Evaluate The Use Of Financial Ratios In The Hospitality Industry

Jagels and Coltaman (2004) in their research show that firms in hospitality industry make use of financial ratios depending on the firm performance. It was identified that the firms in hospitality industry mainly used solvency ratio, total asset to total liability and mainly operations to average total liabilities ratios from the cash flows to evaluate its performance over the period. It was also noted that the useful information was mainly that was supported with the additional information. It is because many market value and intangibles are often ignored during the calculations which are the main source of performance/positioning of the firm in the industry. It was become income of each of the segment cannot be categorized in one because

Since, business operating in hospitality industry is mainly service oriented which is the crucial aspect that creates market value of the firms. However, the sales from the inventory and other aspects are not denoted with the costs of goods but rather depreciation expenses. The nature of operation affects the expenses and revenue generating streams of the company due to which there are different ratios than that of other financial ratio. However, even the ratios used in the hospitality industry are difficult to understand because of its cost control methods and purchasing procedures that impact the revenues, forecasting and other scheduling (Johathan, 2005). Therefore, the services and products offered by a firm in a hospitality industry are different due to which they are more likely to fall in different segment of hospitality industry depending on the revenue streams of the companies. It was noted that the use of profitable ratio were same but the use of efficiency ratios and asset management ratios is different for the firms that fall in different segments at a time. Similar findings were obtained by the other authors who highlight that the use of the financial indicators vary in firms operating in hospitality industry but the size and capital structure of the firm dominantly

The researcher conducted cross sectional analysis in which it was determined that the use of the financial ratios in the hospitality industry differs because of diversity. It findings show that only eight out of thirteen ratio were statistically significant for the firms operating in hospitality segment. The eight ratio found out to be statistically insignificant are net profit margin, current ration, inventory turnover, quick ratio, ROA, total asset turnover, total debt to total asset and average collected period (Kim & Ayoun, 2005). The reason of the non constant pattern involving to financial ratios were because of capital structure varies of each of the segment which eventually impacts pattern of the use of financial ratios to measure its performance and