Professional Documents
Culture Documents
Hospitality is generally known as the act of generously providing care and kindness
to whomever is in need. It refers to the relationship between a guest and a host
especially the act or practice of being hospitable. Hospitable means the reception
and entertainment of guests, visitors, or strangers, with liberality and goodwill or in a
simple word ‘Courtesy’
There are four major types of sub-sector in the hospitality industry which are:
I. Lodging
• Hotels and motels
• Meetings, conventions, and expositions
II. Foodservice
• Restaurant and catering
III. Travel
• Air
• Cruise
• Rail
• Coach
• Automobile
IV. Recreation
• Attraction
• Gaming
• Parks
Finance can be defined as managing fund for future benefits of the business. In
simple definition, a firm needs to find the sources of fund and then plan to utilize or
use the fund for firm’s benefits.
a. Loans
Organizations can obtain the fund needed by borrowing from the
financial institutions. Loan involved a long-term commitment and the
company needs to pay the principal plus the interest for the loan
obtained.
b. Shares or bonds
Shares can be issued by the organizations to obtain the financial
needed. Issuing shares involves a lot of process but it is a popular
method for an established company to obtain a large amount of fund.
Bond is a debt financial instrument which has no positional interest in
the company as compared to share.
c. Sales of products
Selling of a product above the cost of production will bring profit and
thus funding day-to-day business operation. In manufacturing, the
selling price is determined after calculation of every cost involved in
the transformation process of input to output plus all the relevant
operational expenses. But for hospitality organizations, sales of the
products include rooms, and food and beverage. The calculation of
the price is slightly different from manufacturing industry.
II. Uses of Fund – How the organizations utilize the fund obtained for
execution of day-to-day operations
a. Profit maximizations
Profit is derived when the sales revenue is higher than the cost
incurred at one particular period; ie one month. In hospitality
organizations, the pricing of services offered should be precise in
order to maximize profits. The funds available should be used in
accordance to the priorities for example marketing, allowance to the
salesperson, allocation of the budget to every departments etc.
b. Wealth maximizations
Value of the organization is determined by the stock price. It values
should encompasses the earnings per share, dividend policy, rate of
return, risk, and market capitalization. The organization should
operate efficiently in order to maximize the value of the stock price
hence increase the shareholders confidence level.
d. Tax considerations
Tax is a financial charge or levy imposed by the government to an
individual or corporation for various purposes. Examples of taxes that
are imposed by the government to the business are corporation tax,
income tax, land value tax, Sales tax, Tariffs etc.
e. Charitable purposes
Many organizations today have embarked themselves in charitable
activities for helping the unfortunate people or less develop countries
to minimize the hardships of these people or countries. The amount of
charity budgets are all depending on the net income of the
organizations and it is tax deductible.
1.4 Scope of Financial Management
Every department in an organization plays important roles for business survival and
growth. Therefore cooperation among departments is vital to ensure the company
move forward smoothly. Financial management covers multidimensional approaches
such as the following:
Individuals need money to fulfill their needs or plan while companies need money to
finance its operation especially in the initial stage of operation. These two motives
prompted individuals and companies to search for financial intermediaries. Financial
intermediary is an institution, firm, or individual who provide financial assistance to
the parties that need money for various purposes. The agreement is subject to the
conditions stated by the financial intermediary or central bank.
Sales Revenue
Less: Variable Costs
Contribution Margin
Less: Fixed Costs
Less: Depreciation
Earnings Before Interest and Taxes (EBIT)
Less: Interest
Earnings Before Taxes Owner’s income
Less: Taxes Paid by owner
Earnings After Taxes Owner’s net income
2.3.2 Partnership
Partnership is a business that jointly owned by two or more people. It occurs
when two or more people have mutual understanding to pool capital and work
together. Therefore, all of them are the owners of the business and share the
profits and risks together.
Sales Revenue
Less: Variable Costs
Contribution Margin
Less: Fixed Costs
Less: Depreciation
Earnings Before Interest and Taxes (EBIT)
Less: Interest
Earnings Before Taxes Partner’s income
Less: Taxes Paid by the business
Earnings After Taxes Partner’s net income
Sales Revenue
Less: Variable Costs
Contribution Margin
Less: Fixed Costs
Less: Depreciation
Earnings Before Interest and Taxes (EBIT)
Less: Interest
Earnings Before Taxes LLC’s income
Less: Taxes Paid by the business
Earnings After Taxes LLC’s net income
2.3.4 Corporation
Corporation is a legal entity comprised of group of people (known as
shareholders) to perform a business operation similar to Limited Liability
Company. The difference between Corporation and LLC is the issuance of
shares where corporation can issue shares to the public and easily
transferrable through selling of shares to other party. The shareholder is the
owner of the business and entitle of income such as capital gained or
dividend received. Capital gained is an income received for the selling of
assets while dividend received is the income earned for holding shares in the
company. Corporation exists as a going concern entity which means it is
continuously operated unless the major shareholders decide to dissolve the
business.
Sales Revenue
Less: Variable Costs
Contribution Margin
Less: Fixed Costs
Less: Depreciation
Earnings Before Interest and Taxes (EBIT)
Less: Interest
Earnings Before Taxes Corporation’s income
Less: Taxes Paid by the corporation
Earnings After Taxes Corporation’s net
income