HMGT 2100 Chapter 2 Flashcards
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Questions and Answers

What is the Return on Investment (ROI)?

The percentage rate of financial return achieved on the money invested in a hotel property.

What does profit refer to?

The money remaining after all the expenses of operating a business have been paid.

What are two reasons hotels are typically operated?

  • Both A and C (correct)
  • To meet the needs of the traveling public
  • To generate substantial profits
  • To meet the hotel owner's return on investment goals

    • What is the formula for calculating ROI?

    <p>After tax profits / total hotel investment = ROI %</p> Signup and view all the answers

    Are sizable ROIs easy to achieve?

    <p>False</p> Signup and view all the answers

    What do sizeable ROIs require?

    <p>Wise hotel selection and investment, aggressive sale efforts, and professional hotel operations management.</p> Signup and view all the answers

    What happens when the owner's ROI expectations are met?

    <p>Funds will be sufficient to maintain the hotel in a manner that appeals to guests.</p> Signup and view all the answers

    What is the first asset that a hotel owner owns?

    <p>Real Estate.</p> Signup and view all the answers

    What is the second asset that a hotel owner owns?

    <p>Operating the business itself.</p> Signup and view all the answers

    Is it usually easier to establish the worth and purchase price of a hotel that is operating than of one that has yet to be built?

    <p>True</p> Signup and view all the answers

    A hotel that is performing well will most likely have a sales price that reflects its performance.

    <p>True</p> Signup and view all the answers

    A hotel that is underperforming will generally be sold for more on a per-room basis.

    <p>False</p> Signup and view all the answers

    Can individuals own hotels?

    <p>True</p> Signup and view all the answers

    Can legally formed partnerships and corporations own hotels?

    <p>True</p> Signup and view all the answers

    What does REIT stand for?

    <p>Real Estate Investment Trusts.</p> Signup and view all the answers

    What is the definition of a REIT?

    <p>Public, stock-issuing companies that can own and operate their own hotels.</p> Signup and view all the answers

    What is a timeshare?

    <p>Hotel owners share ownership with their customers by selling the right to occupy a room for a specific amount of time each year.</p> Signup and view all the answers

    Who invests in and owns hotels?

    <p>Individuals and companies of many different kinds.</p> Signup and view all the answers

    How can hotel owners be categorized?

    <p>By their participation and operation of the hotel.</p> Signup and view all the answers

    What is depreciation?

    <p>The reduction in the value of an asset as it wears out.</p> Signup and view all the answers

    What is appreciation?

    <p>The increase, over time, in the value of an asset.</p> Signup and view all the answers

    What are reasons for investing in a hotel?

    <p>Favorable tax status, real estate appreciation, and profits from annual operation.</p> Signup and view all the answers

    What is an investor in the context of hotel ownership?

    <p>An entity that seeks to acquire a hotel for its own purposes but is not typically active in hotel management.</p> Signup and view all the answers

    What is the investment level?

    <p>The investor may own all or part of the hotel, or pool funds with others for larger investments.</p> Signup and view all the answers

    What is an owner/operator?

    <p>A hotel investor that also manages (operates) the hotel.</p> Signup and view all the answers

    What is net income?

    <p>Revenue/sales.</p> Signup and view all the answers

    What is a parent company in relation to hotels?

    <p>An entity with multiple hotel brands covering various market segments.</p> Signup and view all the answers

    Study Notes

    Financial Concepts in Hotel Management

    • Return on Investment (ROI): Measures financial return as a percentage of the money invested in a hotel property.
    • Profit: The remaining money after deducting all operating expenses from business revenue.

    Reasons for Hotel Operations

    • Hotels operate to serve the traveling public and meet owner's long-term ROI goals.
    • Addressing guest needs profitably is crucial for success.

    ROI Calculation

    • ROI Formula: After-tax profits divided by total hotel investment, expressed as a percentage.

    Challenges in Achieving ROI

    • Large ROIs are difficult to achieve.
    • Success depends on wise hotel selection, aggressive sales efforts, and professional management.

    Owner's ROI Expectations

    • Meeting ROI expectations allows funds for hotel maintenance and guest appeal, ensuring ongoing success.

    Hotel Ownership Assets

    • First Asset: Real estate, including land, building, and furnishings.
    • Second Asset: The operational aspect of the business, valuing both real estate and profitability.
    • Established hotels are easier to value compared to hotels yet to be built.

    Market Performance of Hotels

    • Well-performing hotels typically have sales prices that reflect their success.
    • Underperforming hotels are sold at lower prices per room with uncertain future performance.

    Ownership Structures

    • Hotels can be owned by individuals, legally formed partnerships, and corporations.
    • Diverse groups invest in hotels, categorized by their operational role as investors or owner/operators.

    Real Estate Investment Trusts (REITs)

    • Definition: Public companies that can own and operate hotels, established since 1991.

    Timeshare Ownership

    • Hotel owners may offer shared ownership, allowing customers to occupy a room for a set time each year.

    Financial Considerations in Hotel Investment

    • Depreciation: Reduction in asset value due to wear, serving as a non-cash tax deduction.
    • Appreciation: Increase in asset value over time, which is not taxed until the asset is sold.
    • Investment motivations include favorable tax treatment from depreciation, long-term real estate appreciation, and operating profits.

    Investor Roles

    • Investors typically do not manage hotels directly and may include individuals, corporations, or government entities.
    • Investment levels can vary, with individuals or groups pooling resources to acquire larger properties.

    Owner/Operator Dynamics

    • An owner/operator is both an investor and the manager of the hotel, integrating ownership and operations.

    Key Financial Terms

    • Net Income: The revenue or sales generated by the hotel.
    • Parent Company: Operates multiple hotel brands across various market segments (high-end, middle, low-end), with 19 parent companies in the US alone.

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    Description

    Test your knowledge with these flashcards from HMGT 2100 Chapter 2. This chapter covers essential concepts such as Return on Investment and Profit, crucial for understanding the financial aspects of hotel management. Perfect for students looking to enhance their grasp of the subject.

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