Cumulative Final Exam Study Guide HFT 3424 Don Farr Ratios Cost of Goods Sold COGS Sales Cost of ingredients ONLY EX 2 500 in Food Costs 6 200 in Food sales 40 3 COGS Occupancy Rate Rooms sold Rooms Available Percentage of rooms sold out of total number of rooms EX 200 Rooms available 150 Rooms sold 75 Occupancy Rate Average Daily Rate Room Revenue Rooms Sold Measures a property s financial performance as well as compares to competitors EX 100 000 revenue in year 500 rooms occupied 200 ADR Inventory Turnover Rate COGS Average Inventory Shows how many times a company s inventory is sold and replaced over a period EX COGS 324 000 Avg Inventory 23 432 13 83 Breakeven Fixed Costs Sales Price Variable Costs At breakeven point the revenues of the business are equal to its total costs and its contribution margin equals its total fixed costs EX Price Per Unit 15 VC per Unit 7 Total Fixed Cost 9 000 1 125 units Return on Equity ROE Net Profit Total Members Equity Amount of Net Income returned as a percentage of shareholder s equity Measures a corporation s profitability by revealing how much profit a company generates with money shareholders invested Debt Ratio Liabilities Member Equity Ratio of total debt to total assets expressed in percentage EX A company with total assets of 100 million dollars and 30 million in debt has a 30 debt ratio A debt ratio greater than 1 indicates that a company has more debt than assets Less than 1 is more assets than debt It depends on the industry in which the companies operate A debt ratio of 30 may be too high for a company that operates in a sector where cash flows are volatile and its peers have little debt since this debt level may reduce its financial flexibility and competitive advantage Conversely a debt level of 40 may be easily manageable for a company in a sector such as utilities where cash flows are stable and higher debt ratios are the norm Investopedia com terms d debtratio asp Financial Statements Study Guide HFT 3424 Page 1 Also known as the Profit and Loss Statement P L Measures the Income Statement financial performance of a business Reports Revenues Profits and Expenses There are 2 types Consolidated and Department Consolidated Mainly used to report and measure financial performance Department Used as management tool to provide more detailed financial information to managers which they then use to operate their departments Need to know Income Statement Terms o Expense Categories The 4 major categories for collecting and reporting department expenses Cost of Sales wages benefits and Direct Operating Expenses o Fixed Expenses Direct expenses of a hotel that are constant and do not change with different volume levels of hotel business o Line Account A specific accounting code that collects and records all revenues or expenses classified within the description of the line account o Revenue Center An operating department that produces revenues by providing products and services directly to customers Only includes Revenues Balance Sheet Also known as the Asset and Liability statement A L Purpose is to measure the financial status value and net worth of a business at a specific point in time Prepared at the end of each month or accounting period as well as end of year Consists of accounts organized by asset liability or owner equity Assets Liabilities Owner Equity An asset is a resource A liability is a debt Owner equity is possession and value Each account has a beginning balance monthly activity and an ending balance Need to Know Balance Sheet Terms o Cash money that is in the cash bank account and available for use in daily business operations In can be in a savings or checking account Most liquid form of an asset Available immediately Always remember You cannot take percentages to a bank you can always take cash Don Farr o Current Assets Less than one year life EX Cash Accounts Receivable o Long Term Assets More than one year of life EX property equipment o Accounts Receivable Dollar amounts that the company is owed for providing products and services to customers that is uncollected Next most liquid asset after cash o Current Liabilities Less than one year obligations EX Accounts payable Wages o Long Term Liabilities Longer than one year obligations EX Bank Loans Line of Payable Taxes Payable Credit Study Guide HFT 3424 Page 2 o Owner Equity Investment in a company in the form of paid in capital common or preferred stock and retained earnings It is the excess of assets minus liabilities Measures the amount of cash a company has on hand and Statement of Cash Flows how cash flows through the company during the course of daily operations Cash account OF the Balance Sheet Beginning and ending balances Measures liquidity a very important measure of cash flow 3 categories Operating Financing and Investing Need to know Statement of Cash Flow Terms o Working Capital The dollar amount provided for the daily operations of a business It is invested in the current assets of a business primarily in cash accounts receivable and inventory o Classification of Cash Flow Operating activities financial activities and o Liquidity The amount of cash or cash equivalents that a company has to cover its investment activities daily operating expenses Star Market Reports A monthly report published by Smith Travel Research that provides a hotel with rate occupancy and RevPar information for a specific hotel and its competitive set Info you can find on the report o Occupancy Avg room rate RevPar Room Supply share room demand share room Numbers need to be compared to a standard or to other numbers to give them meaning Don Farr sale share Benchmarks A standard against which the performance of a security mutual fund or investment manager can be measured Trend Analysis Study Guide HFT 3424 Page 3 Based on the idea that what has happened in the past gives companies an idea of what will happen in the future 3 main types short intermediate and long term Formula Last year Previous year Previous year change EX trend analysis continued 2010 2011 2012 2013 Rooms 800 900 950 Later Year Previous Year Previous Year Change 900 800 100 X 100 12 5 800 800 Continue this process 2010 2011 2012 2013 Rooms 800 900 950 Later Year Previous Year Previous Year Change 950 900 50 X 100 5 55 900 900 Take the average of percentages 12 5 5 55 18 05 2 9 025 increase 2 18 05 2 SO Study Guide HFT 3424 Page 4 2010 2011 2012 2013 Rooms 800 900 950 950 X 9 025 100 1038 room nights 2013