HFT 2403 Financial Statement Analysis & Presentation
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Transcript of HFT 2403 Financial Statement Analysis & Presentation
HFT 2403HFT 2403Financial Statement Analysis & Financial Statement Analysis &
PresentationPresentation Chapter 18Chapter 18
Financial Statement Financial Statement AnalysisAnalysis
- Answers Users Questions- Answers Users Questions Is There Sufficient Cash to Meet Is There Sufficient Cash to Meet
the Establishment’s Obligations the Establishment’s Obligations for a Given Time Period?for a Given Time Period?
Are the Profits of the Hospitality Are the Profits of the Hospitality Operation Reasonable?Operation Reasonable?
Financial Statement Financial Statement AnalysisAnalysis
- Answers Users Questions - Answers Users Questions Is the Level of Debt Acceptable Is the Level of Debt Acceptable
in Comparison With the in Comparison With the Stockholder’s Investment?Stockholder’s Investment?
Is the Inventory Usage Is the Inventory Usage Adequate?Adequate?
Financial Statement Financial Statement AnalysisAnalysis
- Answers Users Questions - Answers Users Questions Is the hospitality operation able Is the hospitality operation able
to service its debt?to service its debt? Are Accounts Receivable Are Accounts Receivable
Reasonable in Light of Credit Reasonable in Light of Credit Sales?Sales?
Analysis of Financial Analysis of Financial StatementsStatements
Horizontal AnalysisHorizontal Analysis Compute Absolute ChangeCompute Absolute Change Compute Relative ChangeCompute Relative Change
Absolute Change / Base AmountAbsolute Change / Base Amount Vertical AnalysisVertical Analysis
Also called common size analysisAlso called common size analysis Total revenue = 100%Total revenue = 100% Everything is a percentage of total Everything is a percentage of total
revenuerevenue
Ratio AnalysisRatio Analysis Communicate InformationCommunicate Information Unlimited CombinationsUnlimited Combinations Choose the Most Useful Choose the Most Useful
Combination Combination
Ratio AnalysisRatio Analysis Compare Against SomethingCompare Against Something
Prior PeriodPrior PeriodIndustry StandardIndustry StandardBudgetBudget
Ratio AnalysisRatio Analysis Express in a Number of WaysExpress in a Number of Ways
PercentagePercentagePer Unit BasisPer Unit BasisTurnoverTurnoverCoverageCoverage
Limitations ofLimitations ofRatio AnalysisRatio Analysis
Do Not Resolve ProblemsDo Not Resolve Problems Only Indicate That There May Only Indicate That There May
Be a ProblemBe a Problem Comparisons Must Be From Comparisons Must Be From
Related NumbersRelated Numbers Most Useful When Compared Most Useful When Compared
to a Standardto a Standard
Limitations ofLimitations ofRatio AnalysisRatio Analysis
When Comparing to Other When Comparing to Other Businesses - Must Be Businesses - Must Be ComparableComparable
Uses Historical Data - May Uses Historical Data - May Not Tell the Whole StoryNot Tell the Whole Story
Does Not Address LeasesDoes Not Address Leases
Classes of RatiosClasses of Ratios Liquidity- Ability to Meet Short Liquidity- Ability to Meet Short
Term ObligationsTerm Obligations Solvency - Extent to Which the Solvency - Extent to Which the
Enterprise Has Been Financed-Enterprise Has Been Financed-meet long term debtmeet long term debt
Activity (Turnover)- Ability to Activity (Turnover)- Ability to Use the Property’s AssetsUse the Property’s Assets
Classes of RatiosClasses of Ratios Profitability - Measurement of Profitability - Measurement of
Management’s Overall Management’s Overall EffectivenessEffectiveness
Operating - Analysis of Operating - Analysis of Hospitality Establishment Hospitality Establishment OperationsOperations
Key TermsKey Terms
AverageAveragebeginning balancebeginning balance+ ending balance+ ending balance= total available= total available
Average = Total Available / 2Average = Total Available / 2
Key TermsKey Terms
Covers = Meals ServedCovers = Meals Served Revenues = SalesRevenues = Sales Lease Expense = RentLease Expense = Rent Working CapitalWorking Capital
Current AssetsCurrent Assets- Current Liabilities- Current Liabilities
Liquidity RatiosLiquidity Ratios Current RatioCurrent Ratio
Current Assets / Current Current Assets / Current LiabilitiesLiabilities
ie:ie: $338,000 / 214,000$338,000 / 214,000
== 1.58 Times 1.58 Times
The closer to 2:1, the betterThe closer to 2:1, the better
Liquidity RatiosLiquidity Ratios Acid Test (Quick Ratio)Acid Test (Quick Ratio)
= (Cash ($) + Marketable Securities += (Cash ($) + Marketable Securities + Notes Receivable + Accounts Notes Receivable + Accounts Receivable) /Receivable) /
Current LiabilitiesCurrent Liabilities
ie: $309,000 / 214,000 = 1.44 timesie: $309,000 / 214,000 = 1.44 times s/b > 1, the higher the betters/b > 1, the higher the better
Liquidity RatiosLiquidity Ratios Accounts Receivable TurnoverAccounts Receivable Turnover
Total Revenue Current Period /Total Revenue Current Period / Average Accounts ReceivableAverage Accounts Receivable
ie: $1,352,000 / (.5) ( 90,000 + 140,000)ie: $1,352,000 / (.5) ( 90,000 + 140,000) AR Yr 1 AR YR 2AR Yr 1 AR YR 2
= 11.76 Times= 11.76 Times Higher is betterHigher is better
Liquidity RatiosLiquidity Ratios Average Collection PeriodAverage Collection Period
How fast the receivables are collectedHow fast the receivables are collected
= 365 days / AR Turnover Times= 365 days / AR Turnover Times
ie: 365 / 11.76ie: 365 / 11.76
= 31 days (lower is better)= 31 days (lower is better)
Solvency RatiosSolvency Ratios SolvencySolvency
Total Assets / Total LiabilitiesTotal Assets / Total Liabilities
ie: 500,000 / 250,000ie: 500,000 / 250,000
= 2 times= 2 timesHigher is BetterHigher is Better
Solvency RatiosSolvency Ratios Debt - Equity RatioDebt - Equity Ratio
Determines funding mixDetermines funding mix Total Liabilities / Total Owners EquityTotal Liabilities / Total Owners Equity
ie: 659,000 / 517,300ie: 659,000 / 517,300= 1.27 times= 1.27 times
Lower is betterLower is better
Activity ( Turnover) RatiosActivity ( Turnover) Ratios Inventory TurnoverInventory Turnover
Cost of Food Used / Average InventoryCost of Food Used / Average Inventory
ie: 122,000 / (.5) ( 11,000 + 9,000)ie: 122,000 / (.5) ( 11,000 + 9,000) Beg InvBeg Inv End Inv End Inv
= 12.20 times ( Higher is better)= 12.20 times ( Higher is better) Can be used for any inventory (food, beverage, Can be used for any inventory (food, beverage,
etc)etc)
Activity RatiosActivity Ratios Inventory Turnover in Number of DaysInventory Turnover in Number of Days
= 365 days / Inventory Turnover Times= 365 days / Inventory Turnover Times
ie: 365 / 12.20 = 29.91 daysie: 365 / 12.20 = 29.91 days
Lower is betterLower is better
Activity RatiosActivity Ratios Paid Occupancy PercentagePaid Occupancy Percentage
Paid Rooms Occ / Total Available Paid Rooms Occ / Total Available RoomsRooms
ie: 200 / 400 = 50%ie: 200 / 400 = 50%Higher is betterHigher is better
Activity RatiosActivity Ratios Seat TurnoverSeat Turnover
Total Food Covers / # of Available SeatsTotal Food Covers / # of Available Seats
56,000 / (100 * 365)56,000 / (100 * 365)# covers# covers # of seats Days In Year# of seats Days In Year
1.53 times Higher is better1.53 times Higher is better
Profitability RatiosProfitability Ratios Profit MarginProfit Margin
Net Income / Total RevenueNet Income / Total Revenue
ie: 146,700 / 1,352,000ie: 146,700 / 1,352,000
10.85% Higher is Better10.85% Higher is Better
Profitability RatiosProfitability Ratios Operating Efficiency RatioOperating Efficiency Ratio
Income after Undistributed Oper. Income after Undistributed Oper. Expenses /Expenses /
Total RevenueTotal Revenue
ie: 415,500 / 1,352,000ie: 415,500 / 1,352,000
= 30.73% Higher is Better= 30.73% Higher is Better
Operating RatiosOperating Ratios Mix of SalesMix of Sales
Divide each revenue source by total revenuesDivide each revenue source by total revenuesRoomsRooms 810,000 810,000 59.9%59.9%FoodFood 300,000 300,000 22.222.2BeverageBeverage 145,000 145,000 10.710.7PhonePhone 42,000 42,000 3.1 3.1OtherOther 55,000 55,000 4.14.1TotalTotal 1,352,0001,352,000 100.0%100.0%
Operating RatiosOperating Ratios Average Room RateAverage Room Rate
Total Room Revenue / Total Room Revenue / Number of Rooms SoldNumber of Rooms Sold
ie: $810,000 / 21,000ie: $810,000 / 21,000Higher is betterHigher is better
Operating RatiosOperating Ratios Revenue per Available Room (REVPAR)Revenue per Available Room (REVPAR)
Total Room Revenue / Total Room Revenue / Total Available RoomsTotal Available Rooms
ie: $810,000 / ( 80 * 365)ie: $810,000 / ( 80 * 365) # of rooms days# of rooms days =$27.74 Higher is better=$27.74 Higher is better
Operating RatiosOperating Ratios Average Food Service CheckAverage Food Service Check
Total Food Revenue / # of Food CoversTotal Food Revenue / # of Food Covers
ie:ie: $300,000 / 56,000$300,000 / 56,000 = $5.36 Higher is better= $5.36 Higher is better
Operating RatiosOperating Ratios Cost of Goods Sold PercentageCost of Goods Sold Percentage
Use for food, beverage, etc.Use for food, beverage, etc.
Cost of Goods Sold $ / Cost of Goods Sold $ / Total Revenue for that categoryTotal Revenue for that category
ie: Cost of Food Sold %ie: Cost of Food Sold % Cost of Food Sold / Total Food RevenueCost of Food Sold / Total Food Revenue $30,000 / $100,000$30,000 / $100,000 = 30% (Lower is better)= 30% (Lower is better)
Operating RatiosOperating Ratios Labor Cost PercentageLabor Cost Percentage
Total Labor Cost by Department / Total Labor Cost by Department / Revenue for that DepartmentRevenue for that Department
ie: Rooms Department Laborie: Rooms Department Labor $ 145,000 / $810,000$ 145,000 / $810,000
Rooms Labor Room RevenueRooms Labor Room Revenue = 17.90% (Lower is better)= 17.90% (Lower is better)
Operating RatiosOperating Ratios Flow Through (Retention of Profit)Flow Through (Retention of Profit)
Change in net profit / Change in RevenueChange in net profit / Change in Revenue ie: ie: ($200,000 – 100,000)/($800,000- 600,000)($200,000 – 100,000)/($800,000- 600,000) Yr 2 NP Yr 1 NP Yr 2 Rev Yr 1 RevYr 2 NP Yr 1 NP Yr 2 Rev Yr 1 Rev
= 50%= 50%Higher is betterHigher is better
Top Ten Ratios - General Top Ten Ratios - General Managers PerspectiveManagers Perspective
Profit MarginProfit Margin Occupancy Percentage - Month Occupancy Percentage - Month
to Dateto Date Labor Cost PercentageLabor Cost Percentage Occupancy Percentage - DailyOccupancy Percentage - Daily Average Daily RateAverage Daily Rate
Top Ten Ratios - General Top Ten Ratios - General Managers PerspectiveManagers Perspective
Food Cost PercentageFood Cost Percentage Beverage Cost PercentageBeverage Cost Percentage Room Sales to Total SalesRoom Sales to Total Sales Retention of Profit (Flow Retention of Profit (Flow
Through)Through)
HomeworkHomework Problem 10Problem 10 Problem 11; Questions 1-6 onlyProblem 11; Questions 1-6 only