Chapter 5 ACCT
5 types of ratios
Liquidity Solvency Activity Profitability Operating
Activity
Management ability to use the properties assets
Acid-test ratio
Ratio of total cash and near-cash current assets to total current liabilities.
Current Ratio
Ratio of total current assets to total current liabilities expressed as a coverage of so many times; calculated by dividing current assets by current liabilities.
RevPAR
Revenue per available room. A combination of paid occupancy percentage and average daily rate. Room revenues divided by available revenues or, alternatively, paid occupancy percentage times average daily rate.
Financial leverage
The use of debt in place of equity dollars to finance operations and increase the return on the equity dollars already invested.
financial leverage
The use of debt in place of equity to raise financial capital
ROE (Return on Owner Eq)
compares the profits of the company to owners investments
Owners and prefer ___ accounts receivable turnover
high- indicates that accounts receivable e are being managed well
Owners prefer ____ debt/ equity
high- maximize their return on equity
Owners, creditors and manager prefer ____ asset turnover
high- means the effective use of assets by managment
Suppliers prefer ___ accounts receivable turnover
high- means they there will be more cash readily available to pay them
Average collection period: Owners/ creditors prefer ___ amount of days managment prefer ___ amount of days
low high
Creditors prefer ____ debt/ equity
low- low in firms they lend to
stockholders/ owners prefer a _____ (low/high) current ratio/ acid test
low- primarily concerned with profits
Profitability
managements overall effectiveness as measure by returns on sales and investments
Solvency
measure the extent to which the enterprise has been financed by debt and is able to meet its LONG-TERM obligations
managers prefer a _____ current ratio/ acid test
medium
managers prefer ____ debt
middle position- keep firm safe/ mazimize its return on equity
debit- equity ratio
most common solvency ratio compares hospitality establishment debt to net worth
Average collection period should not exceed
n/30 by more than 7-10 days
EBIT also known as ______
net operating income
Ratios can be expressed as
percentages, per unit basis, turnover, coverage
Ratios are best compared against ______
planned ratio goals
accounts receivable turnover measures...
the speed of the conversion to cash (AR is covered to cash)
equity
the value of the shares issued by a company.
leverage
use of debt to finance the assets
Firm managers use ratio analysis to..
useful in motoring their operational performance and in evaluating the effectiveness of their efforts in meeting their goals
Acid test ratio measures liquidity by considering only _____
"quick assets"
Many hospitality operations tend to have a quick ratio of ____ or less
1
Operating efficiency ratio
A measure of management's ability to generate sales and control expense; calculated by dividing gross operating profit by total revenue. Also called gross operation profit ratio.
Return on Assets (ROA)
A ratio providing a general indicator of the profitability of a hospitality operation by comparing net income to total investment; calculated by dividing net income by average total assets.
Return on owners equity (ROE)
A ratio providing a general indicator of the profitability of an operation by comparing net income to the owners' investment; calculated by dividing net income by average owners' equity
Inventory turnover
A ratio showing how quickly a hospitality operation's inventory is moving from storage to productive use; calculated by dividing the cost of food or beverages used by the average food or beverage inventory.
Debt-equity ratio
Compares the debt of a hospitality operation to its net worth and indicates the operation's ability to withstand adversity and meet its long-term obligations; calculated by dividing total liabilities by total owners' equity.
Paid Occupancy
a measure of management's ability to efficiently use available assets. Also called gross operating profit ratio.
Liquidity
ability of a hospitality establishment to meet its SHORT-TERM obligations
Higher solvency ratios suggest..
an operation has the ability to survive financial storm
Operating
assist in the analysis of hospitality establishment operations
working capital
calculated as the current assets minus the current liabilities.
EBIT
earnings before interest and taxes
Investors use ratio analysis to..
evaluate firms performance as they consider their investment alternatives
Creditors use ratio analysis to..
evaluate the creditworthiness of a clients businesses and to analyze the risk associated with their loan
asset turnover
examines the use of total assets in relation to total rev
solvent
having assets in excess of liabilities; able to pay one's debts higher the ratio- the more solvent the firm is
Multiple Occupancy
he number of rooms occupied by more than one guest divided by the number of rooms occupied by guests. Sometimes called double occupancy.
Owners, creditors and manager prefer ____ inventory turnover
high
Creditors prefer a _____ (low/high) current ratio/ acid test
high- Its assurance they will receive payments