Abstract:

One of the most significant aspects of the going concern concept is the company’s financial stability, particularly in industries exposed to high cyclicality and external shocks. Financially stable business operations assume an adequate relationship between the structure of the company’s assets and its financing sources. This relationship is known as the golden rule of financing, in which long-term sources must finance fixed assets and a portion of current assets (net working capital). Asset management and the realisation of sufficient operating revenues to achieve and maintain financial stability are especially challenging in the hotel segment of the hospitality industry. Thus, the paper examines the financial position and performance of European hotel companies. The objective of this research is to investigate the significant determinants of the financial stability of hotel companies. For research purposes, we gathered financial data for 210 hotel companies from 2010 to 2016. As a measure of financial stability, we applied the debt service coverage ratio (DSCR). We conducted the analysis using panel data, appropriate assumption tests, and descriptive statistics. The results show that financial stability, as measured by DSCR, in European hotel companies is primarily determined by profitability (return on assets - ROA), dynamic solvency (interest coverage ratio - ICR), and overall activity (total asset turnover - TAT). Furthermore, the research concludes that financial leverage and liquidity do not significantly determine financial stability.