Basic Hospitality Terms and Formulae

Topics: Time value of money, Net present value, Internal rate of return Pages: 5 (996 words) Published: July 18, 2012
Basic Terms & Terminology

1. Achievement Factor - The percentage of the rack rate that a hotel actually receives: in hotels not using RM software, this factor is generally approximated by dividing the actual average room rate by the potential average rate 2. ADR – An occupancy ratio derived by dividing net room’s revenue by the number of rooms sold 3. Average rate per guest – An occupancy ratio derived by dividing net rooms revenue by the number of guests 4. Competitive Set - The competitive group of hotels in a market that provides the most important competition for a hotel 5. Daily Operations Report - A report that summarizes the hotel’s financial activities during a 24 hour period and provides insight into revenue, receivables, operating statistics, and cash transactions related to the front office also known as “Manager’s Report” 6. Forecasting - The process of predicting events and trends in business: typical forecasting for the rooms division includes room availability and occupancy. 7. House Count - The forecasted or expected number of guests for a particular period, sometimes group or non group business. 8. Hubbart Formula - A bottom up approach to pricing rooms; in determining the average price per room, this approach considers costs, desired profits and expected rooms sold 9. Income Statement - A financial statement that provides important information about the results of hotel operations for a given period of time. 10. Market Condition Approach - An approach to pricing that bases prices on what comparable hotels in the competitive set are charging for a similar product 11. Multiple Occupancy % - The number of rooms occupied by more than one guest divided by the number of rooms occupied by guests (total rooms). 12. Multiple Occupancy Ratio - A measurement used to forecast food and beverage revenue, indicate clean linen requirements, and analyze daily revenue rate derived from multiple occupancy% or by determining the average number of guests per room sold, also called double occupancy ratio 13. Occupancy Ratios - A measurement of the hotel’s success in selling rooms: typical occupancy ratios include aver age daily rate, rev per available room, average rate per guest, multiple occupancy statistics, and occupancy % 14. Operating Ratios - A group of ratios that assist in the analysis of hospitality operations 15. Overstay - Guest who stays after his/her departure date 16. Rack rate - Standard rate the property establishes for a particular category of rooms 17. Hurdle Rate – It is the rate of return to be met by the company (generally 12%). It is also called the cut-off rate, benchmark arte and cost of capital. 18. Rev Pac - Revenue per actual guest

19. Room rate variance report - A report listing rooms that have not been sold at rack rates 20. Stayover - A room status term indicating the guest is not checking out today and will remain at least one more night. 21. Understay - A guest who checks out before his/her departure date. 22. Pay Back Period - It is the period or the expected number of years required to recover the original investment. 23. Net Present Value - It is the summation of the present values of all cash flows in each year. If the Net Present Value below the IRR rate is a positive figure, it is a feasible project. If...It means...Then...

NPV > 0the investment would add value to the firmthe project may be accepted NPV < 0the investment would subtract value from the firmthe project should be rejected NPV = 0the investment would neither gain nor lose value for the firmWe should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision should be based on other criteria, e.g. strategic positioning or other factors not explicitly included in the calculation. 24. Internal Rate of Return – The IRR of an investment is the interest rate at which the costs of the investment lead to the benefits of the investment. This...
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