hft3431_chapter5.ppt
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HFT 3431
Chapter 5
Ratio Analysis
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
Ratio Analysis
Compare
Against Something
Prior Period
Industry Standard
Budget
Ratio Analysis
Express
in a Number of Ways
Percentage
Per Unit Basis
Turnover
Coverage
Limitations of
Ratio 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 of
Ratio 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
EBIT
• Earnings Before Interest & Taxes
= net income
+ interest expense
+ income tax expense
Key Terms
Average
beginning balance
+ ending balance
= total available
Average
= Total Available / 2
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
= 88.23%
(higher is better)
CL Yr 2
Liquidity Ratios
Accounts
Receivable Turnover
Total Revenue
Ave Accounts Receivable
= 1,352,000 /{ (.5)(90,000 + 140,000) }
AR Yr 1
= 11.76 Times
AR Yr 2
(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
= 27.48%
Yr 1 Liab
(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
= 12.20 times
End Inv
(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
= 4.67 times
End Inv
(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
= 1.21 times (higher is better)
End Ttl Asset
Activity Ratios
(Turnover Ratios)
Paid
Occupancy Percentage
Paid Rooms Occupied
Available Rooms
= 21,000 / ( 80
*
# Rooms *
365 )
# days in period
= 71.92% (higher is better)
Activity Ratios
(Turnover Ratios)
Complimentary
Occupancy
Complimentary Rooms
Rooms Available
= 160 / ( 80
*
# Rooms *
365 )
# 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
Yr 2 Covers
# seats
*
365)
*
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
= 13.09% (higher is better)
End Ttl Asset
Profitability Ratios
Gross
Return on Assets
EBIT
Average Total Assets
= 304,500 / { (0.5) ( 1,065,000 + 1,176,300 ) }
Beg Ttl Asset
= 27.17% (higher is better)
End Ttl Asset
Profitability Ratios
Return
on Owner’s Equity
Net Income
Average Owner’s Equity
= 146,700 / { (0.5) ( 420,000 + 517,300 ) }
Beg OE
= 31.30% (Higher is better)
End OE
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
= 31.30% (Higher is better)
End OE
Profitability Ratios
Earnings
Per Share
Net Income
Average # Common Stock Shares Outstanding
= 146,700 / { (0.5) ( 55,000
Beg Shares
+ 55,000 ) }
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
Food
Beverage
Phone
Other
Total
810,000
300,000
145,000
42,000
55,000
1,352,000
59.9%
22.2
10.7
3.1
4.1
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
*
# Rooms *
365 )
# 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
# seats *
*
365)
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)
Homework
Textbook
problem 5
Worksheet to be completed in class