Ratio Analysis Of The Balance Sheet: Accounting For Hospitality Managers Fifth Edition (362txt Or 362cin)

Chapter 10 Ratio Analysis of the Balance Sheet Accounting for Hospitality Managers Fifth Edition (362TXT or 362CIN)

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Competencies for Ratio Analysis of the Balance Sheet 1. 2. 3. 4. 5.

Describe the use of ratios in the analysis of a hospitality business balance sheet. Explain the purpose and use of the current ratio, and describe its formula and interpretation. Explain the purpose and use of the quick ratio, and describe its formula and interpretation. Explain the purpose and use of the accounts receivable turnover ratio, and describe its formula and interpretation. Explain the purpose and use of the average collection period ratio, and describe its formula and interpretation.

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Competencies for Ratio Analysis of the Balance Sheet (continued)

1. 2. 3. 4. 5.

Identify the formulas for food and beverage inventory turnover. Explain the purpose and use of the fixed asset turnover ratio, and describe its formula and interpretation. Explain the purpose and use of the debt-to-equity ratio, and describe its formula and interpretation. Explain the purpose and use of the assets-to-liabilities ratio, and describe its formula and interpretation. Describe the computation, composition, and importance of working capital.

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Ratios for Analyzing the Balance Sheet • • • • • • • • © 2007, Educational Institute

Current ratio Quick ratio Accounts receivable turnover ratio Average collection period ratio Inventory turnover ratio Fixed asset turnover ratio Debt-to-equity ratio Assets-to-liabilities ratio 4

Current Ratio Current Assets Current Liabilities

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Quick Ratio Cash + Short-Term Investments + Receivables (Net) Current Liabilities

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Accounts Receivable Turnover Ratio Net Revenue Average Accounts Receivable (Net)

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Average Collection Period Ratio 365 Accounts Receivable Turnover

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Inventory Turnover Ratio Cost of X Used Average X Inventory

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Fixed Asset Turnover Ratio Net Revenue Average Fixed Assets

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Debt-to-Equity Ratio Total Liabilities Total Equity

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Assets-to-Liabilities Ratio Total Assets Total Liabilities

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Computation of Working Capital Current Assets – Current Liabilities Working Capital

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