Financial Analysis and Budgeting
Operating statements and variance analysis
Hotel financial analysis follows a uniform chart of accounts, typically USALI. Revenue is reported by department-rooms, F&B, other operated departments, and miscellaneous-followed by departmental expenses and departmental profit. Undistributed operating expenses, including administrative and general, sales and marketing, property operations and maintenance, and utilities, are deducted to reach gross operating profit (GOP). Fixed charges such as property taxes, insurance, rent, and management fees lead to EBITDA; depreciation, interest, and income taxes are below that. Analysts must know what each measure includes, because hotel EBITDA is not identical to corporate EBITDA.
Budgeting links the operating plan to the revenue forecast and staffing. Variance analysis separates volume, rate, and cost effects. Flow-through measures how much of a revenue increase converts to GOP: incremental GOP ÷ incremental revenue. In a revenue decline, the analogous measure is flex, the percentage of lost revenue that reaches GOP; a lower flex percentage indicates better cost containment. Breakeven occupancy and margin analysis use fixed costs and contribution margin.
Traps: calculating flow-through on a revenue decline; using total revenue instead of incremental revenue as the denominator; comparing GOP with EBITDA; omitting the FF&E reserve, base and incentive management fees, or fixed charges; and accepting a capital project on payback alone without NPV or IRR.
Worked example: revenue rises from $10.0M to $11.0M and GOP from $3.0M to $3.4M. Flow-through = $0.4M ÷ $1.0M = 40%. If revenue instead falls $0.5M and GOP falls $0.2M, flex = 40%. Breakeven: fixed costs of $2.0M and a 40% contribution margin require $5.0M of revenue. Rule of thumb: one occupancy point on 200 rooms is 730 room-nights a year.