Credit card receivables turnover ratio f.. Accounts receivable as a percentage of accounts receivable credit revenue h.. Accounts receivable average collection period j.. The company has
Trang 1ANALYSIS AND INTERPRETATION OF
FINANCIAL STATEMENTS – PART II
I Questions
1 Creditors use ratio analysis to evaluate the solvency of hospitality operations and to assess the riskiness of future loans For example, the current ratio may indicate the establishment’s ability to pay its upcoming bills In addition, creditors sometimes use ratio to express requirements for hospitality operations
as part of the conditions set forth for certain financial arrangements For example, a creditor may require the maintenance of a current ratio of 2 to 1 as a condition of a loan
2 Refer to pages 78 to 79
3 While ratios can be compared against results of a prior period and against industry averages, ratios are best compared against planned ratio goals or budgeted ratios For example, in order to more effectively control the cost of labor, management may project a goal for the current year’s labor cost percentage that is slightly lower than the previous year’s levels The expectation
of a lower labor cost percentage may reflect management’s efforts to improve scheduling procedures and other factors related to the cost of labor By comparing actual labor cost percentage with the planned goal, management is able to assess the success of its efforts to control labor cost
4 An investor would be interested on profitability ratios as well as ratios that measure the financial stability of the hotel
5 Activity ratios reflect management’s ability to use the property’s assets and resources and generate satisfactory returns on them
6 Turnover means the number of times a certain resource is able to generate either revenues, guests, cash, etc
7 Managers are concerned about the solvency ratios because these will measure
the firm’s ability to settle its debts, defray the operating expenses and maintain operating efficiency
Trang 2Creditors are likewise interested in solvency ratios because these ratios could
show whether the firm has the capacity to satisfy their claims when they become due
Stockholders are concerned about the ability of the company to meet its
maturing debts and other operational requirements because a sound capital structure is necessary for continued successful operations
II Practical Problems
PROBLEM 1
a Current ratio
b Quick ratio
PROBLEM 2
a Average of current liabilities
b Cash flow from operating activities
to current liabilities
c 68% exceeds the recommended percentage of 40
PROBLEM 3
a Food inventory turnover
b Average period in days for
food inventory to turnover
= P12,000 + P1,800 + P180 + P4,400 + P1,120P7,800
= P19,500 P7,800 = 2.5
= P12,000 + P1,800 + P180P7,800
= P13,980 P7,800 = 1.79
= P58,200 + P60,8002
= P119,000 2 = P59,500
= P40,400 P59,500 = 0.68 times or 68%
= P8,868 + P5,740
2
= P36,520 P7,304 = 5
P36,520
Trang 3PROBLEM 4
Current ratio has been declining from 1.44 in Year 1 to 1.20 in Year 3 This could indicate a deterioration in the working capital condition A restaurant should have a higher current ratio, preferably 2:1 because of the nature of its capital requirements The ratio in Year 3 is therefore considered unsatisfactory
PROBLEM 5
1 Multiple occupancy rate
2
3
PROBLEM 6
1 Working capital = P86,100 – P62,400 = P23,700
2 Working capital position is favorable It indicates that the firm has sufficient assets to pay its short-term debts and meet its operational expense requirements
PROBLEM 7
a Cash flow from operating activities
to current liabilities ratio
b Cash flow from operating activities
to long-term liabilities ratio
c Cash flow from operating activities
margin
= P143,200P68,300 = 2.096
= P143,200P823,300 = 0.174
= P2,406,800P143,200 = 0.059
=
= Rooms1,400 40%
Rooms occupied by
2 or more people Number of rooms occupied by guests
No of rooms
Trang 4PROBLEM 8
a Working capital
b Current ratio
1.09
1.27
c Quick ratio
0.86
0.97
d Credit card receivables as a percentage of credit card
revenues
e Credit card receivables turnover ratio
f Credit card average collection period
g Accounts receivable as a percentage of accounts
receivable credit revenue
h Accounts receivable turnover ratio
i Accounts receivable average collection period
j Cost of sales percentage of sales revenue
k The company has a very satisfactory collection period of credit card receivables and satisfactory accounts receivable average collection period
P35,900
P47,200
P28,200
P36,300
P4,300*
P345,948 =
0.01 P345,948 P4,300* =
80.45
365 days 80.45 = 4.54 days P350**
P13,620 =
0.026 P13,620
P350** =
38.91
365 days 38.91 = 9.38 days P212,472
P544,800 =
0.39
Trang 5Cash = P185,232 34.0%
* Average credit card receivables
** Average accounts receivable
PROBLEM 9
a Return on assets
b Net return on assets
c Number of times interest is earned
d Net income to revenue ratio
Discussion of hotel profitability
Net income to revenue ratio is quite low The hotel should strive to lessen its operating costs if it wants to generate higher income on sales revenue
e Return on stockholders’ equity
Discussion of hotel profitability
Return on stockholders’ equity is satisfactory considering that it is much higher than the return on other investment opportunities as time deposit rate, bond earnings rate, etc
= P4,880 + P3,7202 = P4,300
2
= P403,450P39,675 = 0.098 P20,100 + [P26,100 x (1 – 0.25)]
= P403,450P20,100 = 0.05
= P52,900 P26,100 = 2.03
= P851,800P20,100 = 0.02
= P108,800 + P80,200
2
= P20,100 P94,500 = 0.21
P20,100
Trang 6PROBLEM 10
1 Let x = Cost of food used
Less: Employees food expense (3,000)
Total Cost of food sold P213,000
2 Average lunch food
service check
3
Add: Employee food expense 200
Add: Employee meals 300
Let x = average inventory
y = ending inventory
= P8,000 + P10,000
2
= P9,000x
x 24
24
=
Lunch period revenue (%) x Total sales revenue Seats x Lunch period seat turnover x Operating days
=
= 40% x P60,000100 x 1.5 x 26
= P24,000 3,900 = P6.15
= P80,000CFS 34%
=
= P30,300 x 3.1
=
Trang 7PROBLEM 11
a Average rate per room occupied
b Rooms occupancy percentage
c Room double occupancy percentage
d Food cost percentage
e Beverage cost percentage
f Rooms labor cost percentage
g Dining room labor cost percentage
h Average check, dining room
= P9,000 + y2 P9,774
= P9,000 + y P19,548
– 9,000 – 9,000
= y
P10,548
= P91,1081,798 = P50.67
= 75 seats x 31days1,798
= 1,7982,325 = 0.77
= P18,904P45,209 = 0.42
= P14,810P4,805 = 0.32
= P30,020P91,108 = 0.33
= P45,209 + P14,810P15,011
= P15,011P60,019 = 0.25
= 40 x 3 x 31P60,019
= P60,0193,720 = P16.13
= 3,417 – 1,798 = 1,619
Trang 8i Dining room average seat turnover
j Average monthly revenue per
dining room seat
k Beverage revenue to food revenue %
l Beverage revenue to room revenue %
m Dining revenue to room revenue %
PROBLEM 12
a Working capital
b Current ratio
0.73
0.93
c Credit card receivables as a
percentage of credit card revenue
d Credit card receivables turnover
ratio based on credit card revenue
e Credit card receivables average
collection period ratio based on
credit card revenue
= 40 x 313,720
= P60,01940 = P1,500.48
= P14,810P45,209 = 0.33
= P14,810P91,108 = 0.16
= P60,019P91,108 = 0.66
P37,700
P45,000
P7,920 + P9,240 2
P475,264 P8,580 =
55.39
365 days
6.59
P8,580 P475,264 =0.02
0.64 (P742,600)
=
=
=
=
Trang 9f Accounts receivable as a percentage
of accounts receivable credit
revenue
g Accounts receivable turnover ratio
based on accounts receivable credit
revenue
h Accounts receivable average
collection period based on accounts
receivable credit revenue
i Total assets to total liabilities
1.46
1.60
j Total liabilities to total assets
0.69
0.62
k Total liabilities to stockholders’ equity
2.18
1.66
l Return on total assets
m Number of times interest is earned
P355,100
P367,200
P243,600
P229,200
P243,600
P229,200
P103,964 P5,720 =
18.18
365 days
20.08
P5,720 P103,964 =0.06
P5,280 + P6,160 2 0.14 (P742,600)
=
=
=
=
P355,100 + P367,200
2 P59,500 P361,150 =0.16
P59,500
=
=
= P59,500P19,400 =
3.07
Trang 10n Net income total revenue ratio
o Return on stockholders’ equity
p Food inventory turnover ratio
q Property, plant and equipment
turnover ratio
PROBLEM 13
a Yes This is reflected in the increasing current ratios from year 2002 to year 2004
b No Credit card turnover ratio is decreasing and this means collection period is increasing (Note: divide 365 days by Turnover)
c Yes Accounts receivable turnover is increasing and therefore average collection period is decreasing
d More money tied up in inventory The food inventory turnover ratio is decreasing and that means increase in average food inventory
e Not improving The return on stockholders’ equity has been decreasing over the 3-year period
f Yes Total liabilities to total equity or assets ratio has been declining
g No The decline in liabilities accompanied by the decrease in the return on stockholders’ equity means that the company has not been using leverage to the advantage of the stockholders
= P742,600 =P27,500
0.04
P111,500 + P138,000
2 P27,500 P124,750 =
0.22
P27,500
=
=
P14,600 + P13,900
2 P301,900 P14,250 =
21.19
P301,900
=
=
P317,400 + P322,200
2 P742,600 P319,800 =
2.32
P742,600
=
=