Performance of Champs Elysees - Business Plan Example

Hots Report Executive Summary The prime objective of this report is to evaluate the financial performance of Champs Elysees, a UK based hotel, and determine its current strengths along with weaknesses, along with the opportunities and threats prevailing within the market. Discussion in this report has also aimed at suggesting strategies for accomplishing the determined business objectives of Champs Elysees. Based on the financial information provided, it can be apparently observed that the business performance of the hotel improved during the three years of its operations. This can be justified with reference to the findings that the net operating income of the hotel amounted to $197,279, $311,249 and $372,214 in the 1st, 2nd and 3rd year respectively. After evaluating three years financial performance of Champs Elysees, certain strategies, in the form of business plan for 4th year, on behalf of this hotel, has been suggested. In this similar context, the strategies like developing service quality following scientific steps and implementing through the distribution channel of ‘direct to consumer’ among others have been projected for the hotel that might aid in developing its business performance in the 4th year. Table of Contents Executive Summary 2 1.0 Introduction 4 2.0. Performance and Financial Analysis 4 2.1 Total Hotel Revenue and Total Hotel Net Income 4 2.2 Rooms Department Revenue and Net Income 5 2.3 Food & Beverage Departments Revenue and Net Income 6 2.4 Return on Capital Employed (ROCE) 7 2.5 Occupancy, Average Daily Rate (ADR) and REVPAR 8 2.6 Refurbishment Spending and Extra Facilities Built 9 2.7 Short and Long-Term Stability Ratios 9 2.8 Staff Turnover 15 2.9 Marketing Spend and Activities 16 2.10 EMS Spend and Activities 17 3.0 Business Plan for Year 4 17 3.1 SWOT 17 3.2 Objectives 18 3.3 Strategies 19 4.0 References 23 1.0 Introduction This particular report will provide a brief outline about the business performance of Champs Elysees in detail, over the previous three years. Various significant aspects, including the positioning statement, performance as well as financial analysis, objectives and strategies relating to this hotel, will also be discussed in this report. Finally, the current balance sheet, income statement and the monthly indicator report for the present year (Year 3) will be attached at the end of the report. For determining the positioning statement of Champs Elysees, it is worth mentioning that the hotel aims to commence a 4-star boutique hotel, which provides numerous services and facilities to the customers belonging to various nations of this world. The targeted customers of this hotel mainly constitute conference travellers and tourists. The hotel incorporates numerous technological developments while performing its various operational functions, which would ultimately serve the customers with unique and quality services. 2.0. Performance and Financial Analysis 2.1 Total Hotel Revenue and Total Hotel Net Income From the above diagrammatical representation, it is quite apparent that the revenue and the net income of Champs Elysees increased gradually during the three years. The total hotel revenue for Year 1, 2 and 3 was $581,311, $769,204 and $862,079 respectively. On the other hand, the net income of the hotel for Year 1, 2 and 3 was $197,279, $311,249 & $372,214 respectively. This depicts that the hotel possesses the capability to provide quality services to the customers, which resulted in attracting the customers and enlarged its customer base to a substantial extent. 2.2 Rooms Department Revenue and Net Income Based on the above pictorial illustration, it can be apparently observed that the revenue and the net income of the rooms department of Champs Elysees also showed an increasing trend during the three years. In this context, the rooms department revenue of the hotel for 1st, 2nd and 3rd year was $308,140, $446,374 and $500,408 respectively. Conversely, the rooms net income was $224,912, $344,674 & $391,454 respectively. It was in the third year wherein the hotel had to experience the highest revenue and the net income from its room department. Thus, it can be affirmed that the customers visited this hotel at a larger volume and hence occupied the rooms extensively. 2.3 Food & Beverage Departments Revenue and Net Income Champs Elysees witnessed steady rise in the net income generated from its food and beverage department. This can be justified with reference to the fact that the food & beverage department net income of the hotel amounted to $111,132, $123,486 & $143,470 for 1st, 2nd and 3rd year respectively. Relating to the revenue, an increasing trend can be apparently observed during the three years. Justifiably, the food & beverage department revenue of the hotel was stood at $251,917, $284,028 and $317,140 respectively. 2.4 Return on Capital Employed (ROCE) Theoretically, Return on Capital Employed (ROCE) is regarded as the functionality of two basic items that comprise capital employed and profit. It would be vital to mention in this similar concern that the ROCE ratio might get changed due to the alterations made in the above-discussed two fundamental items (Coles, 1997). The ROCE of Champs Elysees has been noted as increasing progressively during the three years. In this similar context, the ROCE of the hotel, during the three years, accounted to 1%, 2% and 3% respectively as the capital remained constant at $8,950,000 and EBIT $96,068, $210,264 and $280,877 respectively. This increasing trend in ROCE signifies that the hotel is efficient enough in maintaining its profitability out of the aggregated amount of capital employed. 2.5 Occupancy, Average Daily Rate (ADR) and REVPAR From the above-depicted graphical demonstration, it can be clearly understood that the occupancy, ADR and REVPAR rate of Champs Elysees have increased progressively during the three years. These can be justified with reference to the financial information, provided the occupancy rate in the years 1, 2 and 3 amounted to 53.4%, 68.2% and 74.5% respectively. On the other hand, the ADR rate of the hotel, during the three years, accounted to 84.83, 97.06 and 97.58. Finally, the REVPAR rate accounted $43.26, $60.97 and $68.1 in 1st, 2nd and 3rd year respectively. 2.6 Refurbishment Spending and Extra Facilities Built As per the above-illustrated presentation, it can be clearly observed that Champs Elysees has taken the initiative of investing substantially, particularly in the segment of refurbishment and extra facilities built. Justifiably, with reference to the findings, the spending in these arenas by the hotel increased gradually that amounted to $485,243, $558,940 and $581,202 in 1st, 2nd and 3rd year respectively. 2.7 Short and Long-Term Stability Ratios Conceptually, stability ratios are often viewed as effective tools that tend to raise the ability in meeting long-term obligations through the utilisation of working capital. Generally, stability ratios are of two types that include long-term and short-term. In this regard, long-term stability ratios refer to the capability of the organisation in complying with long-term obligations. On the other hand, short-term stability ratios signify possessing the ability to meet obligations that are based on short-term perspectives (Steward, 1999). According to the above-portrayed graphical image, it can be affirmed that both the current as well as the quick ratios of Champs Elysees have risen progressively during the three years of its operations. The current ratio of the hotel for the three years stood at 0.34, 1.02 and 2.38 respectively as the current assets stood at $327,148, $1,492,755 and $4,722,053 for 1st, 2nd and 3rd year. The current ratio of the hotel in the 1st year, i.e. 0.34 denotes that the hotel did not possess good short-term financial strength. Specially mentioning, as the current ratio for the 2nd as well as 3rd year of the hotel was found to be greater than 1 it can be affirmed that the hotel had experienced better short-term financial strength and meet short-term obligations effectively. On the other hand, the quick ratio has been identified as higher i.e. 2.36 in the 3rd year as compared to other years, which signify that the hotel has been able to meet the current obligations efficiently through the effective utilisation of liquid assets. In this respect, with the above-depicted amounts of current assets as well as liabilities, inventories for 1st, 2nd and 3rd year amounted $41,766, $44,828 and $50,937. Based on the graphic presentation of the data above, it can be affirmed that the debt-to-asset ratio of Champs Elysees decreased steadily during the three years of its operations, and was found to be less than 1, which signifies that the assets of the hotel were financed through equities rather than debts. In this respect, the total liabilities of the hotel for Year 1, 2 and 3 amounted to $3,348,377, $3,493,204 and $3,677,869 respectively and the total assets to be $12,371,283, $13,510,005 and $15,591,160. On the other hand, the debt-to-equity ratio has also been noted to decrease gradually during the three years, which denotes that the hotel is not quite aggressive in financing its growth with debt. The debt or the shareholders’ equity of the hotel for 1st, 2nd and 3rd year stood at 9,022,906, $10,016,801 and $11,913,291 respectively. The above presented pictorial illustration denotes that the time interest earned ratio of Champs Elysees has been increased progressively during the three years, which was accounted as 8.85, 22.87 and 35.60 respectively. The interest expenses of the hotel for the three years were $10,852, $9,193 and $7,889 respectively and the EBIT to be $96,068, $210,264 and $280,877. This gradual rise of the ratio indicates that the hotel has been able to repay its debts as well as interests effectively. Conversely, the asset turnover ratio of the hotel is also noted to be rising and remaining constant during three years of operating business. In this regard, the revenue of the hotel for Year 1, 2 and 3 were found to be $581,311, $769,204 and $862,079 respectively. This implies that the capability of the hotel, particularly in generating revenues, in alignment with better utilisation of assets, is also rising and remaining constant. As per the above presentation, it can be clearly understood that the accounts receivable ratio of Champs Elysees seem to be quite higher than accounts payable ratio. These can be justified with reference to the findings that the accounts receivable ratio of the hotel during the three years of its operations stood at 1.95, 1.71 and 1.58 respectively keeping the amount of accounts receivable for 1st, 2nd and 3rd year to be $248,825, $326,270 and $367,659 . On the other hand, the accounts payable ratio for 1st, 2nd and 3rd year accounted 0.76, 0.67 and 0.70 respectively keeping the amount of accounts payable for the three years as $635,393, $833,853 and $830,287. It is worth mentioning that greater the accounts receivable ratio, higher is the efficiency of a business towards collecting sales. Thus, with this concern, it can be affirmed that the hotel, with the higher accounts receivable ratio, is competent enough towards collecting its sales revenue as expected. According to the above-depicted illustration, it can be apparently observed that the percentage of cash flow from operating activities increased substantially during the three years of operations, which signify that the investment quality of Champs Elysees is quite better and an effective one. Justifiably, the net operating cash flow of the hotel amounted to $198,460, $255,737 and $349,643 for 1st, 2nd and 3rd year respectively. While, on the other hand, the percentage of cash flow from financing activities remained negative in the 1st year of the operation for the hotel and remained zero in the consecutive two years. In this regard, the net investing cash flow of the hotel stood at ($44,244), 0 and 0. This represents that the hotel is not able to sell off more fixed assets than it is investing in, indicating a weak financial position of the organisation. This graphical demonstration indicates that the EBIT margin of Champs Elysees rose progressively during the three years of its operations. In this similar context, the EBIT margins of the hotel during the three years were recorded as 0.165, 0.273 and 0.325 respectively keeping the above presented revenue and EBIT for the three years constant. Specially mentioning, higher the EBIT margin, greater the profitability and sales. Thus, it can be affirmed that during the three years, Champs Elysees experienced greater profitability. Based on the above designed graphical representation, it can be apparently recognised that the ROA of Champs Elysees gradually increased during the three years of operations that accounted as 0.016, 0.023 and 0.024 respectively keeping the above presented amounts of net income and total assets constant. It is worth mentioning that higher the ROA, greater is the profitability relative to total assets. Thus, it can be affirmed that the increasing trend in ROA of the hotel indicates superior profitability relative to its total assets. 2.8 Staff Turnover From the above-depicted pictorial design, it is quite apparent that the annual staff turnover rate in Champs Elysees remained much fluctuating and sounds to be quite higher. During 1st, 2nd and 3rd years of its operations, the annual staff turnover rates in the hotel remained 40.6%, 28.9% and 5.3% respectively. 2.9 Marketing Spend and Activities As per the above-represented diagram, it is quite apparent that Champs Elysees is incessantly involved in spending extensively towards marketing its varied services and activities with the intention of attaining maximum profitability for enlarging its customer base. In this regard, spending in marketing activities by the hotel during 1st, 2nd and 3rd years has been identified as $17,764, $23,191 and $29,759 respectively. 2.10 EMS Spend and Activities The above-illustration depicts that the EMS (Emergency Medical Services) spending of Champs Elysees, such as utilities, has risen extensively from the past three years of its operations. Justifiably, the EMS spending activities of the hotel during the three years stood at $21,391, $23,644 and $25,733 respectively. 3.0 Business Plan for Year 4 3.1 SWOT 3.1.1 Current strengths and weaknesses of Champs Elysees. One of the prime strengths of Champs Elysees can be apparently recognised emphasising the grounds that its profitability raised extensively during the three years of its operations. This might be owing to the reason of delivering quality services to the customers with better and affordable prices. In addition, the continuous attainment of substantial revenue and net income hikes acquired from various operational departments can also be regarded as one of the other major strengths of the hotel. Specially mentioning, these strengths eventually provide active support to Champs Elysees in accomplishing superior competitive positioning in the respective industry as compared to others. Observably, the lower occupancy rate prevailing in weekday and weekend rooms of Champs Elysees seems to be lower as compared to other hotels, such as the Royal International Hotel, affecting the profitability of the hotel at large. This could be regarded as one of the prime weaknesses of Champs Elysees. 3.1.2 Current opportunities and threats in the market. It is worth mentioning in this regard that the hotel industry is recognised to be one of the growing sectors throughout the globe. The industry has a major scope to gain maximum opportunity in serving better and quality services to the customers, as their tastes as well as preferences are incessantly changing due to increased level of globalisation along with internationalisation. Identifiably, numerous new entrants are appearing in this particular industry with the intention of accomplishing significant profits. These new entrants ultimately impose greater business market competition to the existing players such as Champs Elysees (Shanker, 2008). 3.2 Objectives The financial as well as the marketing activities of Champs Elysees has been presented in the following. Maximisation of profits earned from business operations Growing sales as per the preferences and the demands of the customers Enhancing profitability Accomplishment of superior competitive position Communicating quality services to the concerned hotel guests Generating greater value to the customers about varied hotel services Disseminating brand values Forming close associations with the customers Making efforts in continued differentiation as well as growth Expanding hotel related services to diverse business market segments 3.3 Strategies 3.3.1 Corporate/weekday market. Based on the provided financial information, it can be apparently noted that the sales of weekday transient relating to corporate or weekday market of Champs Elysees remained lower as compared to one of its prominent competitors, i.e. Royal International Hotel. Thus, the company needs to develop appropriate strategies in enhancing the sales of this segment by designing effective product, pricing and distribution along with promotion as well as sales strategies. Relating to its product strategy, Champs Elysees might develop the sales of weekday transient, allocating rooms as per the requirements of the clients. In connection with promotion as well as sales strategy, the hotel can make better use of its online website for advertising the offers linked with weekday transient to the clients. With regards to pricing strategy, the hotel might provide discount facilities to the customers while seeking weekday transient services. This would eventually support the hotel towards determining its profitability at large. Concerning the distribution of this operational aspect i.e. weekday transient, the hotel might adopt the strategy of fulfilling the same by utilising the distribution channel of “direct to customer.” This distribution channel would generally make Champs Elysees to communicate directly with the customers regarding the aspect of weekday transient without having any sort of intermediary (Karppinen, 2011). 3.3.2 Leisure/weekend market. Similar to weekday transient, the sales of weekend transient of Champs Elysees can also be apparently recognised as quite lower in comparison to its rival firm, Royal International Hotel. Thus, in order to attain superior competitive position over this hotel, Champs Elysees needs to implement effective product, promotion as well as sales, pricing and distribution strategies, as relevant to the leisure market. 3.3.3 Other market segments (conference market). As per the provided financial information, it can be viewed that the conference market based on both weekdays and weekends of Champs Elysees is quite satisfactory as compared to its major competitors like Royal International Hotel and Moreton Hotel among others. Thus, in order to enhance its conference market, Champs Elysees may effectively design this segment as a product in a way so that the customers are attracted at a larger volume. This can be made possible with the effective utilisation of advanced technological advancements. Relating to pricing strategy, the hotel can adopt differentiation strategy in developing its conference market segment. Specially mentioning, the hotel might promote this operational segment advertising in its own websites or in local newspapers. Moreover, the hotel might adopt the distribution strategy of “direct to customer” for developing its conference operational segment (Karppinen, 2011). 3.3.4 Food and beverage. In order to attract and most vitally retain existing customers, Champs Elysees would have to adopt strategies like enhancing the quality of food and beverage service and delivering the same within preferred time schedule of the clients. 3.3.5 Staffing and service quality. Champs Elysees herein needs to adopt the strategy of hiring potential employees, which would support the hotel towards developing its overall performance at large. In order to motivate these employees for working harder towards the attainment of the desired objectives, the hotel need to design its pay system and provide them training sessions in an effective manner. It is worth mentioning that service quality plays an imperative role towards driving success in the form of enlarging customer base and enhancing profitability by a considerable degree. Thus, it is quite essential for Champs Elysees to develop service quality for reaping the aforesaid benefits. In this similar context, certain steps have been suggested to the hotel by which, it can develop its service quality at large. These steps include identifying the needs as well as the preferences of the customers, looking after the complaints made by the customers regarding services, establishing a setting wherein quality services are identified and conducting meetings with the staff regarding the development of the service quality (Karppinen, 2011). 3.3.6 Physical property condition. Based on the information provided, Champs Elysees possesses better conditions of physical properties as the hotel invested substantial amounts in the same. However, with the growing prospects of the hotel industry, the hotel needs to make effective plans in constructing more rooms particularly for its customers and making renovations in its existing physical properties. These would certainly aid the hotel to attract its customers worldwide, resulting in enhancing profitability overall. 3.3.7 EMS. EMS generally stands for Emergency Medical Services. According to the information provided, Champs Elysees spends certain portion of its amount to this operational segment in the form of ‘Utilities’ with the belief that it would be able to gain maximum customer satisfaction and attain a huge market share. It can also be affirmed in this similar concern that proper guidance and better effectiveness of this kind of operational segment will help any business to gain maximum customer satisfaction, resulting in the attainment of superior competitive position as compared to others (Karppinen, 2011). Thus, the EMS spending in terms of ‘Utilities’ would certainly make the hotel to experience better financial position in the 4th year than the preceding three years. 4.0 References Coles, M. (1997). Financial management for higher awards. United States: Heinemann. Karppinen, M. (2011). Marketing. Strategic Marketing Plan for a Hotel, pp. 2-63. Steward, C. (1999). Developing strategic partnerships: how to leverage more business from major customers. US: Gower Publishing, Ltd. Shanker, D. (2008). Tourism industry. ICT and Tourism: Challenges and Opportunities, pp. 50-58. Read More