HFT3424- Financial Analysis (Cost Controls) Study Guide**BOLD** = Vocabulary or formula Highlighted = Review for TestBook Information:CHAPTER1:Three most commonly used measurements:1. Customer satisfaction2. Employee satisfaction3. Profitability and cash flowFinancial Analysis- Management of monetary affairsRevenue = Average Rate * VolumeProfit= Revenues – Expenses Retention or Flow-Through = Change in profit dollars/ change in revenue dollarsRevPar = Total Room revenue/Total Available roomsOrRevPar = Average Room Rate * Occupancy PercentageProfit and Loss Statement (P&L)- Measures the operating success and profitability of a business.-Covers a specific time period (monthly, quarterly, annually)-Reports actual financial results for a business in terms of revenues, expenses, and profits for the time period.-Evaluates actual performance with respect to other measures (budget, forecast, previous year or month performance)-Includes summary and supporting P&L statements-New P&L statement generated each accounting period and records providing year-to-date information.-Managers are expected to analyze P&Ls to explain negative and positive variations from budgets, forecasts, and previous year performance.Balance Sheet- Measures the value or worth of a business (also known as the asset and liability statement)-Measures worth of a company at a specific point in time-Assets = liabilities + owner equity -Made up of accounts organized by assets, liabilities, and owner equity-Accounts divided into current accounts (working capital or capitalization)-Each account has a beginning balance, monthly activity, ending balance-Managers do not have to analyze balance sheet activity (done by accounting)-Each month accounting managers balance or reconcile the accounts on the balance sheetWorking capital- Amount of money utilized in the daily operations of a business Capitalization- source and methods of raising money to invest in and start a businessStatement of Cash Flows- Measures the liquidity and the flow of cash of a business-Involves cash account of the balance sheet-Beginning and ending balances-Shows how money is used in daily operations of business-Measures liquidity-Fundamental component of working capital-Reflects the increases and decreases in Balance Sheet accountsProfit- the amount of revenue left over after all appropriate expenses have been paidVolume- defined as the number of units sold, served, received, or bought by customers during a specific time frame.Rate- dollar amount paid by a customer to a business to receive a product or service(Rate *Volume = Revenue) & (Revenue-Expenses = Profit)-Ex. Room Revenues = Rooms Sold * Room RatesProfit Percentage = Profit dollar/ revenue dollarWorking capital- Current assets – current liabilities Assets: Accounts ReceivableLiabilities: Accounts PayableChapter 2:Financial Management Cycle: 1. Operations produce the numbers2. Accounting prepares the numbers and provides management reports and financial statements3. Accounting and operations analyze the numbers 4. Operations apply the numbers back to the businessBudget: Formal one-year financial operating plan for a company- productivity of costs and expenses Forecast: Updates the budgetPro Forma- estimate or projection of how they think the business will perform in the first year of operationsTrends- showing direction of the movement of business operationsChange- Refers to the difference between two numbersChapter 3:Accounts payable- process of approving invoices and issuing checks in payment for products and good received by a hotel or restaurant Accounting period: 28-day time period to prepare management reports and financial statementsGeneral manager- Responsible for all hotel operationsIncome journal- section of accounting office that records income, processes deposits, pays expenses, and assists other hotel managers. Chapter 4:Fixed Expenses- Direct expenses of a hotel that are constant and do not change with different volume levels of hotel business.Fixed Costs- Direct Costs of a hotel that are constant and do not change with different hotel businessAssets = Liabilities + Owner’s EquityRatios- KNOW!!!!Profit Margin = Profit/salesCost of goods sold (COGS) = Costs/sales-COGS is an average- not a sumLabor Costs = Variable + Fixed labor/ salesCovers per hour = Total cover/number of operating hoursCovers per day = Total covers/number of days in operationCovers per server = Total covers/ total serversSeat turnover = total covers/ number of seatsSales mix = Sales of item A/ Total salesAverage daily rate= room revenue/ rooms soldOccupancy rate = rooms sold/ rooms available Inventory Turnover= Cost of inventory sold/ averageBreakeven= fixed costs/ sales price-variable costsReturn on Member’s equity = net profit/total member’s equityTotal current liabilities: current ration = current liabilities/current assetsDebt ratio = liabilities/ member equity Specific Notes From Test Review Class:Know Profit Margin %- Profit Margin = Profit/salesKnow profit formula - Profit= Revenues – ExpensesKnow Cost of Goods Sold- Cost of goods sold (COGS) = Costs/sales-COGS is an average- not a sumKnow capital- cash or goods used to generate income by investing; net worth; the amount by which its assets exceed its liabilities Know expenses-Any cost of doing business ***Know interest is an expenseKnow principal- part of money you pay towards a mortgage or a loan (asset)Know asset (equipment, land) Owned item of economic valueKnow occupancy rate- Occupancy rate = rooms sold/ rooms available Know average daily rate- Average daily rate= room revenue/ rooms soldKnow income statement- revenue and expenses ***Assets are not on the income statementKnow turn over rate- See ratios (seat turnover, inventory turnover)Know break even formula- Breakeven= fixed costs/ sales price-variable costsKnow budget- Formal one-year financial operating plan for a company- productivity of costs and expenses***SINGLE MOST IMPORTANT NUMBER- How many people are stayingKnow benchmark-expectations or standard used for comparisonKnow largest expenses in restaurant: 1)food 2)laborKnow General Manager- delegates and oversees operations, CANNOT DO EVERYTHINGUnderstand dollars vs. percentages- percentages are targets, dollars can be taken to the bankKnow return on equity – a measure of how well a company used reinvested earnings to generate additional earningsKnow debt ratio- Debt ratio = liabilities/ member equity Know financial