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FINANCE IN HOSPITALITY
INDUSTRY
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TABLE OF CONTENTS
INTRODUCTION .......................................................................................................................... 1
TASK 1: Sources of Finance for Small Business ........................................................................... 1
1.1................................................................................................................................................ 1
1.2................................................................................................................................................ 2
TASK 2: Monitoring and Controlling Performance at Mark & Spencer........................................ 3
2.1................................................................................................................................................ 3
2.2................................................................................................................................................ 4
TASK 3: Budgetary Control ........................................................................................................... 6
3.3................................................................................................................................................ 6
3.4................................................................................................................................................ 7
TASK 4: Financial Statements........................................................................................................ 8
3.1................................................................................................................................................ 8
3.2................................................................................................................................................ 9
4.1.............................................................................................................................................. 11
4.2.............................................................................................................................................. 13
TASK 5: Costing Methods............................................................................................................ 13
5.1.............................................................................................................................................. 13
5.2.............................................................................................................................................. 14
5.3.............................................................................................................................................. 16
CONCLUSION ............................................................................................................................. 16
REFERENCES ............................................................................................................................. 17
LIST OF TABLES
Table 1: Profit and Loss Account ................................................................................................... 9
Table 2: Balance Sheet.................................................................................................................. 10
Table 3: Costing ............................................................................................................................ 14
Table 4: Costing ............................................................................................................................ 14
Table 5: Costing ............................................................................................................................ 15
TABLE OF FIGURES
Figure 1: EOQ ................................................................................................................................. 5
Figure 2: Budgetary Control Cycle ................................................................................................. 7
Figure 3: Trail Balance ................................................................................................................... 9
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INTRODUCTION
Hospitality industry is customer oriented sector, according to companies have use
optimum utilization of financial resources in order to fulfill needs and wants of customers
(Dittenhofer, 2001). In the first part report will focus on various sources available to hospitality
industry for their sustainable future whereas in second part report will discuss about monitoring
and controlling of performance at Mark and Spencer Company. In third part repot will highlight
the importance of budget and purpose of budget. In the fourth part report will focus on financial
statements of R. Riggs Company in order to identify and evaluate their financial performance.
TASK 1: Sources of Finance for Small Business

1.1
Sources of finance are basic requirement for any organization, industry or sector in order
to perform their task effectively and efficiently. There are various methods of raising funds or
money in any industry and every company adopts different types of sources based on nature of
business operations (Shim and Siegel, 2008). In other words finance according to corporate can
be termed as managing of large funds or money by company for future sustainability. Sources of
funds can be categorized into two sub heads: internal sources and external sources.
Internal sources: in basic term these sources of finance are those which are raised within
organization. In other words, internal sources of finance are those which are acquired from the
previous profits or revenue generated by firm as the source of new capital investment. There are
various internal sources through which any organization operating in any industry can raise their
required funds or money such as: owners capital, retained earnings, sale of fixed assets and debt
collection (Obura and Bukenya, 2008). The major focus on raising thesess funds is to meet short
term liabilities of business operations.
External sources: external sources of funds are those which are raised from outside organization
in order to fulfill long term liabilities of business operations. These sources of finance are used to
perform long term business activities for future sustainability. There are several external sources
of finance which can be acquired by company in order to increase their funds such as: issue of
shares and debentures, bank loan, government grants, creditors and hire purchase.
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The above discussed sources of finance can be used by hospitality industry according to
their needs and wants and accomplish business operations effectively and efficiently. According
to case study company can use external sources of finance in order to generate income for
purchasing machinery for improving overall performance and achieve desired goals and
objectives. For purchasing machinery of 50k company can adopt bank loan, leasing it is
recommended because of financial position that firm holds now.
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1.2
According to the case study generating sources of finance for expanding chains of
restaurant, company should use external sources of finance because on the basis of present
condition company is operating at low level and for them raising funds internally will be difficult
(Hill, 2013). There are several sources of finance through which company can acquire funds for
expanding large chain of restaurants such as bank loan or leasing. Both these sources would be
most appropriate for company in order to acquire as well as repayment of funds. Firm should
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critically analyze these sources in order to evaluate pros and cons of adopting these sources of
finance.
Bank Loan: for raising funds quickly bank loan can be adopted by any company, this source is
effective as funds can be easily available through bank loan and repayment of loan is based on
monthly installments. Company in order to expand or increase their chain of restaurants can use
this source of finance so that future functioning can be done effectively and efficiently (Bragg,
2010). But disadvantage of this source that even is company is not making profit than also have
to incur payment of interest.
Leasing: this source of finance can assist company is acquiring latest technology for upgrading
the services provided in restaurant. As company wants to increase their chain of restaurants can
use this source because they will require buildings at various places and equipments installation
for increasing the efficiency of restaurants (Mongiello and Harris, 2006). But the main issue
regarding this source of finance is that acquired assets would always belong to financial
institution only.
From the above discussed sources of finance company can generate income for
expanding chain of restaurants. Apart from that company can use internal sources for further
successful functioning. Bank loan and leasing are suggested because company wants to expand
in chain of restaurants. As the present financial condition of firm is stated it is a small business
enterprise.
TASK 2: Monitoring and Controlling Performance at Mark & Spencer

2.1
Cost in general terms refers to an amount which has to be paid in order to have
something. According to business, cost is termed as monetary valuation of effort, material,
resources, time and utilities consumed etc. there are various elements of cost such as material
cost, labor cost and overheads. Firstly, material cost refers to the cost which is incurred by Mark
and Spencer Company in order to produce finished goods. This cost is divided into two sub
category direct material and indirect material (Brigham and Ehrhardt, 2011). Secondly, labor
cost refers to the human efforts consumed in producing finished goods from raw material.
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Payment made for performing those activities is called labor cost. This cost is broadly classified
into direct labor and indirect labor. Thirdly, overheads refer to the cost incurred by Mark and
Spencer Company apart from material cost and labor cost for producing products and services.
Overheads furthermore can be divided into sub category such as indirect and direct overhead.
Direct overheads refers to those cost which are specifically incurred during manufacturing of
products and services, whereas indirect cost refers to all the expenses incurred apart from
indirect material and indirect labor (Li, 2003). Fixed cost and variable cost are explained
theoretically. Whereas GP% and selling price are as follows:
Gross profit percentage assist in identifying relationship between Mark and Spencers
revenues and COGS.
Gross profit = Revenue cost of goods sold
Gross profit percentage = gross profit/COGS*100
For example, if companys revenue is 50000 and COGS is 30000 than gross profit will be:
Gross profit = 50000 30000 = 20000
Gross profit percentage = 20000/ 30000*100 = 66.66%
Selling price refers to the price at which company sells its products and services in order
to gain generate profit.
Selling price = 100 + gain%/ 100* cost price.
2.2
Controlling of cash and stock is major task for Mark and Spencer Company as they deal
in retail sector. Every manager is making various efforts in order to improve companys
performance day by day like sales managers are focusing of generating enough sales to meet out
desired goals and objectives, on the other personnel managers are focusing of controlling and
managing human resources effectively and efficiently for desired results and thirdly, financial
managers are focusing on managing all incurred costs like direct and indirect costs. Mark and
Spencer are one of the giant retailers in global market (Brigham and Ehrhardt, 2011).
Economic order quantity:
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Figure 1: EOQ
(Source: Dittenhofer, 2001)

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Company incurs several cost which can be easily identified and evaluate with sales volume.
These incurred costs can be terms as direct cost such as carrier bags offered to the customer for
their convenience and comfortability in handling products, and cost regarding the recruitment of
qualified and different ethnic background for serving customers effectively and efficiently. On
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the other hand controlling of stock will assist Mark and Spencer to provide quality with quantity
of products and services to its targeted customers (Power, 2010). By managing inventory
company can also increase their sales volume or increase customer base which would be
beneficial for future contingency of companys operations.
TASK 3: Budgetary Control

3.3
Budget process refers to the process through which company prepares and approves
budget for flowing of funds in business operations. By preparing budgets company can prioritize
activities and on that basis spend funds and later on review whether operations are working
properly or not. In other words, budget is prepared to compare actual performance of business
from desired one. Budgets assist managers to indulge in various essential operations such as
setting up goals, optimum utilization of financial resources in order to improve future financial
performance of company (Graham and Harvey, 2001). Budget aims at providing financial
information for making future strategies in achieving desired goals and objectives. In an
organization several budgets can be prepared such as sales, cash, material, labor and master
budget. All these budgets assist identifying and evaluating past performances of company and
according to that make decisions regarding future contingency.
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Project Initiation
assess corrective Establish

actions standards
Measure
intitate corrective
Performance
actions
against Standard
companre and
evalaute
Figure 2: Budgetary Control Cycle

3.4
Budget Actual Variance
Unit sold 100000 75000 (25000)
Material 15000 22500 (7500)
Direct labor 22500 24375 (1875)
Material () Labor ()
Price / rate variance (4500) 3750
Usage / efficiency variance (3000) (5625)
Total variance (7500) (1875)
The above table represents information of budget of Yuri ltd. Through this it can be
evaluated that company in present condition is facing various issue due to lack of efficiency in
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performing business operations (Michayluk and Zurbruegg, 2005). Yuri Ltd did not made better
budgeting related to unit sold and direct labor just because of lack of forecasting and better
estimation of managers. Company targeted at selling 100000 units during financial year but the
actual sale was 75000 units, it can be said that marketing and promotional strategies of company
was unable to achieve their desired goals and objectives which affected overall sales of
company. Variance of (25000) justifies that company needs to focus on making better strategies.
On the other hand, company expected material cost to be at 15000 but actual cost incurred during
producing of spoons were 22500, this directly indicates that financial mangers did not focus on
pricing strategy before purchasing of raw materials from suppliers or production was not
measured specifically. Whereas, direct labor cost was budgeted at 22500 which incurred during
the process around 24735 with a negative variance of 1857, which means labor indulged in
performing activities were increased and due to this costs increased. Pricing strategy of company
was not appropriate because price/rate variance was identified during performing of past
operations such as material was negative (4500) and labor cost was increased by 3750.
Furthermore, usage /variance was also identified of material which was (3000) and labor was
(5625) this directly indicated that Yuri ltd was unable to use resources effectively and efficiently
or supplier were demanding high prices.
TASK 4: Financial Statements

3.1
Trial balance is a statement prepared at the end of financial year, including ending
balance of each account. The main aim of this report is to ensure that total amount of all credits
equals to total amount all debit, which indicates that there is no unbalanced journal entries in the
accounting system (Coleman and Anderson, 2000). It is a type of financial statement which
assists in providing information regarding financial performance and changes in financial
position of an organization which is useful for decision makers. There are various limitations of a
trial balance such as: an error relating to original entry, error of omission, error of reversal, error
of commission, error of principle, compensating error and transposition error (Wildavsky, 2006).
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The main purpose of preparing a trial balance is to ensure that entries in companys bookkeeping
system are done mathematically.
Trial balance
December 31st 2013
Account Debit Credit
Bank xxx
Sales xxx
Sales return xxx
Drawings xxx
Purchase xxx
Purchase return xxx
Sales discount xxx
Accounts receivable xxx
supplies xxx
Office building xxx
Bank loan` xxx
Accounts payable xxx
Mortgage payable xxx
Total xxxx xxxx
Figure 3: Trail Balance
3.2
Table 1: Profit and Loss Account
Particulars Amount (in s)

Sales 157165.00
Less COGS (94520.00)
Gross profit 62645.00
Discounts received 160.00
Interest received from bank* 50.00
Operating income 62855.00
Expenses
Wages and salaries (31740.00)
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Rent (3170.00)
Discount allowed (820.00)
Van running costs (687.00)
Bad debts (730.00)
Doubtful debt provision (91.00)
Accrued expenses paid* (200.00)
Depreciation (1630.00)
Total expenses (39068.00)
Net profit 23787.00
Table 2: Balance Sheet
Particulars Amount (in s) Amount (in s)

Fixed assets
Office furniture & van 6650.00
Less depreciation (1630.00)
Net fixed assets 5020.00
Additional furniture* 525.00
Total fixed assets 5545.00
Current Assets
Stock 2400.00
Debtors 12316.00
Less provision for doubtful debts (496.00)
11820.00
Prepaid expenses 230.00
Cash at bank & hand 4424.00
Add Interest received* 50.00
Less accrued expenses paid* (200.00)
4274.00
Total current assets 18724.00
Total Assets 24269.00
Current Liabilities
Creditors 5245.00
Accruals 412.00
Creditors for furniture* 525.00
Total liabilities 6182.00
Equity capital
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Capital 11400.00
Add Net profit 23787.00
less drawings (17100.00)
Total equity 18087.00
Total Liabilities & Equities 24269.00
(Corrected entries shown in Yellow*)
4.1
Identifying and evaluating financial performance of R. Riggs Company through calculating
ratios which are as follows:
Ratios 2014
Gross profit ratio 39.85
Net profit margin 15.26
Current ratio 2.3
Acid test ratio 2.1
Debtors payment period 28.6
Creditors payment period 14.27
Stock turnover ratio 39.38 Days
Gross profit ratio gross profit ratio assist in evaluating the portion of profits generated by
the sale of products and services, before selling and administrative expenses. Gross profit
ratio can be calculated by combining the costs of direct material, direct labor and overheads
than subtract from sales.
Gross profit ratio = gross profit / sales *100
Gross profit ratio = 62645 / 157165 * 100 = 39.85
Gross profit ratio = 39.85.
Net profit margin this ratio assist in measuring how much out of every dollar of sales a
company actually keeps in earnings. Profit margin ratio is beneficial in comparing two
companies of same industry. It can be calculated by dividing net profit from sales.
Profit margin ratio = net profit / sales *100
Profit margin ratio = 23987 / 157165 *100 = 15.26
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Profit margin ratio = 15.26.
Current ratio current ratio assist managers to Measure Companys ability to pay short term
liabilities. Current ratio can be calculated by dividing current assets from current liabilities.
Current ratio = current assets / current liabilities.
Current ratio = 14220 / 6128 = 2.3
Current ratio = 2.3.
Acid test ratio this ratio assist in determining whether company have enough short term
assets to meet out its short term liabilities without selling products and services. Acid test
ratio is calculated by combining cash, accounts receivables, short term investments divided
by current liabilities.
Quick ratio = current asset stock / current liabilities
Quick ratio = 14220 2400 / 5457 = 2.1
Quick ratio = 2.1.
Debtors payment period this ratio assist in evaluating the average time taken by an
organization to collect the trade debts.
Debtor payment period = average debtor / sales * 365
Debtor payment period = 12316 / 157165 * 365 = 28.6
Debtor payment period = 28.6.
Creditors payment period this ratio assist in identifying the efficiency of a companys
business operations. It can be termed as a performance ratio. In other words, this ratio assist
in identifying insight business functioning.
Creditor payment ration = average creditor / purchase * 365
Creditor payment ratio = 5245 / 134113 * 365 = 14.27
Creditor payment period = 14.27.
Stock turnover ratio this ratio assist in defining the rate at which inventory of company is
used over a specific period of time.
Stock turnover ratio = cost of goods sold / stock
Stock turnover ratio = 94520 / 2400 = 39.38
Stock turnover ratio = 39.38 days.
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4.2
On the basis of above calculation it can be concluded that R. Riggs is having better
existing position in targeted market. According to that company should follow their existing
strategies only, but on the long term basis company needs to focus on its pricing strategy and
along with that marketing and promotions of products and services so that they can attain
maximum numbers of customers and increase their sales (Shim and Siegel, 2008).

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TASK 5: Costing Methods

5.1
Cost in general terms refers to an amount which has to be paid in order to have
something. According to business, cost is termed as monetary valuation of effort, material,
resources, time and utilities consumed etc (Li, 2003). Cost can be sub-divided into three
categories are as follows: fixed cost, variable cost and semi variable cost.
Fixed cost fixed cost refers to the cost which does not change with an increase or decrease in
the amount of goods or services produced. In other words, fixed costs are the expenses that have
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be paid by producing company. It is one of the components of total cost of goods or services,
along with variable cost.
Variable cost variable cost are those costs which changes as company changes its level of
production. It is also sum of marginal cost. In other words, term variable cost is also known as
unit level cost as it changes with numbers of unit produced (Dittenhofer, 2001).
Semi variable cost semi variable cost refers to an expense which indulges both fixed cost and
variable cost component. Fixed cost is an expense which company has to bear even if they are
not generating profits. On the other hand, variable cost increases and decreases on the basis of
increase and decrease in the level of production.
5.2
Problems Limited thought to reduce the selling price of each unit by 10 per cent.
Table 3: Costing
000
Sales 90000
Less: variable cost 72000
Contribution 18000
Less: fixed cost 30000
Budgeted loss (12000)
Problems Limited thought to increase the selling price of each unit by 10 per cent.
Table 4: Costing
000
Sales 110000
Contribution 22000
Breakeven point 8000
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Problems Limited stimulate by improving the quality of [product, which would increase the
variable cost of unit by 1.50 per unit.
Table 5: Costing
000
Sales 115000
Contribution 33500
Budgeted loss 3500
From the above calculation it can be concluded that costing methods of company is not
appropriate as per Problems Limited performance is concerned (Obura and Bukenya, 2008).
Company is unable to generate profit for that three different strategies have been suggested in
which first is by reducing selling price by 10%, secondly increase in selling price by 10% and
last increase in the variable cost by 1.50.

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5.3
On the basis of situation it has be calculated above and from these financial information it
can be clearly stated that company should increase selling price by 10% which will assist in
increasing the sales revenue of Problems Limited and leads to sustainable future position
(Mongiello and Harris, 2006). In order to meet out their profits targeted company has to produce
11500 units to gain profit of 3500
CONCLUSION
From the above report it can be concluded that costing play a major role in functioning of
every business. In the first part report discussed about the sources that services industry should
use for future functioning, and it has been recommended that externals sources should be taken
in account for expanding business of restaurants. In late part report focused on R. Riggs
Companys financial position through analyzing P&L account and balance sheet and calculating
several ratios.

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REFERENCES
Journal and Books
Bragg, M. S., 2010. Accounting Best Practices. 6th ed. John Wiley & Sons
Brigham, F. E. and Ehrhardt, C. M., 2011. Financial Management: Theory and Practice. 8th ed.
Cengage Learning.
Brigham, F. E. and Ehrhardt, C. M., 2011. Financial Management: Theory and Practice. 8th ed.
Cengage Learning.
Coleman, M. and Anderson, L., 2000. Managing Finance and Resources in Education. SAGE
Dittenhofer, A. M., 2001. Behavioral aspects of government financial management. Managerial

Auditing Journal. 16(8). pp.451 457.
Graham, J.R. and Harvey, C.R. 2001. The theory and practice of corporate finance: Evidence
from the field. Journal of Financial Economics. 60 (2-3), pp. 187-243.
Li, S., 2003. Future trends and challenges of financial risk management in the digital economy",
Managerial Finance. 29(5/6). pp.111 125.
Michayluk, D. and Zurbruegg, R., 2005. Editorial introduction: the value and scope of the
financing decision process. International Journal of Managerial Finance. 1(1). pp.5 7.
Mongiello, M. and Harris, P., 2006. Management accounting and corporate management:
insights into multinational hotel companies. International Journal of Contemporary
Hospitality Management. 18(5). pp.364379.
Obura, O. C. and Bukenya, K. N. M. I. 2008. Financial management and budgeting strategies for
LIS programmes: Uganda's experience. Library Review.57(7). pp.514 518.
Power, J.,2010. Financing options for business in Ireland. [pdf]. Available through:
<http://publish.ucc.ie/boolean/pdf/2010/00/33-Power-2010-00-en.pdf>. [Accessed on 3rd
June 2014].
Shim, K. J. and Siegel, G. J., 2008. Financial Management. 3rd.ed. Barron's Educational Series.
Wildavsky, B. A., 2006. Budgeting And Governing. Transaction Publishers.
Online
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Hill, B., 2013. The Importance of a Financial Plan for a Small Business. [Online]. Available
through:< http://smallbusiness.chron.com/importance-financial-plan-small-business-
4713.html>. [Accessed on 24th June 2014].

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TASK 1: Sources of Finance for Small Business ........................................................................... 1

TASK 2: Monitoring and Controlling Performance at Mark & Spencer........................................ 3

TASK 3: Budgetary Control ........................................................................................................... 6

TASK 4: Financial Statements........................................................................................................ 8

TASK 5: Costing Methods............................................................................................................ 13

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TASK 1: Sources of Finance for Small Business

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TASK 2: Monitoring and Controlling Performance at Mark & Spencer

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TASK 3: Budgetary Control

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assess corrective Establish

Figure 2: Budgetary Control Cycle

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TASK 4: Financial Statements

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Particulars Amount (in s)

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Table 2: Balance Sheet

Particulars Amount (in s) Amount (in s)

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TASK 5: Costing Methods

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Dittenhofer, A. M., 2001. Behavioral aspects of government financial management. Managerial

Wildavsky, B. A., 2006. Budgeting And Governing. Transaction Publishers.

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