The management of working capital in four and five star hotels in Malta

Abstract

Purpose: The purpose of this study is to assess the importance that local four and five star hotels attribute to the management of working capital. This research seeks to study separately four and five star hotels to discover whether working capital in these two grades is being managed differently. It also highlights the techniques used by hotels to manage their working capital, the actions taken during 'tight' periods, and to discover any emerging trends in this crucial financial management aspect. Design: Primary data was obtained through the use of a questionnaire and semi-structured interviews and the gathering of data from the financial statements of several four and five star hotels. Secondary data was then collected from a number of online journals and articles as well as books and a published dissertation. Findings & Conclusions: This study shows that local four and five star hotels attribute more importance to profitability rather than liquidity. Despite this, there is still awareness of the importance of the management of working capital. Hotels are relying extensively on current liabilities and this brings about the need for adequate cash flow planning in order to ensure that projected cash flows will be sufficient to settle current liabilities. The trend analysis enhances these findings since such analysis evidenced that hotels are working with high negative working capital through their weakest months. It was also apparent that hotels suffer from seasonality fluctuations and therefore working capital fluctuations. Implications: The research findings definitely suggest that due to seasonality fluctuations, there is the fundamental need for adequate cash flow planning within local four and five star hotels.