See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/319123323

Working Capital Management of Hotel Industry in India: An Analysis

Article · January 2015

CITATION READS

1 7,338

2 authors:

Sanjeev Bansal Dimple Khosla

Sant Longowal Institute of Engineering and Technology Dyal Singh College, Karnal
23 PUBLICATIONS   82 CITATIONS    11 PUBLICATIONS   9 CITATIONS   

SEE PROFILE SEE PROFILE

All content following this page was uploaded by Dimple Khosla on 15 August 2017.

The user has requested enhancement of the downloaded file.

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

Working Capital Management of Hotel Industry

in India: An Analysis
Dr. Sanjeev Bansal* & Dr. Dimple Khosla**
*
Professor, Department Of Economics, Kurukshetra University, Kurukshetra, India
**
Assistant Professor, Dept. Of Commerce, Dyal Singh College, Karnal, India

Abstract
TOURISM AND HOTEL INDUSTRY
There is a lot of potential for growth of
IN INDIA
hospitality and tourism industry in India
In recent years, Indian tourism and
and abroad due to worldwide industrial
hospitality industry has emerged as one
development, increased earnings of
of the fastest growing industries in terms
individuals, economic growth of tourists
of capital invested, foreign exchange
producing nations, improved transport
earnings and employment generation. It
and communication means etc. Further,
helps the developing countries like India
India hosted Commonwealth Games in
in generating foreign exchange earnings
2010 and co-hosted the Cricket World
and resolving the problem of employment
Cup in 2011 and has multiple plans to
of its ever-growing population as it is
promote yoga and meditation, rural
considered as highly labour intensive
tourism, sports tourism, medical tourism,
service industry, where the employment-
adventure tourism etc. Thus, the future of
investment ratio is higher than any other
Indian hospitality and tourism industry
industry. Travel and tourism directly
seems to be very positive. But, the hotel
creates employment opportunities in
industry in India is facing a number of
hotels, restaurants, airlines, travel
problems such as low occupancy rate,
agencies, passenger ships, and as a result
increasing competition, high taxes,
of the spread effect creates jobs in
increasing cost, fuel shortage and so
industries like construction,
forth. All these affect the profitability of
telecommunication, manufacturing and
the hotel industry adversely. Most of
the retail trader.
these problems are uncontrollable. Thus,
Due to phenomenal increase in tourism
it is necessary for the Indian hotel
activities, the hotel business has grown
industry to manage its available
beyond expectations at national as well as
resources optimally to enhance the
international level. At present about 789
profitability as the management of
million tourists are crossing international
working capital and fixed assets affect
boarder every year and they are spending
the profitability of a business to a large
nearly 685 billion US Dollars. This figure
extent. Thus, it is necessary for the
was just 100 million in 1964. The figure
hoteliers to manage their working capital
is likely to swell to 1.5 billion by 2015
efficiently. The main aim of the paper is
and 2 billion by 2020 as per projection by
to know whether hoteliers are succeeded
world tourism organisation. International
in managing their working capital
tourists here in India were 6.57 million in
efficiently or not.
2011 as against 4.78 million tourists in

Available online: http://internationaljournalofresearch.org/ P a g e | 442

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

2010. Foreign exchange earnings from meditation, rural tourism, sports tourism,
these tourists were about 33000 crores of medical tourism, adventure tourism etc.
rupees in 2011 as against Rs.21429 crores Thus, the future of Indian hospitality and
in 2010. It is expected that this growth tourism industry seems to be very
will continue during the next couple of positive. Therefore, Indian hoteliers
years if no adverse incident happens in should try to develop world class
India or the South East Region. infrastructure and facilities for games to
According to an estimate of CII, the make India the “Destination Next”. All
number of foreign tourists visiting India these required more funds to finance
is likely to increase to 50 million by current as well as fixed assets.
2020. As per estimates of Ministry of
On the one hand, Indian hotel industry is
Tourism, 1,50,000 hotel rooms of
not performing well and on the other,
different categories are required to be
more working capital as well as fixed
added to the existing available rooms in
assets is required to meet the increased
the next couple of years to accommodate
demand of hotel infrastructure in future.
all the foreign tourists and this will
Thus, it is necessary for the hoteliers to
involve an investment of Rs. 35,000
manage their working capital as well as
crores. Obviously, there is a good scope
fixed assets efficiently to enhance their
for hotel business all over the world
profitability. In this paper, an attempt has
including India and these estimates will
been made to know whether hoteliers are
boost hotel business in India.
succeeded in managing their working
The hotel industry in India is facing a
capital efficiently or not.
number of problems such as low
occupancy rate, increasing competition, NEED OF WORKING CAPITAL
high taxes, increasing cost, fuel shortage MANAGEMENT IN HOTELS
and so forth. All these affect the Working capital management involves
profitability of the hotel industry the relationship between a firm's short-
adversely. Most of these problems are term assets and its short-term liabilities.
uncontrollable. Thus, it is necessary for The goal of working capital management
the Indian hotel industry to manage its is to ensure that a firm is able to continue
available resources (current as well as its operations and that it has sufficient
fixed assets) optimally to enhance the ability to satisfy both maturing short-term
profitability as the management of debt and upcoming operational expenses
working capital and fixed assets affect the (Beranek, 1966). The management of
profitability of a business to a large working capital involves managing
extent. There is a lot of potential for inventories, accounts receivable and
growth of hospitality and tourism payable, and cash. Like any other
industry in India and abroad due to business, hotels, too have operating cycle
worldwide industrial development, which begins with the purchase of
increased earnings of individuals, supplies and ends with the collection of
economic growth of tourists producing accounts receivables. Due to this
nations, improved transport and operating cycle, sales do not convert into
communication means etc. Further, India cash instantaneously. Therefore,
has multiple plans to promote yoga and

Available online: http://internationaljournalofresearch.org/ P a g e | 443

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

sufficient working capital is required to management. Another important

sustain sales activity during the operating dimension of working capital
cycle period. This capital is required to management is related to the financing of
finance supplies such as stores, spares, current assets. As per prudent practices, a
crockery, wine and liquor, food materials firm has to maintain a desirable balance
etc.; to meet out the operating expenses between long-term and short-term sources
such as salaries, power, fuel etc.; to of financing current assets. The present
provide finance during credit sales period paper aims at analysing these dimensions
and to meet the future contingencies of working capital with special reference
(Hampton, 1989). One of the dimensions to selected 5-star hotels in India.
in working capital management is to
DATA COLLECTION AND SAMPLE
determine the optimal level of current
SIZE
assets and current liabilities. As the
The required data has been collected both
higher/lower level of current assets has
from primary and secondary sources. The
their respective dangers, so working
primary data regarding the working capital
capital management requires a trade-off
management practices and policies followed
between these dangers/costs. More
by the selected units have been collected
specifically, higher level of current assets
through a questionnaire and supplemented
strengthens the liquidity position of a
with the information gathered during
firm but weakens the profitability while a
discussions with the executives of the
lower level of current assets shows better
selected units. However, most of the
utilization of resources but it may have
analysis in this paper is based upon the
its own dangers in the form of liquidity
secondary data obtained from published
crunch (Van Horne,2002). So to reach at
annual reports of the selected 5-star hotels.
a liquidity-profitability trade-off is the
ultimate goal of working capital
The present study covers 5-star hotel chains belonging to both public as well as private
sectors. These are

Name of the Company Hotel Brand Name

Public Sector:
(1) India Tourism Development The Ashok
Corporation Limited (ITDCL)
Private Sector:
1. East India Hotels Limited (EIHL) The Oberoi
2. Asian Hotels Limited (AHL) Hyatt Regency
3. ITC Hotels Limited (ITCHL) Welcome
4. Jay Pee Hotels Limited (JPHL) Vasant Continental and Siddarth
5. Indian Hotels Company Limited (IHCL) Taj
6. U.P. Hotels Limited (UPHL) Clarks
7. Bharat Hotels Limited (BHL) The Grand
8. Apeejay Surrendra Park Hotels Limited (ASPHL) The Park
9. A B Hotels Limited (ABHL) Radisson

Further, the study is confined to a period of 10 years ranging from 2001-02

to 2010-11.

Available online: http://internationaljournalofresearch.org/ P a g e | 444

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

ANALYSIS OF WORKING CAPITAL capital. Table-II reveals that in ITDCL

1. Size and Composition Analysis inventories constitute the largest share as
Keeping in view the nature of hotel business compared to other hotel concerns. This fact
where sales are converted into cash has been raising further question marks on
relatively faster, it is reasonable to expect the management of current assets in ITDCL
that current assets should constitute a as inventories are the least liquid asset.
smaller percentage of total assets. Table- I Components wise analysis shows that loans
contains the average current assets to total and advances constitute the major portion of
assets ratio in selected hotels. It has been current assets in most of the hotels. Further,
observed that on an average ITDCL, the gross working capital and its components
only public sector unit has been maintaining show increasing trend almost in every
an exceptionally high CA/TA ratio, which selected hotel except JPHL which is an
may cause unnecessary blockage of funds indication of the fact that the size and
and hence poor profitability. This danger operating activities of the selected hotels are
seems to be more persistent as the c.v. value increasing over the period of study. Hotel-
is also very low, thereby indicating the wise analysis shows that in EIHL, AHL,
instantaneously bad management of current ITCHL, UPHL, ITDCL, ASPHL and
assets in this concern. Before switching over ABHL, the share of cash, debtors and
to any conclusion, it is better to look into the inventories increased less as compared to
composition of this higher level of working increase in share of loans & advances.
TABLE-I
Average CA/TA Ratio (%)
EIH ITCH JPH IHC ITDC UPH ASPH ABH
L AHL L L L L L BHL L L IND
Averag
e 21.2 14.6 41.4 24.5 44.4 70.7 19.8 39.9 12.3 20 33.8
C.V 68.2 33.7 22.8
30.23 8 40.95 45.5 18.91 8.06 28.05 4 69.42 16.12 7
Source: Computed from the Annual Reports of Hotels – various years

TABLE-II
Average Composition of Working Capital (%)
EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Inventory 9.26 14.4 2.9 15.4 3.04 20.3 12.1 4.26 4.3 15 7.25
Debtors 12.9 15.6 11.5 16 13 15 29.7 9.44 21.8 16 12.5
Cash&Bank 26.9 25.6 11.8 13.8 11.8 20.5 17.8 55.5 10.9 31.7 21.5
Loans&Advances 50.5 42 43.3 52.5 72.2 35.3 30.1 30.8 58.7 37.3 54.7
Other CA 0.54 2.42 30.5 2.39 0 8.98 10.3 0 4.72 0 4.08
Gross WC 100 100 100 100 100 100 100 100 100 100 100
Source: Computed from the Annual Reports of Hotels – various years

Available online: http://internationaljournalofresearch.org/ P a g e | 445

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

Figure-I Components of Working Capital

100%

80%

60%

40%

20%

0%
EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND

Inventory Debtors Cash&Bank Loans&Advances Other CA

2. Financing Working Capital sources of finance. Conservative approach is

The way of financing working capital has less risky leading to low profitability and
significant impact on the firm's risk and high liquidity. Under this approach, a firm
return. Three basic approaches are available finances a part of temporary current assets
to a financial manager to determine an along with permanent assets with long-term
appropriate financing mix i.e. aggressive financing. The third approach (matching
approach (A), conservative approach (C) approach) matches the expected life of
and matching approach (also known as assets with the maturity of debts raised to
hedging approach). Aggressive approach of finance assets. Thus, fixed assets, and
financing mix is quite risky leading to high permanent current assets are financed with
profitability and low liquidity. Under this long-term sources of finance while the
approach, a firm finances even a part of temporary current assets are financed from
permanent current assets along with short-term sources of finance.
temporary current assets with short-term
Table- III
Financing Approach of Working Capital
Name 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
EIHL A C C C C C C A C C
AHL A A A A A EX.A EX.A EX.A EX.A EX.A
ITCHL C C C C C A C C C C
JPHL C C A EX.A EX.A A A A EX.A EX.A
IHCL C C C C C C C C C C
ITDCL A C C C C C C A A A
UPHL A C C C C C A A A A
BHL C C C C C C C C C A
ASPHL C C A A C C C A A C
ABHL - - - - EX.A A A C A A
Source: Computed from the Annual Reports of Hotels – various years
EX.A – EXTAORDINARY AGGRESSIVE

Available online: http://internationaljournalofresearch.org/ P a g e | 446

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

The analysis shows that no selected hotel is The problem has been aggravated by low
following matching approach during the revenue from room tariff because of low
period of study. IHCL is following occupancy rate. All these factors are
conservative approach throughout the study compelling majority of the selected hotels to
period whereas AHL has followed follow the conservative approach to finance
aggressive approach in initial years but their current assets. It adversely affects the
shifted to extremely aggressive approach profitability of the hotels. Thus, the hotels
from 2006-07 onwards. ITCHL and BHL will have to overcome the twin problem i.e.
are also following conservative approach low sales of food and beverage products and
during the period of study except in 2006-07 low occupancy rate with which the Indian
and 2010-11 respectively when they have hotels are grapping with at present.
followed aggressive approach. Further, 3. Ratio Analysis
JPHL and ABHL are mostly following Ratio analysis is a powerful technique to
aggressive or extremely aggressive approach have insights regarding the level of current
from 2003-04 onwards whereas UPHL and assets, financing policy for current assets
ITDCL have followed conservative and utilization of current assets etc. The
approach during the initial years but later on following liquidity and efficiency ratios
they shifted to aggressive approach. have been applied to analyse the prevailing
Thus, it may be concluded that as a whole situation in the selected hotels under study:
the selected hotels are trying to shift towards (1) Liquidity Ratios:
aggressive approach of financing mix in the (i) Current Ratio
later years of study which indicates that they (ii) Quick Ratio
want to maintain a balance between liquidity (2) Efficiency Ratios:
and profitability. However, the selected (i) Working Capital Turnover Ratio
hotels have not yet succeeded in pursuing (ii) Inventory Turnover Ratio
the optimal policy of financing the current (iii) Food & Beverage Inventory
assets. Keeping in view the nature of hotel Turnover Ratio
industry there should not be any lack of (iv) Average Collection Period
synchronisation between buying inventory, (v) Cash Turnover Ratio
conversion of inventory into finished goods, (1) Liquidity Ratios:
finished goods into sales and sales into cash. (i) Current Ratio
Under such a situation there is hardly any It may be defined as the ratio of current
need of keeping a high level of cash and that assets to current liabilities. It measures the
too from long-term sources to finance. But ability of the firm to meet its current
the selected hotels are unable to keep the obligations. Higher the ratio better it is for
operating cycle very short because of low the liquidity position of a
demand of their food and beverage products.
Table— IV: Current Ratio (Times)
EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Average 1.99 1.08 2.42 1.35 3.48 1.84 1.6 1.6 1.37 1.23 2.44
15.15 35.77 25.64 51.66 13.36 21.82 21.59 21.59 85.42 27.8 7.76
t-Value 4.28* 10.33* 0.01 4.6* 6.85* 4.35* 7.08* 7.08* -2.69 33.92
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant t- value at 1% level of significance

Available online: http://internationaljournalofresearch.org/ P a g e | 447

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

concern. However, the ratio of 2:1 is maintaining the standard level whereas AHL
considered quite safe because higher ratio should improve its liquidity position by
affect the profitability of a concern increasing the level of current assets or
adversely. But in hotel industry a ratio of reducing the level of current liabilities.
1.5:1 may be considered satisfactory as there (ii) Quick Ratio
is very low level of inventories and high A more stringent test of liquidity is the quick
synchronization in comparison to a ratio or acid test ratio. This ratio measures
manufacturing concern. liquidity by considering only quick assets
On the liquidity front, EIHL, ITCHL IHCL calculated by excluding inventories and
and ITDCL are playing quite safe as their prepaid expenses from current assets.
current assets are much more than the Generally, the ratio of 1:1 is considered to
current liabilities. These hotels, particularly be satisfactory to judge short-term financial
IHCL should bring down the level of current strength of a firm to pay off its current
assets. UPHL, BHL, ASPHL and ABHL are obligations at time.
Table-V
Quick Ratio (Times)
EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Average 1.83 0.94 2.35 1.18 3.37 1.46 1.42 3.54 2.08 1.05 2.25
C.V 18.2 38.89 26.01 61.86 13.93 21.57 23.77 38.12 48.1 26.65 8.57
t-Value 3.8* 10.8* 0.51 4.37* 7.19* 7.46* 7.34* 2.88 -0.5 12.94*
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant t- value at 1% level of significance
From the analysis of the data it has been (i) Working Capital Turnover Ratio
found that all hotels except AHL, JPHL and Working capital of a firm is directly related
ABHL keep the level of liquid assets on to sales. The current assets like debtors,
higher side. However, ITDCL, UPHL and inventories, cash etc. generally change with
BHL have reduced the level of liquid assets change in sales. This ratio measures the
considerably over the years. Presently, AHL efficiency with which the working capital is
and JPHL are facing the problem of liquidity being used by selected hotels under study. A
and IHCL is unnecessarily keeping high higher ratio indicates efficient utilization of
level of current and liquid assets working capital and vice-versa. But higher
continuously. Large amount of loans & ratio also reflects the lower liquidity position
advances seems to be the main factor for of a firm. However, in hospitality industry
high volume of liquid assets in IHCL. Thus, with virtually no credit sales and a low level
almost all the hotels have tried to attain an of inventory will generally have an
ideal position to ensure a trade-off between extremely high working capital turnover
risk, liquidity and profitability. ratio. This ratio has been calculated by
(2) Efficiency Ratios dividing net sales by net working capital.

Table-VI: Working Capital Turnover Ratio (Times)

Available online: http://internationaljournalofresearch.org/ P a g e | 442

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Average 3.21 30.76 2.39 12.23 1.39 3.16 14.43 1.32 7.04 105.24 2.02
C.V 32.29 180.45 54.05 114.8 21.21 29.68 102.55 94.26 78.35 227.54 12.19
t-Value 3.45* 1.55 0.86 2.18 6.44* 3.65* 2.52 1.68 2.73 1.29
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant t- value at 1% level of significance
The analysis exhibits that working capital A firm has to maintain a certain level of
turnover ratio of all the hotels under study inventory to meet the requirements of the
recorded a mixed fluctuating trend over the business. But the level of inventory should
period of study. In AHL and ABHL, the neither be too high nor too low. There are
ratio is very high which shows an efficient chances of deterioration in quality as well as
utilization of working capital in these hotels. unnecessary blockage of funds in case of
The position of this ratio is also good in excessive inventory which affects the
JPHL, UPHL and ASPHL due to better sales profitability adversely. Similarly, low
performance as compared to their working inventory may mean loss of business
capital. However, EIHL, ITCHL, IHCL, opportunities. Therefore, inventory turnover
ITDCL and BHL are not utilizing their ratio has been calculated to know how
working capital efficiently. It is visible that quickly the inventory is being used by the
there is over investment in current assets in selected hotels under study. A higher
IHCL and ITCHL whereas in EIHL, ITDC turnover ratio means that a firm is able to
and BHL, the volume of sales is low as carry out its business activities efficiently
compared to working capital. These claims without investing too much money in its
are well supported by their respective inventory and vice-versa. This ratio is
significant t-values of the concerned hotels. calculated by dividing the cost of goods sold
(ii) Inventory Turnover Ratio (ITR) by the average inventory.
Table-VII : Inventory Turnover Ratio (Times)

EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Average 12.91 18.19 33.96 15.9 24.18 6.32 23.81 15.32 39.6 15.81 20.6
C.V 7.47 26.57 25.71 45.24 16.8 18.01 20.86 25.8 47.72 14.38 58.53
t-Value 24.54* 1.62 4.52* 2.04 2.5 38.17* 1.82 4.16* 2.98 6.58*
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant t- value at 1% level of significance
The results show that ITCHL, IHCL, UPHL of management to improve the same
and ASPHL are performing better over the significantly. However, the average ITR of
period of study. But average ITR of ITDCL, other hotels namely AHL, JPHL, BHL and
the only public sector unit under study is ABHL is not much less than the industry
only 6.32 times well below the industry average but required further improvement in
average of 20.60 times. Thus, the prevailing the same.
situation of ITDCL is really very serious and
management should take necessary steps to
improve the same. Similarly, EIHL has (iii) Food and Beverage Inventory
average ITR i.e. 12.91 times well below Turnover Ratio (F&BITR)
industry average, so required much attention

Available online: http://internationaljournalofresearch.org/ P a g e | 449

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

Food and beverage is the major component Food and Beverage Inventory Turnover
of inventory and include fresh food, fruits Ratio =Cost of Food and Beverage
and vegetables, dry and frozen foods, Used/Average Food and Beverage Inventory
minerals, wines, beers etc. Thus, the position Average Food and Beverage Inventory =
of selected hotels regarding utilization of Opening and Closing Food and Beverage
inventory is made more clear by way of Inventory/2
analysing the food and beverage turnover
ratio. This ratio is calculated as follows:
Table- VIII: F&B Inventory Turnover Ratio (Times)
EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Average 7.79 7.79 9.13 12.52 8.55 2.28 12.68 7.47 34.27 11.58 11.41
C.V 9.11 22.92 24.3 13.83 15.68 29.95 10.21 21.15 144.16 23.44 152.77
t-Value 15.27* 6.07* 3.07 1.95 6.38* 39.99* 2.96 7.45* 1.39 0.2
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant t- value at 1% level of significance
The results indicate that average ratio of between credit sales and collection thereof.
ASPHL is 34.27 times as compared to Further, this ratio indicates the effectiveness
industry average of 11.58 times and has high in formulating credit control policies and
variability as revealed by its C.V. value i.e. their administration. The formula used for
144.16. Further, the table shows that JPHL, calculating the ACP is as follows:
UPHL and ABHL are utilizing their food & Average Debtors
beverages inventory more efficiently while A.C.P. =
EIHL, AHL, ITCHL, IHCL and BHL have *365
shown tremendous improvement over the Net Sales
period of study. But the performance of
ITDCL, the only public sector unit is very However, it is always advisable to use
low continuously as indicated by its average figures of net credit sales instead of net
ratio of 2.28 times. The claim is also sales. The reason is that debtors are created
supported by its most significant t-value. only due to credit sales. But the figures of
Therefore, management should take some net credit sales were not available for the
drastic steps to improve its position in this selected hotels and therefore, net sales have
regard. been used in this study. This might have
affected the results to some extent but still
(iv) Average Collection Period (ACP) be beneficial to draw some useful
The average collection period measures the conclusions.
quality of debtors by indicating time lag
Table-IX: Average Collection Period (Days)
EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Average 30 15 32 48 47 43 38 45 36 18 38
C.V 16 25 22 52 11 16 26 17 25 13 6
t-Value 4.91* 18.98* 2.55 1.15 5.18* 2.07 0.04 2.48 0.96 26.05*
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant t- value at 1% level of significance

Available online: http://internationaljournalofresearch.org/ P a g e | 450

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

The results show that AHL and ABHL have as comparatively low requirement of cash
performed better continuously over the for financing large volume of business
period of study with overall average value of operations. CTR has been calculated to
ACP i.e. 15 and 18 days respectively as assess the velocity of cash in the selected
compared to industry average of 38 days. hotels. The formula used to calculate this
Whereas mean value of ACP is higher in ratio is as follows:
JPHL, IHCL, BHL and ITDCL as compared
to industry average. Further, there is Net Sales
continuous increase in ACP in EIHL. Cash Turnover Ratio =
However, all the hotels except BHL and Average
EIHL have improved their position in this Cash and Bank balance
regard over the years and should continue
their efforts to improve further. EIHL and Analysis of the data shows that the average
BHL should make more efforts to do speedy CTR of BHL is 1.84 times which is much
collection of debtors. below the industry average of 6.25 times.
This claim is also supported by its
(v) Cash Turnover Ratio (CTR) significant t-value. This indicates that BHL
CTR shows that how quickly cash moves has failed to use this precious current asset
through an enterprise's operations. All things judiciously. The position of EIHL is also not
being the same, generally the higher CTR good as compared to industry average.
indicates better management of cash as well Average CTR of this hotel is 5.93 times.
Table-X : Cash Turnover Ratio (Times)

EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
Average 5.93 21.11 12.76 13.45 16.98 8.06 20.65 1.84 23.52 9.76 6.25
C.V 30.89 80.01 46.43 51.73 66.3 49.36 30.43 106.01 36.26 20.6 21.64
t-Value -0.53 2.64 3.3 3.1 2.86 1.37 6.87* -6.77* 6.07* 3.9
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant t- value at 1% level of significance
Thus, BHL and EIHL need to overhaul their these hotels need consistency to maintain
approach to make judicious use of cash. their better record.
However, as the performance of other (E) Econometric Analysis of Working
selected hotels is concerned, all have higher Capital
average CTR as compared to industry Generally, the quantum of investment in
average. Further, in UPHL, ASPHL and current assets is directly associated with
ABHL, this ratio is very much higher than level of operating activities in a firm
industry ratio. This claim is also supported whereas operating activities with the sales
by their respective significant t-values. volume. Therefore, to examine the
Whereas there is high fluctuating trend in managerial policies/decisions related to
this ratio in AHL, ITCHL, JPHL, IHCL, investment in current assets, simple
BHL and ITDCL which is also indicated by regression model has been framed with sales
their respective high C.V. values and even as independent variable and current assets as
the average CTR of IHCL and ITDCL is dependent variable. A regression equation
declined very sharply in 2003-04. Thus,

Available online: http://internationaljournalofresearch.org/ P a g e | 451

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

Y=a + bX has been constructed to find out a= The Constant Term

the regression results. Where b= Slope Parameter
Y= Current Assets X= Sales
Table-XI: Regression Results of the Equation Y= a+bX
EIHL AHL ITCHL JPHL IHCL ITDCL UPHL BHL ASPHL ABHL IND
a -108.66 -7.82 63.03 49.36 -301.61 4.37 -5.77 154.37 5.46 0.05 -142.83
b 0.96* 0.33* 0.40 -0.39 1.61* 0.77* 0.59* -0.38 0.40* 0.34* 0.93*
R 0.86 0.79 0.03 0.18 0.38 0.69 0.43 0.02 0.25 0.75 0.70
Source: Computed from the Annual Reports of Hotels – various years
* indicates significant b- value at 1% level of significance
The independent variable (sales) explains departments or different ministries. It poses
the variation in dependent variable (current two types of problem for the hotel
assets) to a large extent in EIHL, AHL, management. First, it is compelled to keep
ABHL and industry as a whole in always a goods stock of inventory to meet
comparison to other hotels as indicated by the rush orders particularly from the various
their respective R2 value. Further, the value ministries. Secondly, there are inordinate
of b indicates the quantum of change in delays in payment from the concerned
current assets due to one unit change in offices and to finance the inventories and
sales. In IHCL, increase in sales resulted sundry debtors the management has no
into high increase in current assets as alternative except to keep a high level of
indicated by its b value i.e. 1.61 which cash. All these problems add to the cost and
indicates strong liquidity position but also losses to the hotels. Further, analysis of
refers to unnecessary blockage of funds in different components of current assets
current assets. Thus, such position impairs makes it clear that on an average, loans &
the profitability. In EIHL and ITDCL, the advances constitute a major portion of
investment in current assets also supports current assets in all the selected hotels
the increased sales level to a large extent in except BHL where cash and bank balances
comparison to other selected hotels as constitute a major portion of current assets.
shown by their respective b values. The analysis of working capital has also
revealed that no selected hotel has been
Conclusion following matching approach to finance its
On the basis of the analysis made, it can be current assets. IHCL has adopted strict
concluded that current assets constitute conservative approach followed by ITCHL
about one third of total investment in the and BHL. On the other hand, AHL has
selected hotels under study as well as in the extremely aggressive approach followed by
hotel industry as a whole. However, ITDCL, JPHL and ABHL. UPHL and ITDCL do not
the only public sector company under study follow any definite policy to finance their
maintains a very high level of current assets current assets.
in comparison to other selected hotels. Current ratio and quick ratio reveal that
Various factors are held responsible for it. AHL and JPHL are facing the problem of
Like other selected units under study, there liquidity and IHCL is unnecessarily keeping
is low demand of food and beverage high level of current and liquid assets
products in ITDCL. Whatever demand is continuously. These factors are well
there generally it comes from government supported by the results of regression

Available online: http://internationaljournalofresearch.org/ P a g e | 452

 International Journal of Research p-ISSN: 2348-6848
e-ISSN: 2348-795X
Available at http://internationaljournalofresearch.org/
Volume 02 Issue 02
February 2015

analysis. Thus, AHL, JPHL are advised to rooms. Steps should also be taken to
improve their liquidity position while IHCL overcome the problem of lack of
should bring down the level of its current synchronisation and to improve the
assets. Remaining hotels are trying hard to financing pattern of current assets.
ensure a trade-off between risk and return Efforts should also be made to realise the
and consequently to maintain a reasonably debtors as quickly as possible.
good liquidity position. References:
WTR indicates that AHL, ABHL, JPHL Agarwal, J.D., Working Capital
UPHL and ASPHL have a little edge over Management: Indian Institute of Finance,
New Delhi, 1995.
the other selected hotels in making judicious Agarwal, N.K., Management of Working
use of working capital. Further, ITR and Capital: Sterling Publishers Pvt. Ltd., New
F&BITR indicate that ITCHL, IHCL, UPHL Delhi, 1983.
and ASPHL are comparatively making good Andrew William P. and Schmidgall Raymond
S., Financial Management for the Hospitality
use of inventory while other selected hotels Industry, Educational Institute of the
mainly ITDCL and EIHL are found most American Hotel & Lodging Association,
wanted in this regard. Analysis shows very Michigan, 1993.
Beacham, R.H.S., Measurement of Working
low F&BITR in ITDCL indicating high
Capital: Society of Commercial Accountants
inefficiency. Ltd., Bristol, 1964.
ACP of AHL and ABHL is very low Beranek, W., Working Capital Management:
which shows efficient collection policies Wadsworth, California, 1966.
Hampton, J. John and Cecilia, Wagner,
and better management of debtors in Working Capital Management: John Wiley &
these hotels. But other selected hotels Sons, New York, 1989.
mainly ITDCL, BHL and EIHL should Khan, M.Y. and Jain,P.K., Financial
review their collection policies and make Management-Text, Problems and Cases:
TATA McGraw Hill Publishing Co. Ltd.,
efforts to improve it to improve New Delhi, 2004.
profitability and liquidity. Management Pandey, I.M., Financial Management: Vikas
of cash is also not efficient in EIHL and Publishing House Pvt. Ltd., New Delhi, 2003.
BHL as indicated by their respective Ramamurthy, V.E., Working Capital
Management: Institute for Financial
CTR. In UPHL, ASPHL and ABHL Management and Research, Madras, 1976.
managing cash is not a problem to be Van Horne James C., Financial Management
highlighted. Policy: Pearson Education (Singapore) Pte.
Ltd., Indian Branch, New Delhi, 2002.
To sum up, it may be concluded that five
Banerjee, B., “Financing of Working Capital-
star hotels whether they belong to public The Indian Practice”, The Management
sector or private sector are facing Accountant, Vol. 17, No. 8, August 1982.
problems in managing their current assets Bhattacharya, H., “Towards a Comprehensive
Theory of Working Capital – A Techno–
well. The burning problems are low
Financial Approach”, Economic and Political
inventory turnover, high average Weekly, Vol. 22, No. 35, August 1987.
collection period, lack of synchronisation Chakraborty, S.K. "Use of Operating Cycle
and poor approach in financing the Concept for Better Management of Working
Capital", The Economic and Political
working capital. This is particularly true Weekly, August 1973, pp. M 69–M 76.
about ITDCL. There is need to increase FHRAI Monthly Magazines and Hotel Industry
the volume of sales by creating more Survey 2010-11.
demand for food and beverage products Reports Annual Reports of Selected Five Star
Hotels from 2001-02 to 2010-11.
and improving occupancy rate of hotel

Available online: http://internationaljournalofresearch.org/ P a g e | 453

View publication stats