Hospitality Financial Accounting Week 6 Financial Statement Analysis Matakuliah: V0232 – Akuntansi Keuangan Hotel Tahun: 2009

7-1 Horizontal Analysis Sales $150,000$125,000$100,00 Base Year 100%125%150% 50% increase 25% increase Percentage increase or decrease from base year formula: Current Year Amount – Base Year Amount Base Year Amount Example: Percent increase in sales in 2010 from 2008 $150,000 - $100,000 $100,000 = 50% HORIZONTAL ANALYSIS

7-2 Vertical Analysis SMITH HOTEL COMPANY AmountPercentAmountPercent Sales $ 120, % $ 80, % Sales returns $ 6, % $ 5, % Net sales $ 113, % $ 75, % Cost of goods sold $ 65, % $ 40, % Gross profit $ 48, % $ 35, % Selling expenses $ 18, % $ 15, % Administrative expenses $ 10, % $ 8, % Total operating expenses $ 28, % $ 23, % Net income $ 20, % $ 12, % Reflects the size of each item relative to a base amount (net sales) VERTICALANALYSISVERTICALANALYSIS

7-2 Vertical Analysis (cont.) SMITH HOTEL COMPANY RODGERS HOTEL COMPANY 2009 AmountPercentAmountPercent Sales $ 120, % $ 80, % Sales returns $ 6, % $ 5, % Net sales $ 113, % $ 75, % Cost of goods sold $ 65, % $ 40, % Gross profit $ 48, % $ 35, % Selling expenses $ 18, % $ 15, % Administrative expenses $ 10, % $ 8, % Total operating expenses $ 28, % $ 23, % Net income $ 20, % $ 12, % Restating each item on a financial statement in terms of a percentage of a base amount, enables the comparison of companies of different sizes VERTICALANALYSISVERTICALANALYSIS COMMON SIZE ANALYSIS

7-3 Liquidity Ratios RatioFormulaPurpose or Use Liquidity Ratios 1.Current ratio Current Assets / Current Liabilities Measures short-term debt-paying ability. 2.Acid-test or Quick Ratio [Cash + Short-term Investments + receivables (net)] / Current Liabilities Measures immediate short-term liquidity. 3.Receivable s Turnover Net Credit Sales / Average Net Receivables Measures liquidity of receivables. 4.Inventory Turnover Cost of Goods Sold / Average Inventory Measures liquidity of inventory.

7-4 Profitability Ratios RatioFormulaPurpose or Use Profitability Ratios 1.Profit MarginNet Income / Net SalesMeasures net income generated by each dollar of sales. 2.Asset Turnover Net Sales / Average AssetsMeasures how efficiently assets are used to generate sales. 3.Return on Assets Net Income / Average Assets Measures overall profitability of assets. 4.Return on Common Stockholders’ Equity Net Income / Average Common Stockholders’ Equity Measures profitability of owners’ investment.

7-5 Solvency Ratios RatioFormulaPurpose or Use Solvency Ratios 1.Debt to Total Assets Total Debt / Total AssetsMeasures the percentage of total assets provided by creditors. 2.Times Interest Earned Income Before Income Taxes and Interest Expense / Interest Expense Measures ability to meet interest payments as they come due.