Best way is to obtain a copy of uniform system of accounts by AHLA.
A simplified definition:
Gross Operating Revenue - Gross Operating Expenses = Gross Operating Profit
A. Gross Operating Revenue means income from Rooms, F&B, MODs and other income.
B. Gross Operating Expenses means operating expenses in rooms and F&B depts, overhead expenses (A&G, A&P, POMEC)
C. Gross Operating Profit = A-B (before management fee)
In Hotel Valuation practise, we are used to apply few simple and powerful tools such as Price multiples based on common industry data such as RevPar (Revenues Per Available Room), GopPar (Gross Operating Profit Per Available Room), NoiPar (Net Operating Income Per Available Room). As advisor in this industry we also deal with Price per Room in different cities, an easy way to summarise in one single data a more complex set of Price multiples.
There are however two issues that strongly limit this preliminary Hotel Valuation approach: rents and Hotel Capex.
The Hotel rent (or lease) tends to be an strong amount today due to two factors. One: the raise in Real Estate values, which in year 2009 are now finally decreasing but are still much higher in real terms then years ago. Two: the additional reward based on the Hotel economic performance that the Real estate owner demands over the base rent. Rent is therefore becoming an increasing percentage of the Hotel Revenues. As a result, the Hotel Valuation based on RevPar and GopPar which are earnings values computed prior to deducting the value of the rent might be misleading: two Hotel with the same RevPar and GopPar but very different Rent clearly have very different values as the amount of the Rent dramatically reduces the final value of NoiPar. We therefore have to consider Net Operating Profit as the only reasonable P&L figure in a high rent environment.
In addition, should we apply Hotel Valuation technique to existing assets rather than to an Hotel that has to be built yet (which is clearly the most common case), we have to consider that Hotel Capex for renewal and non recurring Maintenance might be a relevant figure in our Free Cash Flow projections.
From a legal viewpoint one might suggest that this additional Hotel Capex is often to be paid by the Real Estate owner and not by the Hotel manager: however we cannot avoid investigating about the amount of Hotel Capex and who will really pay for it. As Advisor in this industry we noticed that the amount of Hotel Capex related to the renewal of important and fashionable premises located in town centre in major European cities might be very relevant with a strong impact on FCF.
The easy way to deal with additional Hotel Capex is to prepare a “after Capex” Hotel Valuation (i.e. an Hotel Valuation as if Capex was already incurred) and then deduct the Capex amount from the “after Capex” Hotel Valuation to obtain an “as-it-is” Hotel Valuation. We consider this technique a dangerous approximation because in the Hotel industry the final Capex is often higher than the budgeted Capex for various reasons: the long timing to prepare an appropriate architectural and technical plan, obtaining all licences, complete works in the centre of a major city; the additional cost of the partial or even total closure of the hotel, plus the cost of financing. That's why we strongly suggest our clients to rely upon FCF Hotel Valuation technique and leaving Price Multiples as a way to calculate the terminal value only.
In conclusion, today's Hotel Valuation technique merges deep industry knowledge with Financial forecasting capability and tends to leave the simple RevPar multiple approach.
What is Gross operating profit?
Gross Profit is the difference between money received from sales and the money you have paid out for the goods you sold. Operating Profit is the gross profit less any expenses you incurred while...
Gross profit and net profit?
Gross and Net profit are virtually the same. They both calculate EBT, earnings before taxes - all overhead and salaries.
What is the profit that remains after the operating costs have been deducted from the gross profit?
Gross profit rate?
the gross profit rate is calculated by dividing gross profit by net sales (Gross profit/Net Sales). This is a measure of the profitability of the company's products.
How do you calculate the Gross Profit Margin?
The Gross Profit Margin is an expression of the Gross Profit as a percentage of Revenue. Gross Profit Margin = Gross Profit/Revenue*100 [or] Gross Profit Margin = Revenue - (Cost of Sales)/Revenue*100
Gross operating profit is sales less direct expenses incurred on hotel operation not include Admin, selling and financial expenses. Direct expenses directly hit on sale. On a new hotel the direct expenses should be minimum that the profit should be maximum. which will generate profit and cash flow.
Direct expenses will be following
Salaries of following area
Front office staff
Cleaning staff of hotel and restaurant area
Dierct Material and expenses like
all rooms related expenses
Mini bar (Normally Items are recoverable from guests through bill at the time of checkout)
Telephone bills of Front Office and restaurant
Commission on occupancy normally paid to caps (taxi) driver to bringing guests
While the Admin, Selling and financial expenses comes after Gross Profit.
Food cost is a major expenses so try to reduce cost as maximum and some percentage should be there not to increase it.
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The term Gross Operating Profit and Gross Profit is different. In Gross Profit all Direct expenses deducted from the Revenue . Exactly Direct expenses are those which hit direct on earning of revenue. it must be related with all departments as Room Revenue, F & B Revenue or MODs Revenue (Minor Operating Departments).
But in Gross Operating Profit Calculation we have to consider some undistributed expenses too as Overheads expenses as like, Admin. & General Exps., Sales & Marketing Exps., Human Resource Exps (Other then Salary & Wages which is deducted with departmental cont.) and POMEC. These are the department which does not contribute any revenue only incurred expenses for the sack of revenue. These expenses are essential for operating of a business, so i think these exps should be considered for ascertaining GOP.