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A brief look at the financial aspects of starting a hotel

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  1. Introduction
  2. Basic factors that should be taken into consideration for a financial projection
  3. Cost of project
    1. The total cost of project will estimated on the following aspects
    2. Human resources requirement for a hotel industry
  4. Financing the project
    1. Sources of finance
    2. Share capital
    3. Types of share
    4. The debt equity ratio works out as
  5. Profitablity statement
  6. Constituents of a profitiblity statement
  7. Interest on loan
  8. The compoments of a cash flow statement
    1. Cash flow
    2. The components of a balance sheet
    3. Break even analysis
    4. Debt service and coverage ratio (DSCR)
  9. Ratio analysis
    1. Importance of ratio analysis
    2. Classification of ratio
  10. Calculation of ratio
    1. Operating ratio
    2. Net profit ratio
    3. Return on share holders investment
    4. Return on total assets
    5. Operating profit ratio
    6. Fixed assets turnover ratio
    7. Total assets turnover ratio
    8. Gross profit margin ratio
  11. Conclusion

The word financial viability means to find out, whether it is financially viable to start a three star hotel as this project report is based on three star hotels. In simple words, financial viability is to find out whether starting a three star hotel is financially successful or not. Financial planning includes the selection of objectives and selection of policies, programs and procedures to achieve the objectives. The considerations relating to the present capital needs, requirements of investors and possibilities of expansion resolve themselves into a present determination of:

- The amount of capital to be raised.
- The form and proportionate amount of securities to be issued.
- Policies as to the administration of capital.

It is not too much to emphasize the correct estimate of the present and future needs of the capital; a sound capital structure and proper projection of capital will lead to success of the company.

[...] Advantages: - It is a permanent source of finance for the company. Equity shares usually don't create obligation to pay their fixed rate of dividend. Preference Share: - This share as the name suggests, has a preference as compared to equity shares. There is a preference for payment of dividend, i.e. whenever the company has distributable profits; the dividend is first paid to the preference shareholders. Other shareholders are paid dividend only out of the remaining profit, and also preference shareholders are given priority when the company is in the liquidation stage. [...]

[...] (Please note the figures used are indicative) Exhibits 15.a Assets Valuation for Depreciation Purpose In Million) Assets Basic Share of Share of Total Cost Cost Pre-operative Contingency Expenses Margin Fixture Assets Depreciation Schedule for Company law Purpose (Straight Line Method) Building 0.22 Plant & Machinery 0.11 Furniture & Fixture 0.02 Miscellaneous Fixed Assets 0.26 Annual Depreciation 0.64 Exhibits 15.b INTEREST ON LOAN Year Loan O/S Loan O/S Loan O/S Interest Interest Total at at the at the for the for the interest Beginning end of end of First Second for the First Second half year half year term loan half year half year THE COMPOMENTS OF A CASH FLOW STATEMENT CASH FLOW Cash flow is based on profitability statement; the cash flow statement can be prepared as given in the table. [...]

[...] Useful in Assessing the Operational Efficiency: - It helps to have an idea of the working of a concern. The efficiency of the firm becomes evident when analysis is based on accounting ratios. They diagnose the financial health by evaluating liquidity, solvency, profitability etc. Useful in Forecasting Purpose: - If accounting ratios are calculated for a number of years, then a trend is established. This trend helps in setting up future plans and forecasting. For e.g. expenses as a percentage of sales can be easily forecasted on the basis of sale and expenses of the past years. [...]

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