours $155,534.24 $200,093.37 $219,787.76 $240,497.07 $262,236.58 $275,348.41
Wedding/ Social $466,602.74 $700,326.79 $879,151.03 $1,082,236.82 $1,311,182.88 $1,376,742.02
Other $466,602.74 $600,280.11 $659,363.27 $721,491.21 $786,709.73 $826,045.22
Total Rooms Revenue $7,776,712.38 $11,205,228.64 $12,527,902.22 $13,948,830.10 $13,111,828.84 $13,767,419.86
Payroll and Related Expenses
Front Office/ Uniformed Staff $428,413.00 $428,413.00 $428,413.00 $428,413.00 $428,413.00 $428,413.00
Housekeeping $689,809.00 $689,809.00 $689,809.00 $689,809.00 $689,809.00 $689,809.00
Total Payroll and Related Expenses $1,118,222.00 $1,118,222.00 $1,118,222.00 $1,118,222.00 $1,118,222.00 $1,118,222.00
Other Direct Costs
Guest Comfort $777,671.24 $1,120,522.86 $1,252,790.22 $1,394,883.01 $1,311,182.88 $1,376,741.99
Laundry $233,301.37 $336,156.86 $375,837.07 $418,464.90 $393,354.87 $413,022.60
Training $35,000.00 $35,000.00 $35,000.00 $35,000.00 $35,000.00 $35,000.00
Total Direct Costs $1,045,972.61 $1,491,679.72 $1,663,627.29 $1,848,347.91 $1,739,537.75 $1,824,764.58
Department Contribution $5,612,517.77 $8,595,326.92 $9,746,052.93 $10,982,260.19 $10,254,069.09 $10,824,433.28
109