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5.1 Primary Remarks
The data needs to be processed and analyzed after collection as described in the research
plan. All relevant data should be compared and analyzed, is the part of the scientific
study. Data processing includes editing, coding, and classification of the collected data;
so as to amenable to analysis. The data analysis implies the computation of certain
measures along with searching for patterns of relationship that exit among data-groups.
Thus, in the process of analysis, researcher needs to use certain scientific test to check
validity of hypothesis, whether; it is supporting or conflicting with the original or new
hypothesis.
5.2 Data Analysis
This paragraph confers procedures for objective determining, under various conditions,
whether sample results support a hypothesis about a parameter value, or whether the
sample results indicate that a hypothesis should be rejected.
Data analysis is based on primary and secondary data collected. The primary data have
been collected with the help of questionnaire and direct interview of hoteliers and
bankers. The secondary data have been collected from annual reports of hotels, financial
reports of hotels made by CMIE Prowess (Appendix-D), MCA-21 (Ministry of Corporate
Affairs site) and review of HVS International for the period of 2005-2010.
Due do the limitations secondary data of only four hotels have considered for research.
These hotels are The Indian Hotels Ltd. (The Hotel Taj Blue Diamond, Pune), Kamat
Hotels (VITS Hotel, Pune), Sayaji Hotel and Royal Orchid Hotel (Royal Orchid Central
Hotel). The brief information about these groups of hotels is as following:
The Indian Hotels Ltd.:
The Taj Mahal Palace and Tower built in 1903, in Mumbai by Jamsetji N. Tata,
founder of the Tata group. With total of 57 properties in 40 locations across India and 18
144
International Hotels, the Taj family of Hotels encompasses iconic city hotels, grand
palaces, modern business hotels, beach resorts and rustic safari lodges.
Kamat Hotels:
The Kamat Group had a modest beginning. The Chairman Late Mr. Venkatesh
Kamat had started a small restaurant at Mazgaon, Mumbai. Within the span of five years
(1972-1976), a total of six establishments a partnership in the well known Asiatic
Department store at Churchgate, catering to the distinctly different needs of general
office goers. In September 1995, the management decided to upgrade and reopen the
property as a Five Star Hotel and ‘The Orchid’ Asia’s first Eco-Friendly Five Star Hotel
was opened. The group also had their hotel at several other countries like Belgium,
Dubai, Japan, Singapure, U.K. and U.S.A.
Sayaji Hotels:
Sayaji Hotel was incorporated in 1982. It was become public limited in the year
1992. It is the part of Sayaji Hotel group. This hotel’s Head office is at Indore. This
hotel has its properties at Indore, Vadodara and Pune.
Royal Orchid Hotels:
Hotel Royal Orchid’s Head Office is at Bangalore and established in 1973. This
group operates 18 business and leisure hotels across India. The hotel has a strategic plans
to expand into international markets in the immediate future.
5.2.1 Hypothesis 1 The bank finance is the commonly used source of working capital
for hotels.
With the help of both the primary and secondary data researches, the hypothesis has been
tested. It is assumed that short term bank borrowing is used to fulfill the working capital
need of the hotel.
145
Table 5.1 The Indian Hotels Ltd. (The Hotel Taj Blue Diamond, Pune a Five Star
Hotel): The field research reveals that the sources of finance of the working capital for
this hotel are mainly advances from customers and public deposits. Presently, this hotel
does not obtain bank finance to satisfy the working capital need and also do not avail
non-fund based facilities like bill discounting, letter of credit, or factoring services.
Following table shows the contribution of total borrowings to short term borrowings.
Table 5.1 Short-term borrowing to the borrowing in The Indian Hotels Ltd. (The
Hotel Taj Blue Diamond, Pune a Five Star Hotel):
(Fig. in Cr.)
Year Total
Borrowings
from Bank
Short Term
Borrowing from
Bank during the year
% of Total Borrowings
from Bank to Short
Term Borrowing from
Bank
2005-06 110.00 10.00 9.10
2006-07 177.99 80.03 44.96
2007-08 211.47 120.51 56.99
2008-09 145.25 29.44 20.27
2009-10 0.00 0.00 0.00
Average 26.26
Source: Financial data published by CMIE Prowess, Appendix-D pg.xxviii
From the given financial data (from table 5.1), it been has revealed that this hotel is very
inconsistent in using the bank finance for satisfying the working capital needs. It is
varied from 0-56%.
Other than fund based facilities, the bank provides some non-fund based facilities as well.
Table 5.2 shows various financial charges charged by the banks for providing these
services.
146
Table-5.2 Table Shows various financial charges for providing financial services for
The Indian Hotels Ltd.
(Fig. in Cr.)
Financial services 2005-06 2006-07 2007-08 2008-09 2009-10
Financial charges on Instruments 0 0 0 0 0
Other fund based financial services 0 0 0 0 0
Bill discounting charges 0 0 0 0 0
Bank charges and guarantee fees
etc.
0 0 0 0 0
Source: Financial data published by CMIE Prowess, Appendix-D pg.xxiii
Table 5.2 shows various financial charges taken by the bank. The data reveals that
this hotel did not avail any service related to the working capital finance.
VITS (Kamat (I) Hotels, Four Star Hotel) : The Bank finance is the source of the
working capital for this hotel. This hotel used 10-15% bank finance to satisfy its working
capital requirement and does not use popular banking services like bill discounting and
factoring. Following table shows the contribution of short term borrowings to total
borrowings.
Table -5.3 Share of short term borrowings to total borrowings in VITS Hotel
(Fig. in Crore of Rupees)
Year Total
Borrowings
from Bank
Short Term
Borrowing from
Bank
% of Total Borrowings from
Bank to Short Term
Borrowing from Bank
2005-06 93.94 4.32 4.63
2006-07 120.66 30.09 24.94
2007-08 102.81 30.97 30.12
147
2008-09 127.5 48.11 37.73
2009-10 174.69 2.13 1.22
Average 19.73
Source: Financial data published by CMIE Prowess Appendix-D pg.xli
From Table 5.3, it is revealed that there is no consistency in using bank finance as short
term source of finance or working capital finance. In the years 2005-06 and 2006-07 its
contribution was 4.63% and 24.94%, respectively; from 2006-07 to 2008-09 it was
increasing. However, in the year 2009-10 short term finance from the bank to total
borrowing from the bank was just 1.22.
Table 5.4 shows the financial expenses made or financial charges paid to bank for
availing these services.
Table-5.4 Table Shows various financial charges for providing financial services for
VITS Hotel
(Fig. in Cr.)
Financial services 2005-06 2006-07 2007-08 2008-09 2009-10
Financial charges on
Instruments
0 0 0 0 0
Other fund based financial
services
0 0 0 0 0
Bill discounting charges 0 0 0 0 0
Bank charges and guarantee fees
etc.
0 0 0 0 0
Source: Financial data published by CMIE Prowess Appendix-D pg.xxxvi
Table 5.4 shows various financial charges taken by the bank. Alike Taj Blue Diamond,
from the data it is revealed that, this hotel also did not avail any service provided by the
bank which is useful to the hotel as non fund based facility.
148
Royal Orchid Central (Five Star Hotel):
During the field study efforts were made to know the use of bank finance for meeting the
working capital requirement of the hotel Royal Orchid Central. It is revealed from the
field research that the bank finance is the major source of the working capital for this
hotel. This hotel used 60% bank finance to satisfy its working capital requirement. This
hotel has availed cash credit facility and also term loan to assure uninterrupted working
capital for the hotel. This hotel also has approached their bank for facilitating letter of
credit. However, this hotel did not use popular banking services like bill discounting and
factoring. The bank asked the hotel to provide security for getting the working capital.
Along with the bank finance, this hotel had also borrowed from corporate houses, to
satisfy its working capital requirement. Table 5.5 shows the contribution of short term
borrowings to total borrowing.
Table-5.5 Share of short term borrowings to total borrowings in Royal Orchid
Central Hotel (Fig. in Crore of Rs.)
Year Total
Borrowings
from Bank
Short Term
Borrowings from
Bank
% of Total Borrowings from
Bank to Short Term
Borrowing from Bank
2005-06 26.37 0.00 0.00
2006-07 21.90 0.00 0.00
2007-08 16.81 0.00 0.00
2008-09 61.77 50.00 80.95
2009-10 137.86 50.00 36.27
Average 58.61
Source: Financial data published by CMIE Prowess Appendix-D pg.liv
Table 5.5 shows that during the first three years, the Royal Orchid Hotel has not availed
any short-term borrowing from banks. However, in the year 2008-09 the short term
149
borrowing was as high as 80.95%, and is the highest among all the years.
During the next year it was reduced to 36.27 percent. Before 2008-09, this hotel did not
borrow any funds from the bank to satisfy its working capital need.
Table 5.6 shows the financial expenses made or financial charges paid to the bank for
availing these services.
Table-5.6 Table Shows various financial charges for providing financial services for
Royal Orchid Central Hotel
(Fig. in Crore of Rs.)
Financial services 2005-06 2006-07 2007-08 2008-09 2009-10
Financial charges on
Instruments
0 0 0 0 0
Other fund based
financial services
0 0 0 0 0
Bill discounting charges 0 0 0 0 0
Bank charges and
guarantee fees etc.
0.05 0.06 0.1 0.08 0.06
Source: Financial data published by CMIE Prowess Appendix-D pg.xlix
The table shows various financial charges taken by the bank. The above data discloses
that, this hotel has availed only few services like bank guarantee, etc. The bank charges
and guarantee fees paid by the hotel varies between Rs. 0-05 to Rs. 0.1 which is very
negligible.
150
Sayaji Hotel (Three Star Hotel):
From the field investigation, it has been found that the bank finance was one of the
sources of the working capital financing for this hotel. This hotel used to obtain financial
assistance from the bank to satisfy its working capital need. This hotel has also availed
term loan to fulfill permanent working capital need from bank. This hotel has also
availed bank guarantee. However, it did not avail bill discounting and letter of credit
facilities from the banks. Table 5.7 shows the contribution of short term borrowings to
total borrowings.
Table -5.7 Share of short term borrowings to total borrowings in Sayaji Hotels
(Fig. in Crore of Rupees)
Year Total
Borrowings
from Bank
Short Term
Borrowing from
Bank
% of Total Borrowings from
Bank to Short Term
Borrowing from Bank
2005-06 1.74 1.74 100%
2006-07 1.72 1.72 100%
2007-08 0.00 0.00 0%
2008-09 0.00 0.00 0%
2009-10 0.00 0.00 0%
Average 40%
Source: Financial data published by CMIE Prowess Appendix-D pg.lxvii
The table 5.7 reveals that during the years 2005-06 and 2006-07 this hotel has availed the
100% short term finance from bank which is normally used for satisfying the working
capital need of this hotel. Subsequently, for the next three reporting years the hotel has
not availed any bank finance. It has also been revealed that the share of bank finance to
the total borrowing is very low.
Following table shows the financial expenses made or financial charges paid to bank for
availing these services.
151
Table-5.8 Table Shows various financial charges for providing financial services
Sayaji Hotels
(Fig. in Crore of Rupees)
Financial services 2005-06 2006-07 2007-08 2008-09 2009-10
Financial charges on
Instruments
0 0 0 0 0
Other fund based financial
services
0 0 0 0 0
Bill discounting charges 0 0 0 0 0
Bank charges and guarantee
fees etc.
0.15 0.37 0.44 1 1.09
Source: Financial data published by CMIE Prowess Appendix-D pg.lxii
Table 5.8 shows various financial charges taken by bank. The table shows that this hotel
did not availed many services except few services like bank guarantee. Further, the bank
charges and guarantee fee etc paid by the bank varies between Rs. 0.15 and Rs. 0.09
Analysis of Primary Data Collected from 25 Respondent hotels: During the field
study efforts were made to interview selected respondents from the hotel industry
regarding various sources of finances availed by the hotel industry for fulfilling the
working capital requirements. For the purpose specific questions were asked and the
views of respondents were obtained. The detailed discussion has been made regarding
sources of finance of the Hotels in Pune City to satisfy the working capital needs, which
have been presented as under.
152
Q. No. 1 - What are the sources of finance of your hotel for fulfilling the need of the
working capital?
As regards the sources of finance, the respondents have stated that proprietor funds bank
finance and advances from the customers of working capital are the main sources of
finance for hotel industry. The details of the analysis is presented in table 5.9.
Table 5.9 Shows various sources of finance
Option No. Sources No of respondents
1. Proprietor’s Funds 15
2. Bank Finance 14
3. Advances from customers 12
4. Public Deposits 2
5. Others 2
Source: Field Study Research From table 5.9, it is observed that out of total 15 respondents have preferred propreitor
fund as the main source of finance while 14 have preferred bank finance. On the other
hand, 12 respondents have preferred advances from the customers as the main source of
capital for meeting the working capital needs. Only two other respondents have preferred
public deposits and others for meeting their working capital need. The field study
observations also have been presented in graph. 5.1.
153
Graph-5.1 Shows the sources of finance of Hotels in Pune
(Source – Field research)
Graph 5.1 shows the multiple choices (sources of finance), which were selected by the
respondents. Five respondents have selected bank finance as their only source of
working capital. That means only 20% respondents are entirely depending on the banks
to fulfill their working capital needs. During the field study efforts have been made to
collect information regarding five questions and the respondents were requested to give
their answers in Yes or No form. The answers given by the respondents are presented in
Table-5.10
Table-5.10 Showing whether the Hotels take Bank Finance to satisfy their working
capital need
Q. No. Questions Yes% No%
Q.2 Do you obtain bank finance for satisfying the working
capital need of your hotel?
56 44
Q.5 Do you avail any term loans to satisfy your need of
permanent working capital?
28 72
15
14
12
2
2
Sources of Finance
Proprietor’s Funds
Bank Finance
Advances from customers
154
Q.6 Do you avail facility of bill discounting from your
bank?
20 80
Q.7 Do you avail facility of letter of credit from your bank? 40 60
Q.8 Do you avail facility of factoring services from your
bank?
0 100
Source: Field Investigation.
From table 5.10 it is revealed that 56 per cent of the respondents have agreed that their
hotel obtain bank finance for meeting working capital requirements. As regards the terms
loans, 28 per cent respondents have disclosed that they have availed term loans to satisfy
their permanent working capital requirement. On the other hand only 20 per cent
respondents avail bill discounting facilities to meet their working capital needs.
The respondents were also asked regarding the use of letter of credit for working capital
needs, only forty per cent respondents have replied positively. The respondents were also
asked whether they use factoring services. In this regard, surprisingly it has been
revealed that none of the respondents have used factoring services to meet the need of
working capital. During the field study the respondents were asked about the use of bank
finance for meeting their working capital requirements. The details of the observation is
presented in graph 5.2.
Graph-5.2 Shows whether hotels take Bank Finance to satisfy their working capital
need
(Source – Field research)
0
50
100
150
Q2 Q5 Q6 Q7 Q8
Yes% No%
155
Graph 5.2 indicates that 56% respondents used bank finance to satisfy their working
capital need. Two respondents (8%) did not avail bank finance to satisfy their day-to-day
business needs. However, 28 per cent respondents have availed the term loan to satisfy
their permanent working capital need. Not a single respondent has used factoring
services provided by bank.
During the field study, similar effort has been made to enquire regarding the extent of
finance used by the respondents. The answers of the respondents are presented in table
5.11 and graph 5.3.
Table – 5.11 Showing upto what extent hotels take Bank Finance
Q. No. Questions 0-20% 21-40% 41-60% > 60%
Q.3 Up to what extent you obtain bank finance for
satisfying the need of working capital for your
hotel?
2 6 4 2
Q.4 Up to what extent your bank provides you cash
credit or over draft facility to fulfill the need of
working capital
3 5 4 2
(Source – Field research)
Graph – 5.3 Showing upto what extent hotels take Bank Finance
0
2
4
6
8
0-20% 21-40% 41-60% < 60%
Q.3 Q.4
156
(Source – Field research)
Table 4.6 and graph 5.3 reveal that total 14 respondents have availed bank finance to
satisfy their working capital need. It shows that 71% of the respondents have availed 21-
60% bank finance while 64% respondents have availed 21-60% cash credit or over draft
facility.
A very sincere effort has been made during the field investigation to know the reasons the
hoteliers are not obtaining credit from the bank for fulfilling the need of the working
capital. The main reasons are as follows:
The banks ask more than 50% of the loan amount as security for fulfilling the
working capital need of the hotels. The bank ask the hotel to arrange minimum
25% margin.
It has also been stated by the respondents that the terms and conditions of the
banks for sanctioning credit to hotels for satisfying their working capital needs are
very rigid.
Primary data collected from 5 banks:
In order to make the study more meaningful, efforts were also made to enquire from five
bankers to know their opinion. The primary data have been collected from The Cosmos
Co-operative Bank, The Saraswat Co-operative Bank, Bank of India, Bank of
Maharashtra, and Central Bank of India.
These banks have revealed that though the banks provide finance to hotels to fulfill their
needs of working capital financing, hotels come in the caution list of the banks. The
banks keep very close monitoring on the performance of hotels, while sanctioning them
finance for working capital. The reasons for precaution are as follows:
1. The hoteliers obtain double financing that is high amount of credit from their
suppliers and also obtain bank finance to satisfy their working capital needs.
157
2. The banks have observed that there is no standardization in room rate. Hence, it
is difficult for the banks to calculate and analyze the proposed income of these
hotels.
3. Lack of transparency in maintaining the records of hotels discourage the banks to
sanction working capital finance.
4. Most of the stocks of the hotel are fast moving. Hence, it is not acceptable as
security for banks.
5. During the field research the banks have revealed that while sanctioning project
finance banks also provide certain amount for working capital to fulfill the day-to-
day needs of the hotels.
6. General Manager of a Nationalized Bank has revealed, during the field research
that, the banks may grant working capital finance to hotels, if it is supported by
stock and less than 90 days debtors as Primary Security and second charge on any
fixed assets.
Both the study and analysis of primary and secondary data have disclosed that the hotel
industry does not entirely depend on the banks to fulfill their working capital needs.
However, 56% respondents have approached banks either for cash credit facility, bill
discounting, or letter of credit facility. On the other hand, 42.86% respondents have
availed more than 40% bank finance to satisfy their working capital needs. Hence,
Hypothesis-1: “The bank finance is the commonly used source of working capital
for hotels”, is partly proved.
5.2.2 Hypothesis 2: The current credit policies of the hotel industry are liberal.
The credit policy of a firm provides the framework to determine whether or not to extend
credit to customers. How much credit to be extended? It also involved in making the
decision about determining the credit period. Since last three years, many reputed
international and domestic chain hotels have started their hotels by making joint ventures
158
with local business houses. This has increased the number of five star hotels in Pune.
Therefore, hotel market in Pune has become the buyers’ market. But, these hotels are
concentrating more on business enterprises than their other segment of customers.
To test this hypothesis, debtors’ turnover ratio and apportion of debtors collection period
(more than 6 months credit and less than 6 months credit) have been referred from
financial statements and are presented in table 5.12.
Table- 5.12 showing Credit Sales to Total sales (in %)
Year Cash Sales Credit Card Sales Credit Sales other than Credit Card
2005-06 10.7 47.2 40.0
2006-07 14.0 53.9 31.8
2007-08 30.3 53.0 15.9
2008-09 13.6 59.8 26.3
2009-10 11.3 57.9 28.6
Average 15.98 54.36 28.52
(Source – Records of HVS International)
From table 5.12 it is revealed that, during the period 2005-06 to 2009-10, on an average
15.98 per cent cash sales were recorded by the hotel industries in Pune. During the year
2007-08, the highest percentage of 30.3 cash sales were achieved. On the other hand, the
lowest of 10.7 per cent cash sales was recorded during the year 2005-06 among all the
years. As regard, sales through credit cards during all the reporting years the sales were
varying between 47.2 and 59.8 per cent. The highest per cent of sales were recorded in
the year 2008-09 while the lowest percentage was also recorded in the year 2005-06. The
hotels also go for credit sales through other than the credit card. This sales varies
between 15.9 per cent to 40.0 per cent during the reporting period. As a whole, the
average sale through credit card was 54.36 per cent on the highest among all.
159
Market Segmentation
The market segmentation of the Hotel Industry consists of 10 different categories of
customers. As a part of the study, efforts were made to understand the composition of
types of guests who have visited the hotels during the period 2006-10. It has been
presented in table 5.13.
Table-5.13 Shows the market segmentation for Two and Three Star Hotels/Four,
Five, and Five Star Deluxe Hotel
Composition
(Guest in %)
2005-06 2006-07 2007-08 2008-09 2009-10
Air Crew 0.2 1.1 0 2.3 0 45.0 0 0.2 5.6 5.2
Business
Travelers-
Domestic
61.8 41.5 50 34.8 52.3 34.6 43.0 34.0 43.3 42.2
Business
Travelers –
Foreign
11.9 41.7 14.0 45.7 9.0 56.1 14.5 53.0 19.4 42.3
Complimenta
ry Rooms
0.5 1.1 0.8 0.8 0.8 0.6 1.1 1.0 0.8 1.2
Domestic
Tourists
7.9 2.0 17.6 2.6 13.7 4.2 12.4 3.8 12.6 2.7
Foreign
Tourists
1.3 2.1 1.8 3.2 1.8 0.7 6.2 2.7 3.0 1.6
Meeting
Participants
(less than
100)
2.2 1.3 3.6 1.3 2.7 0.3 3.4 0 4.7 0.2
160
(Source - HVS International)
According to the survey of HVS International, in the year 2009-10 domestic and foreign
business guests contributed to as high as 85.5% of the total business of four star, five star,
and five star deluxe hotels, while it was 62.6% from two star and three star hotels. This
leads to cut throat competition among hotels to attract corporate houses. From table 5.13
it is revealed that the contribution of domestic business travelers varies between 34.0 and
61.8 per cent during the period of study. On the other hand the foreign business travelers
and their percentage varies between 9.00 and 56.1. Thus it can be concluded that on an
average 65-80% of total guests are either domestic business travelers or foreign travelers.
Debtors Turnover Ratio and Debtors Collection Period
Debtors turnover ratio measures whether the amount of resources tied up in the form of
debtors are reasonable and the organization has been efficient in converting it into the
cash. The debtors’ collection period denotes how long it takes to collect the amount from
the guests of the hotels. However, from financial data, the opening and closing balances
for debtors have been considered while calculating debtors turnover ratio. With the help
of field research and data published by CMIE Prowess for four hotels in Pune (The
Orchid Hotel, Hotel Taj Blue Diamond, Hotel Royal Orchid Central, Sayaji Hotel) the
Meeting
Participants
(more than
100)
9.9 5.9 8.1 4.7 16.4 1.6 12.8 1.3 9.2 4.0
Domestic
Tour Groups
1.6 1.3 1.6 0.3 1.1 0.6 2.2 1.3 2.6 0.9
Foreign Tour
Groups
1.2 1.9 0.6 3.0 1.0 0.3 1.0 2.3 1.2 0.5
Others 1.6 0.2 2.1 1.4 1.1 0.7 3.0 0.3 2.5 4.0
161
study of debtors turnover ratio and debtors collection period have been carried out.
The field study has revealed that all these hotels provide 15-30 days credit to their guests.
These hotels have predetermined their credit period to the customers, but hotels
authorities have experienced that, the customers do not settled their account within
specified period, inspite of the prompt follow up. The study has further disclosed that,
the customers of the hotel have settled their accounts within 40 to 45 days. All of these
hotels have recovery departments, which keep the track record of the outstanding of the
customers. The major part of the business comes from a few big customers. Therefore,
these customers dictate terms for credit. However, it has been revealed from the primary
and secondary data that these hotels had not sustained much loss due to bad debts. These
hotels do not charge any interest or take any action from their guests for not receiving
outstanding amount within stipulated period. The study also has revealed that these
hotels have never encourage early settlement of dues from their debtors by offering them
any cash discounts.
The details regarding debtors turnover ratio of the selected Indian Hotel is presented in
the table 5.14:
Table- 5.14 Showing Debtors Turnover Ratio of Hotel Taj Blue Diamond (Indian
Hotels) (Rupees in Crores)
Year Debtors
Turnover
Ratio
Debtors
Collection
Period (Days)
% of Debtors
to Current
Assets
Debtors out
standing less
than 6 months
(%)
Debtors out
standing more
than 6 months
(%)
2005-06 13.34 27.35 19.86 91.32 8.68
2006-07 13.54 26.96 25.66 90.89 9.11
2007-08 12.28 29.71 25.87 84.89 15.11
162
2008-09 12.42 29.38 17.66 78.48 21.52
2009-10 12.13 30.08 13.07 75.05 24.95
Average 12.74 28.70 20.42 84.13 15.87
Source: Financial data published by CMIE Prowess Appendix-D pg.xxix & xxxii
From the Table 5.14, it is revealed that the debtors’ collection period of this hotel has
increased from the year 2007-08, which has decreased slightly in the year 2008-09 and
increased during the subsequent years. It also discloses that the proportion of outstanding
debtors for more than 6 months has been showing and increasing trend during the entire
period of study. Therefore, it is clear that the customers of this hotel have enjoyed credit
period for more than one hundred and eighty days. Similarly, the debtors turnover ratio
of The VITS Hotel is presented in Table 5.15.
Table -5.15 showing Debtors Turnover Ratio of The VITS Hotel (Kamat Hotels) Year Debtors
Turnover
Ratio
Debtors
Collection
Period
(Days)
% of
Debtors to
Current
Assets
Debtors out
standing less
than six months
(%)
Debtors out
standing more
than six months
(%)
2005-06 16.96 21.51 21.30 90.21 9.79
2006-07 18.48 19.76 5.89 95.65 4.35
2007-08 13.61 26.82 28.13 88.58 11.42
2008-09 8.40 43.47 25.01 83.04 16.96
2009-10 7.53 48.45 16.45 83.82 16.18
Average 13.00 27.40 19.36 88.14 11.74
Source: Financial data published by CMIE Prowess Appendix-D pg. xlii & xlvi
Table 5.15 reveals that debtors collection period of this hotel has increased since the year
2007-08. It also discloses that proportion of debtors to current assets was the highest of
28.13 in the year 2007-08 and the lowest was in the year 2006-07 and the outstanding
163
debtors for more than 6 months was the highest of 24.95 per cent in the year 2009-10
where as the lowest of 8.68 per cent was recorded in the year 2005-06.
In the similar manner, efforts have been made to analyze the debtors’ turnover ratio of
Hotel Royal Orchid Central, which has been presented in Table-5.16
Table-5.16 showing Debtors Turnover Ratio for Hotel Royal Orchid Central
Year Debtors
Turnover
Ratio
Debtors
Collection
Period
(Days)
% of
Debtors to
Current
Assets
Debtors out
standing less
than six months
(%)
Debtors out
standing more
than six months
(%)
2005-06 20.87 17.49 2.18 99.54 0.46
2006-07 18.48 19.75 3.07 100.00 0.00
2007-08 20.29 17.99 4.08 100.00 0.00
2008-09 19.59 18.63 9.39 100.00 0.00
2009-10 13.84 26.38 6.39 82.94 17.06
Average 18.61 20.05 5.02 96.50 3.50
Source: Financial data published by CMIE Prowess Appendix-D pg. lv & lx
From Table 5.16 it is found that, the proportion of debtors to the current assets of this
hotel is comparatively less than other hotels and its average comes only to 5.02 per cent.
The debtors’ turnover ratio is also high and also varies between 3.84 and 20.87. The
debtors outstanding for more than six months were found to be for three years nil. It
shows that this hotel is very prompt in recovering from their debtors. However, the
current assets of this hotel shows that in the year 2005-06, 89.01% of its funds just
remained unused on the account of cash and bank balance (Appendix-D). In the year
2009-10, 26.05% of its funds were invested in short term deposits and 58.06% remained
unutilized in cash and bank accounts (Appendix-D). The debtors outstanding for a period
of less than six month vary between 82.94 and 100 per cent. Surprisingly, it was cent per
164
cent for a period of three years. Thus it can be considered that, this hotel has adopted
conservative approach in managing their current assets.
Alike other hotels, the debtors turnover ratio of Sayaji Hotel is presented in Table 5.17
Table- 5.17 showing Debtors Turnover Ratio for Sayaji Hotel
Year Debtors
Turnove
r Ratio
Debtors
Collection
Period
(Days)
% of
Debtors to
Current
Assets
Debtors out
standing less
than six
months (%)
Debtors out
standing more
than six
months (%)
2005-06 7.11 51.31 38.59 63.36 36.64
2006-07 6.23 58.62 16.96 62.68 37.32
2007-08 8.89 41.03 17.56 68.76 31.24
2008-09 12.35 29.55 9.63 51.76 47.75
2009-10 12.85 28.40 18.42 60.57 39.43
Source: Financial data published by CMIE Prowess Appendix-D pg. lxviii & lxxii
Table 5.17 reveals that, debtors collection period of this hotel has increased in the year
2006-07 and showing a decreasing trend since the year 2007-08. However, from the
table, it is also observed that the proportion of outstanding debtors for more than 6
months period during all the five accounting years, are substantially high and varies
between 31-24 and 47.75 per cent. During the period of field study efforts were made to
find out the credit period and also the settlement of accounts. This analysis is presented
in table 5.18 and graph 5.4.
165
Table – 5.18 Showing whether the Current Credit Policies of Hotel Industry are
Liberal
Q. No. Questions 0-30
Days
31-45
Days
46-60
Days
>60
Days
1. How many days you provide credit
to your customers?
100% 0% 0% 0%
4. Within how many days your
customers settled his accounts
usually?
12% 40% 36% 12%
(Source – Field Research)
Graph 5.4 Showing whether the Current Credit Policies of Hotel Industry are Liberal
All the 25 respondents were of the opinion that they provide credit up to 30 days to their
customers. However, only 12 per cent respondents have disclosed that they have
successfully recovered the outstanding amount from debtors within specified time. On
the other hand 40 per cent respondents have revealed that they have recovered the
outstanding dues with in a period 31 to 45 days while 36 per cent respondents have
disclosed that they have recovered their dues with in a period of 45 to 60 days. Only 12
per cent respondents have stated that they recovered their outstanding after 60 days.
Various factors such as credit period, interest, discount, etc. are responsible for early
recovery of dues were discussed with the respondents during the field study. The details
of the opinion given by the respondents are presented in table 5.19. Similarly, the factors
0%
20%
40%
60%
80%
100%
120%
0-30 Days 31-45 Days 46-60 Days <60 Days
Q1 Q4
166
which are responsible for influencing the credit policies of the hotels in presented in
graph 5.5.
Table -5.19 Showing factors which influence credit policies of hotels Q. No. Questions Yes No
Q.2 Do you predetermine specific credit period to your customers? 96% 4%
Q.3 Do your customers settle their accounts within specific credit
period?
12% 88%
Q.5 Do you have specific mechanism for recovery of dues? 100% 0%
Q.6 Do you recover any interest from the debtors for making delay
in payment?
0% 100%
Q.7 Do you believe that major part of your turnover comes from
few big customers?
96% 4%
Q.8 Do you believe that these big customers dictate terms for
credit to your hotels?
92% 8%
Q.9 Do you bear loss for bad debts? 92% 8%
Q.10 Do you encourage early settlement of dues from your debtors
by offering them cash discount?
0% 100%
Graph -5.5 Showing factors which influence credit policies of hotels
(Source – Field Research)
0%
20%
40%
60%
80%
100%
120%
Q.2 Q.3 Q.5 Q.6 Q.7 Q.8 Q.9 Q.10
Yes No
167
All the 25 respondents have specific recovery mechanism for the collection of the debts.
They also prepare age-wise debtors statement regularly and undertake the follow up and
monitoring as well. However, due to competition in the hotel industry they can not take
any action against the customers for not settling their accounts within the given period.
In the city of Pune, most of the hotels are depending on corporate for business. These
corporate houses dictate the terms and conditions to the hotels. However, it has been
observed from field research and financial statements that, loss due to bad debts is
negligible.
From both primary and secondary data it has been observed that only 12 per cent
respondents could recover debts with in specified time. The data further revealed that no
action has been taken for not settling debtors’ accounts in time. Further, all the
respondents have clearly stated that no action is charged for making delay in making
payment. Similarly, all the respondents have stated that no encouragement is given for
early settlement of dues from the debtors by offering cash discount. The financial
statements of all four hotels reveal the existence of debtors more than six months. Hence,
hypothesis -2 is accepted.
Hence, both the primary and secondary data proves the following hypothesis:
“The credit policies of hotel industry are liberal.”
5.2.3 Hypothesis- 3 Maximum hotels take the advantages of spontaneous financing
to control outflow of cash.
The spontaneous finance arises naturally during the course of business. Trade creditors,
credit from employees, expenses outstanding, advances from customers, etc.; are the
examples of sources of spontaneous financing. These sources also reduce the amount of
168
negotiated financing. If these are timely repaid, are proved as more convenient, and less
costly as compared to negotiated financing. Through both field research and financial
statements efforts have been made to study whether star hotels in Pune City take
maximum advantage of spontaneous financing.
It has been revealed from the field research that, the creditors have constituted the major
portion of current liabilities of these hotels. The credit period granted to these hotels
differs from supplier to supplier. However, generally creditors grant credit for a period of
30-45 days to these hotels. The hotel authorities have disclosed during the field research
that, they are satisfied with the credit limit provided by their suppliers, credit period, and
quantum of supplies. They also have revealed that, these hotels get advances from their
customers, especially walking individual guests and the corporate, which did not have
business with them before. They further have admitted that, outstanding expenses like
salary, wages, water, power, fuel, and other charges reduce their current cash out flow.
Creditors turnover ratio, creditors repayment period, the proportion of advances from
customers to total current liability (excluding provisions) have referred to study the
impact of spontaneous financing. While calculating creditors turnover ratio, expenses
like raw material purchase power, fuel, & water charges; compensation to employees;
etc.; have been considered. The creditors’ turnover ratio and creditors repayment period
of the Indian Hotels is presented in table 5.20.
169
Table-5.20 Showing Creditors Turnover Ratio and Creditors Repayment Period of
Hotel Taj Blue Diamond (Indian Hotels)
Year Total Current
Liability
Excluding
Provisions (Rs. In
Crs.)
% of Advances
from
Customers to
Current
Liability
% of
Creditor to
Current
Liability
Creditors
Turnover
Ratio
(Times)
Creditors
re-payment
Period
(Days)
2005-06 198.84 11.63 62.94 3.52 87.22
2006-07 305.24 17.16 60.71 3.90 110.31
2007-08 286.88 24.52 51.79 3.91 94.42
2008-09 343.89 21.65 54.42 4.25 93.40
2009-10 419.32 16.37 58.50 3.16 120.10
Average 18.27 57.67 3.75 101.09
Source: Financial data published by CMIE Prowess Appendix-D pg. xxviii & xxxiii
Table 5.20 shows the proportion of advances from the customers to total current
liabilities of this hotel, were rising till the year 2007-08 and subsequently it has started
declining. The table has further revealed that the creditors have contributed substantially
in the total current liabilities. The average percentage of contribution of creditors to
current liabilities was 57.67 and this ratio varies between 51.79 and 61.94. The credit
repayment period of this hotel is very high. Further, the credit turnover ratio of this hotel
varies between 3.16 and 4.25 times.
Similarly, an effort has been made to present the creditors turnover ratio and creditors
repayment period of The Orchid Hotel in Table 5.21.
170
Table-5.21 Showing Creditors Turnover Ratio and Creditors Repayment Period of
The VITS Hotel (Kamat Hotels)
Year Total Current
Liability
Excluding
Provisions (Rs.
In Crs.)
% of
Advances
from
Customers to
Current
Liability
% of
Creditor to
Current
Liability
Creditors
Turnover
Ratio
(Times)
Creditors
re-payment
Period
(Days)
2005-06 12.94 2.86 91.96 2.88 105.03
2006-07 13.46 9.21 72.51 3.27 78.44
2007-08 21.16 10.73 65.23 3.85 86.69
2008-09 29.32 12.99 58.86 2.87 122.54
2009-10 28.78 26.69 51.88 2.78 129.17
Average 12.496 68.08 3.13 104.37
Source: Financial data published by CMIE Prowess Appendix-D pg. xlii & xlvii
Table 5.21 shows that, the proportion of advances from customers to current liability was
showing an increasing trend for this hotel consistently from 2005-06 to 2009-10. On the
other hand, proportion of creditors to current liabilities is showing a declining trend with
an average of 68.03 per cent. The Creditors turnover ratio of this hotel is very low and
shows a fluctuating trend with an average of 3.13 times. Therefore, it reveals that, this
hotel is enjoying very high repayment period.
Similarly, the creditors’ turnover ratio and creditors repayment period of Hotel Royal
Orchid is depicted in Table 5.22.
171
Table-5.22 Showing Creditors Turnover Ratio and Creditors Repayment Period of
Hotel Royal Orchid Central (Royal Orchid)
Year Total Current
Liability
Excluding
Provisions (Rs. In
Crs.)
% of
Advances
from
Customers to
Current
Liability
% of
Creditor to
Current
Liability
Creditors
Turnover
Ratio
(Times)
Creditors
re-payment
Period
(Days)
2005-06 8.32 3.49 32.57 6.50 101.83
2006-07 8.57 3.50 59.43 9.62 76.25
2007-08 10.61 2.83 42.41 8.51 81.58
2008-09 11.53 2.60 33.04 8.57 62.50
2009-10 13.69 2.26 30.83 8.65 74.74
Average 2.94 39.66 7.62 63.38
Source: Financial data published by CMIE Prowess Appendix-D pg. li, lv & ixi
From Table 5.22 it is revealed that the proportion of advances from customers and trade
creditors to current liabilities of this hotel is declining since 2007-08 with an average of
2.94 per cent. Creditors turnover ratio of this hotel is moderate with an average 7.62
times. It has been disclosed from field research and data give in table 5.22, that this hotel
is quite particular in paying their creditors in time as compared to the other three hotels.
Alike other hotels, the creditors turnover ratio and creditors repayment period of Sayaji
Hotel is presented in Table 5.23.
172
Table-5.23 Showing Creditors Turnover Ratio and Creditors Repayment Period of
Sayaji Hotel
Year Total Current
Liability
Excluding
Provisions (Rs.
In Crs.)
% of Advances
from
Customers to
Current
Liability
% of
Creditor to
Current
Liability
Creditors
Turnover
Ratio
(Times)
Creditors
re-payment
Period
(Days)
2005-06 10.11 1.68 69.04 3.16 102.67
2006-07 6.67 3.75 82.91 4.06 68.34
2007-08 8.37 6.33 85.54 6.39 56.57
2008-09 15.85 3.97 86.56 4.84 85.13
2009-10 10.50 1.52 87.05 4.11 57.63
Average 3.45 82.22 4.51 74.07
Source: Financial data published by CMIE Prowess Appendix-D pg. lxvii & lxxii
From table 5.23 it is revealed that the proportion of advances to current liabilities of this
hotel is declining after the year 2008-09. The table 5.18 further reveals that, the creditors
encompass to be the most important component of this hotel’s total current liabilities.
Creditors’ turnover ratio of this hotel is very low. The credit repayment period is
inconsistent. This shows that, this hotel has not followed defined policies to settle their
obligations. There has to be a correlation between the inflow and outflow of the cash.
Credit limit in terms of period and quantum, advances from customers, etc. decides the
financial discipline of hotels. During the field study various questions have been asked to
know the advantages of spontaneous financing to control the outflow of cash.
173
Table 5.24 showing whether hotels take the advantages of spontaneous financing to
control outflow of cash.
Q. No. Questions Yes No
Q.1 Do you obtain credit from your suppliers? 100% 0
Q.2 Do creditors constitute major portion of your purchase? 100% 0
Q.3 Are you satisfied with credit limit provided by your supplier
to you in terms of days and quantum?
100% 0
Q.4 Do you obtain advances from the customer? 100% 0
Q.6 Do you feel accruals like salary, wages, power, fuel, and
other charges controls your current cash outflow?
100% 0
From table 5.24 it is revealed that all the respondents have revealed that there has been a
spontaneous financing in Toto because cent per cent credit was obtained from suppliers.
The respondents have given positive answers fully for the remaining questions also.
Graph 5.6 is showing whether hotels take the advantages of spontaneous financing
to control outflow of cash.
Source: Field research
In addition, a separate question was asked to know the percentage of advances from
customers to business turnover-
During the field study all the respondents have revealed that they take advances from the
customers. They normally get advances from the walking customers or from the
0%
50%
100%
150%
Q.1 Q.2 Q.3 Q.4 Q.6
Yes No
174
corporates whose credit track record is not available with them. Such advances are
varied from 2-10% to their total business turnover. However, the oldest five-star hotel in
Pune, ‘Hotel Taj Blue Diamond’ has got maximum advances from the customers.
After analyzing primary and secondary data it has been proved that the hoteliers in Pune
City are very keen in using spontaneous finance to satisfy their working capital need.
The advances from customers, low credit turnover ratio and high credit repayment period
further confirms that the hoteliers make maximum utilization of spontaneous finance.
Hence, there are many valid reasons in support of the following hypothesis.
“The maximum hotels take the advantages of spontaneous financing to control
outflow of cash.” and it is proved.
5.2.4 Hypothesis-4 Techniques like ABC Analysis can be adopted for stock control
in hotel industry.
In a productive business unit, an inventory has significant share in total investment.
Therefore, any effort made in stock control brings major benefits for the enterprise.
Exact identification of the level of inventory, not only allows uninterrupted production of
goods and services but also reduces the investment in the raw materials. In pertinent to
the hotel industry, a stock means stock of all kitchens, restaurants, housekeeping, and
other materials. The finance manager should aim at maintaining optimum level of
inventory on the basis of the trade of between cost and benefit. However, in hotel
industry bifurcation of raw material, work in process, and finished stock is not possible.
Many sophisticated Techniques are available for inventory management like: ABC
Analysis, VED Analysis (Vital, Essential, Desirable), FNSD Analysis (Fast moving,
Normal moving, Slow moving, Dead Stock), Parento Analysis (80/20 rule), Fixation of
Inventory Levels (Minimum, Maximum, Re-ordering, etc.), etc. In hotel industry, an
inventory is required for various departments like housekeeping department, kitchen,
175
restaurants and bars. The list of Kitchen, Restaurant and Bar inventory items is given in
Table 5.25
Table 5.25 Various materials used in Hotel Industry
List of Material is used in Kitchen
Sr. No. Material Name Rate
(RS.)
Fast Moving/
Slow Moving
RICE BASMATI (SUPREME CHEFF) [1 KG] 51.95 Fast Moving
SHAI JEERA [1 KG] 402.00 Slow Moving
ALMOND ROASTED [1 KG] 451.00 Slow Moving
SONF KASHMIRI [1 KG] 140.00 Slow Moving
ATTA (ASHIRWAD) [1 KG] 21.09 Fast Moving
TAJ TEA BAGS 200GMS [ 1 PAC ] 92.00 Fast Moving
GARAM MASALA [ 1 KGS ] 189.90 Fast Moving
PAPAD PLAIN URAD [ 1 KGS ] 141.99 Fast Moving
SACHET SALT [1 SAC] 0.18 Fast Moving
THANDAI SYRUP [1 BOT] 150.00 Slow Moving
SAFFRON [1 PAC](50GM) 168.81 Slow Moving
PISTA GREEN [1 KG] 824.00 Slow Moving
176
OIL 01 LTR PKT [1 PAC] 58.00 Fast Moving
CLOVES [1 KG] 358.02 Slow Moving
BESAN FLOUR [1 KG] 39.00 Fast Moving
From table 5.25 it is revealed that the price of various materials varies between Rs. 0.18
only and Rs. 824.00. The first one is a fast moving one while the later one is a slow
moving one.
List of Material is used in Restaurants (Utensils)
Sr. No. Material Name Rate (Rs.) Delicate/ Robust
1. BRANDY INHALER 72.19 Delicate
2. HIBALL GLASS 27.00 Delicate
3. ICE CREAM GLASS 190.00 Delicate
4. FRUIT PLATE 84.00 Delicate
5. IRISH COFFEE MUG 96.00 Delicate
6. A.P. KNIFE 56.30 Robust
7. A. P. FORK 32.00 Robust
8. BUFFET SPOON NEW 118.46 Robust
9. ICE TONG NEW 100.00 Robust
177
10. SOUP SPOON NEW 39.00 Robust
List of Material is used in Bar
Sr. No. Material Name Rate (Rs.)
1. CHATEAU D OR. CABERNET SAUVGNON [ 750 MIL ] 0.08
2. VALLONNE MERLOT [ 750 MIL ] 653.25
3. SANTA RITA 120 CAB. SAUVIGNON [ 750 MIL ] 1068.33
4. CHABLIS DOMAINE HEMILIN [ 1 NUM ] 2054.00
5. HONEY BEE BRANDY [ 750 MIL ] 217.60
6. CHIVAS REGAL SCOTCH WHISKY 750 [ 750 MIL ] 3061.60
7. MARTINI VERMOUTH BIANCO 1000ML [ 1000 MIL ] 715.30
8. JURA 10YO SGL MALT(ISL) [ 700 MIL ] 3318.00
9. GLENLIVET SCOTCH WHS 18 YRS QT [ 700 MIL ] 6469.67
10. FANTA 300ML [ 1 BOT ] 7.96
11. JUICE GRAPE (REAL) 1LTR [ 1 NUM ] 55.24
12. MINERAL WATER EVIAN 1LTR [ 1 BOT ] 75.15
Source- Stock statement of Five Star Deluxe Hotel.
178
From the field it has been research revealed that inventory management for restaurants
and bars usually is the joint efforts of financial controller, purchase manager, and food
and beverage controller. These employees are aware of few techniques of inventory
management like ABC Analysis, Fixation of Inventory Levels, EOQ, etc. Almost 90% of
hotels used these techniques.
From table 5.25, it is revealed that, various types of inventories are utilized by hotels for
different operations. This inventory varies based on its price, durability, consumption,
etc. Further, the field research has revealed that, inventory management for restaurants
and bars usually is the joint efforts of financial controller, purchase manager, and food
and beverage controller. ABC Analysis is one of the very significant techniques used for
control of stock in hotel industry. During the field study, an effort has been made to find
out the use of techniques like ABC Analysis by the hotel industry and is presented in
table 5.26 and graph 5.7.
Table 5.26 Showing whether Techniques like ABC Analysis can be adopted for stock
control in hotel industry
Q. No. Questions Yes No
Q.1 Are your managers aware about various techniques of stock
control like ABC Analysis?
100% 0%
Q.2 Do they use them for inventory control? 100% 0%
Q.3 Do you classify your stock of inventory according to the
cost and consumption?
100% 0%
Q.4 Do you work out maximum, minimum or reordering level
for various stocks of material?
96% 4%
Q.5 Do you use management control systems techniques like
EOQ?
80% 20%
Q.6 Do you believe that such techniques have direct impact on
efficient management of inventory?
100% 0%
179
Graph 5.7 Showing whether Techniques like ABC Analysis can be adopted for stock
control in hotel industry
Source-Field research
Table 5.26 and graph 5.7 have revealed that the employees of the hotels are aware of few
techniques of inventory management like ABC Analysis, Fixation of Inventory Levels,
EOQ, etc. Almost 90% of hotels use these techniques. Except EOQ, the hotels are using
the remaining methods fully for controlling their stock.
With reference to the list of Kitchen, Restaurant and Bar inventory items the hotels very
well utilize various techniques of inventory management. From the primary data, it is
revealed that all the managers who are looking after inventory are aware of various
techniques of stock control like ABC Analysis and most of them use these techniques.
Therefore, the 4th hypothesis; “Techniques like ABC Analysis can be adopted for
stock control in hotel industry.”
All the four hypothesis have been put together and presented in the summary form in the
following manner.
0%
50%
100%
150%
Q.1 Q.2 Q.3 Q.4 Q.5 Q.6
Yes No
Summary:
Hypothesis-1 The bank finance is the commonly used source of
working capital for hotels, is partly proved.
Hypothesis-2 The current credit policies of hotel industry are
liberal.
Hypothesis-3 The maximum
spontaneous financing to control outflow of cash.
Hypothesis-4 Techniques like ABC Analysis can be adopted for
stock control in hotel industry.
In addition to question based on hypothesis certain general questions also were asked to
the respondents to know their
management.
Type of ownership of respondents:
Effort has been made to know the category of
hotels is presented in graph 5.9.
Graph-5.8 Graph showing the type of ownership of respondents
Source: Field research
180
The bank finance is the commonly used source of
working capital for hotels, is partly proved.
The current credit policies of hotel industry are
liberal.
The maximum hotels take the advantages of
spontaneous financing to control outflow of cash.
Techniques like ABC Analysis can be adopted for
stock control in hotel industry.
question based on hypothesis certain general questions also were asked to
the respondents to know their opinion regarding the process related with working capital
Type of ownership of respondents:
Effort has been made to know the category of hotels. The type of ownership of these
hotels is presented in graph 5.9.
Graph showing the type of ownership of respondents
Partenership Firms
Public Ltd. Cmapnaies
Private Ltd. Company
Partly
Accepted
Accepted
Accepted
Accepted.
question based on hypothesis certain general questions also were asked to
process related with working capital
hotels. The type of ownership of these
Graph-5.8 reveals that 72% of the respondents hotels are private limited Companies, 20%
are Public Ltd. Companies, and 8% are Partnership Firms. Normally, the management in
private limited companies is close ended. Four among twenty five respondents are public
limited listed hotels in Stock Exchange.
Investment in fixed assets in hotel indust
organization need to invest substantial amount of funds for acquiring land at good
locations. Further, huge cost is incurred for hotel construction, it’s interior and exterior.
However, to make an optimum use
required. Hence, study has been conducted to know the proportion of working capital to
total capital structure of these hotels and is presented in graph 5.
(Graph-5.9) The Proportion of working capital to total capital structure
Source: Field research
The graph 5.9 shows substantial working capital requirements for hotel industry Prasanna
Chandra in his Financial Management book, edition 7, Exhibit 26.3 suggested only 1
181
reveals that 72% of the respondents hotels are private limited Companies, 20%
blic Ltd. Companies, and 8% are Partnership Firms. Normally, the management in
private limited companies is close ended. Four among twenty five respondents are public
limited listed hotels in Stock Exchange.
Investment in fixed assets in hotel industry is very high than of working capital. The
organization need to invest substantial amount of funds for acquiring land at good
locations. Further, huge cost is incurred for hotel construction, it’s interior and exterior.
However, to make an optimum use of this huge investment adequate working capital is
required. Hence, study has been conducted to know the proportion of working capital to
total capital structure of these hotels and is presented in graph 5.9.
Proportion of working capital to total capital structure
shows substantial working capital requirements for hotel industry Prasanna
Chandra in his Financial Management book, edition 7, Exhibit 26.3 suggested only 1
10-20%
21-30%
31-50%
>50%
reveals that 72% of the respondents hotels are private limited Companies, 20%
blic Ltd. Companies, and 8% are Partnership Firms. Normally, the management in
private limited companies is close ended. Four among twenty five respondents are public
ry is very high than of working capital. The
organization need to invest substantial amount of funds for acquiring land at good
locations. Further, huge cost is incurred for hotel construction, it’s interior and exterior.
of this huge investment adequate working capital is
required. Hence, study has been conducted to know the proportion of working capital to
Proportion of working capital to total capital structure
shows substantial working capital requirements for hotel industry Prasanna
Chandra in his Financial Management book, edition 7, Exhibit 26.3 suggested only 10-
20%
30%
50%
182
20% current assets. More than 50% respondents have revealed that they need more than
20% working capital to perform their business operations.
Secondary data collected for four hotels (Indian Hotels Co. Ltd., Kamat Hotels (I) Ltd.,
Royal Orchid Hotels Ltd. and Sayaji Hotels Ltd.) from CMIE Prowess have revealed the
status of these hotels working capital management through net working capital and
liquidity ratios ( current ratios, and quick ratios).
Net Working Capital:
Efficient working capital management requires that firm should operate with some
amount of Net Working Capital. What should be the exact amount of working capital is
varying from firm to firm. It is based on the size of the firm and nature of the industry.
Theoretically it is accepted that Net Working Capital to measure the liquidity of the firm.
The greater the margin by which the current assets cover the short term obligations, the
more is the ability of the firm to pay them when they become due for payment. Normally,
the cash flows resulting from payment of current liabilities are relatively predictable.
However, cash inflows are difficult to predict. Hence, it is advisable to firm to finance
that gap between current assets and current liabilities with long term funds. Following is
the table showing Net Working Capital of Four Hotels:
Table 5.27 Showing Net Working Capital
(Fig. in Crore of Rupees)
Name of Hotels 2005-06 2006-07 2007-08 2008-09 2009-10
Indian Hotels Co. Ltd. 43.06 -24.57 -68.61 81.27 -159.65
Kamat Hotels (I) Ltd. 1.40 58.29 -17.18 -39.88 35.88
Royal Orchid Hotels Ltd. 133.26 115.92 51.26 -2.42 11.64
Sayaji Hotels Ltd. 5.4 34.93 35.83 37.72 26.84
Source: Financial data published by CMIE Prowess (Appendix-D)
183
Table 5.27 reveals that except Sayaji Hotel all three hotels have experienced negative
working capital. The negative working capital position may badly affect business
operations and profitability. It may also spoil the financial reputation of the firm in the
market. Further it would be difficult for firm to seek adequate working capital finance
from banks and financial institution. In that case firm may need to borrow the funds at
high rate from both organized and unorganized sector.
Liquidity Ratios:
Current Ratio: This ratio established the relationship between the current assets and
current liabilities. It measures the firm’s short term solvency. This ratio signifies the
extent of the soundness of the current financial position of an undertaking and the degree
of safety provided to the creditors. A current ratio of 2:1 indicates a highly solvent
position. Current ratio is also known as banker’s ratio where 1.33:1 is considered as
minimum acceptable level for providing working capital finance. Following table shows
current ratio of four hotels:
Table 5.28 Showing Current Ratio of Hotel
Name of Hotels 2005-06 2006-07 2007-08 2008-09 2009-10
Indian Hotels Co. Ltd. 1.12 0.95 0.89 1.16 0.85
Kamat Hotels (I) Ltd. 1.06 2.06 0.75 0.57 1.96
Royal Orchid Hotels Ltd. 6.56 5.15 2.7 0.96 1.18
Sayaji Hotels Ltd. 1.44 4.87 4.94 3.13 3.07
Source: Financial data published by CMIE Prowess (Appendix-D)
Table 5.28 signifies Indian Hotels and Kamat Hotel have Aggressive Approach towards
management of working capital. Under this approach current assets are maintain just to
meet the current liabilities. Above table shows that Tata Hotel during the year 2006-2008
and in the year 2009-10 does not even maintaining current assets to match current
184
liabilities. Same is the case with Kamat Hotel during the year 2007-2009. Adoption of
this strategy may reduce the investment in working capital and cost of financing it but,
also increase the risk as the firm is in danger to sudden shock.
On the other hand data given in table- reveals that Royal Orchid Hotel (during 2005-06 to
2007-08) and Sayaji Hotel Ltd. (during 2006-2007 to 2009-10) reveals that these two
hotels have adopted conservative approach of working capital management. This
strategy recommends high level of current assets to be maintained in relation with the
sales. Surplus current assets ensure smooth business operations. Higher liquidity level
reduced the risk of insolvency. However, large investments in current assets lead to
higher interest and carrying costs and indicate inefficiency in handling current assets
(most of the time cash and debtors in these two hotels). Such lower risk may translate in
to lower return.
Liquid Ratio or Quick Ratio: Liquid ratio is the ratio of liquid assets or quick assets to
current liabilities. Liquid assets can easily converted into cash which excludes stock and
prepaid expenses. It is advisable for firm to keep liquid assets at least equal to current
liabilities (1:1 ratio). Following table shows quick ratio of four hotels:
Table 5.29 Showing Quick Ratio of Hotel
Name of Hotels 2005-06 2006-07 2007-08 2008-09 2009-10
Indian Hotels Co. Ltd. 0.45 0.35 0.32 0.38 0.53
Kamat Hotels (I) Ltd. 0.52 1.76 0.41 0.23 1.15
Royal Orchid Hotels Ltd. 6.08 4.61 1.84 0.56 0.79
Sayaji Hotels Ltd. 0.97 4.14 4.18 2.55 2.08
Source: Financial data published by CMIE Prowess (Appendix-D)
Table – 5.29 reveals that quick ratio of these hotels is either high or is low.
indicates the extent of cushion of protection provided from the quick assets to the current
creditors. Above data have revealed that quick ration of these hotel is not satisfactory
The hyper competition in the hotel industry in Pune city lea
whether hotels make adequate investment in marketing and sales promotion activities?
The data published by HVS International in the year 2009
various marketing media (like Web Sites, Print Advertis
and Television Advertising, Telemarketing etc.) to maintain their respective marketing
share. The extent of use of working capital for the purpose of marketing and sales
promotion has been presented in graph 5.10.
(Graph-5.10) The part of working capital used for marketing and sales promotion
Source: Field research
Around 64% respondents have spent 5
marketing and sales promotion. The use of working capital more than 10% is tr
high. Following is the table showing the part of working capital used for marketing and
64%
Negligible
185
reveals that quick ratio of these hotels is either high or is low.
indicates the extent of cushion of protection provided from the quick assets to the current
creditors. Above data have revealed that quick ration of these hotel is not satisfactory
The hyper competition in the hotel industry in Pune city leads to make a study to know
whether hotels make adequate investment in marketing and sales promotion activities?
The data published by HVS International in the year 2009-10 has revealed that they used
various marketing media (like Web Sites, Print Advertising, Outdoor Advertising, Radio
and Television Advertising, Telemarketing etc.) to maintain their respective marketing
share. The extent of use of working capital for the purpose of marketing and sales
promotion has been presented in graph 5.10.
.10) The part of working capital used for marketing and sales promotion
Around 64% respondents have spent 5-10% (average) of their working capital for
marketing and sales promotion. The use of working capital more than 10% is tr
high. Following is the table showing the part of working capital used for marketing and
11%
21%
4%
Little Average High Very High
reveals that quick ratio of these hotels is either high or is low. This ratio
indicates the extent of cushion of protection provided from the quick assets to the current
creditors. Above data have revealed that quick ration of these hotel is not satisfactory.
ds to make a study to know
whether hotels make adequate investment in marketing and sales promotion activities?
10 has revealed that they used
ing, Outdoor Advertising, Radio
and Television Advertising, Telemarketing etc.) to maintain their respective marketing
share. The extent of use of working capital for the purpose of marketing and sales
.10) The part of working capital used for marketing and sales promotion
10% (average) of their working capital for
marketing and sales promotion. The use of working capital more than 10% is treated as
high. Following is the table showing the part of working capital used for marketing and
186
sales promotion for four hotels with the assumption that working capital is used on hotels
operating expenses.
Table 5.30 Showing the Part of Working Capital Used for Marketing and Sales
Promotion for The Indian Hotels Ltd.
2005-06 2006-07 2007-08 2008-09 2009-10
Marketing Expenses (Fig. in
Crore of Rupees)
62.54 58.56 66.84 74.01 63.55
Operating Expenses (Fig. in
Crore of Rupees)
813.07 986.24 1070.79 1144.57 1106.96
% of Marketing Expenses to
Operating Expenses
7.69 5.94 6.24 6.47 5.74
Source: Financial data published by CMIE Prowess (Appendix-D)
Table –5.30 reveals The Indian Hotels Ltd. have spent around 6 to 8% of their working
capital for marketing and sales promotion. During the field research respondent revealed
as The Indian Hotels is the oldest hotel chain in India; these hotels have their loyal
customers. Hence, comparatively less efforts on advertising and sales promotion they
have to be made.
Table 5.31 Showing the Part of Working Capital Used for Marketing and Sales
Promotion for Kamat Hotel (I) Ltd.
2005-06 2006-07 2007-08 2008-09 2009-10
Marketing Expenses (Fig. in
Crore of Rupees)
4.96 6.39 9.89 7.54 4.81
Operating Expenses (Fig. in
Crore of Rupees)
42.64 59.42 78.09 82.6 69.8
% of Marketing Expenses to 11.63 10.75 12.66 9.13 6.89
187
Operating Expenses
Source: Financial data published by CMIE Prowess (Appendix-D)
Table 5.31 reveals that Kamat Hotel (I) Ltd. have spent around 7 to 12% of their
working capital for marketing and sales promotion.
Table 5.32 Showing the Part of Working Capital Used for Marketing and Sales
Promotion for Royal Orchid Hotels
2005-06 2006-07 2007-08 2008-09 2009-10
Marketing Expenses (Fig. in
Crore of Rupees)
3.13 4.22 5.3 5.97 4.34
Operating Expenses (Fig. in
Crore of Rupees)
29.32 40.16 46.76 64.06 59.48
% of Marketing Expenses to
Operating Expenses
10.68 10.51 11.33 9.32 7.30
Source: Financial data published by CMIE Prowess (Appendix-D)
Table 5.32 reveals that Royal Orchid Hotel have spent around 7 to 11% of their working
capital for marketing and sales promotion.
Table 5.33 Showing the Part of Working Capital Used for Marketing and Sales
Promotion for Sayaji Hotel
2005-06 2006-07 2007-08 2008-09 2009-10
Marketing Expenses (Fig. in
Crore of Rupees)
0.27 0.33 0.34 0.3 0.96
Operating Expenses (Fig. in
Crore of Rupees)
25.42 30.87 49.48 61.53 58.9
% of Marketing Expenses to
Operating Expenses
1.06 1.07 0.69 0.49 1.63
Source: Financial data published by CMIE Prowess (Appendix-D)
Table 5.33 reveals that Sayaji Hotel spend
marketing and sales promotion, which is very less as compare to other hotels.
The labor turnover ratio of most of the hotels is very high. Hotel industry is a service
industry. Hence, the contribution of
development of hotel is very high. HVS International Survey Report (2009
revealed that more than 75% hotel employees who worked under different capacities are
trained. However, being a dynamic in
business trends and practices. Further retention of good staff is big challenge in this fast
growing industry. Hence, efforts have been made to analyze whether hotels of Pune
make adequate provision for
Resource Management. This important aspect has been presented in graph 5.1
(Graph-5.11) Graph showing the proportion of working capital is used for Human
Resource Management.
Source: Field research
50%
Negligible
188
reveals that Sayaji Hotel spend around 1 to 2% of their working capital for
marketing and sales promotion, which is very less as compare to other hotels.
r turnover ratio of most of the hotels is very high. Hotel industry is a service
industry. Hence, the contribution of hotel employees, service providers in the growth
of hotel is very high. HVS International Survey Report (2009
revealed that more than 75% hotel employees who worked under different capacities are
trained. However, being a dynamic industry, its staff needed to be updated with current
business trends and practices. Further retention of good staff is big challenge in this fast
growing industry. Hence, efforts have been made to analyze whether hotels of Pune
make adequate provision form its working capital (operating expenses)
This important aspect has been presented in graph 5.1
) Graph showing the proportion of working capital is used for Human
11%
25%
14%
Little Average High Very High
around 1 to 2% of their working capital for
marketing and sales promotion, which is very less as compare to other hotels.
r turnover ratio of most of the hotels is very high. Hotel industry is a service
service providers in the growth and
of hotel is very high. HVS International Survey Report (2009-10) had
revealed that more than 75% hotel employees who worked under different capacities are
dustry, its staff needed to be updated with current
business trends and practices. Further retention of good staff is big challenge in this fast
growing industry. Hence, efforts have been made to analyze whether hotels of Pune
(operating expenses) for the Human
This important aspect has been presented in graph 5.11.
) Graph showing the proportion of working capital is used for Human
189
Graph 5.11 shows that 36% hoteliers spend little or negligible many for very crucial
aspects like Human Resource Management. Various activities like Recruitment, job
assignment, training, transfers, appraisal, employees’ retention etc. are the various
important aspects of Human resource management. For the growth and development of
the organization all these activities have to be given due importance.
Data collected from CMIE PROWESS for four hotels have revealed the proportion of
Compensation to Employees to Operating Expenses. Following is the table showing the
part of working capital used for compensation of employee management for four hotels
with the assumption that working capital is used on hotels operating expenses.
Table 5.34 Showing the Part of Working Capital Used for Giving Compensation to
Employees for The Indian Hotels Co. Ltd.
2005-06 2006-07 2007-08 2008-09 2009-10
Compensation to Employees
(Fig. in Crore of Rupees)
202.33 270.44 300.91 374.77 348.62
Operating Expenses
(Fig. in Crore of Rupees)
813.07 986.24 1070.79 1144.57 1106.96
% of Compensation to Employees
to Operating Expenses
24.89 27.42 28.10 32.74 31.49
Source: Financial data published by CMIE Prowess (Appendix-D)
Table 5.34 has explained that Indian Hotels spend on compensation to employees to App.
25% to 33% of this hotel’s total operating expenses.
190
Table 5.35 Showing the Part of Working Capital Used for Giving Compensation to
Employees for Kamat Hotels (I) Ltd.
2005-06 2006-07 2007-08 2008-09 2009-10
Compensation to Employees (Fig.
in Crore of Rupees)
12.48 17.36 23.93 25.49 22.09
Operating Expenses (Fig. in Crore
of Rupees)
42.64 59.42 78.09 82.6 69.8
% of Compensation to Employees
to Operating Expenses
29.27 29.22 30.64 30.86 31.65
Source: Financial data published by CMIE Prowess (Appendix-D)
Table- have explored that Kamat Hotel’s expenditure on compensation to employees
contributes to App. 30% to 32% to its total operating expenses.
Table 5.36 Showing the Part of Working Capital Used for Giving Compensation to
Employees for Royal Orchid Hotels
2005-06 2006-07 2007-08 2008-09 2009-10
Compensation to Employees (Fig.
in Crore of Rupees)
6.53 8.74 11.47 15.97 15.71
Operating Expenses (Fig. in Crore
of Rupees)
29.32 40.16 46.76 64.06 59.48
% of Compensation to Employees
to Operating Expenses
22.27 21.76 24.52 24.93 26.41
Source: Financial data published by CMIE Prowess (Appendix-D)
Table 5.36 has suggested that Royal Orchid Hotel’s use up on compensation to
employees to App. 22% to 26% to its total operating expenses. It is comparatively less
than Indian Hotels and Kamat Hotels.
191
Table 5.37 Showing the Part of Working Capital Used for Giving Compensation to
Employees for Sayaji Hotels
2005-06 2006-07 2007-08 2008-09 2009-10
Compensation to Employees (Fig.
in Crore of Rupees)
3.75 5.38 9.23 11.75 11.5
Operating Expenses (Fig. in Crore
of Rupees)
25.42 30.87 49.48 61.53 58.9
% of Compensation to Employees
to Operating Expenses
14.75 17.43 18.65 19.10 19.52
Source: Financial data published by CMIE Prowess (Appendix-D)
Table 5.37 have analyzed that Sayaji Hotel’s expend on compensation to employees to
App. 15% to 20% to its total operating expenses. It is comparatively very less than other
three Hotels.
Alike the inventory, the receivables, and cash is also very crucial component of the
working capital. It has to be managed wit due care. It has been seen that profitable firms
have became bankrupt due to the lack of liquidity. It is the responsibility of the finance
manager to maintain adequate cash reserve to meet the firm’s need of day to day
expenses and to face contingencies. Further, excess cash has to be invested to maintain
the firm’s profitability as well. A sincere effort has been made to ascertain whether
hoteliers of Pune had ever faced the problem of shortage of funds to fulfill their day to
day needs. This shortage of cash aspect has been presented in graph 5.12.
(Graph-5.12) Showing how o
Source: Field research
From Graph 5.12 has been
shortage of funds for meeting day to day expenses. The
in these organizations is that the
properties. Thereby, if need arises, the funds can be provided to hotel from
business organizations.
Some of the hotel respondents
asked to give their opinion about what could be the reason for such shortage
been presented in graph 5.1
36%
4%
Never Sometimes
192
) Showing how often the respondents have experienced shortage of cash
been disclosed that 53% of respondent have
shortage of funds for meeting day to day expenses. The main reason for lack of shortage
is that the promoters have more than one business or hotel
properties. Thereby, if need arises, the funds can be provided to hotel from
Some of the hotel respondents who have faced the problem of shortage of funds
asked to give their opinion about what could be the reason for such shortage
been presented in graph 5.13.
53%
4%7%
0%
Sometimes Seldom Often Very often
shortage of cash
have never faced any
for lack of shortage
promoters have more than one business or hotel
properties. Thereby, if need arises, the funds can be provided to hotel from other
who have faced the problem of shortage of funds were
asked to give their opinion about what could be the reason for such shortage which has
Graph 5.13 The reasons for shortage of funds
Source: Field research
From the study mixed responses were
respondents were of the opinion
the available funds to ot
receivables policies of hoteliers are quite liberal. Therefore, recovery problems also can
be the reasons for the shortages. Graph 5.1
of funds also could be one of
A sincere effort has been made to analyze whether unpredictable environmental situation
can leads to increase in the costs which are related to the working capital.
significant aspect of unpredicta
presented in graph 5.14.
16%
Inappropriate Forecasting
Funds Diverted
Not responded
193
reasons for shortage of funds
mixed responses were received for question shortage of funds. Some
were of the opinion, that it is a common practice of hoteliers that they divert
the available funds to other business of the promoter. It has been also noticed that
receivables policies of hoteliers are quite liberal. Therefore, recovery problems also can
be the reasons for the shortages. Graph 5.13 has revealed that inappropriate forecasting
one of the reasons for shortage of funds.
been made to analyze whether unpredictable environmental situation
can leads to increase in the costs which are related to the working capital.
significant aspect of unpredictable environment and its impact on the business has been
7%
32%
26%
19%
Inappropriate Forecasting Recovery Problem
Funds Diverted Others
Not responded
for question shortage of funds. Some
, that it is a common practice of hoteliers that they divert
her business of the promoter. It has been also noticed that
receivables policies of hoteliers are quite liberal. Therefore, recovery problems also can
has revealed that inappropriate forecasting
been made to analyze whether unpredictable environmental situation
can leads to increase in the costs which are related to the working capital. This
ble environment and its impact on the business has been
Graph 5.14 Impact of unpredictable environmental situation of cost
Source: Field research
Industries like tourism and hospitality are very sensitive. Foreign delegates, domestic
visitors, pilgrimers, etc. visit the city and occupy the hotels. The social unrest due to the
bomb blast at the German Bakery, in Pune or militant attacks at Mumbai o
November, 2008 have affected the hotel business badly. Unforeseen incidences like
spread of swine flu in city also hampered the business. Under such circumstances, to
induce the guest to make a stay in city is very difficult task. Many hoteliers
heavy discounts, and provided other facilities like pick up and drop at free of cost etc. for
the hotel stay. Under such circumstances
conditions of the business. T
affair.
46%
Negligible
194
Graph 5.14 Impact of unpredictable environmental situation of cost
Industries like tourism and hospitality are very sensitive. Foreign delegates, domestic
visitors, pilgrimers, etc. visit the city and occupy the hotels. The social unrest due to the
bomb blast at the German Bakery, in Pune or militant attacks at Mumbai o
affected the hotel business badly. Unforeseen incidences like
swine flu in city also hampered the business. Under such circumstances, to
induce the guest to make a stay in city is very difficult task. Many hoteliers
heavy discounts, and provided other facilities like pick up and drop at free of cost etc. for
the hotel stay. Under such circumstances, guests or tour operators also dictate terms and
conditions of the business. Thus, to maintain the business no doubt it becomes
11%
29%
14%
Little Average High Very High
Industries like tourism and hospitality are very sensitive. Foreign delegates, domestic
visitors, pilgrimers, etc. visit the city and occupy the hotels. The social unrest due to the
bomb blast at the German Bakery, in Pune or militant attacks at Mumbai on 26th
affected the hotel business badly. Unforeseen incidences like
swine flu in city also hampered the business. Under such circumstances, to
induce the guest to make a stay in city is very difficult task. Many hoteliers offered
heavy discounts, and provided other facilities like pick up and drop at free of cost etc. for
guests or tour operators also dictate terms and
doubt it becomes a costlier