- By
**abe** - Follow User

- 230 Views
- Uploaded on

Download Presentation
## Ratio Analysis

**An Image/Link below is provided (as is) to download presentation**

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

### Ratio Analysis

Chapter 5

Ratio Analysis- Help for Users

- Is There Sufficient Cash to Meet the Establishment’s Obligations for a Given Time Period?
- Are the Profits of the Hospitality Operation Reasonable?

Ratio Analysis- Help for Users

- Is the Level of Debt Acceptable in Comparison With the Stockholder’s Investment?
- Is the Inventory Usage Adequate?

Ratio Analysis- Help for Users

- How Do the Operation’s Earnings Compare With the Market Price of the Hospitality Property’s Stock?
- Are Accounts Receivable Reasonable in Light of Credit Sales?

Ratio Analysis- Help for Users

- Is the Hospitality Establishment Able to Service Its Debt?

Ratio Analysis

- Communicate Information
- Unlimited Combinations
- Choose the Most Useful Combination

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
- 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

- Covers = Meals Served
- Revenues = Sales
- Lease Expense = Rent
- Working Capital

Current Assets

- Current Liabilities

Liquidity Ratios

- Current Ratio

Current Assets

Current Liabilities

= 338,000 / 214,000

= 1.58 Times (higher is better)

Liquidity Ratios

- Acid Test or Quick Ratio

$ + Mkt Sec + NR + AR

Current Liabilities

= 309,000 / 214,000

= 1.44 Times (higher is better)

Liquidity Ratios

- Operating Cash Flows to Current Liabilities

OP Cash Flow

Ave Current Liabilities

= 179,200 /{ (.5)(192,200 + 214,000) }

CL Yr 1 CL Yr 2

= 88.23% (higher is better)

Liquidity Ratios

- Accounts Receivable Turnover

Total Revenue

Ave Accounts Receivable

= 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

365

Account Receivable Turnover

= 365 / 11.76

= 31 Days (Lower is better)

Liquidity Ratios

- Working Capital Turnover

Total Revenue

Ave Working Capital

= 1,352,000

[ { (338,000 - 214,000) + (221,000 - 192,200) }*(.5) ]

CA Yr2 CL Yr2 CA Yr1 CL Yr1

= 1,352,000 / 76,400 = 17.70 times

(higher is better)

Solvency Ratios

- Solvency-

Total Assets

Total Liabilities

= 1,176,300 / 659,000

= 1.78 times (higher is better)

Solvency Ratios

- Debt-Equity

Total Liabilities

Total Owner Equity

= 659,000 / 517,300

= 1.27 times (Lower is better)

Solvency Ratios

- Long Term Debt to Total Capitalization

Long Term Debt

(Long Term Debt + Owners Equity)

= 445,000 / (445,000 + 517,300)

= 46.24% (Lower is better)

Solvency Ratios

- Number of Times Interest Earned

EBIT

Interest Expense

= 304,500 / 60,000

= 5.08 times (Higher is better)

Solvency Ratios

- Fixed Charge Coverage

EBIT + Lease Expense

Interest Expense + Lease Expense

= (304,500 + 20,000) / (60,000 + 20,000)

= 324,500 / 80,000

= 4.06 Times (Higher is better)

Solvency Ratios

- Operating Cash Flows to Total Liabilities

Operating Cash Flows

Average Total Liabilities

= 179,200 /{ (0.5) ( 645,000 + 659,000) }

Yr 2 Liab Yr 1 Liab

= 27.48% (Higher is better)

Activity Ratios(Turnover Ratios)

- Food Inventory Turnover

Cost of Food Used

Average Food Inventory

= 122,000 / { (0.5) ( 11,000 + 9,000 ) }

Beg Inv End Inv

= 12.20 times (Higher is better)

Activity Ratios(Turnover Ratios)

- Beverage Inventory Turnover

Cost of Beverage Used

Average Beverage Inventory

= 28,000 / { (0.5) ( 6,000 + 6,000 ) }

Beg Inv End Inv

= 4.67 times (Higher is better)

Activity Ratios(Turnover Ratios)

- Property and Equipment Turnover

Total Revenue

Average Property & Equip *

= 1,352,000 /{ (0.5) ( 809,000 + 798,300 ) }

Beg PPE End PPE

= 1.68 times (higher is better)

* net of depreciation (use total for the category)

Activity Ratios(Turnover Ratios)

- Asset Turnover

Total Revenues

Average Total Assets

= 1,352,000 / { (0.5) ( 1,065,000 + 1,176,300 ) }

Beg Ttl Asset End Ttl Asset

= 1.21 times (higher is better)

Activity Ratios(Turnover Ratios)

- Paid Occupancy Percentage

Paid Rooms Occupied

Available Rooms

= 21,000 / ( 80 * 365 )

# Rooms * # days in period

= 71.92% (higher is better)

Activity Ratios(Turnover Ratios)

- Complimentary Occupancy

Complimentary Rooms

Rooms Available

= 160 / ( 80 * 365 )

# Rooms * # days in period

= 0.55% (Lower is better)

Activity Ratios(Turnover Ratios)

- Average Occupancy Per Room

Number of Guests

# of Rooms Occupied by Guests

= 24,160 / 21,160

= 1.14 Guests (Higher is better)

Includes Paid and Complimentary

Activity Ratios(Turnover Ratios)

- Multiple Occupancy

# Rooms Occupied by 2 or more Guests

# Rooms Occupied by Guests

= 2,500 / 21,160

= 11.81% (Higher is better)

Includes Paid and Complimentary

Activity Ratios(Turnover Ratios)

- Seat Turnover

Total Food Covers

# Available Seats

= 56,000 / ( 100 * 365)

Yr 2 Covers # seats * days in period

= 1.53 times (Higher is better)

# of seats is an assumed number

Profitability Ratios

- Profit Margin

Net Income

Total Revenue

= 146,700 / 1,352,000

= 10.85% (higher is better)

Profitability Ratios

- Operating Efficiency Ratio

Income After Undistributed Op Expense

Total Revenue

= 415,500 / 1,352,000

= 30.73% (higher is better)

Profitability Ratios

- Return on Assets

Net Income

Average Total Assets

= 146,700 / { (0.5) ( 1,065,000 + 1,176,300 ) }

Beg Ttl Asset End Ttl Asset

= 13.09% (higher is better)

Profitability Ratios

- Gross Return on Assets

EBIT

Average Total Assets

= 304,500 / { (0.5) ( 1,065,000 + 1,176,300 ) }

Beg Ttl Asset End Ttl Asset

= 27.17% (higher is better)

Profitability Ratios

- Return on Owner’s Equity

Net Income

Average Owner’s Equity

= 146,700 / { (0.5) ( 420,000 + 517,300 ) }

Beg OE End OE

= 31.30% (Higher is better)

Profitability Ratios

- Return on Common Stockholder Equity

Net Income - Preferred Dividends

Average Common Stockholder Equity

= ( 146,700 - 0) / { (0.5) ( 420,000 + 517,300 ) }

Net Inc Div Beg OE End OE

= 31.30% (Higher is better)

Profitability Ratios

- Earnings Per Share

Net Income

Average # Common Stock Shares Outstanding

= 146,700 / { (0.5) ( 55,000 + 55,000 ) }

Beg Shares End Shares

= $2.67 per share (higher is better)

Profitability Ratios

- Price Earnings Ratio

Market Price Per Share

Earnings Per Share

= $25.00 / $2.67

= 9.36 (lower is better to a certain degree)

Operating Ratios

- Mix of Sales

Divide each revenue source by total revenues

Rooms 810,000 59.9%

Food 300,000 22.2

Beverage 145,000 10.7

Phone 42,000 3.1

Other 55,0004.1

Total 1,352,000 100.0%

Operating Ratios

- Average Room Rate

Room Revenue

Number of Rooms Sold

= 810,000 / 21,000

= $38.57 (higher is better)

Operating Ratios

- Revenue Per Available Room

Room Revenue

# Available Rooms

= 810,000 / ( 80 * 365 )

# Rooms * # days in period

= $27.74 (higher is better)

Operating Ratios

- Revenue Per Available Customer

Total Revenues From Customers

Total # of PAID Guests

= 1,352,000 / 24,000

= $56.33 (higher is better)

Operating Ratios

- Average Food Service Check

Total Food Revenue

Number of Food Covers

= 300,000 / 56,000

= $5.36 (higher is better)

Operating Ratios

- Revenue Per Seat Available

Total Food Revenue

# Available Seats

= 300,000 / ( 100 * 365)

# seats * days in period

= $8.22 (Higher is better)

Operating Ratios

- Food Cost Percentage

Cost of Food Sold

Total Food Revenue

= 120,000 / 300,000

= 40.00% ( Lower is better)

Operating Ratios

- Beverage Cost Percentage

Cost of Beverages Sold

Total Beverage Revenue

= 28,000 / 145,000

= 19.31% (Lower is better)

Operating Ratios

- Labor Cost Percentage

Total Labor Cost by Department

Department Revenue

= 145,000 / 810,000

= 17.90% For Rooms Rented (Lower 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

- Percent Revenue Change From Budget
- Food Cost Percentage
- Beverage Cost Percentage
- Room Sales to Total Sales
- Operating Efficiency Ratio

Download Presentation

Connecting to Server..