Profitability analysis of hotel companies in the Republic of Serbia

The purpose of the research is to examine the level and trends of profitability ratios of hotel companies operating in the Republic of Serbia in the period from 2016 to 2019. The research was conducted on a sample of 100 hotel companies, where profitability was measured by the operating profit rate, the net profit rate, the rate of return on total assets and the rate of return on equity. The results of the research show that the values of the used profitability indicators have increased in 2017 compared to 2016, but decreased in 2018 and 2019. Statistical analysis found that changes in the operating profit rate and net profit rate during the observed four-year period were not statistically significant, while the decline in the value of the rate of return on total assets in 2018 compared to 2017 and the decline in the rate of return on equity in 2018 compared to 2017 and in 2019 compared to 2018 was statistically significant. The results of the research can be important for (1) the management of a company, (2) its owners, because they enable gaining an insight into the level of profitability of entrusted companies, i.e. the companies that are in the ownership, and (3) investors and creators of tourism development policy.


Introduction
Tourism, as an economic activity, combines the activities of production and service of food and beverage, hospitality and transportation (Lee et al., 2019). -The tourism sector represents a significant potential of any national economy‖ (Milenkoviš et al., 2017, p. 197). The benefits of tourism development for one country are reflected in employment growth, increased foreign exchange inflows (Lee et al., 2019;Milenkoviš et al., 2017;Ren et al., 2019), as well as in the renewal of existing catering resources and increasing living standards of the population (Milenkoviš et al., 2017). Due to the obvious economic benefits of its development, tourism has long captured the attention of national governments and individuals (Luo, 2018). By adopting tourism development strategies, national governments seek to maximize the economic benefits of tourism. In order to adopt an adequate strategy, it is necessary to get acquainted with the current situation in tourism.
According to Menicucci (2018) -it is well accepted that the tourism industry is a major source of income for many developed and developing countries and is one of the most profitable service industries. In fact, many studies consider tourism as one of the main elements of economic expansion‖ (p. 2845). The performance of a hotel is relevant for -stakeholders such as creditors, owners, managers and employees‖ (Lado-Sestayo & Vivel-Búa, 2018, p. 455).
One of the important aspects is to get acquainted with the existing financial performance of hotel companies. In other words, it is necessary to measure the financial performance of the company, because according to Krstiš and Sekuliš (2014) it is not possible to manage something that cannot be measured. As Haktanir (2006) states, the term -performance measurement‖, as an important component of the management process, has been in use for many years, gaining its popularity with the development of new management accounting techniques in 1990s. -Measurement should not be a goal for itself; it must have some meaning -it should indicate the quality of achieving the goals as well as the ability (or inferiority) of the company in achieving the given goals‖ (Todoroviš et al., 2015, p. 46). As a systemic procedure, performance measurement should help the company achieve the set goals (Chen et al., 2011). These performances can be viewed in a narrower sense when they are focused only on the profitability of the company, and in a broader sense, when in addition to profitability, it is necessary to consider the liquidity, activity and solvency of the company (Bogiševiš & Stojanoviš, 2014). To test the financial performance of companies, ratio analysis is employed as a commonly used technique. Ratio analysis is defined as -the systematic use of indicators to interpret financial statements so that the strengths and weaknesses of an enterprise can be identified, as well as its historical performance and current financial condition‖ (Divyesh, 2014, p. 32). Ratios are a very useful tool that allows management to take quick and appropriate action. They express connections and facilitate the study of correlations in a given numerical data (Diakomihalis, 2011). Since profitability in the company's operation is one of the conditions for its long-term survival and success in the market (Yazdanfar, 2013), it is necessary to constantly conduct profitability measurement. As Pavloviš et al. (2020) claim, the realization of a higher value of profitability ratios compared to the previous period indicates that there has been an improvement in the financial situation of the company.
For profitability measurement in this paper, the ratio of profitability indicators was used, focusing on operating profit rate, net profit rate, rate of return on assets (ROA) and rate of return on equity (ROE). The subject of this paper is to examine the level of profitability of hotel companies from the Republic of Serbia in the period from 2016 to 2019. The aim of this paper is to indicate the level of profitability of hotel companies from the Republic of Serbia, as well as to identify tendencies in the level of profitability t rends.
The paper is structured from multiple logically defined and connected units. After introductory considerations, the paper contains a review of the literature which presents the results of previous research on the business of hotel companies in the world and, in particular, the area of hotel companies in the Republic of Serbia. The third part presents the sample structure, applied methodology and data. The results of the research and discussions are presented in the fourth part, while in the last part, the conclusions of the conducted research are given, as well as several limitations in the research from which the possible directions of future research arise.

Literature review
Year after year, the profitability of hotel companies all over the world is examined both in different countries individually and through a series of comparative analyses of the trends of profitability ratios among different countries. Profitability is an important aspect of performance appraisal and evaluation that indicates the ability of a company to perform various tasks in the most efficient way (Divyesh, 2014). In order to survive and achieve longterm financial sustainability, hotel companies must strive to increase their profitability . Determinants of profitability in hotel companies have been studied from different perspectives and in different economies. Both the external and internal factors and characteristics related to hotel policy management were investigated. Some research has confirmed that -external factors such as the economic crisis, government policy, economic growth, political situation, terrorist attacks and other economic and non -economic factors affect the performance and profitability of hotel companies‖ (Dimitriš, et al., 2019(Dimitriš, et al., , p. 1985. The results of the research by Sami and Mohamed (2014) confirm that the financial performance of a hotel is related to the economic performance that is assessed by its technical efficiency. According to Bai and Buvaneshwaran (2015), -the hotel industry is a mature industry marked by intense competition. The increase in market share usually comes at the expense of a competitor‖ (p. 138). In such circumstances, the importance of measuring profitability and comparing it with key competitors is even more emphasized.
Ryu and Jang (2004) measured the performance of commercial and casino hotels in the United States using traditional ratios and ratios based on cash flows, with the research covering their business from 1998 to 2002. The research found that during the observed fiveyear period, casino hotels had a higher degree of liquidity, solvency and profitability compared to commercial hotels, with only a statistically significant difference found in the general liquidity ratio and reduced liquidity ratio. Roška and Kuvaţiš (2018)  Aissa and Goaied (2016), with the help of Data Envelopment Analysis (DEA) and Return on Assets (ROA), analysed the profitability on a sample of 27 hotel companies from Tunisia. This research results point to the fact that managerial efficiency is important when geographic and operational contracts are constantly held. Nevertheless, these two aspects have important implications for hotel profitability. Hotel size, level of indebtedness, exposure to crisis events and level of education of managers were also highlighted as significant factors. A study by O'Neill and Mattila (2006) on a sample of more than 1,900 US hotels during 2002 and 2003 showed that the percentage of the hotels ' net operating income was most closely related to the occupancy, although the average daily rate (ADR) had a strong influence, as well as a market segment (also known as chain scale), age of assets and brand affiliation. Sandvik et al. (2014) study, based on the data from the financial reports, covering the sample of 298 hotels, shows that the relationship between innovation and profitability is positive. Mašiš (2013) examined the performance of hotel companies operating in Serbia in the period from 2004 to 2011, with the analysis covering about 31.35% of the total number of available capacities in the hotel industry. For the needs of performance testing, TREVPAR and GOPPAR indicators were used, and they were observed at the state level, within tourism clusters, as well as in the largest cities in Serbia. The research established that the observed hotel companies achieve low values of both indicators, while due to the economic crisis since 2008 there has been a significant decline in value. Further, it was determined that hotel companies based in Belgrade achieved significantly higher results compared to the national average, while the highest increase in the observed period was recorded in h otel companies in Kragujevac. Based on data from the financial reports for 2013, Borovţanin (2015) conducted a comparative analysis of the financial performance of 4 hotels (2 operate within international hotel chains, while 2 operate independently) in Belgrade. According to the author, there is a significant difference among the observed hotel companies between liquidity, financial structure, efficiency and profitability, although these are hotels that belong to the same category, have approximately the same number of rooms and are oriented towards the same or similar market segment. Having conducted the research on the sample of 60 hotel companies that gravitate to urban tourism, Jovanoviš et al. (2015) came to the conclusion that investments in selected projects did not bring a satisfactory rate of return, and that these investments in some years cannot cover interest costs. The authors state a high degree of indebtedness and inadequate allocation of capital as common characteristics of the observed companies. The reasons for the negative trend in the business of these companies can be external (global economic crisis, low living standards, underdeveloped infrastructure and insufficient incentives from the state) and internal (lack of vision, skills and expertise of management, incomplete restructuring of tourism companies, inadequate skills and professionalism of employees and business without respecting quality standards). Radoviš and Staniš (2016) conducted an analysis of the profitability of twenty 4-and 5-star hotel companies in the period from 2010 to 2015. In all 4 selected profitability indicators (operating profit rate, net profit rate, ROA and ROE), significant fluctuations in values were observed, which occurs as a consequence of the realized operating loss in some of the observed companies. The authors point out that the reasons for the adverse results in hospitality companies' operation are high fixed costs faced by hotel companies, indebtedness, economic crisis, and low-capacity utilization, which directly affects the level of income. According to Milosavljeviš et al. (2017), who have analysed the main drivers of the profit margin in the hotel sector in Belgrade, the tourism and hotel industry has attracted immense attention from many stakeholders. The results of the conducted research indicate that the perception of customers is the most important factor that drives the financial performance of a hotel. Mitroviš et al. (2019) analysed the liquidity of companies whose shares are traded on the Belgrade Stock Exchange, and which according to the sector classification are classified in Sector I -Accommodation and food services. The research found that most of the observed companies are characterized by the low va lue of used liquidity ratios (general liquidity ratio, reduced liquidity ratio, cash liquidity ratio and liquidity ratio based on net cash flow), i.e. liquidity ratios are below reference values, and there is a negative value of net working capital. Exchange. Those are hotel companies whose market capitalization is higher than 100 million RS dinars. Altman's Z-score model was applied, which is adapted for companies operating in emerging markets, with the research covering the business of hotel companies from 2014 to 2018. Thus, in 2014, there were 3 companies in the -safe zone‖, 1 in the -grey‖ and 2 in the -problem zone‖, whereas in 2018, 3 companies were in the -safe‖ and 3 in the -grey zone‖. It is important to note that one hotel company in the first four observed years had a loss above the amount of equity, which would automatically position it in the -problem zone‖, thus the application of the model for assessing financial health would have no practical significance.

Methodology and data
The profitability analysis was performed on a sample of 100 hotel companies based in the Republic of Serbia that achieved the highest operating revenue. These are companies whose activity code is 5510 -Hotels and similar accommodation (see The Government of the Republic of Serbia, 2010). The structure of the sample from the aspect of size and legal form of the observed companies is shown in Table 1. The financial reports of t he companies that were publicly available on the official internet presentation of The Business Registers Agency of the Republic of Serbia (2020) on August 1, 2020 were used as data sources for the analysis. For the needs of the paper, the data were taken from the mentioned reports for 2016, 2017, 2018 and 2019. Data on the balance of total assets and equity for the end of 2015, which are required when calculating the rate of return on total assets an d the rate of return on equity for 2016, are taken from the balance sheet for 2016 based on the comparative data for the final state of the previous year. Source: Authors, based on data from the official internet presentation of The Business Registers Agency of the Republic of Serbia (2020) The profitability of hotel companies from the Republic of Serbia in the observed three -year period was measured with the following indicators: operating profit rate, net profit rate, return on total assets and rate of return on equity. The method of their calcu lation is shown in the following table.  (Rico, 2006). He points out that the value of the ROA indicator can match the size of the company, which would mean a higher value indicator for larger companies. The ROA indicator can be very useful as a management tool in controlling and rewarding employees at the subsidiary level, but this does not mean that the ROE indicator is not important for managers (Todoroviš & Ţupiš, 2017).
Statistical analysis has been conducted in IBM SPSS Statistics Version 24. The results of descriptive statistics are presented below, as well as the results of Friedman 's test. Friedman's test was used because the data applied in the analysis did not have a normal distribution. In the event that the Friedman's test determines that there is a statistically significant difference that occurs somewhere between the three observed years, it is necessary to conduct subsequent tests comparing the years of interest. Subsequent testing includes individual Wilcoxon's rank tests, with Bonferroni alpha correction to avoid type I error. When calculating Bonferroni's correction, we start from the initial level of significance (that is 0.05) and divide it by 3, since the level of profitability of subsequent year is compared to that of the preceding one, i.e. the level of profitability in 2017 is compared to that of 2016, the one achieved in 2018 is compared to the one of 2017 and the one from 2019 is compared to that of 2018). In this way, a new level of significance of 0.017 is obtained (Pallant, 2007).

Results and discussion
The results of the research are presented at the level of the sample and at the level of individual hotel companies. Table 3 shows the trends of the operating profit rate of hotel companies in the period from 2016 to 2019 in the Republic of Serbia.      Table 5 shows the trend of the rate of return on total assets of hotel companies in the period from 2016 to 2019 in the Republic of Serbia.  Table 5, there is a noticeable increase in the rate of return on total assets at the sample level in 2017 compared to the previous year. In 2018 and 2019, there was a decrease in the rate of return on total assets at the sample level compared to 2017. Trends in the movement of the average rate of return on total assets at the sample level are identical to the trend in the rate of return on total assets at the sample level (a n upward trend followed by a downward trend). In 2017, forty-two hotel companies achieved a lower return on total engaged funds compared to 2016, while 57 companies recorded an increase in the returns. In 2018, 67 companies achieved a lower rate of return on total assets compared to 2017, and 32 companies saw an increase in it. The rate of return on total assets is lower in 63 companies in 2019 compared to 2018, i.e. higher in 37 companies. One hotel company achieved the same rate of return on total assets in first three observed years. Further, the maximum rates of return on total assets (100.90%; 99.33%; 75.18% and 85.93%) were achieved by one company. The results of the Friedman's test show that there is a statistically significant difference between the rate of return on total assets in the four observed years (χ2 The trend of the rate of return on equity of hotel companies in the period from 2016 to 2019 in the Republic of Serbia is shown below ( Table 6). The summary of economic assessment after the profitability testing indicates several things.
When it comes to the business result and the net result, there are oscillations during the observed four-year period (first a growing trend, and then a decrease in value). In the observed period, there is a trend of growth in the value of assets and equity of hotel companies, which may indicate an increase in investments that are mostly finance d from their own sources of financing. Further, there is a decrease in the value of ROA and ROE indicators at the level of the sample and the level of individual companies. This may indicate that the observed hotel companies do not have adequate capital productivity, and this should be carefully analysed in order to reach a more precise conclusion.

Conclusion
The research found that in the observed hotel companies there was an increase in the value of all four used profitability ratios (operating profit rate, net profit rate, rate of return on total assets and rate of return on equity) in 2017 compared to 2016, and in 2018 and 2019 there was a downfall of their values. In addition, the research found that the changes in operating profit rates and net profit rates during the observed period are not statistically significant, i.e. it cannot be claimed that hotel companies from the Republic of Serbia increased or decreased profitability in the observed four-year period. When it comes to the rate of return on total assets, it was found that in 2018, there was a statistically significant decrease compared to 2017. When it comes to the rate of return on total equity, it was found that there was a statistically significant decrease in 2018 compared to 2017 and in 2019 compared to 2018. Moreover, it is necessary to mention that in the structure of the observed hotel companies from the Republic of Serbia during the observed four-year period, those companies that achieved positive profit rates (operating profit rates and net profit rates) and positive rates of return (rates of return on total assets and rates of return on equity) have a higher share than those that recorded the negative ones . Despite the small share of companies with negative (operating and net) results in the total number of observed companies, the losses they achieved were very large, which was reflected in significantly lower values of total operating and net results, and thus lower profitability rates at the sample level. The observed hotel companies in the period from 2016 to 2019 are also characterized by the growth of total funds, as well as equity. This may indicate an increase in investments, which are mainly financed from their own resources.
The contribution of this study is to describe the level and trend of hotels' profitability in the Republic of Serbia in the period before the COVID-19 pandemic. The scientific contribution of the study is reflected, additionally, in the existing, both foreign and domestic knowledge about the functioning of hotels. In addition to the contribution to the academic community, the results can be useful to the owners and the management of analysed companies, in order to be introduced to the functioning of not only their company but also other companies that operate within the same area of activity. Moreover, the results allow potential investors to make the decision to invest in those companies that will bring them the highest return. The results can be useful for economic policy-makers to get introduced with the analysed hotel's functioning and bring adequate incentives that would results in business improvement, as well as for other stakeholders who are interested in the functioning of hotels. This research offers valuable information to identify strategic proposals for various stakeholders such as hotel investors, hotel owners, managers, tourism development creators and go vernment.
The conducted research also has several limitations from which the directions of future research arise. The first limitation is the short period of monitoring the operations of hotel companies due to the lack of publicly available financial repo rts of hotel companies. Therefore, in future research, we should try to monitor the operation for a longer period of time, with the possibility of forming a larger sample, which would increase the reliability and strength of the results. The limitations in the research are those that arise from the limitations of the ratio analysis itself (for more details, see Kneţeviš et al., 2011). Since the research covers only the profitability of hotel companies, in order to gain a complete picture of the operation of companies from this industry, it is necessary to analyse their liquidity, solvency and activity. In addition to continuous monitoring of the level of profitability of hotel companies, it is necessary to identify determinants (factors) that had an impact on the level of profitability in order for the manager of the company to make adequate decisions. For this reason, it is necessary to conduct research aimed at identifying the impact of internal and external determinants on the level of profitability of hotel companies. In previous research, accounting measures (measures used in the paper) that are turned to the past are the most common as measures of company performance. Future research would focus on identifying factors that affect profitability, both operational and institutional. Further, future research could relate to the relationship between financial performance (measured ROA) and the growth of the observed companies. Therefore, in future research, it is necessary to focus more on market measures, measures based on cash flows and values (such as added market value and added economic value), as measures that are future -oriented. Further, the limitation stems from the data sources themselves. Namely, the financial s tatements do not contain (or contain to a small extent) non-financial information (e.g. information on the quality of products/services, customer satisfaction, business flexibility, etc.) which are very important and necessary in the process of business de cision-making, improving competitiveness, as well as improving financial performance (Janjiš et al., 2015). Therefore, the same authors state that in order to get a clear picture of the achieved results of the company, in addition to financial performance measures, it is necessary to use the nonfinancial ones.

Conflict of interest
The authors declare no conflict of interest.