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Financial Management For The Hospitality Industry

by: Andrew, William P.; Damitio, James W., Ph.D, CMA; Schmidgall, Raymond S.

Financial Management For The Hospitality Industry

by: Andrew, William P.; Damitio, James W., Ph.D, CMA; Schmidgall, Raymond S.

ISBN 13:
9780131179097
ISBN 10:
0131179098
Edition: 1st
Format: Paperback
Copyright: 06/16/2006
Publisher: Pearson

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Summary

KEY BENEFIT:Financial Management for the Hospitality Industrypresents financial concepts and explains how they apply to specific operations within the hospitality industry.KEY TOPICS: The book contains answers to many of the financial questions confronting todayrs"s and tomorrowrs"s hospitality managers. It should serve as a reference book to be used as financial problems and opportunities arise.MARKET: For hospitality managers.

Preface

xvi

About the Authors

xix

1 Introduction

(16)

The Role of Finance in the Hospitality Organization

(1)

Perspectives on Decision Making

(5)

Performance-Based Managerial Compensation Packages

(1)

Boards of Directors

(1)

Threat of Takeover

(1)

The Goal of Hospitality Financial Management

(3)

An Overview of the Determinants of Owners' Value

(3)

The Minimum Value of V0 [DIVt]

(1)

The Maximum Value of V0 [DIVt]

(1)

The Most Likely Value of V0 [DIVt]

(1)

Summary

(1)

Key Terms

(1)

Review Questions

(2)

2 Value Creation and the Hospitality Firm

(16)

Asset and Capital Structures and Value Creation

(5)

The Process of Value Creation

(2)

Increasing Operating Cash Flow

(2)

Reducing the Variability of Operating Cash Flow

(1)

Capital Structure

(3)

New Types of Securities

(1)

Optimal Capital Structure

(2)

Value Creation: Asset Structure Versus Capital Structure

(1)

Pitfalls on the Road to Value Creation: The Rate-of-Return Trap

(2)

Summary

(1)

Endnotes

(1)

Key Terms

(1)

Review Questions

(2)

3 Financial Markets and Raising Financial Capital

(26)

Real Assets Versus Financial Assets

(1)

The Role of the Financial Markets

(1)

The Role of Financial Intermediaries

(1)

Subcomponents of the Financial Market

(1)

Examples of Major Financial Markets

(6)

The Money Market

(3)

The Capital Market

(1)

The Mortgage Market

(1)

Additional Market Terminology

(1)

How Trading Takes Place in the Stock and Bond Markets

(3)

Interpreting Financial Information on Stock and Bond Trading

(3)

The Stock Report

(1)

The Bond Report

(2)

Financial Intermediaries and Their Role in Hospitality Financing

(3)

Commercial Banks

(1)

Life Insurance Companies

(1)

Brokerage Firms

(1)

Pension Funds

(1)

Mutual Funds

(1)

Other Sources of Capital for Hospitality Firms

(1)

International Hospitality Firms and Foreign Exchange Markets

(3)

Price Risk and the Commodity Futures Markets

(1)

Summary

(1)

Endnotes

(1)

Key Terms

(1)

Review Questions

(1)

Problems

(2)

4 A Brief Review of Financial Statements

(32)

The Nature of Financial Statements

(2)

Sales on Account/Receivables

(1)

Depreciation

(1)

The Balance Sheet

(4)

The Income Statement

(4)

The Statement of Cash Flow

(3)

The Statement of Retained Earnings

(1)

Relationship Among the Four Financial Statements

(1)

Footnotes

(1)

Development of Pro Forma Operating Statements

(3)

Summary

(1)

Endnotes

(1)

Key Terms

(1)

Review Questions

(1)

Problems

(12)

5 Financial Statement Analysis

(62)

Horizontal Analysis

(1)

Vertical Analysis

(4)

Ratio Analysis

(3)

Purposes of Ratio Analysis

(1)

Classes of Ratios

(1)

Liquidity Ratios

100

(8)

Current Ratio

100

(5)

Acid-Test Ratio

105

(1)

Accounts Receivable Turnover

106

(2)

Operating Cash Flows to Current Liabilities Ratio

108

(1)

Solvency Ratios

108

(5)

Debt-Equity Ratio

110

(1)

Long-Term Debt to Total Capitalization Ratio

111

(1)

Number of Times Interest Earned Ratio

111

(1)

Fixed Charge Coverage Ratio

112

(1)

Operating Cash Flows to Total Liabilities Ratio

113

(1)

Activity Ratios

113

(7)

Inventory Turnover

114

(2)

Property and Equipment Turnover

116

(1)

Asset Turnover Ratio

117

(1)

Paid Occupancy Percentage

118

(1)

Complimentary Occupancy Percentage

119

(1)

Number of Guests Per Occupied Room

119

(1)

Multiple Occupancy Percentage

120

(1)

Profitability Ratios

120

(7)

Profit Margin

121

(1)

Operating Efficiency Ratio

122

(1)

Return on Assets

122

(1)

Gross Return on Assets

123

(1)

Return on Equity

124

(1)

Earnings Per Share

124

(1)

Price Earnings Ratio

125

(1)

Market Value to Book Value Per Share Ratio

126

(1)

Viewpoints Regarding Profitability Ratios

126

(1)

Operating Ratios

127

(5)

Mix of Sales

128

(1)

Average Room Rate

129

(1)

Revenue Per Available Room (REVPAR)

129

(1)

Average Food Service Check

130

(1)

Food Cost Percentage

130

(1)

Beverage Cost Percentage

131

(1)

Labor Cost Percentage

131

(1)

DuPont System of Analysis

132

(2)

Trend Analysis

134

(1)

Limitations of Ratio Analysis

134

(1)

Usefulness of Ratios: Research Results

135

(1)

Summary

136

(2)

Key Terms

138

(1)

Review Questions

139

(1)

Problems

139

(14)

6 Risk and Value in the Hospitality Firm

153

(40)

Incorporating Risk into the Valuation of a Hospitality Asset

155

(4)

Measuring the Characteristics of Return and Cash Flow Distributions

159

(3)

Attitudes Toward Risk and Return

162

(2)

Choosing Among Projects on the Basis of Expected Return and Total Risk

164

(4)

Reducing Risk Through Diversification

168

(10)

Adding Investments to Diversified Portfolios

178

(5)

Estimating the Components of the Security Market Line

183

(3)

Summary

186

(1)

Endnotes

186

(1)

Key Terms

187

(1)

Review Questions

187

(1)

Problems

188

(5)

7 The Timing and Value of Cash Flows

193

(38)

Valuing Claims to Future Cash Flows: A Comparison Approach

193

(3)

The Basis of Time Value Calculations: The Compounding Process

196

(2)

The Present Value of a Single Cash Flow

198

(5)

The Future Value of a Single Cash Flow

203

(3)

The Present Value of a Multiple Cash Flow Stream

206

(10)

The Future Value of a Multiple Cash Flow Stream

216

(6)

The Rate of Return on an Investment

222

(2)

Non-Annual Compounding/Discounting Intervals

224

(1)

Summary

225

(1)

Key Terms

226

(1)

Review Questions 226 Problems

227

(4)

8 Valuation and Required Rates of Return

231

(26)

The Meaning of Worth or Value

232

(1)

The Present Value of All Future Dividends

232

(3)

Applying the Dividend Valuation Model to Project Valuation

235

(1)

Estimating ADIV0 and ADIV,

236

(3)

The Equity Approach to NPV

239

(1)

The Debt/Equity Approach to NPV

240

(2)

The Weighted Average Cost of Capital Approach to NPV

242

(6)

Using the WACC Approach: An Example

244

(3)

Using the WACC Approach: Some Considerations

247

(1)

The Adjusted Present Value Approach to NPV Estimation

248

(1)

Summary

249

(1)

Endnotes

250

(2)

Key Terms

252

(1)

Review Questions

252

(1)

Problems

252

(5)

9 Capital Expenditure Analysis

257

(32)

Capital Expenditures

258

(1)

Cash Flows Versus Accounting Income

258

(1)

The Incremental Cash Flow Principle

259

(1)

Opportunity Costs

259

(1)

Tax Considerations

260

(1)

Sunk Costs

261

(1)

Allocated Costs

262

(1)

Excess Capacity

262

(1)

Investment in Net Working Capital

263

(1)

Accelerated Versus Straight-Line Depreciation

264

(1)

Accounting for the Effects of Inflation

264

(2)

Expanding on Our Basic WACC Approach to NPV

266

(1)

An Example of Capital Expenditure Analysis for a Small Project

266

(5)

An Example of Capital Expenditure Analysis for a Large Project

271

(7)

Analyzing Other Types of Projects

278

(1)

Mutually Exclusive Project Alternatives

278

(1)

Capital Rationing

278

(1)

Summary

279

(1)

Key Terms

279

(1)

Review Questions

279

(1)

Problems

280

(9)

10 Other Project Valuation Criteria

289

(24)

Accounting Rates of Return

289

(2)

The Payback Criterion

291

(3)

The Internal Rate of Return

294

(8)

Calculating the IRR

295

(3)

Using the IRR for Valuation Decisions

298

(1)

Potential Problems with the IRR

299

(3)

Using Capital Budgeting Criteria: An Example

302

(3)

Accounting Rate of Return

303

(1)

Payback

304

(1)

Internal Rate of Return

304

(1)

Net Present Value

305

(1)

Additional Project Valuation Criteria

305

(1)

Summary

305

(1)

Endnotes

306

(1)

Key Terms

306

(1)

Review Questions

307

(1)

Problems

307

(6)

11 Issues in Capital Structure Management

313

(18)

The Main Considerations in the Financing Decision

313

(1)

When Capital Structure Does Not Matter

314

(5)

The Effect of Taxes on Optimal Capital Structure

319

(2)

The Effect of Costly Financial Distress

321

(2)

The Effect of Other Perfect Market Assumptions

323

(1)

Optimal Capital Structure in the Hospitality Industry

324

(2)

The Maturity Composition of a Hospitality Firm's Debt

326

(1)

The Importance of Optimizing Capital Structure

327

(1)

Summary

327

(1)

Endnotes

328

(1)

Key Terms

329

(1)

Review Questions

329

(1)

Problems

330

(1)

12 Financial Planning for the Hospitality Entrepreneur

331

(24)

Nature of Entrepreneurship

331

(1)

Characteristics of Entrepreneurs

332

(1)

Legal Forms of Entrepreneurial Ventures

332

(5)

Sole Proprietorships

333

(1)

Partnerships

334

(1)

Limited Partnerships

335

(1)

Corporations

336

(1)

S Corporations

336

(1)

Limited Liability Company (LLC)

337

(1)

Regulatory Considerations for the Hospitality Venture

337

(2)

Business Plan Outline

339

(3)

Commercial Bank Loans

342

(5)

Other Sources of Financing for the Entrepreneurial Venture

347

(1)

Term Loans

348

(2)

Summary

350

(1)

Endnotes

350

(1)

Key Terms

350

(1)

Review Questions

351

(1)

Problems

351

(4)

13 Managing an Enterprise's Working Capital

355

(38)

Working Capital

356

(4)

Net Working Capital Requirements

359

(1)

Cash Budgets

360

(8)

Cash Receipts and Disbursements Approach

360

(2)

Adjusted Net Income Approach

362

(1)

A Simplified Cash Budget Illustration

363

(4)

Minimum Cash Balances

367

(1)

Cash Management in Hospitality Chains

368

(1)

Float

369

(1)

Speeding Collections

370

(1)

Controlling Disbursements

371

(1)

Bank Charges/Relations

372

(1)

Managing Accounts Receivable

373

(3)

Credit Selection and Standards

373

(2)

Credit Terms

375

(1)

Credit Monitoring

375

(1)

Inventory

376

(4)

Managing Payables

378

(1)

Trade Payables

379

(1)

Short-Term Bank Loans

380

(1)

Investing Excess Working Capital

381

(2)

U.S. Treasury Bills

382

(1)

Time Deposits and Certificates of Deposit

382

(1)

Summary

383

(1)

Endnotes

384

(1)

Key Terms

384

(1)

Review Questions

384

(1)

Problems

385

(8)

14 Asset Management in the Hospitality Industry

393

(16)

Nature of Asset Management

393

(1)

Asset Management Companies

394

(1)

Strategic Plan for Asset Management

394

(2)

Hotel Operations Audit

396

(8)

Tour of Facility

396

(1)

Revenue Evaluation

396

(4)

Departmental Expenses

400

(3)

Undistributed Expenses

403

(1)

Fixed Expenses

403

(1)

Summary

404

(1)

Key Terms

405

(1)

Review Questions

405

(1)

Problems

405

(4)

15 Leasing

409

(26)

Leases and Their Uses

409

(2)

Major Provisions of Lease Contracts

411

(4)

Accounting Classifications of Leases

415

(4)

Accounting for Operating Leases

416

(1)

Accounting for Capital Leases

417

(2)

Other Classifications of Leases

419

(1)

Sale and Leaseback

419

(1)

Advantages and Disadvantages of Leasing

420

(1)

Choosing to Lease or Buy

421

(4)

Summary

425

(1)

Endnotes

425

(1)

Key Terms

425

(1)

Review Questions

426

(1)

Problems

426

(9)

16 Expansion Via Franchising

435

(26)

Franchising Defined

436

(2)

Types of Franchises

437

(1)

Franchising of Lodging and Food Service Chains

438

(8)

Benefits to the Franchisee

439

(2)

Franchisee Fees

441

(3)

Risks of Franchising

444

(1)

Benefits to the Franchisor

445

(1)

Disadvantages to the Franchisor

445

(1)

Franchising Friction and Solutions

446

(2)

The Franchise Agreement

448

(2)

Summary

450

(1)

Endnotes

451

(1)

Key Terms

451

(1)

Review Questions

451

(1)

Problems

452

(9)

17 Expansion Via Management Contracts

461

(26)

Parties to a Management Contract

462

(2)

Reasons for Growth in Management Contracts

464

(1)

Responsibilities of Management Companies

464

(2)

Responsibilities of Owners

466

(1)

Management Fees

466

(4)

Management Fee Structures

467

(2)

System Reimbursable Charges

469

(1)

Advantages of Management Contracts to Lodging Companies

470

(1)

Disadvantages of Management Contracts to Lodging Companies

471

(1)

Major Provisions of the Management Contract

472

(4)

Summary

476

(1)

Endnotes

476

(1)

Key Terms

477

(1)

Review Questions

477

(1)

Problems

478

(9)

18 Feasibility Studies

487

(38)

Purposes, Preparers, and Users of Feasibility Studies

488

(3)

Preparers of Studies

488

(2)

Users of Studies

490

(1)

Types of Feasibility Studies

491

(3)

Demand Analysis

491

(1)

Lodging Feasibility Study

492

(2)

Conducting the Feasibility Study

494

(7)

The Feasibility Study Report

501

(11)

Introduction

501

(1)

Summary of Conclusions

501

(1)

Site Evaluation

502

(1)

Market Area Analysis

502

(2)

Supply and Demand Analysis

504

(1)

Facilities Review

505

(2)

Estimated Occupancy and Average Daily Room Rate

507

(2)

Advanced Concepts

509

(1)

Pro Forma Analysis

510

(2)

Limitations of the Lodging Feasibility Study

512

(1)

Summary

513

(1)

Key Terms

513

(1)

Review Questions

514

(1)

Problems

514

(11)

19 Valuation of Hospitality Real Estate

525

(34)

What Is Value?

525

(2)

Uses of Appraisals

527

(1)

The Valuation Process

527

(3)

Approaches to Valuation

530

(16)

The Cost Approach

530

(2)

The Sales Comparison Approach

532

(3)

The Income Capitalization Approach

535

(8)

Two-to-Five-Year Projection Using Equity Dividend

543

(1)

Gross Income Multipliers

544

(2)

Summary

546

(1)

Endnotes

546

(1)

Key Terms

546

(1)

Review Questions

547

(1)

Problems

547

(12)

20 Income Taxes

559

(40)

A Permeating Force in Economic Business Decisions

560

(1)

Types of Taxes

560

(1)

History and Objectives of Federal Income Taxes

561

(1)

Tax Basics

562

(10)

Income, Income Exclusions, and Adjustments

563

(1)

Deductions, Exemptions, and Taxable Income

563

(1)

Taxes and Credits

563

(1)

Alternative Minimum Tax

564

(1)

A Tax Illustration

565

(6)

Marginal and Average Rates

571

(1)

Capital Gains and Losses

571

(1)

Tax Avoidance

572

(1)

Forms of Business Organization

573

(6)

Sole Proprietorship

574

(1)

Partnership

575

(1)

Limited Partnership

576

(1)

Limited Liability Companies

577

(1)

Corporations

577

(2)

S Corporations

579

(1)

Minimizing Taxes

579

(4)

Accounting Methods

583

(1)

Cash Versus Accrual Method

583

(1)

Accounting Income Versus Taxable Income

584

(2)

Accelerated Depreciation

584

(2)

First-Year Losses

586

(1)

Loss Carrybacks and Carryforwards

586

(1)

State and Municipal Taxes

586

(1)

Property Taxes

587

(1)

Summary

588

(1)

Endnotes

589

(1)

Key Terms

589

(1)

Review Questions

589

(1)

Problems

590

(9)

Glossary

599

(26)

Index

625

Amazon no longer offers textbook rentals. We do!

Financial Management For The Hospitality Industry

Financial Management For The Hospitality Industry

9780131179097

0131179098

Summary

Table of Contents

Supplemental Materials

Write a Review

Amazon no longer offers textbook rentals. We do!

Financial Management For The Hospitality Industry

Financial Management For The Hospitality Industry

9780131179097

0131179098

Summary

Table of Contents

Supplemental Materials

Write a Review

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