Matakuliah
Tahun
: V0282 - Manajemen Akuntansi Hotel
: 2009 - 2010
Ratio Analysis
Chapter 6
Chapter Outline
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•
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•
Purpose and Value of Ratios
Types of Ratios
Comparative Analysis of Ratios
Ratio Analysis Limitations
Learning Outcomes
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State the purpose and value of calculating and using
ratios to analyze the health of a hospitality business.
Distinguish between liquidity, solvency, activity,
profitability, investor, and hospitality-specific ratios.
Compute and analyze the most common ratios used in
the hospitality industry.
Percentages
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•
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A ratio is created when you divide one number by
another.
A special relationship (a percentage) results when the
numerator (top number) used in your division is a part of
the denominator (bottom number).
To convert from common form to decimal form, move
the decimal two places to the left, that is, 50.00% =
0.50.
To convert from decimal form to common form, move
the decimal two places to the right, that is, 0.50 =
50.00%.
Value of Ratios to Stakeholders
•
All stakeholders who are affected by a business’s
profitability will care greatly about the effective operation
of a hospitality business. These stakeholders may
include:
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Owners
Investors
Lenders
Creditors
Managers
Value of Ratios to Stakeholders
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Each of these stakeholders may have different points of
view of the relative value of each of the ratios calculated
for a hospitality business.
Owners and investors are primarily interested in their
return on investment (ROI), while lenders and creditors
are mostly concerned with their debt being repaid.
At times these differing goals of stakeholders can be
especially troublesome to managers who have to
please their constituencies.
One of the main reasons for this conflict lies within the
concept of financial leverage.
Financial Leverage
•
Financial leverage is most easily defined as the use of
debt to be reinvested to generate a higher return on
investment (ROI) than the cost of debt (interest).
go figure!
To illustrate, assume a hospitality manager:
Borrows $10,000 to be repaid at 10% interest
Reinvests the same $10,000 in an investment that gains 12% ROI
And thus, creates a surplus of 2% gain
In this case, borrowing $10,000 and reinvesting the same $10,000 at a higher
rate of return earns a net gain of 2% after the debt is repaid. The manager, in
this case, has leveraged debt to secure a gain.
Financial Leverage
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•
Because of financial leverage, owners and investors
generally like to see debt on a company’s balance
sheet because if it is reinvested well, it will provide more
of a return on the money they have invested.
Conversely, lenders and creditors generally do not like
to see too much debt on a company’s balance sheet
because the more debt a company has, the less likely it
will be able to generate enough money to pay off its
debt.
Ratio Comparisons
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•
Ratios are most useful when they compare a company’s
actual performance to a previous time period,
competitor company results, industry averages, or
budgeted (planned for) results.
When a ratio is compared to a standard or goal, the
resulting differences (if differences exist) can tell you
much about the financial performance (health) of the
company you are evaluating.
Types of Ratios
•
Managerial accountants working in the hospitality industry
use:
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–
–
–
–
–
•
Liquidity Ratios
Solvency Ratios
Activity Ratios
Profitability Ratios
Investor Ratios
Hospitality Specific Ratios
Most numbers for these ratios can be found on a company’s
income statement, balance sheet, and statement of cash flows.
Figure 6.1 Condensed Income Statement
Blue Lagoon Water Park Resort
Condensed Income Statement
For the Period: January 1 through December 31, 2010
Income Statement
Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Gross Operating Profit
Rent, Property Taxes, and Insurance
Depreciation and Amortization
Net Operating Income
Interest
Income Before Income Taxes
Income Taxes
Net Income
25,201,800
2,854,080
8,877,600
5,934,240
7,535,880
1,760,400
1,260,000
4,515,480
1,272,000
3,243,480
1,297,390
1,946,090
Figure 6.2 Balance Sheet
Blue Lagoon Water Park Resort
Balance Sheet
December 31, 2010
Assets
Current Assets
Cash
Marketable Securities
Net Receivables
Inventories
Total Current Assets
Investments
Property and Equipment
Land
Building
Furnishings and Equipment
Less Accumulated Depreciation
Net Property and Equipment
Other Assets
Total Assets
2,314,750
3,309,600
1,053,950
1,497,200
8,175,500
5,023,500
7,712,550
22,290,500
7,289,000
4,668,900
32,623,150
669,800
46,491,950
Liabilities and Owners’ Equity
Current Liabilities
Accounts Payable
Notes Payable
Other Current Liabilities
Total Current Liabilities
1,438,100
1,319,900
1,264,600
4,022,600
Long-Term Liabilities
Long-Term Debt
Total Liabilities
Owners’ Equity
Common Stock
Paid in Capital
Retained Earnings
Total Owners’ Equity
Total Liabilities and Owners’ Equity
14,577,400
18,600,000
3,000,000
18,775,100
6,116,850
27,891,950
46,491,950
Figure 6.3 Statement of Cash Flows
Blue Lagoon Water Park Resort
Statement of Cash Flows
December 31, 2010
Net Cash Flow from Operating Activities
Net Income
Adjustments to reconcile net income to net
cash flow from operating activities
Depreciation
Decrease in Net Receivables
Increase in Inventories
Decrease in Accounts Payable
Decrease in Other Current Liabilities
Net cash flow from operating activities
Net Cash Flow from Investing Activities
Decrease in Marketable Securities
Increase in Investments
Increase in Furnishings and Equipment
Increase in Other Assets
Net cash flow from investing activities
Net Cash Flow from Financing Activities
Decrease in Notes Payable
Increase in Long-Term Debt
Increase in Capital Stock
(Common Stock + Paid in Capital)
Dividends Paid
Net cash flow from financing activities
1,946,090
1,260,000
601,350
(600,000)
(600,000)
(550,000)
800,000
(800,000)
(2,225,345)
(81,000)
(2,306,345)
(784,355)
755,650
1,000,000
(778,440)
192,855
Net decrease in cash during 2010
Cash at the beginning of 2010
Cash at the end of 2010
Supplementary Disclosure of Cash Flow
Information:
Cash paid during the year for:
Interest
Income Taxes
111,350
2,057,440
(56,050)
2,370,800
2,314,750
1,272,000
1,297,390
Figure 6.4 Statement of Retained Earnings and Investor Information
Blue Lagoon Water Park Resort
December 31, 2010
Statement of Retained Earnings
Retained Earnings, December 31, 2009
Net Income for 2010
Subtotal
Cash Dividends Paid in 2010
Retained Earnings, December 31, 2010
4,949,200
1,946,090
6,895,290
778,440
6,116,850
Investor Information
Dividends paid to common shareholders
Common shares outstanding
Market price per share
Earnings per share
Dividends per share
$778,440
1,000,000
$25.00
$1.95
$0.78
Liquidity Ratios
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Liquidity is defined as the ease at which current assets
can be converted to cash in a short period of time (less
than 12 months).
Liquidity ratios have been developed to assess just how
readily current assets could be converted to cash, as
well as how much current liabilities those current assets
could pay.
Liquidity Ratios
•
Three widely used liquidity ratios and working capital are:
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–
–
–
Current Ratio
Quick (Acid-Test) Ratio
Operating Cash Flows to Current Liabilities Ratio
Working Capital
Liquidity Ratios
Ratio Name
Definition
Source of Data
Formula
Current Ratio
Current ratio shows
ability to cover its
liabilities with its
assets.
Numerator: Balance Sheet
Current Assets
Current Liabilities
Quick ratio shows
ability to cover its
liabilities with its
current assets.
Numerator: Balance Sheet
Quick
(Acid-Test) Ratio
Denominator: Balance Sheet
Cash + marketable securities + accounts receivable
Current liabilities
Denominator: Balance Sheet
or
Current assets – (inventories + prepaid expenses)
Current liabilities
Operating Cash
Current
Working Capital
Operating cash
current liabilities
the firm’s ability to
current liabilities
operating cash flows.
Numerator: Statement of cash flows
Working capital is
difference between
assets and current
Balance Sheet
Operating cash flows
Current liabilities
Denominator: Balance sheet
Current assets – Current liabilities
Solvency Ratios
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Solvency ratios help managers evaluate a company’s
ability to pay long term debt.
Solvency ratios are important because they provide
lenders and owners information about a business’s
ability to withstand operating losses incurred by the
business. These ratios are:
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–
–
–
–
Solvency Ratio
Debt to Equity Ratio
Debt to Assets Ratio
Operating Cash Flows to Total Liabilities Ratio
Times Interest Earned Ratio
Solvency Ratios
Ratio Name
Definition
Source of Data
Formula
Solvency Ratio
Solvency ratio shows the firms
cover its total liabilities with its
Numerator: Balance Sheet
Total assets
Total liabilities
Denominator: Balance Sheet
Debt to Equity
Debt to equity ratio compares
to owners’ equity.
Numerator: Balance Sheet
Total liabilities
Total owners’ equity
Denominator: Balance Sheet
Debt to Assets
Debt to assets ratio shows the
assets financed through debt.
Numerator: Balance Sheet
Total liabilities
Total assets
Denominator: Balance Sheet
Operating Cash
Total Liabilities
Times Interest
Ratio
Operating cash flows to total
shows the firm’s ability to
liabilities with its operating
Numerator: Statement of cash
Times interest earned shows
to cover interest expenses with
before interest and taxes.
Numerator: Income statement
Operating cash flows
Total liabilities
Denominator: Balance sheet
Denominator: Income statement
Earnings Before Interest and Taxes (EBIT)
Interest Expense
Activity Ratios
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The purpose of computing activity ratios is to assess
management’s ability to effectively utilize the company’s
assets.
Activity ratios measure the “activity” of a company’s
selected assets by creating ratios that measure the
number of times these assets turn over (are replaced).
This assesses management’s efficiency in handling
inventories and long-term assets.
Activity Ratios
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These ratios are also known as turnover ratios or
efficiency ratios.
In this section you will learn about the following activity
ratios:
– Inventory Turnover
– Property and Equipment (Fixed Asset) Turnover
– Total Asset Turnover
Inventory Turnover
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Inventory turnover refers to the number of times the
total value of inventory has been purchased and
replaced in an accounting period.
In restaurants, we calculate food and beverage
inventory turnover ratios.
See Go Figure! for calculations (after Figure 6.5)
The obvious question is, “Are the food and beverage
turnover ratios good or bad?”
The answer to this question is relative to the target
(desired) turnover ratios.
Figure 6.5 Condensed Food and Beverage Department Schedule
Blue Lagoon Water Park Resort
Condensed Food and Beverage Department Schedule
For the Period: January 1 through December 31, 2010
Sales
Cost of sales:
Beginning inventory
+ Purchases
- Ending inventory
= Cost of goods consumed**
- Employee meals
= Cost of goods sold**
Gross profit
Operating expenses:
Payroll and related expenses
Other expenses
Total expenses
Department income
Food
7,200,000
Beverage
2,880,000
120,000
2,160,400
90,000
2,190,400
52,000
2,138,400
5,061,600
60,000
436,440
45,000
451,440
0
451,440
2,428,560
2,188,800
532,800
2,721,600
2,340,000
534,960
201,600
736,560
1,692,000
**The discussion of cost of goods sold and cost of goods consumed will be
explained later in this chapter in the Hospitality-Specific Ratios section.
go figure!
For example, assume the Blue Lagoon food and beverage manager desires to
turn over food inventory 26 times per year. This means that food inventory will
be replaced every two weeks (52 weeks per year/26 times = 2 weeks). The
following shows situations in which actual food inventory turnover is above and
below the Blue Lagoon target of 26 times.
Blue Lagoon food inventory turnover:
Actual turnover (low)
Target turnover
Actual turnover (high)
20.9 times
26.0 times
32.0 times
A low turnover (20.9 times) might have occurred because sales were less than
expected, thus causing food to move slower out of inventory (bad). It could also
mean that the food and beverage manager decided to buy more inventory each
time (thus, making purchases fewer times) because of discount prices due to
larger (bulk) purchases (good).
A high turnover (32.0 times) might have occurred because sales were higher
than expected, thus causing food to move faster out of inventory (good). It could
also mean that significant wastage, pilferage, and spoilage might have occurred
causing food to move out of inventory faster, but not due to higher sales (bad).
Activity Ratios
Ratio Name
Definition
Source of Data
Formula
Food Inventory
Food inventory turnover shows the
that food inventory is replaced (turned)
Numerator: Income statement
Cost of food consumed
Average food inventory*
Denominator: Balance sheet
*(Beginning food inventory
+ Ending food inventory)/2
Beverage Inventory
Beverage inventory turnover shows
times) that beverage inventory is
during a year
Numerator: Income statement
Cost of beverage consumed
Average beverage inventory**
Denominator: Balance sheet
**(Beginning beverage inventory
beverage inventory)/2
Property and Equipment
(Fixed Asset) Turnover
Total Asset Turnover
Property and equipment turnover ratio
management’s ability to effectively
and equipment to generate revenues.
Numerator: Income statement
Total asset turnover shows
effectively use total assets to generate
Numerator: Income statement
Total Revenue
Net Property and Equipment
Denominator: Balance sheet
Denominator: Balance sheet
Total Revenue
Total Assets
Profitability Ratios
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It is the job of management to generate profits for the
company’s owners, and profitability ratios measure
how well management has accomplished this task.
There are a variety of profitability ratios used by
managerial accountants:
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–
–
Profit Margin
Gross Operating Profit Margin (Operating Efficiency)
Return on Assets
Return on Owner’s Equity
Profitability Ratios
Ratio Name
Definition
Source of Data
Formula
Profit Margin
Profit margin shows management’s
sales, control expenses, and provide a
Numerator: Income statement
Net income
Total revenue
Denominator: Income statement
Gross Operating Profit
(Operating Efficiency
Return on Assets Ratio
Gross operating profit margin shows
ability to generate sales, control
a gross operating profit.
Numerator: Income statement
Return on assets shows the firm’s
assets to generate net income.
Numerator: Income statement
Gross operating profit
Total revenue
Denominator: Income statement
Net income
Total assets
Denominator: Balance sheet
Return on Equity Ratio
Return on equity shows the firm’s
equity to generate net income.
Numerator: Income statement
Denominator: Balance sheet
Net income
Total owners’ equity
Investor Ratios
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Investor ratios assess the performance of earnings and
stocks of a company.
Investors use these ratios to choose new stocks to buy
and to monitor stocks they already own.
Investors are interested in two types of returns from
their stock investments:
– Money that can be earned from the sale of stocks at higher
prices than originally paid
– Money that can be earned through the distribution of dividends
Investor Ratios
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Investors use many different ratios to make decisions
on investments:
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–
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–
Earnings per Share
Price/Earnings Ratio
Dividend Payout Ratio
Dividend Yield Ratio
Investor Ratios
Ratio Name
Definition
Source of Data
Formula
Earnings Per Share
Earnings per share
income to common
Numerator: Income statement
Net income
Total number of common
Denominator: Statement of Retained Earnings
Information
Price/Earnings (P/E)
Dividend Payout
Dividend Yield Ratio
Price/earnings ratio
perception of the firm
market about future
growth of the company.
Numerator: Statement of Retained Earnings and
Dividend payout ratio
percentage of net
to be paid out in
Numerator: Statement of Retained Earnings and
Dividend yield shows
stockholders’ return
investment paid in
Numerator: Statement of Retained Earnings and
Market price per share
Earnings per share
Denominator: Statement of Retained Earnings
Information
Dividends per share
Earnings per share
Denominator: Statement of Retained Earnings
Information
Denominator: Statement of Retained Earnings
Information
Dividends per share
Market price per share
Hospitality Specific Ratios
•
•
The numbers used to create these ratios are often
found on daily, weekly, monthly or yearly operating
reports that managers design to fit their operational
needs.
Ratios in this section are calculated for:
– Hotels
– Restaurants
Hotel Ratios
•
The hotel-specific ratios in this section are:
–
–
–
–
–
Occupancy Percentage
Average Daily Rate (ADR)
Revenue Per Available Room (RevPAR)
Revenue Per Available Customer (RevPAC)
Cost Per Occupied Room (CPOR)
Occupancy Percentage
•
Hotel managers and owners are interested in the
occupancy percentage (percentage of rooms sold in
relation to rooms available for sale) because occupancy
percentage is one measure of a hotel’s effectiveness in
selling rooms.
go figure!
Using the information provided in Chapter 1, you know that the Blue Lagoon
Water Park Resort has 240 guestrooms and suites. Assuming all rooms are
available for sale and the resort operates 365 days in a year, the Blue Lagoon
would have
240 rooms X 365 days = 87,600 rooms available for sale per year
If the Blue Lagoon actually sold 70,080 rooms in 2010, then the occupancy
percentage would be calculated as follows:
Rooms Sold
Rooms Available for Sale
= Occupancy %
or
70,080
87,600
= 80%
This means that, on average, 192 out of 240 rooms (192/240 = 80%) were sold
each day in 2010.
Occupancy Percentage
•
Variations on Room Occupancy
– Out of order (OOO) rooms, meaning that repairs, renovation, or
construction is being done and the rooms are not sellable and
must be subtracted
– Complimentary occupancy (percentage of rooms provided on a
complimentary or ‘comp’ basis - free of charge),
– Average occupancy per room (average number of guests
occupying each room)
– Multiple occupancy (percentage of rooms occupied by two or
more people)
Occupancy Percentage
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•
Occupancy percentage can used to compare a hotel’s
performance to previous accounting periods, to
forecasted or budgeted results, to similar hotels, and to
published industry averages or standards.
Industry averages and other hotel statistics are readily
available through companies such as Smith Travel
Research (STR). Smith Travel Research is a compiler
and distributor of hotel industry data.
Average Daily Rate (ADR)
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•
•
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Hoteliers are interested in the average daily rate (ADR)
they achieve during an accounting period.
ADR is the average amount for which a hotel sells its
rooms.
Most hotels offer their guests the choice of several
different room types.
Each specific room type will likely sell at a different
nightly rate.
When a hotel reports its total nightly revenue, however,
its overall average daily rate is computed.
go figure!
Assuming that the total number of rooms sold at the Blue Lagoon Water Park
Resort for the year was 70,080 and total rooms revenue was $14,016,000, the
ADR is computed as follows:
Total Rooms Revenue
Total Number of Rooms Sold
= Average Daily Rate (ADR)
or
$14,016,000
70,080
= $200
This confirms the information provided in Chapter 1 that the Blue Lagoon Water
Park Resort has an ADR of $200 including room and park admission fees.
Revenue Per Available Room (RevPAR)
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•
High occupancy percentages can be achieved by
selling rooms inexpensively, and high ADRs can be
achieved at the sacrifice of significantly lowered
occupancy percentages.
Hoteliers have developed a measure of performance
that combines these two ratios to compute revenue per
available room (RevPAR).
go figure!
Using the information about the Blue Lagoon Water Park Resort provided in the
previous two sections, RevPAR is computed as follows:
Occupancy% X ADR = RevPAR
or
80% X $200 = $160
Another way to calculate RevPAR is:
Total Rooms Revenue
Rooms Available for Sale
= Revenue Per Available Room (RevPAR)
or
$14,016,000
87,600
= $160
Thus, the Blue Lagoon has a RevPAR of $160.
go figure!
For example, a regional manager who wants to compare the performance of two
hotels in her region on the basis of occupancy percentages and ADRs might
have the following information:
Hotel A has an occupancy% of 80% and an ADR of $120
Hotel B has an occupancy% of 60% and an ADR of $180
Which hotel is performing better? The only real meaningful comparison she
could make would be on the basis RevPAR:
Hotel A has a RevPAR of 80% X $120 = $ 96
Hotel B has a RevPAR of 60% X $180 = $108
Therefore, Hotel B would have a higher RevPAR and thus, better overall
performance based on occupancy % and ADR.
Revenue Per Available Customer (RevPAC)
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•
•
Hotel managers are interested in the revenue per
available customer (RevPAC) (revenues generated by
each customer) because guests spend money on many
products in a hotel in addition to rooms.
RevPAC is especially helpful when comparing two
groups of guests.
Groups that generate a high RevPAC are preferable to
groups that generate a lower RevPAC.
go figure!
The total revenue figure for the Blue Lagoon Water Park Resort provided in
Figure 6.1 was $25,201,800. Assuming all revenues reflect guest expenditures,
this amount represents all revenues generated by areas in the resort including
rooms, park admission, restaurants, lounges, snack bar, video arcade, retail
store, tanning/spa facility, and exercise facility (see Chapter 1). Also, assuming
an average of three guests (family) per room sold, the total number of guests for
the year would be 210,240 (3 guests X 70,080 rooms sold = 210,240 guests).
Using this information for the Blue Lagoon, RevPAC is computed as follows:
Total Revenue from Hotel Guests
Total Number of Guests
= RevPAC
or
$25,201,800
210,240
= $119.87
Thus, each guest (including children) on average is spending $119.87 in the
resort.
Cost Per Occupied Room (CPOR)
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•
•
Cost per occupied room (CPOR) is a ratio that
compares specific costs in relation to number of
occupied rooms.
CPOR is computed for guest amenity costs,
housekeeping costs, laundry costs, in-room
entertainment costs, security costs, and a variety of
other costs.
CPOR can be used to compare one type of cost in a
hotel to other hotels within a chain, a company, a region
of the country, or to any other standard deemed
appropriate by the hotel’s managers or owners.
go figure!
Assuming housekeeping costs (excluding payroll) for the Blue Lagoon Water
Park Resort in 2010 were $1,016,640 and number of rooms sold (occupied) were
70,080, the CPOR for housekeeping costs is as follows:
Cost Under Examination
Rooms Occupied
= Cost per Occupied Room
or
$1,016,640
70,080
= $14.51
Thus, housekeeping costs per occupied room for the Blue Lagoon were $14.51.
Hospitality Ratios (Hotels)
Ratio Name
Definition
Source of Data
Formula
Occupancy Percentage
Occupancy % shows
sold in relation to rooms
Numerator: Operating Reports
Rooms Sold
Rooms Available for Sale
Denominator: Operating Reports
Average Daily Rate (ADR)
Average daily rate shows
for which a hotel sells its
Numerator: Operating Reports
Total Rooms Revenue
Total Number of Rooms Sold
Denominator: Operating Reports
Revenue per Available
RevPAR shows revenues
available room
Numerator: Operating Reports
Denominator: Operating Reports
Occupancy % x ADR
or
Total Rooms Revenue
Rooms Available for Sale
Cost per Occupied Room
Cost per occupied room
costs in relation to number of
rooms
Numerator: Operating Reports
Denominator: Operating Reports
Cost Under Examination
Rooms Occupied
Restaurant Ratios
•
The restaurant-specific ratios in this section are:
–
–
–
–
–
–
Cost of Food Sold (Cost of Sales: Food)
Cost of Beverage Sold (Cost of Sales: Beverage)
Food Cost Percentage
Beverage Cost Percentage
Average Sales per Guest (Check Average)
Seat Turnover
Figure 6.6 Restaurant Income Statement
Joshua’s Restaurant
Income Statement
For the Year Ended December 31, 2010
SALES:
Food
Beverage
Total Sales
COST OF SALES:
Food
Beverage
Total Cost of Sales
GROSS PROFIT:
Food
Beverage
Total Gross Profit
OPERATING EXPENSES:
Salaries and W ages
Employee Benefits
Direct Operating Expenses
Music and Entertainment
Marketing
Utility Services
Repairs and Maintenance
Administrative and General
Occupancy
Depreciation
Total Operating Expenses
Operating Income
Interest
Income Before Income Taxes
Income Taxes
Net Income
Prepared using USAR
2,058,376
482,830
2,541,206
767,443
96,566
864,009
1,290,933
386,264
1,677,197
714,079
111,813
132,143
7,624
63,530
88,942
35,577
71,154
120,000
55,907
1,400,769
276,428
84,889
191,539
76,616
114,923
Cost of Food Sold (Cost of Sales: Food)
•
•
•
Cost of food sold (cost of sales: food) is the dollar
amount of all food expenses incurred during the
accounting period.
Cost of goods sold is a general term for cost of any
products sold.
For restaurants, cost of goods sold as referenced in the
inventory turnover section of this chapter refers to cost
of food sold and cost of beverage sold.
go figure!
For Joshua’s Restaurant, the Cost of Food Sold (Cost of Sales: Food) would be
calculated as follows:
Beginning Inventory
+ Purchases
= Food Available for Sale
51,400
771,000
822,400
- Ending Inventory
= Cost of Food Consumed
53,750
768,650
- Value of Transfers Out
+ Value of Transfers In
- Employee Meals
= Cost of Food Sold
Thus, the cost of food sold for Joshua’s is $767,443.
11,992
25,785
15,000
767,443
Cost of Beverage Sold (Cost of Sales:
Beverage)
•
•
•
Cost of beverage sold (cost of sales: beverage) is the
dollar amount of all beverage expenses incurred during
the accounting period.
The cost of beverage sold is calculated in the same way
as cost of food sold except that the products are
alcoholic beverages (beer, wine, and spirits).
Employee meals are not subtracted because
employees are not drinking alcoholic beverages.
go figure!
For Joshua’s Restaurant, the Cost of Beverage Sold (Cost of Sales: Beverage)
would be calculated as follows:
Beginning Inventory
+ Purchases
= Beverage Available for Sale
- Ending Inventory
- Value of Transfers Out
+ Value of Transfers In
= Cost of Beverage Sold
11,520
112,589
124,109
13,750
25,785
11,992
96,566
Thus, the cost of beverage sold for Joshua’s is $96,566.
Food Cost Percentage
•
A restaurant’s food cost percentage is the ratio of the
restaurant’s cost of food sold (cost of sales: food) and
its food revenue (sales).
go figure!
Using Joshua’s Restaurant in Figure 6.6, the calculation for food cost percentage
is:
Cost of Food Sold
Food Sales
= Food Cost %
or
$767,443
$2,058,376
=37.3%
Thus, the food cost % for Joshua’s is 37.3%.
Beverage Cost Percentage
•
A restaurant’s beverage cost percentage is the ratio of
the restaurant’s cost of beverage sold (cost of sales:
beverage) and its beverage revenue (sales).
go figure!
Using Joshua’s Restaurant in Figure 6.6, the calculation for beverage cost
percentage is:
Cost of Beverages Sold
Beverage Sales
= Beverage Cost %
or
$96,566
$482,830
= 20.0%
Thus, the beverage cost % for Joshua’s is 20.0%.
Labor Cost Percentage
•
•
•
Restaurateurs are very interested in the labor cost
percentage, which is the portion of total sales that was
spent on labor expenses.
It is typically not in the best interest of restaurant
operators to reduce the total amount they spend on
labor. In most foodservice situations, managers want to
serve more guests, and that typically requires additional
staff.
Many managers feel it is more important to control labor
costs than product costs because, for many of them,
labor and labor-related costs comprise a larger portion
of their operating budgets than do the food and
go figure!
Using Joshua’s Restaurant in Figure 6.6, the calculation for labor cost
percentage is:
Cost of Labor
Total Sales
= Labor Cost %
or
$825,892*
$2,541,206
= 32.5%
*Cost of labor is calculated by adding salaries and wages to employee
benefits or $714,079 + $111,813 = $825,892.
Thus, the labor cost % for Joshua’s is 32.5%.
Average Sales per Guest (Check Average)
•
•
•
Average sales per guest (check average) is the average
amount of money spent per customer during a given
accounting period.
This measure of “sales per guest” is important because
it carries information needed to monitor menu item
popularity, estimate staffing requirements, and even
determine purchasing procedures.
It also allows a financial analyst to measure a chain’s
effectiveness in increasing sales to its current guests,
rather than increasing sales simply by opening
additional restaurants.
Average Sales per Guest (Check Average)
•
•
The check average ratio can be used to compare a
restaurant’s performance to previous accounting
periods, to forecasted or budgeted results, to similar
restaurants, and to published industry averages or
standards.
Industry averages and other restaurant statistics are
readily available through publications such as the
Restaurant Industry Operations Report published by the
National Restaurant Association.
go figure!
Assuming Joshua’s Restaurant in Figure 6.6 served 203,300 guests during the
year, the calculation for average sales per guest is:
Total Sales
Number of Guests Served
= Average Sales per Guest
(Check Average)
or
$2,541,206
203,300
= $12.50
Thus, the average sales per guest for Joshua’s is $12.50, meaning that each
guest spent, on average, $12.50 when dining at his restaurant.
Seat Turnover
•
Seat turnover measures the number of times seats
change from the current diner to the next diner in a
given
accounting period.
go figure!
Assuming Joshua’s Restaurant in Figure 6.6 had 260 seats and served 203,300
guests (covers) during the year, the calculation for seat turnover is:
Covers Served
Number of Seats X Number of Operating Days in Period
= Seat Turnover
or
203,300
260 X 365
=
203,300
94,900
= 2.14 turns
Thus, the seat turnover for Joshua’s is 2.14 times, meaning that each seat
changed from the current diner to the next diner, on average, 2.14 times per day.
Restaurant Ratios
Ratio Name
Definition
Source of Data
Formula
Food Cost Percentage
Food Cost Percentage represents the portion of food
sales spent on food expenses
Numerator: Operating Reports
Cost of Food Sold
Food Sales
Denominator: Operating Reports
Beverage Cost Percentage
Beverage Cost Percentage represents the portion of
Beverage sales spent on Beverage expenses
Numerator: Operating Reports
Cost of Beverage Sold
Beverage Sales
Denominator: Operating Reports
Labor Cost Percentage
Labor Cost Percentage represents portion of total sales
spent on labor expenses
Numerator: Operating Reports
Cost of Labor*
Total Sales
Denominator: Operating Reports
*Cost of labor = salaries + wages +
employee benefits
Average Sales Per Guest (Check Average)
Average sales per guest is average amount of money
spent per customer during a given accounting period
Numerator: Operating Reports
Total Sales
Number of Guests Served
Denominator: Operating Reports
Seat Turnover
Seat turnover shows the number of times seats change
from a current diner to another diner in given
accounting period
Numerator: Operating Reports
Denominator: Operating Reports
Covers Served
Number of Seats x Number of Operating
Days in Period
Comparative Analysis of Ratios
•
Like many other types of financial data, a company’s
financial ratios are often compared to previous
accounting periods, to forecasted or budgeted results,
or to published industry averages or standards.
Figure 6.9 City-Wide and The Blue Lagoon Occupancy Percentage
City-Wide
Blue Lagoon
2008
81.0%
82.0%
Occupancy Percentage
2009
79.1%
80.4%
2010
77.0%
80.0%
Ratio Analysis Limitations
•
•
One weakness inherent in an over-dependency on
financial ratios is that ratios, by themselves, may be
less meaningful unless compared to those of previous
accounting periods, budgeted results, industry
averages, or similar properties.
Another limitation is that financial ratios do not measure
a company’s intellectual capital assets such as brand
name, potential for growth, and intellectual or human
capital when assessing a company’s true worth.
Review of Learning Outcomes
•
•
•
State the purpose and value of calculating and using
ratios to analyze the health of a hospitality business.
Distinguish between liquidity, solvency, activity,
profitability, investor, and hospitality-specific ratios.
Compute and analyze the most common ratios used in
the hospitality industry.