9780130482877

Hospitality Financial Managment

by ;
  • ISBN13:

    9780130482877

  • ISBN10:

    0130482870

  • Edition: 1st
  • Format: Paperback
  • Copyright: 5/26/2004
  • Publisher: Pearson

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Summary

This up-to-date introduction to finance, written for those in hospitality careers, explains and demonstrates the importance of financial management within the hospitality organization. This clear and concise book provides many examples and is primarily based on practical applications and less on theoretical foundationskeeping hospitality professionals tuned into finance without intimidating them with a typical ┐finance┐ book.Financial Markets and Financial Instruments; Review of Financial Statements and Selected Ratios; The Relationship Between Risk and Return; Time Value of Money; Fixed Income Securities: Bonds & Preferred Stock; Common Stock Features; Cost of Capital; Capital Budgeting and Cash Flow Estimation; Capital Budgeting Decision Methods; Hotel Valuation; and Capital Structure.For those in hospitality/travel tourism professions.

Author Biography

Robert E. Chatfield is professor of finance and director of MBA programs at the College of Business, University of Nevada, Las Vegas. Previously, he was an associate professor of finance at Texas Tech University and an assistant professor of finance at the University of New Mexico.

Professor Chatfield has been teaching financial management for over 25 years and has taught financial management to hospitality students at UNLV for the past 15 years. He has worked as a financial consultant to the gaming industry in Las Vegas. He has also received teaching excellence awards both at Texas Tech University and Purdue University.

Professor Chatfield has been a productive researcher, publishing in a number of leading finance journals, including Financial Management, Journal of Financial and Quantitative Analysis, the Financial Review, International Journal of Forecasting, Journal of Money, Credit and Banking, Quarterly Journal of Business and Economics, and Journal of Economics and Business.

Professor Chatfield enjoys athletics and especially likes to participate in tennis, white-water rafting, and is a novice ballroom dancer.

Michael C. Dalbor is an assistant professor in the William F. Harrah College of Hotel Administration at the University of Nevada, Las Vegas. He holds a B.S. in Food Service and Housing Administration from the Pennsylvania State University and an M.B.A. in finance from Loyola College in Maryland. He also holds a Ph.D. in Hotel, Restaurant, and Institutional Finance from the Pennsylvania State University.

He has published articles in the Journal of Hospitality Tourism Research, the Cornell Hotel and Restaurant Administration Quarterly, the Appraisal Journal, the International Journal of Hospitality Management, and the Journal of Hospitality Financial Management. He is active in the Association of Hospitality Financial Management Education and the Council on Hotel, Restaurant, and Institutional Education. He has worked in various management positions in the hospitality industry, including food and beverage management and as a purchasing agent. He has also conducted numerous market analyses and feasibility studies as a hotel consultant and has been a commercial real estate appraiser specializing in hotel valuation.

Table of Contents

Brief Contents v
Preface xv
Introduction
1(14)
Chapter Objectives
1(1)
Introduction
1(1)
The Relationship of Financial Management to Other Functional Areas of Management
2(1)
Organization of the Firm
3(3)
A Basic Understanding of Financial Management
6(1)
Wealth Maximization
7(5)
Different Individuals, Differing Objectives
9(1)
Taking Actions to Increase Value
10(1)
Undertaking Projects to Create Value
10(2)
A General Outline of the Textbook
12(1)
Summary
13(2)
Key Terms
13(1)
Discussion Questions
13(2)
Financial Markets and Financial Instruments
15(18)
Chapter Objectives
15(1)
Walt Disney Company
15(1)
Introduction
16(1)
Why People Invest
16(2)
Description of Stock
16(1)
Description of Bonds
17(1)
Capital Markets
18(2)
New York Stock Exchange
18(1)
NASDAQ
19(1)
Other Stock Exchanges
19(1)
Bond Market
19(1)
Mortgage Market
20(1)
Money Market
20(1)
Raising Financial Capital and Security Trading
21(1)
Financial Markets and Hedging Risk
22(3)
Forward and Futures Contracts
22(1)
Foreign Exchange Markets
23(1)
Commodity Markets
24(1)
Key Financial Intermediaries: Lenders to the Hospitality Industry
25(1)
Commercial Banks
25(1)
Real Estate Investment Trusts (REITs)
26(1)
Insurance Companies and Pension Funds
26(1)
Stock Market Performance
26(3)
Dow Jones Industrial Average
27(1)
Standard & Poor's 500
27(1)
Market Performance in Terms of Return
27(2)
Summary
29(4)
Key Terms
29(1)
Discussion Questions
29(1)
Problems
30(3)
Review of Financial Statements and Selected Ratios
33(32)
Chapter Objectives
33(1)
Proper Ratios
33(1)
Introduction
34(1)
Review of the Income Statement
34(5)
Uniform System of Accounts for Hotels
34(1)
Hotel Income Statement
35(1)
Restaurant Income Statement
35(4)
Review of the Balance Sheet
39(2)
Relationship Between the Income Statement and the Balance Sheet
41(2)
Statement of Retained Earnings
43(1)
Statement of Cash Flows
43(2)
Validity of Financial Statements
45(1)
Ratio Analysis
46(11)
Classes of Ratios
47(10)
Perspectives on and Limitations of Ratio Analysis
57(2)
Summary
59(6)
Key Terms
59(1)
Discussion Questions
59(2)
Problems
61(4)
The Relationship Between Risk and Return
65(22)
Chapter Objectives
65(1)
Introduction
65(1)
How Typical Investors Feel About Risk
65(2)
Returns and Distributions
67(5)
Expected Return
67(1)
The Normal Distribution
68(1)
Variance and Standard Deviation
69(1)
Standard Deviation and Risk Aversion
70(2)
Diversification
72(3)
Benefits of a Portfolio
72(1)
Correlation Coefficient
72(3)
The Market Portfolio
75(3)
What Makes the Market Portfolio Unique
77(1)
The Market Portfolio and Risk Composition
77(1)
The Market Portfolio and Beta
78(2)
Beta, Expected Return, and the Security Market Line
80(3)
The Limitations of the CAPM
81(1)
Betas for Hospitality Assets
82(1)
Is the Restaurant Business Risky?
82(1)
Summary
83(4)
Key Terms
83(1)
Discussion Questions
84(1)
Problems
84(3)
Time Value of Money
87(38)
Chapter Objectives
87(1)
Introduction
87(1)
Future Value---Compounding
88(4)
Present Value---Discounting
92(3)
Future Value of an Annuity
95(5)
Present Value of an Annuity
100(5)
Perpetuity---An Infinite Annuity
105(1)
Present Value of a Deferred Annuity
106(4)
Present Value of a Series of Nonconstant Cash Flows
110(1)
Compounding Periods Other Than Annual
111(1)
Effective Annual Rates
112(1)
Amortized Loans
113(2)
Summary
115(10)
Key Terms
116(1)
Discussion Questions
116(1)
Problems
116(4)
Using a Business Calculator Programmed for Financial Mathematics
120(2)
Using a Financial Calculator to Compute Effective Annual Rates
122(3)
Fixed-Income Securities: Bonds and Preferred Stock
125(18)
Chapter Objectives
125(1)
Introduction
125(1)
Basic Bond Terminology
126(1)
Bond Features
126(3)
Bond Ratings
129(1)
Valuing Corporate Bonds
130(3)
Computing Yield to Maturity on Corporate Bonds
133(1)
Bonds with Semiannual Coupon Payments
134(1)
Basic Preferred Stock Terminology
135(1)
Preferred Stock Features
136(1)
Valuing Preferred Stock
137(1)
Summary
138(5)
Key Terms
139(1)
Discussion Questions
139(1)
Problems
139(2)
Using a Business Calculator to Solve the Value of a Corporate Bond
141(1)
Using a Business Calculator to Compute a Bond's Yield to Maturity
142(1)
Common Stock
143(18)
Chapter Objectives
143(1)
Introduction
143(1)
Common Stock Features
144(1)
Valuing Common Stock
145(2)
General Dividend Valuation Model
147(1)
Zero-Growth Dividend Valuation Model
148(2)
Constant-Growth Dividend Valuation Model
150(2)
Valuing Common Stock with Multiple Growth Rates
152(3)
Common Stock Value, Investor's Rate of Return and Growth
155(1)
Summary
156(5)
Key Terms
157(1)
Discussion Questions
157(1)
Problems
158(3)
Cost of Capital
161(22)
Chapter Objectives
161(1)
Introduction
161(1)
The Weighted Average Cost of Capital
162(1)
Estimating the Cost of Capital Components
163(1)
The Cost of Debt
164(3)
The Cost of Preferred Stock
167(1)
Internal Common Equity---New Retained Earnings
168(1)
Dividend Valuation Model Method for Estimating the Cost of Internal Equity
169(1)
Capital Asset Pricing Model Method for Estimating the Cost of Internal Equity
170(2)
The Bond Yield Plus Risk Premium Method for Estimating the Cost of Internal Equity
172(1)
External Common Equity---New Issues of Common Stock
172(2)
Computation of the Weighted Average Cost of Capital
174(4)
Using the Weighted Average Cost of Capital
178(1)
Summary
179(4)
Key Terms
179(1)
Discussion Questions
179(1)
Problems
180(3)
Introduction to Capital Budgeting and Cash Flow Estimation
183(20)
Chapter Objectives
183(1)
Introduction
183(2)
Classifying Capital Budgeting Projects
185(1)
The Capital Budgeting Decision and Cash Flow Estimation
186(10)
Net Investment Estimation
187(2)
Net Cash Flow Estimation
189(3)
Estimation of After-Tax Salvage Values
192(1)
Depreciation
193(3)
Summary
196(7)
Key Terms
197(1)
Discussion Questions
197(1)
Problems
198(2)
Modified Accelerated Cost Recovery System
200(3)
Capital Budgeting Decision Methods
203(34)
Chapter Objectives
203(1)
Introduction
203(1)
Capital Budgeting Decision Methods
204(11)
Payback Period
205(1)
Discounted Payback Period
206(3)
Net Present Value
209(1)
Profitability Index
210(1)
Internal Rate of Return
211(2)
Modified Internal Rate of Return
213(2)
Independent Projects and Capital Budgeting Decision Methods
215(1)
Mutually Exclusive Projects and Capital Budgeting Decision Methods
216(3)
Scale Differences
216(1)
Cash Flow Timing Differences
217(2)
Not-Normal Cash Flows
219(2)
The Use of Capital Budgeting Decision Methods
221(2)
Summary
223(14)
Key Terms
223(1)
Discussion Questions
223(1)
Problems
224(3)
Computing NPV and IRR with Financial Calculators
227(3)
Hospitality Capital Budgeting Example
230(7)
An Introduction to Hotel Valuation
237(28)
Chapter Objectives
237(1)
HVS International Hotel Appraisal Specialists
237(1)
Introduction
238(1)
Reasons for a Hotel Appraisal
238(1)
Parties Involved in the Process
238(1)
The Hotel Appraisal Process
239(8)
Purpose of the Appraisal
240(1)
Data Collection
240(7)
Highest and Best Use Analysis
247(1)
Approaches to Value
247(13)
The Cost Approach to Value
248(1)
The Sales Comparison Approach
249(1)
The Income Capitalization Approach
250(8)
Direct Capitalization
258(1)
Yield Capitalization
259(1)
A Rule of Thumb Approach and Revenue Multipliers
260(1)
Final Reconciliation of Value
261(1)
Summary
261(4)
Key Terms
262(1)
Discussion Questions
262(1)
Problems
262(3)
Capital Structure
265(16)
Chapter Objectives
265(1)
Introduction
265(1)
Financial Risk
266(2)
Business Risk
268(1)
Capital Structure Theory
269(5)
The Cost of Debt Versus the Cost of Equity
270(1)
The Cost of Financial Distress
270(1)
The Agency Cost of Debt Financing
271(1)
Financial Leverage and the Cost of Debt
272(1)
Financial Leverage and the Cost of Equity
272(1)
The Weighted Average Cost of Capital and Optimal Capital Structure
273(1)
Other Significant Factors in the Determination of a Firm's Capital Structure
274(3)
Industry Standards
274(1)
Creditor and Rating Agency Requirements
275(1)
The Need for Excess Borrowing Capacity
275(1)
Profitability and the Need for Funds
276(1)
Managerial Risk Aversion
276(1)
Corporate Control
276(1)
Summary
277(4)
Key Terms
277(1)
Discussion Questions
278(1)
Problems
278(3)
Glossary 281(6)
Index 287

Excerpts

Hospitality Financial Managementis intended as a first finance course for hospitality and tourism students. It may also be useful to hospitality industry professionals who want to know more about the financial management function in the hospitality industry. This book focuses primarily on long-term finance decisions, especially the hospitality firm''s capital budgeting decision. Given the fixed asset intensiveness of the industry, capital budgeting is an important process for hospitality and tourism students to understand. Additionally, a significant amount of background information is required to fully understand this process. The text has a number of features to facilitate learning and understanding. Each chapter begins with a list of objectives and an introduction to the chapter content. Chapters conclude with discussion questions and problems that demonstrate key concepts. Problems that may be solved by using Excel spreadsheets are indicated with EXCELin the margin, with spreadsheets accessible online at www.prenhall.com/chatfield. Key terms and concepts are identified and defined in the glossary. Chapter 1 provides an introduction to hospitality financial management. Various types of business organization are discussed along with an introduction to agency problems and the concept of value creation. Chapter 2 provides an introduction to financial markets and financial instruments. Foreign exchange and commodity markets are also discussed. Chapter 3 reviews the major financial statements and discusses some of the key ratios used in the hospitality industry. It also discusses the limitations of ratio analysis. Chapter 4 introduces the student to the concept of risk and return. The important features of the chapter include the market portfolio and the capital asset pricing model. Chapter 5 covers the time value of money. This includes discounting and compounding and demonstrates a wide variety of applications. The appendix to this chapter demonstrates how to solve time value of money problems using two different financial calculators. Chapter 6 discusses bonds and preferred stock. This chapter explains the basic approach to both bond and preferred stock valuation. It also includes examples of bonds and preferred stocks issued by hospitality firms. Chapter 7 covers common stock. It features common stock terminology as well as an introduction to basic common stock valuation. Chapter 8 focuses on the cost of capital. This chapter elaborates on how the weighted cost of capital is derived. Chapter 9 is an introduction to capital budgeting. This chapter covers the calculation of net investment and the subsequent cash flows. Chapter 10 builds on the concepts of Chapter 9 by examining the different methods used to determine whether a capital budgeting project will create value. Such methods as net present value, internal rate of return, and payback are thoroughly explained. The appendix to this chapter provides an example of a capital budgeting project. Chapter 11 introduces the student to hotel valuation. The chapter begins with hotel market studies and also discusses the hotel appraisal process. The income capitalization approach is emphasized. Chapter 12 provides an introduction to capital structure. It shows the impact of capital structure on firm value and reviews some major capital structure theories. The text concludes with a glossary to help students become familiar with key terms. A variety of online tools and resources, for both instructors and students, enhance the text''s content. An Instructor''s Manual and Test Bank are provided through the www.prenhall.com catalog website -- password protected. A Student Companion Website, accessed at www.prenhall.com/chatfield, contains power point slides reinforcing the key points in each chapter and Excel spreadsheet templates for solutions of chapter problems where applicable. Excel supplemental products are available at a discounted price when packaged with this textbook (ISBN: 013-151681-7). Please consult with your local Pearson Prentice Hall sales representative for details.

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