HFT3424 Financial Analysis Cost Controls Study Guide BOLD Vocabulary or formula Highlighted Review for Test Book Information CHAPTER1 Three most commonly used measurements 1 Customer satisfaction 2 Employee satisfaction 3 Profitability and cash flow Financial Analysis Management of monetary affairs Revenue Average Rate Volume Profit Revenues Expenses Retention or Flow Through Change in profit dollars change in revenue dollars RevPar Total Room revenue Total Available rooms Or RevPar Average Room Rate Occupancy Percentage Profit 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 sheet Working 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 business Statement 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 accounts Profit the amount of revenue left over after all appropriate expenses have been paid Volume 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 Rates Profit Percentage Profit dollar revenue dollar Working capital Current assets current liabilities Assets Accounts Receivable Liabilities Accounts Payable Chapter 2 Financial Management Cycle 1 Operations produce the numbers 2 Accounting prepares the numbers and provides management reports and financial statements 3 Accounting and operations analyze the numbers 4 Operations apply the numbers back to the business Budget Formal one year financial operating plan for a company productivity of costs and expenses Forecast Updates the budget Pro Forma estimate or projection of how they think the business will perform in the first year of operations Trends showing direction of the movement of business operations Change Refers to the difference between two numbers 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 statements General manager Responsible for all hotel operations Income journal section of accounting office that records income processes deposits pays expenses and assists other hotel managers Chapter 3 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 business Assets Liabilities Owner s Equity Ratios KNOW Profit Margin Profit sales Cost of goods sold COGS Costs sales COGS is an average not a sum Labor Costs Variable Fixed labor sales Covers per hour Total cover number of operating hours Covers per day Total covers number of days in operation Covers per server Total covers total servers Seat turnover total covers number of seats Sales mix Sales of item A Total sales Average daily rate room revenue rooms sold Occupancy rate rooms sold rooms available Inventory Turnover Cost of inventory sold average Breakeven fixed costs sales price variable costs Return on Member s equity net profit total member s equity Total current liabilities current ration current liabilities current assets Debt ratio liabilities member equity Specific Notes From Test Review Class Know Profit Margin Profit Margin Profit sales Know profit formula Profit Revenues Expenses Know Cost of Goods Sold Cost of goods sold COGS Costs sales COGS is an average not a sum Know 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 expense Know principal part of money you pay towards a mortgage or a loan asset Know asset equipment land Owned item of economic value Know occupancy rate Occupancy rate rooms sold rooms available Know average daily rate Average daily rate room revenue rooms sold Know income statement revenue and expenses Assets are not on the income statement Know turn over rate See ratios seat turnover inventory turnover Know break even formula Breakeven fixed costs sales price variable costs Know budget Formal one year financial operating plan for a company productivity of costs and expenses SINGLE MOST IMPORTANT NUMBER How many people are staying Know benchmark expectations or standard used for comparison Know largest expenses in restaurant 1 food 2 labor Know General Manager delegates and oversees operations CANNOT DO EVERYTHING Understand dollars vs percentages percentages are targets dollars can be taken to the bank Know return on equity a measure of how well a company used reinvested earnings to generate additional earnings Know debt ratio Debt ratio liabilities member equity Know financial management cycle Financial Management Cycle 1 Operations produce the numbers 2 Accounting prepares the numbers and provides management reports and financial statements 3 Accounting and operations analyze