Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Revenue per Available Room (RevPAR)

What it is:

Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators.

There are two ways to calculate RevPAR. The first formula is:

Total Room Revenue in a Given Period, Net of Discounts, Sales Tax, and Meals
---------------------------------------------
# of Available Rooms in Same Period

Alternately, the same figure can be arrived by calculating the following:

Average Daily Room Rate x Occupancy Rate

How it works (Example):

Consider the following results from Company XYZ's latest quarter:

Number of Rooms: 1000
Average Room Rate: $90
Average Occupancy Rate: 75%
Total Room Revenue ((1000 rooms x $90/room x 75% occupancy) x 90 nights in the quarter): $6,075,000

Using the first formula and the information above, we can calculate that Company XYZ's RevPAR was:

($6,075,000/90,000) = $67.50

Using the second formula, we can arrive at the same answer:

$90 per night x 0.75 = $67.50

Therefore, we can conclude that Company XYZ generated approximately $67.50 in revenue per day from each of its hotel rooms.

Why it Matters:

RevPAR is arguably the most important of all ratios used in the hotel industry. Because the measure incorporates both room rates and occupancy, it provides a convenient snapshot of a how well a company is filling its rooms, as well as how much it is able to charge.

It should be noted that RevPAR, by definition, is calculated on a per-room basis. Therefore, one company can have a higher RevPAR than another, but still have lower total revenues if the second firm manages more rooms.
 

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