*Blue Mist Hotel Financial Ratios.*

You are the Assistant Manager at the Blue Mist Hotel, a 425-room hotel in Phoenix, Arizona. The General Manager has asked you to write a report on the financial status of the hotel for the month of May. The number of rooms sold for the month of May was 8,432. It is important for hospitality managers to understand the calculation and interpretation of financial ratios. The ratios are calculated from data collected from income statements and balance sheets. The financial ratios are important to management to understand forecasting, labor optimization, and profit maximization.

The departmental income statements from the Blue Mist Hotel for the month of May are shown below. The first income statement is for the Rooms department, and the second income statement is for the Food and Beverage department. The first ratio of Occupancy % is calculated for you.

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**Occupancy percentage.**This ratio shows the success rate for selling rooms

*Rooms sold divided by rooms available = Occupancy Percentage*

*8,432 / (425rooms x 31 days) =*

*8,432 / 13,175 = *

*.64 X 100 =*

*64% Occupancy for the month of May*

*Note: remember to calculate room availability by the time-period for the calculation. For example, if you want the Occupancy percentage for the month of May, you need to know the available rooms for the month. 425 rooms daily multiplied by 31 days in May = 13,175 rooms available for May.*

**Cost of labor percentage for Rooms. Cost of labor percentage for F&B.**This ratio shows labor productivity and allows managers to monitor labor costs.

*Payroll expenses divided by total revenue = Cost of labor percentage*

**Cost of food sold percentage.**This ratio shows % profits from food sales.

*Cost of food sold divided by total food sales = Cost of food sold percentage*

**Cost of beverage sold percentage.**This ratio shows % profits from beverage sales

*Cost of beverage sold divided by total beverage sales = Cost of beverage sold percentage*

**Average daily rate (ADR).**This ratio is an indicator from room sales that generate income. It can show an increase or decrease in profit margins depending on expenses.

*Room revenue divided by paid room nights = Average daily rate (ADR)*

**Profit margin percentage for Rooms. Profit Margin percentage for F&B.**This ratio measures the profit margin % by comparing income with expenses, and is the most important ratio indicating the overall success of a department or the hotel.

*Income divided by revenue = Profit margin percentage*

**Rooms sales to total sales percentage.**This ratio measures the % of income derived from the sale of rooms. Room sales is the largest revenue stream for a hotel.

*Rooms revenue divided by total revenue = Room sales to total sales percentage*

Blue Mist Hotel Financial Ratios.