Directions for management in small and medium hotels and restaurants companies

ABSTRACT

The primary goal is to validate if there is a relationship between liquidity and economic profitability in hotels and restaurants sectors, in small and medium companies (SMCs). The question to be answered is whether the short-term view will not compromise the future results of those companies. After a literature review, hotels and restaurants financial ratios were analysed over 5 years. Data were also treated using linear regression, to understand if there is a relation between liquidity and economic profitability. All the financial information was obtained from the SABI database. According to the studied literature, it was not expected to have any relationship between liquidity and economic profitability. The study consists of the Portuguese context in the latest 5 years period before COVID-19, in the hotels and restaurants sector, and it does validate those previous studies. Indeed, findings show no relationship between both ratios. Findings show to hotels and restaurants managers that liquidity-based management does not necessarily lead to future economic profitability. Even if liquidity is necessary for accurate short-term management, it shall not be used to guide them in the decision-making process concerning economic profitability. The results obtained are of enormous importance to both practitioners and academics. Managers must understand that they must take into account the need for liquidity in a short-term vision, but they must also understand that this fact alone is not a guarantee of good profitability in a long-term vision. The results in the empirical study also help to reinforce the inexistence of a relationship between the liquidity ratio and the economic profitability ratio in the literature.