Temasek Polytechnic Hospitality & Tourism Management Management Accounting & Finance

for Hospitality & Tourism

Study Preparation

Lesson 1: Introduction

Types of Business

Sole Proprietorship – owner has total control over resources and operations

Partnership – 2 to 20 persons, formed by agreement, profit and losses are split.

• Limited Partnership: at least one general and one limited partner.

• Limited Liability Partnership: no general partners, only certain types of business.

Company

• Private: max. 50 members, cannot invite public to subscribe shares, restrictions on right to transfer shares.

• Exempt Private: max. 20 members, do not need to declare to ACRA, family-owned businesses.

• Public: large business, invite public to buy shares, may be listed on Stock Exchange.

Profit & Cost Centres

Profit Centre

• a centre which manager is responsible for both revenue and costs e.g f&b outlets, rooms division.

Cost Centre

• a centre which is responsible only for the costs incurred e.g HR, Sales & Marketing departments.

P&L Statement

Comprises mainly of 3 sections:

1. Operating Department’s Results (profit centres)

2. Undistributed Operating Expenses (cost centres)

3. Fixed Charges (hotel-wide expenses)

Lesson 2: Revenue, Purchasing & Inventory Cycle

Guest & City Ledger

Guest Ledger

• Receivable ledgers from all in house guests.

City Ledger

• Receivable ledgers for debtors other than in house guests.

Revenue Cycle (Rooms Division)

1. Guest checks In.

2. Room folio is created – source document for in-house guests.

3. Night Audit is run – charges are updated nightly.

4. System looks for folio with valid occupied room status.

5. System post room rate into room folio#.

6. Room revenue captured in daily sales journal.

7. Accumulated room revenue posted to general ledger at the end of the month.

# Dr Guest Ledger Cr Room Revenue

Lessons 3 & 4(A): Management of Working Capital

WC = CA – CL

CA

FA

CL

LTL

OE •Shared capital

•Retained earnings (profit)

WC

Profitability:

• Relationship between revenue and costs (expenses).

• Investment in CA is less profitable than FA.

Risk:

• Probability that firm will be unable to pay bills when due.

• Insolvency.

Profitability & Risk

Too little CA increases profitability but also increases risk of not being able to pay.

Too much CA reduces risk but also reduces profitability.

Cash Management Strategies

Turn over inventory asap.

Speed up cash receipts by collecting A/R asap - efficient mailing system, accelerating collection efforts, collect cheque by hand, use collecting services, direct bank transfers.

Slow down A/P by paying as late as possible without damaging firm’s credit standing.

A/R Management

Credit Policy Who to extend the credit to (credit selection) based on profile, financial status, collaterals etc.

How much credit to extend (credit line).

For how long (credit terms).

Inventory Management

1. Stock too low = stock out = loss of sales, loss of customers, interruption to production and operation.

2. Stock too high = higher holding cost, product becomes obsolete due to change in customer preference.

Daily Usage Rate Amount of shelf-

space

Amount of time needed to place

and receive order.

Ordering Cost Holding Cost

Major Sources of WC

Net Profits* Proceeds from

sale of long-term/ fixed assets.

Additional long term borrowing.

Additional capital from

shareholders.

Major Uses of WC

Financing loss from operations.

Purchases of long term or other

assets.

Principal repayments of

long term liabilities.

Reduction of share capital.

Payment of dividends (tied to

shareholders).

Lesson 4(B), 5 & 6(A): Financial Analysis

Ratios

Liquidity Solvency Activity

Profitability Operating

Liquidity – measures the firm’s ability to meet its current liabilities.

Current Ratio

= CA/CL

Acid-Test Ratio

= CA-Inventory-Prepaid Expenses/ CL

A/R Turnover

= Cr Sales Revenue/ Avg A/R

Avg. Collection Period

= 365 days/ A/R Turnover

Solvency – ability of company to meet all of its financial obligations.

Solvency Ratio

= TA/TL

Debt-Equity Ratio

= TL/TOE

Activity – measures management effectiveness in using its resources.

Inventory Turnover

= COGS/ Avg. Inventory

Profitability – evaluate the profitability of the business, overall performance,

efficiency in managing assets and equity.

Gross Profit Margin

= Gross Profit/ Total Revenue

Net Profit Margin

= Net Profit/ Total Revenue

ROA

= Net Profit/ Avg. Total Asset

ROE

= Net Profit/ Avg. Owner’s Equity

EPS

= Net Profit/ No. of Ordinary Shares

Issued

P/E Ratio

= Market Price Per Share/ EPS

Operation – monitor operating performance, evaluate success in meeting goals, budgeted plans.

Occupancy Percentage

= no. of roomnights sold/ no. of room night available.

Avg. Room Rate

= room revenue/ no. of room sold.

Room Yield

= occupancy percentage X avg. room rate.

Dbl Occupancy Percentage

= room occupied by 2 or more ppl/ no.of rooms

occupied by guests (rooms sold + comp rooms).

Avg. Occupancy per Room

= No. of Guests (paid guest + comp rooms)/ no. of

rooms occupied by guests.

Avg. Length of Stay

= rooms occupied for a period of time/ no. of guest

registered during that period.

Avg. food service check

= total food revenue/ no. of food covers

Food cost percentage

= cost of food sold/ food sales

Labour cost percentage

= labour cost by departments/

department revenue.

Other operating expenses ratio

= xx department expenses/ department

revenue.

Lessons 6(B) & 7: Costing a Product or Service

Costs.

Variable Cost

• Food Cost, Beverage Cost, Room Supplies etc.

Fixed Cost

• Rent Expense, Depreciation Expense, Insurance Expense etc.

Mixed Cost

• Telephone Expense, Marketing manager’s salary etc.

Costs

Direct Cost

• Cost that can easily be traced to a particular cost object – food cost etc.

Indirect Cost

• Cost that cannot be easily traced – maintenance cost etc.

Bases of Cost Allocation

Rent Expense

• Square feet of area occupied.

Telephone

• No. of telephone extensions.

Marketing

• Ratio to sales revenue.

Engineering

• No. of jobs ordered.

Lesson 8: Pricing a Product or Service

REFER TO PRACTICE PAPER AND ACTUAL

LECTURE NOTES.

Lessons 9 & 10(A): Cost-Volume-Profit Approach to Decisions

Profit Equation

Sales Revenue – TC (VC+FC)

Sales Revenue – VC – FC

(Price X Qty) – (VC per unit X Qty) – FC

Big Picture

Units = FC + Profit

P - VC

Lessons 10(B) & 11: Planning & Budgeting

Big Picture

Revenue

– Expense

= P/L

Variance

• Price Increase = F

• Qty Increase = F

Variance

• Price Increase = UF

• Qty Increase = UF

Variance Analysis

• Revenue

• Expense

Situation

• Actual above budget

• Actual below budget

• Actual above budget

• Actual below budget

Variance

• Favourable

• Unfavourable

• Unfavourable

• Favourable

Lessons 12 & 13: Capital Investment Decisions

Big Picture

Fv = Pv*(1+i)n Table A

Pv = Fv*1/(1=i)n Table B

Pv = Fv Annuity*∑ 1/(1+i)n Table C

REFER TO PRACTICE PAPER AND ACTUAL

LECTURE NOTES.

THE END & REALLY GOOD LUCK TO YOU

HAMIZAN ROSLAN