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HFT 2401 Financial Statement Analysis & Presentation. Chapter 18. 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?. - PowerPoint PPT Presentation
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HFT 2401Financial Statement Analysis
& Presentation
Chapter 18
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?
Financial Statement Analysis- Answers Users Questions
Is the Level of Debt Acceptable in Comparison With the Stockholder’s Investment?
Is the Inventory Usage Adequate?
Financial Statement Analysis- Answers Users Questions
Is the hospitality operation able to service its debt?
Are Accounts Receivable Reasonable in Light of Credit Sales?
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
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
Ratio Analysis
Communicate Information
Unlimited Combinations
Choose the Most Useful Combination
Ratio Analysis
Compare Against SomethingPrior PeriodIndustry StandardBudget
Ratio Analysis
Express in a Number of WaysPercentagePer Unit BasisTurnoverCoverage
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
Limitations ofRatio Analysis
When Comparing to Other Businesses - Must Be Comparable
Uses Historical Data - May Not Tell the Whole Story
Does Not Address Leases
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
Classes of Ratios
Profitability - Measurement of Management’s Overall Effectiveness
Operating - Analysis of Hospitality Establishment Operations
Key Terms
Average Calculation
beginning balance+ ending balance= total available
Average = Total Available / 2
Key Terms
Covers = Meals Served
Revenues = Sales
Lease Expense = Rent
Working CapitalCurrent Assets- Current Liabilities
Liquidity Ratios
Current Ratio
Current Assets / Current Liabilities
ie: $338,000 / 214,000
= 1.58 Times
The closer to 2:1, the better
Liquidity Ratios
Acid Test (Quick Ratio)
= (Cash ($) + Marketable Securities + Notes Receivable + Accounts Receivable) /
Current Liabilities
ie: $309,000 / 214,000 = 1.44 times
s/b > 1, the higher the better
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
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)
Solvency Ratios
Solvency
Total Assets / Total Liabilities
ie: 1,176,300 / 659,000
= 1.784 times
Higher is Better
Solvency Ratios
Debt - Equity Ratio
Determines funding mix
Total Liabilities / Total Owners Equity
ie: 659,000 / 517,300
= 1.27 times
Lower is better
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)
Activity Ratios
Inventory Turnover in Number of Days
= 365 days / Inventory Turnover Times
ie: 365 / 12.20 = 29.91 days
Lower is better
Activity Ratios
Paid Occupancy Percentage
Paid Rooms Occ / Total Available Rooms
ie: 21,000 / 29,200 = 71.92%
Higher is better
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
Profitability Ratios
Profit Margin
Net Income / Total Revenue
ie: 146,700 / 1,352,000
10.85% Higher is Better
Profitability Ratios
Operating Efficiency Ratio
Income after Undistributed Oper. Expenses /
Total Revenue
ie: 415,500 / 1,352,000
= 30.73% Higher is Better
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%
Operating Ratios
Average Room Rate
Total Room Revenue / Number of Rooms Sold
ie: $810,000 / 21,000
Higher is better
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
Operating Ratios
Average Food Service Check
Total Food Revenue / # of Food Covers
ie: $300,000 / 56,000
= $5.36 Higher is better
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)
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)
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
Top Ten Ratios - General Managers Perspective
Profit Margin Occupancy Percentage - Month to
Date Labor Cost Percentage Occupancy Percentage - Daily Average Daily Rate
Top Ten Ratios - General Managers Perspective
Food Cost Percentage Beverage Cost Percentage Room Sales to Total Sales Retention of Profit (Flow Through)
Homework
Problem 10 Problem 11; Questions 1-6 only