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HFT 2401 Financial Statement Analysis & Presentation

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?.

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HFT 2401 Financial Statement Analysis & Presentation

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  1. HFT 2401Financial Statement Analysis & Presentation Chapter 18

  2. 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?

  3. Financial Statement Analysis- Answers Users Questions • Is the Level of Debt Acceptable in Comparison With the Stockholder’s Investment? • Is the Inventory Usage Adequate?

  4. Financial Statement Analysis- Answers Users Questions • Is the hospitality operation able to service its debt? • Are Accounts Receivable Reasonable in Light of Credit Sales?

  5. 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

  6. 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

  7. Ratio Analysis • Communicate Information • Unlimited Combinations • Choose the Most Useful Combination

  8. Ratio Analysis • Compare Against Something Prior Period Industry Standard Budget

  9. Ratio Analysis • Express in a Number of Ways Percentage Per Unit Basis Turnover Coverage

  10. 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

  11. Limitations ofRatio Analysis • When Comparing to Other Businesses - Must Be Comparable • Uses Historical Data - May Not Tell the Whole Story • Does Not Address Leases

  12. 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

  13. Classes of Ratios • Profitability - Measurement of Management’s Overall Effectiveness • Operating - Analysis of Hospitality Establishment Operations

  14. Key Terms • Average Calculation beginning balance + ending balance = total available • Average = Total Available / 2

  15. Key Terms • Covers = Meals Served • Revenues = Sales • Lease Expense = Rent • Working Capital Current Assets - Current Liabilities

  16. Liquidity Ratios • Current Ratio Current Assets / Current Liabilities ie: $338,000 / 214,000 = 1.58 Times The closer to 2:1, the better

  17. 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

  18. 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

  19. 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)

  20. Solvency Ratios • Solvency • Total Assets / Total Liabilities ie: 1,176,300 / 659,000 = 1.784 times Higher is Better

  21. Solvency Ratios • Debt - Equity Ratio • Determines funding mix • Total Liabilities / Total Owners Equity ie: 659,000 / 517,300 = 1.27 times Lower is better

  22. 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)

  23. Activity Ratios • Inventory Turnover in Number of Days = 365 days / Inventory Turnover Times ie: 365 / 12.20 = 29.91 days Lower is better

  24. Activity Ratios • Paid Occupancy Percentage Paid Rooms Occ / Total Available Rooms ie: 21,000 / 29,200 = 71.92% Higher is better

  25. 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

  26. Profitability Ratios • Profit Margin Net Income / Total Revenue ie: 146,700 / 1,352,000 10.85% Higher is Better

  27. Profitability Ratios • Operating Efficiency Ratio Income after Undistributed Oper. Expenses / Total Revenue ie: 415,500 / 1,352,000 = 30.73% Higher is Better

  28. 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%

  29. Operating Ratios • Average Room Rate Total Room Revenue / Number of Rooms Sold ie: $810,000 / 21,000 Higher is better

  30. 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

  31. Operating Ratios • Average Food Service Check Total Food Revenue / # of Food Covers ie: $300,000 / 56,000 = $5.36 Higher is better

  32. 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)

  33. 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)

  34. 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

  35. Top Ten Ratios - General Managers Perspective • Profit Margin • Occupancy Percentage - Month to Date • Labor Cost Percentage • Occupancy Percentage - Daily • Average Daily Rate

  36. Top Ten Ratios - General Managers Perspective • Food Cost Percentage • Beverage Cost Percentage • Room Sales to Total Sales • Retention of Profit (Flow Through)

  37. Homework • Problem 10 • Problem 11; Questions 1-6 only

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