The operating profit flow method as a profitability analysis tool for hospitality enterprises

Abstract

This study introduces the flow-through method, focusing on retaining incremental revenue as an alternative approach. Unlike conventional ratios, this method explains causal relationships between income statement items and aids in future projections. The hospitality industry, with varied revenue streams, faces challenges in applying uniform methods, limiting adoption due to practitioner unawareness. This research analyzes the financials of Hyatt, Marriott, and Hilton from 2021 to 2022 using the flow-through method. The study employs both exploratory and quantitative methods to understand how revenue streams and departmental operations affect profits. It proposes a compact formula for calculating the stream from incremental revenue changes, starting with determining departmental expenses. Results indicate hoteliers achieved remarkable success, demonstrating efficient revenue-profit conversion during post-pandemic recovery. This method provides valuable insights for hospitality managers and potential cross-application in various sectors. Future studies could investigate cross-industry applications, integrate technological tools, and perform longitudinal analyses to enhance and broaden the method's utility.