# Financial Ratio Analysis

951 Words 4 Pages
Financial ratios are numerical relationships between financial figures found on the income statement and the balance sheet of a business. When multiple figures are compared, the relationships between those figures help reveal important operational information that, when adjusted, could improve their financial situation (Kim & Avoun, 2005). Unfortunately, few organizations within the hospitality industry commonly use financial ratios to determine the health of their business (Kim & Avoun, 2005). The most common ratios are categorized into market ratios, liquidity ratios, asset management ratios, leverage ratios, and profit ratios. This paper seeks to compare and examine the financial ratios of Harlequin and Brine, an upscale-casual restaurant, …show more content…
Liquidity ratios are the best way of determining whether or not a company can pay obligations when they arise (Kim & Avoun, 2005). The most common liquidity ratios include current ratio and the quick ratio (Adelman & Marks, 2014). Quick ratios are calculated as quick ratio= (cash +accounts receivable +marketable securities) / current liabilities. A general rule for most industries is that a current ratio should be 2.0 or higher and a quick ratio should be 1.0 or higher, however, for restaurants 0.95 and 0.66 are the industry averages (Wang, 2012). Harlequin and Brine has a quick ratio of 0.74, meaning that it able to pay its short-term creditors faster than the average restaurant. This has been done purposefully and strategically because positive cash flow is vitally important in the early stages of a …show more content…
Profitability ratios can also be used to determine how a company fares compared to its competition. Through profitability ratios, owners can learn how well they use sales, assets, and equity to generate profits (Kim & Avoun, 2005). The most common profitability ratios are gross profit margin, net profit margin, and return on investment. Their restaurant industry averages are 0.22, 0.02, and 0.06 (Wang, 2012). Net profit margin is calculated as: Net profit margin = Earnings after taxes / sales. Harlequin and Brine net profit margin is 0.04, doubling the industry average. This has been achieved by selecting a high traffic yet low rent area where the sales are increased and the operational costs are

• ## Analysis Of Walmart's Cash Cycle

The quick ratio which measures short term obligations, suggests that Wal-Mart is capable to pay its creditors and has above average number than the industry. The inventory ratio proves Wal-Mart is the best as it sells a lot more products than its competitors. The inventory is always moving because Wal-Mart sets its prices to sell. The debt ratio of Wal-Mart is good but not the best however has done better than most of its competition. Wal-Mart has a larger net worth and market cap than any of its competitors.…

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• ## Average Order Value Analysis

Be sure to set your threshold slightly above your average transaction total, but not to much higher. If your average transaction is \$30 setting free shipping at \$75 is quite a jump for your average consumer. 3. “Cash- Back” - Brings Them Back! While “free” is undoubtedly the single most effective draw in sales, “cash back” isn’t far behind.…

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• ## Finacial Analysis Of The Capstone Courier Financial Statistic

Finacial Analysis According to the rehearsal round of the Capstone Courier financial statistic, my company (Andrew) performed better comparing to the other two companies. As profit is one of the main performance measures, my company’s yearly profit came out to be \$12, 5389,134. Baldwin and Chester profited \$9,981,809 and \$12, 000, 2333 which places my company a head when it comes to profit. The following are more ratios to illustrate my company’s performance, * ROA- 10.9% comparing to 8.4% and 10.9% of the competitors, this indicates that my company is relatively more efficient using the assets to generate earnings. * ROE- 19.4% comparing to 16.4% and 19.7% of the competitors, this shows that my company had a fair amount of profit generated with the money shareholders have invested ranking slightly under Chester Company.…

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• ## Restaurant Budgeting Case Study

Also, you can evaluate it by getting profit percentage forecast by diving profit forecast by revenue forecast. #25. Also managers can compare with standards, targets, or other similar business through the benchmarking process. If you want to know what forecasted profit per guest will be, you can get it by dividing forecasted profit by the forecasted number of guests served. (Profit per Guest Served = Profit ÷ the number of guests) served See the example in notes page from the textbook.…

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• ## Anatomy Of A Successful Restaurant Essay

Do you know what a successful restaurant looks like? The anatomy of a successful restaurant will focus primarily on where every dollar is spent, and how to churn out as much profit for each dollar. Knowing where exactly your money goes is vital to being successful. But placing your money in the right areas can be challenging. That is, until now.…

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• ## Moserk Company Ratio Analysis

A business with a high quick ratio can easily pay back its liabilities. With a low ratio at 0.20 for Moserk (average 0.75), this shows that they do not have the ability to pay back these debts very quickly. Improving this number will encourage investors to further conduct business with the company. Looking at the Gross Profit Margin could help to promote more positive thoughts. The higher the profit margin is will show that the company retains a greater profit on each item.…

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• ## Ratio Analysis For Great Service Cleaning And Maintenance Company

The ratio for 2013 is 1.205:1 and for 2014 is 1.472:1. For calculations, please see Appendix B. The increase in the ratio shows that current assets grew faster than current debt. This is a positive sign for short-term lenders as the company is better positioned to cover its debt making it a safer…

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• ## Financial Budgeting

According to the Hoyle, Schaefer, and Doupnik (2013), “budgeting is an essential element of the financial planning, control, and performance evaluation processes of many” businesses and government entities (p. 706). Even though historical information is used to forecast activities, a budget is a tool to plan future transactions (Boyd, 2013). As a result, firms must use various budgets, such as operating and financial budgets to outline an organization’s financial plan. The primary purpose of any company is to maximize profits at the lowest possible cost (VanDebeck, 2010). To accomplish this objective, budgets must meet several requirements, including realistic and achievable goals (VanDebeck, 2010).…

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• ## Feasibility Study Of A Restaurant

And this analysis help to the solving the unemployment problem by giving work and also help to the environment. (4) Financial Analysis : Without finance we can’t start a restaurant so first of all we make a budget that where to spend money and form where we can get the more revenue. Raising of funds includes the long-term and short-term sources of finance by which we can arrange the money for starting our restaurant. It also includes that how many cost and expenses we also check that how many amount to be needed in advertisement. (5) Technical Analysis…

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• ## Comparison Of Profit And Earnings

It is calculated: Profit = Total Revenue – Total Expenses Profit before tax (PBT) is a profitability measure that shows company's profits before the company pays corporate income tax. It deducts all expenses from revenue including operating expenses and interest expenses, leaving the payment of tax. PBT gives investment analysts helpful information for evaluating a company’s operating performance without tax. It exists because tax expense is continually changing and taking it out helps investor giving him a good idea of changes in a company's profits or earnings from year to year. For example, the income statement of company XYZ looks like: Sales revenue \$…

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