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Financial Analysis: Interpreting Restaurant Operating Results

Learn how to analyze and interpret the operating results of two restaurants using financial ratios like Liquidity, Solvency, Profitability, Activity, and Operating to identify areas needing improvement.

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Financial Analysis: Interpreting Restaurant Operating Results

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  1. FINANCIAL STATEMENT ANALYSIS – part 2

  2. Ratios

  3. Uses and Limitations of Financial Ratios

  4. Ratio Categories • Liquidity Ratio • assess the ability of a company to meet its short term liabilities • Solvency Ratio • Measure the ability of a company to meet its long-term liabilities • Profitability Ratio • Assess management’s effectiveness in achieving profitability • Activity Ratio • Reflects management’s ability in using the assets • Operating Ratio • To analyze the operations of a company

  5. Liquidity Ratio

  6. Solvency Ratio

  7. Profitability Ratio

  8. Activity Ratio

  9. Operating Ratio

  10. Operating Ratio

  11. A company owns two restaurants with 100 seats in the same town. Operating results for the first three months of the current year for restaurant A and B are as follows: The owners of the two restaurants are concerned that Restaurant B reports higher sales revenue yet produces a lower operating income than Restaurant Analyze this information by using appropriate tool and comment on the results (what appears to require the attention of the owners?)

  12. ANSWER: The difference in Operating Income seems to be the supplies expense. B has 4.51% higher than A. Since both restaurants A&B are in the same town and have the same size , the difference in supplies expense should be evaluated further. The variance might be due to the difference in menu, service style, or supplies.

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