ISA 520 · ISA 570 · Hospitality

Financial Ratio Calculator
for Hospitality

Pre-configured for hospitality entities. Accounts for extreme seasonality, IFRS 16 lease impact, management contract structures, and occupancy-driven performance metrics.

Financial Data

Enter the essential financial figures below. Expand the additional sections for a comprehensive analysis.

Financial Ratio Analysis Guide for European Auditors — free PDF

ISA 520 & ISA 570 practical workbook: all formulas with visual explanations, industry benchmark reference tables from BACH for 15 industries, ratio interpretation guide, and template narrative paragraphs for audit working papers.

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ISA 520.5 — Design and perform analytical procedures near the end of the audit that assist in forming an overall conclusion.

ISA 520.A1 — Analytical procedures may include ratios such as gross margin percentages and ratio of sales to accounts receivable.

ISA 570.A3 — Negative working capital, adverse key financial ratios, operating losses, and other indicators may cast doubt on going concern.

Financial Ratio Analysis for Hospitality

Hospitality financial ratio analysis must account for extreme seasonality, operational leverage from fixed costs, and multiple business model variants (owned, managed, franchised). A hotel company's financial ratios can vary dramatically between peak and off-peak periods — occupancy rates may range from 30% in winter to 95% in summer for resort properties. Annual ratio analysis therefore provides a more meaningful picture than quarterly, and auditors performing ISA 520 analytical procedures should always compare to the same period in prior years.

The revenue per available room (RevPAR), average daily rate (ADR), and occupancy rate are the primary operational metrics for hospitality, sitting alongside traditional financial ratios. While this calculator focuses on financial ratios, these operational metrics should inform interpretation: a hotel showing declining net margin but stable RevPAR may face cost inflation, while declining RevPAR with stable costs indicates demand weakness. The BACH data shows hospitality median net margin of 4.0% — thin margins that leave little room for revenue shortfalls.

The business model structure (owned/leased vs. management contract vs. franchise) fundamentally affects which ratios are meaningful. Owner-operators carry significant asset bases and lease liabilities (IFRS 16), resulting in high D/E ratios (BACH median: 2.50x) and lower ROA. Management contract companies are asset-light with higher ROE but lower absolute profitability. Franchise companies earn royalty-style revenue with high margins but limited control over property-level performance. When comparing hospitality companies, first classify by business model.

Regulatory Context

IFRS 16 lease impact on property-level ratios. IFRS 15 revenue recognition for loyalty programmes. Management contract accounting. Seasonal working capital facilities. Tourism sector regulations.

Industry-Specific Going Concern Indicators (ISA 570)

RevPAR declining more than 15% year-on-year

Occupancy consistently below breakeven threshold (45–55%)

Interest coverage below 1.2x

Covenant breaches on property financing

Inability to fund seasonal working capital requirements

Loss of management contracts or franchise agreements

Worked Example: European Hotel Operator

Maison Laurent Hotels SAS — 4 owned hotels, 2 managed, €18M revenue

Key results: Current Ratio: 0.70 (typical — most assets are property), Quick Ratio: 0.62, Gross Margin: 65.0% (high due to service model), Net Margin: 6.0%, ROE: 9.0%, ROA: 2.8%, D/E: 2.17, Interest Coverage: 1.54x, Inventory Days: 23 (F&B stock), DSO: 30 days

Frequently Asked Questions — Hospitality

Why do hospitality companies often show current ratios below 1.0?
Hospitality companies typically have low current ratios (BACH median: 0.85) because their assets are predominantly non-current (property, equipment, right-of-use assets). This is normal for the sector. The key liquidity metric is whether operating cash flow covers debt service, not the current ratio. Seasonal cash flow patterns mean working capital fluctuates significantly throughout the year — always assess at the point of peak liquidity.
How does seasonality affect hospitality ratio analysis?
Extreme seasonality (occupancy ranging 30–95%) makes annual ratios the only reliable measure. Quarterly or interim ratios can be misleading: a hotel company may show a loss in Q1 but full-year profit. For ISA 520 analytical procedures, always compare to the same period in prior years. If performing interim audit work, annualise ratios using 12-month rolling figures. Note this in any ratio report — BACH benchmarks are annual averages.
How does the management contract model affect ratios?
Management contract companies (like Marriott International) earn management and incentive fees without owning the property. They show: very low total assets (no property), high ROE (small equity base), low D/E (minimal debt), and high margins but low absolute revenue. These companies cannot be compared to owner-operators using the same benchmarks. Franchise models show similar characteristics. Always classify by business model before benchmarking.
What IFRS 16 impact is specific to hospitality?
Hotel operating leases (buildings, land, equipment) are now capitalised as right-of-use assets. For owner-operators with leased properties, this can double the reported asset base and significantly increase liabilities. EBITDA improves (lease payments reclassified from operating cost to depreciation + interest) but EBIT is largely unchanged. Interest coverage deteriorates because lease interest is included. BACH 2023 data reflects post-IFRS 16 figures.
What are hospitality-specific going concern indicators?
ISA 570 indicators for hospitality include: RevPAR declining more than 15% year-on-year, occupancy consistently below breakeven (typically 45–55% for European hotels), interest coverage below 1.2x, covenant breaches on property financing, inability to fund seasonal working capital requirements, loss of management contracts or franchise agreements, pandemic/travel restriction vulnerability without adequate reserves, and planned renovations that cannot be funded.

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