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HFT 2401Financial Statement Analysis
& Presentation
Chapter 18
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Financial Statement Analysis- Answers Users Questions
Is There Sufficient Cash to Meet the Establishment’s Obligations for a Given Time Period?
Are the Profits of the Hospitality Operation Reasonable?
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Financial Statement Analysis- Answers Users Questions
Is the Level of Debt Acceptable in Comparison With the Stockholder’s Investment?
Is the Inventory Usage Adequate?
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Financial Statement Analysis- Answers Users Questions
Is the hospitality operation able to service its debt?
Are Accounts Receivable Reasonable in Light of Credit Sales?
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Analysis of Balance Sheet Horizontal Analysis
Also called comparative analysis Compute Absolute Change
This Year minus Last Year Compute Relative Change
Absolute Change / Base Amount
Vertical Analysis Also called common size analysis Total Assets = 100% Everything is a percentage of Total Assets
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Analysis of Income Statement Horizontal Analysis
Also called comparative analysis Compute Absolute Change
This year minus last year Compute Relative Change
Absolute Change / Base Amount
Vertical Analysis Also called common size analysis Total revenue = 100% Everything is a percentage of total
revenue
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Ratio Analysis
Communicate Information
Unlimited Combinations
Choose the Most Useful Combination
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Ratio Analysis
Compare Against SomethingPrior PeriodIndustry StandardBudget
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Ratio Analysis
Express in a Number of WaysPercentagePer Unit BasisTurnoverCoverage
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Limitations ofRatio Analysis
Do Not Resolve Problems
Only Indicate That There May Be a Problem
Comparisons Must Be From Related Numbers
Most Useful When Compared to a Standard
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Limitations ofRatio Analysis
When Comparing to Other Businesses - Must Be Comparable
Uses Historical Data - May Not Tell the Whole Story
Does Not Address Leases
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Classes of Ratios
Liquidity- Ability to Meet Short Term Obligations
Solvency - Extent to Which the Enterprise Has Been Financed-meet long term debt
Activity (Turnover)- Ability to Use the Property’s Assets
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Classes of Ratios
Profitability - Measurement of Management’s Overall Effectiveness
Operating - Analysis of Hospitality Establishment Operations
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Key Terms
Average Calculation
beginning balance+ ending balance= total available
Average = Total Available / 2
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Key Terms
Covers = Meals Served
Revenues = Sales
Lease Expense = Rent
Working CapitalCurrent Assets- Current Liabilities
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Liquidity Ratios
Current Ratio
Current Assets / Current Liabilities
ie: $338,000 / 214,000
= 1.58 Times
The closer to 2:1, the better
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Liquidity Ratios
Acid Test (Quick Ratio)
= (Cash ($) + Marketable Securities + Notes Receivable + Accounts Receivable) /
Current Liabilities
ie: $309,000 / 214,000 = 1.44 times
s/b > 1, the higher the better
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Liquidity Ratios
Accounts Receivable Turnover
Total Revenue Current Period / Average Accounts Receivable
ie: $1,352,000 / (.5) ( 90,000 + 140,000) AR Yr 1 AR YR 2
= 11.76 Times Higher is better
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Liquidity Ratios
Average Collection Period
How fast the receivables are collected
= 365 days / AR Turnover Times
ie: 365 / 11.76
= 31 days (lower is better)
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Solvency Ratios
Solvency
Total Assets / Total Liabilities
ie: 1,176,300 / 659,000
= 1.784 times
Higher is Better
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Solvency Ratios
Debt - Equity Ratio
Determines funding mix
Total Liabilities / Total Owners Equity
ie: 659,000 / 517,300
= 1.27 times
Lower is better
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Activity ( Turnover) Ratios
Inventory Turnover
Cost of Food Used / Average Inventory
ie: 122,000 / (.5) ( 11,000 + 9,000) Beg Inv End Inv
= 12.20 times ( Higher is better)
Can be used for any inventory (food, beverage, etc)
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Activity Ratios
Inventory Turnover in Number of Days
= 365 days / Inventory Turnover Times
ie: 365 / 12.20 = 29.91 days
Lower is better
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Activity Ratios
Paid Occupancy Percentage
Paid Rooms Occ / Total Available Rooms
ie: 21,000 / 29,200 = 71.92%
Higher is better
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Activity Ratios
Seat Turnover
Total Food Covers / # of Available Seats
56,000 / (100 * 365)# covers # of seats Days In Year
1.53 times Higher is better
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Profitability Ratios
Profit Margin
Net Income / Total Revenue
ie: 146,700 / 1,352,000
10.85% Higher is Better
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Profitability Ratios
Operating Efficiency Ratio
Income after Undistributed Oper. Expenses /
Total Revenue
ie: 415,500 / 1,352,000
= 30.73% Higher is Better
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Operating Ratios
Mix of Sales
Divide each revenue source by total revenues
Rooms 810,000 59.9%
Food 300,000 22.2Beverage 145,000 10.7Phone 42,000 3.1Other 55,000 4.1Total 1,352,000 100.0%
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Operating Ratios
Average Room Rate
Total Room Revenue / Number of Rooms Sold
ie: $810,000 / 21,000
Higher is better
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Operating Ratios
Revenue per Available Room (REVPAR)
Total Room Revenue / Total Available Rooms
ie: $810,000 / ( 80 * 365) # of rooms days
=$27.74 Higher is better
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Operating Ratios
Average Food Service Check
Total Food Revenue / # of Food Covers
ie: $300,000 / 56,000
= $5.36 Higher is better
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Operating Ratios
Cost of Goods Sold Percentage Use for food, beverage, etc.
Cost of Goods Sold $ / Total Revenue for that category
ie: Cost of Food Sold %
Cost of Food Sold / Total Food Revenue
$120,000 / $300,000
= 40% (Lower is better)
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Operating Ratios
Labor Cost Percentage
Total Labor Cost by Department / Revenue for that Department
ie: Rooms Department Labor
$ 145,000 / $810,000 Rooms Labor Room Revenue
= 17.90% (Lower is better)
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Operating Ratios
Flow Through (Retention of Profit)
Change in net profit / Change in Revenue
($146,700 – 141,300) / ($1,352,000 – 1,300,000) (Yr 2 NP - Yr 1 NP) / (Yr 2 Rev - Yr 1 Rev)
5,400 / 52,000
= 10.38% Higher is better
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Top Ten Ratios - General Managers Perspective
Profit Margin Occupancy Percentage - Month to
Date Labor Cost Percentage Occupancy Percentage - Daily Average Daily Rate
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Top Ten Ratios - General Managers Perspective
Food Cost Percentage Beverage Cost Percentage Room Sales to Total Sales Retention of Profit (Flow Through)
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Homework
Problem 10 Problem 11; Questions 1-6 only