Determinants of Profitability of Hotels in Addis Ababa: The Case of Star 1 and 2 Hotels

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The purpose of this study was to investigate determinants of hotel profitability in Addis Ababa particularly to star 1 and 2 hotels by using panel data of 31 star 1 and 2 hotels from year 2015 to 2019. The study employed an explanatory type of research and secondary financial data were used. The regression model was applied to investigate the impact of firm size, liquidity management, number of rooms available, location (distance of the hotel from the central part of the city), firm age and star level on profitability. Return on assets (ROA) was used as a measure of profitability. The major findings of the study show that firm size, liquidity management and firm age have statistically significant and positive relationship with return on asset of star 1 and 2 hotels. On the other hand, variables like number of rooms available and location have statistically significant and negative relationship with return on asset of star 1 and 2 hotels. However, the relationship for star level and return on asset of star 1 and 2 hotels is found to be statistically insignificant. The result implies that hotels which are large and old have more profit. In addition hotels, which follow effective liquidity management practice, are profitable. The study recommended that managers of hotels to develop effective strategies to raise firm sizes and manage its liquidity in a proper way. The study also recommended that managers and prospective investors should give emphasis to hotel location in time of incorporation and to horizontal integration with older hotels to ensure that hotels are in a position where they can enhance their profitability.



Hotels, Determinants, Profitability