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24 Jan 19

Hotel Income Statements Analysis - Step by Step Approach

In this article we will look at the various steps of analysing hotel income statements. We will explain the details of each step in the coming articles, you can subscribe to my course by visiting below link as well. 

Step 1 - Export into Excel 

The first thing we supposed to do is to export the P&L into Excel file, because it makes it easier to calculate the formulas, calculate variances in Excel for further analysis of income statements. If your profit or loss is not in Excel either you can type it out or you can ask your finance department to export it into Excel and give it to you so that it's much easier for you to calculate the variances or calculate percentages so the and it makes it easier for you to review. 

Step 2 - Calculate necessary variances and supporting ratios 

Second step is to calculate the variance columns because some of the standard hotel accounting software don't give the variances column, few of them just give variance vs budget and not compare to last year. Some software does not calculate per occupied room statistics, while some does not add occupancy statistics. Variances, GOP Flow-through and operational Ratios are very important in analysis of P&Ls.

GOP flow through is important aspect of managing the profitability of department, hotel must maintain the flow through of the profits compared to the revenue shortage or excess if revenue is high however the profit has not increased relatively (i.e flow through is low) then it's a bad news because maybe hotel is not managing the expenses well. 

Step 3 - Ascertain the Revenue & Profit variances

To understand the P&L it is important to look at overall picture of the department, whether the variance in the overall revenue & profit is a favorable or unfavorable because the further review of the expenses will also depend on this variance. 

Step 4 - Find the Breakdown for variances from marketing reports for further drill down

Once we have the Overall variance feel, its time to drill to second layer by going into further details. Let's say if the room revenue is not favorable i.e negative what you wanna do is to identify all segments which are negative then you have to identify all expense which in terms of percentage are lower than the room variance because the logic is that expenses should be controlled. Assume if the revenue is dropping by let's say 10% the expense should drop either by 10% or more than else it will affect hotel's profitability. 

Step 5 - Get to the last level of details for reasons of variances.

Once you know which segments are causing variances for revenue and which expenses cause drop in profitability what we should do is to get the details from

1. Supporting marketing reports such as nationality, booking source, lost business, booking pace etc to understand what really went wrong in such revenue segments. General ledger of those expenses to get itemize details for such expenses so that you can control them by taking cost management exercise.

2. Let me know in comment below, if you follow other or more methods of analysing P&L.

You can watch my YouTube video on this subject and subscribe to my channel if you like it.