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Ratio analysis @ bec doms

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Ratio analysis @ bec doms

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Ratio analysis @ bec doms

  1. 1. Chapter 5 Ratio Analysis
  2. 2. Competencies for Ratio Analysis <ul><li>Identify standards against which the results of ratio analysis may be compared. </li></ul><ul><li>Explain the function and purposes of ratio analysis. </li></ul><ul><li>Identify common classes of ratios and describe the general purpose of each. </li></ul><ul><li>Calculate common liquidity ratios and describe how creditors, owners, and managers view them. </li></ul><ul><li>Calculate common solvency ratios and describe how creditors, owners, and managers view them. </li></ul>(continued)
  3. 3. Competencies for Ratio Analysis <ul><li>Calculate common activity ratios and describe how creditors, owners, and managers view them. </li></ul><ul><li>Calculate common profitability ratios and describe how creditors, owners, and managers view them. </li></ul><ul><li>Calculate common operating ratios and explain how managers use them to evaluate operational results. </li></ul><ul><li>Summarize the limitations of ratio analysis, describe the usefulness of financial ratios, and explain how computers can be used in ratio analysis. </li></ul>(continued)
  4. 4. Potential Ratio Standards <ul><li>Ratios from a past period </li></ul><ul><li>Industry averages </li></ul><ul><li>Budgeted or planned ratios </li></ul>
  5. 5. Purposes of Ratio Analysis <ul><li>Managers use ratios to monitor operating performance and evaluate their success in meeting goals. </li></ul><ul><li>Creditors use ratios to evaluate the solvency of a business and to assess the risk of future loans. </li></ul><ul><li>Investors and potential investors use ratios to evaluate the performance of a business and the business’s ability to meet the investors’ specific goals. </li></ul><ul><li>Ratios reveal important information that may not be obvious or apparent in the financial statements. </li></ul>
  6. 6. Five Common Ratio Classes <ul><li>Liquidity </li></ul><ul><ul><li>Solvency </li></ul></ul><ul><ul><ul><li>Activity </li></ul></ul></ul><ul><ul><ul><ul><li>Profitability </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Operating </li></ul></ul></ul></ul></ul>
  7. 7. Common Liquidity Ratios <ul><li>Current ratio </li></ul><ul><li>Acid-test ratio </li></ul><ul><li>Operating cash flows to current liabilities ratio </li></ul><ul><li>Accounts receivable turnover </li></ul><ul><li>Average collection period </li></ul><ul><li>Working capital turnover </li></ul>
  8. 8. Common Solvency Ratios <ul><li>Solvency ratio </li></ul><ul><li>Debt-equity ratio </li></ul><ul><li>Long-term debt to total capitalization ratio </li></ul><ul><li>Number of times interest earned ratio </li></ul><ul><li>Fixed charge coverage ratio </li></ul><ul><li>Debt service coverage ratio </li></ul><ul><li>Operating cash flows to total liabilities ratio </li></ul>
  9. 9. Common Activity Ratios <ul><li>Inventory turnover </li></ul><ul><li>Property and equipment (fixed asset) turnover </li></ul><ul><li>Asset turnover </li></ul><ul><li>Paid occupancy percentage </li></ul><ul><li>Complimentary occupancy </li></ul><ul><li>Average occupancy per room </li></ul><ul><li>Multiple occupancy </li></ul><ul><li>Seat turnover </li></ul>
  10. 10. Common Profitability Ratios <ul><li>Profit margin </li></ul><ul><li>Operating efficiency ratio </li></ul><ul><li>Return on assets </li></ul><ul><li>Gross return on assets </li></ul><ul><li>Return on owners’ equity </li></ul><ul><li>Return on common stockholders’ equity </li></ul><ul><li>Earnings per share </li></ul><ul><li>Price/earnings ratio </li></ul>
  11. 11. Common Operating Ratios <ul><li>Mix of sales </li></ul><ul><li>Average room rate (ADR) </li></ul><ul><li>Revenue per available room (RevPAR) </li></ul><ul><li>Revenue per available customer (RevPAC) </li></ul><ul><li>Average food service check </li></ul><ul><li>Food cost percentage </li></ul><ul><li>Beverage cost percentage </li></ul><ul><li>Labor cost percentage </li></ul>

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