Financial Ratios Used By Hotel Management


■ To learn how to maximize revenue and profit
■ To learn four ratios used by restaurant management
■ To learn some maintenance issues
■ To learn the types of accounting statements
■ To learn how to analyze financial statements
■ To learn how to calculate food & beverage costs
■ To learn how to make break-even analysis
■ To learn typical cost percentages for free-standing restaurants

Four Financial Ratios used by Management

■ Liquidity Ratios

  • can organizations meet short-term commitments?

■ Solvency Ratios

  • can organizations meet long-term commitments?

■ Activity Ratios

  • how effective is mgmt in using its assets?

■ Profitability Ratios

  • how profitable is the business?
Accounting Statements

■ Balance Sheet

  • snapshot of the business at a single point in time
    -assets, liabilities, owners equity
  • Assets – inventories, equipment, accounts receivable

■ Income Statement (P&L)

  • Sales – Revenue
  • Variable Costs- Controllable Costs
  • Fixed Costs – Non-controllable Costs
Systematic Approach

■Start at the bottom working upward

  • Profit
  • Controllable Expenses
  • Sales / Revenue

■Compare net income as a percentage of total revenue to standard.

  • The comparison could be forecast, last-year’s figure, or industry average.
Analysis of Income Statement

■ Sales

  • Are sales increasing or decreasing?
  • Why is this happening?
  • Is sales volume appropriate to the value, size, or investment of the business?

■ Activity Ratios

  • average check
  • seat turnover
  • sales per square foot
Analysis of Income Statement

■ Expenses

  • cost of food sales
  • cost of beverage sales
  • labor cost
  • operating expenses – china and glassware, paper supplies, and cleaning chemicals
Analysis of Financial Success

■ Profit

  • is it enough? _______

■ Operating ratio
net income before taxes / net sales
■ Net profit to net equity
net profit after taxes / net equity
■ Management proficiency ratio
net profit after taxes / total assets

Cost of Goods Percentage (food, beverage, merchandise)

■Opening inventory
■Purchases are added to opening inventory
■Subtract returns, spoilage, complimentary meals
■Subtract closing inventory
■Final number = cost of goods sold

Food Costs

■ Beginning Inventory + Purchases – Issues = Ending Inventory

Beginning Inventory + Purchases – Ending Inventory = Issues

■ Inventory Issued is the food cost
■ Food Cost Ratio = Food Cost/Food Sales
■ Typical food cost ratio is 28-32%

Labor & Beverage Costs

■ Labor Cost

  • highest single expense in the food & beverage division*
    • Rs amount of # employee hours/total restaurant revenue

■Beverage Cost (Pour Cost)

  • beverage issues/beverage revenues
Contribution Margin

■The amount a menu item contributes to the gross profit
■Difference between the cost of item and its sales price

  • cost of chicken is 2.50
  • selling price is 6.75
  • contribution margin is 4.25
Typical Cost Percentages for Free-Standing Restaurants

■Labor costs 20 to 24%
■Food costs 28 to 32%
■Beverage costs 18 to 24%

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