Back To Latest Articles

Understanding profit and loss (P&L) and the benefits for hoteliers

How profitable is your business? It’s probably the most important question you could ask or at least the one most linked to whether your business is financially viable and on track for success. An understanding of your P&L data provides the definitive answer and highlights the relationship between the money you generate (revenues) and that which you spend (expenses). It all starts with your P&L statement…

What is a P&L statement?

A P&L statement reports profits or losses over a given time period, based on your company’s revenue and expenses – essentially it is a reflection of the ability to drive sales, manage expenses and generate profits.

Image
Revenue minus expenses equals profit

Your statement provides these insights through your net income, calculated by totalling revenues and deducting expenses for both operating and non-operating activities—this is more commonly referred to as your bottom line.

Statements are typically produced and analyzed on a monthly, quarterly or financial year basis, with aggregated values included for quarterly and annual results.

From the P&L statement, companies create their balance sheet and cash flow statement, but let’s not get ahead of ourselves and focus on that first financial statement.

The role P&L plays in a hotel

It is important to recognize that hospitality is a cost-intensive industry as a result of a large workforce and high level of guest amenities. Similarly, food and beverage/restaurant departments are often not particularly profitable because of the high volume of components and ingredients required to prepare dishes.

Fluidity is part and parcel of the hospitality industry, and with so many variables affecting profitability it’s no surprise that P&L statements are widely used in monitoring hotel performance and creating strategies.

In restaurants and beyond, much of the hospitality industry’s offerings are perishable—if rooms or dishes are unsold, the costs associated with them are essentially wasted. Similarly, seasonality presents a challenge, and hoteliers need to manage the variances between high and low season, weekends and weekdays, and holiday periods. Hence, it is easy to identify the crucial nature of analyzing and understanding your P&L statement.

From custom analyses that benchmark hotel performance against the competition, to reports that offer insights into regional performance, STR’s P&L Program provides hoteliers around the world with the necessary profitability data.

With that in mind, we will continue to focus on hotel-specific P&L statements and use Uniform System of Accounts for the Lodging Industry (USALI) guidelines in doing so.

Image
P&L statement structures
Image
Understanding P&L

Compare year-over-year performance against your own results, the competition or your established budget. This can be achieved by:

  • Analyzing the operating, gross operating and EBITDA margins
  • Studying the trends – Establishing whether metrics are improving or deteriorating over periods can help you understand performance more clearly and refine your approach to capitalize on opportunities and improve weaknesses.
  • Key performance indicators: Total revenue per available room (TRevPAR), gross operating profit per available room (GOPPAR) and labour per available room (LPAR) enable you to understand property profitability on a per-room basis.

 

Who benefits most from profit and loss reports?

The hospitality industry has a number of different business models that include management agreements, franchise agreements, leases, and owner-operator management. For every model, a different aspect of the P&L statement is most relevant.

However, all hospitality stakeholders can benefit from profitability insights. For owners and hotel/management companies, this data offers an understanding of how effective their strategy has been. Investors, meanwhile, can understand the financial viability of projects through assessing profitability in markets and historic trends.

Typically, owners are more interested in net income, while management companies pay more attention to GOP. Roles within the industry play a huge part in how you use and benefit from P&L reports. If you'd like more information on which product could benefit you most, discover our P&L suite.

Learn about P&L data submission here.