Question

Analyzing thedepartment ratios and determine how they can be improved to compete with the industry and and budget ratios.

4 Food and Beverage Department Ratios Budget 31% 20X4 20X3 Industry 36% 20X5 Food Cost Percentage 26.00% Food Inventory Turnover 10 31 28.74 Beverage Inventory Turnover 23 27 24.6 Average Food Service Check $4.46 $3.88 $6.63 $6.01 4 Overall Department Ratios 20X5 20X4 Accounts Recievable Turnover 17.21 19.13 13.8 12.4 Average Collection Period 21.21 19.08 26 31 Operating Efficiency Ratio 25% 27% 20% 31 . 50% 29.00% Profit Margin 4% 6% 2% 11 .50% 12.10%

Answer 1

* Food Cost percentage; Food cost percentage is ratio of total food cost incurred to that of generating total revenue from that food items. Average healthy ratio is ranges from 25% to 35%. So we can say that for this firm, ratio of 26% (for year 20X5) sounds helathy and is better if we compare from Industry of 36%.Since budget is 31%, so we still have some margin to improve customer satisfaction by increasing the cost on ingredients and hiring more labour for serving the requirements.

*Food Inventory turnover; Inventory turnover is ratio of cost of foods sold to that of average food inventory in a given time period.

Higher the Inventory turnover ratio better the firm is performing as it is quickly selling it's product as thier is huge demand of it's product. In current aspect it is 10% which is less than Industry of 28.74% in 20X5. So we can say that demand is less compared to Industry average .It also means is the company is properly managing it's stock and doing proper demand planning for it's product. Lesser this ratio indicates lesser sales and thus less profit.

Beverage Inventory turnover; As Inventory turnover ratio explained above, same implied here, only thing changes here is Inventory accountaible is only beverages. We can see in current aspect ratio of 23 is less than Industry and budget ratio. So this tells us that we can improve and we have to work on our strategy to improve the ratio and enhance the sales.

Average food service check; This is also very important parameter by which service industry espicially hotels etc can improve their profit margin by concentrating on service check.Though it incurs some cost, but in doing so in future it comes with good profit and customer faith for the hotels. We can easily say that for this firm, it is less than Industry for given time frame. So it is performing slow on this aspect and losing some parts of revenue. Also with poor service, losing customer faith which is also a costly affair.If we compare form budget, then it is 6.63 which still gives some balance, and they can work on it. An early check on service, gives one edge on improving their profit margin and customer loyality.

Accounts receivable turnover; This ratio indicates how many time company realises account receivables into cash in given time period.This shows how efficient a firm is in collecting it's sales from the customer.

Account receivable turnover = Net credit sales/ Average accounts receivable in given time period

Higher this ratio higher , higher is the liquidity of the company.We can see in current aspect it is higher than Industry for all the given year.It means this company is quickly realising cash from it receivables as compare from Industry average.

Average collection Period; This is ratio of number of days in given period to that of receivables turnover.Means, average number of days it takes for the company to receive invoiced amounts from the customer.Lesser the period better is the liquidity of the company.

So for any given year it is, ACP = 365/ Receivable turnover

In current aspect for all given year we can see the ACP is less than Industry, so this company is performing better than Industry average, eventhough it has budget margin of 26, but working more efficient with current performance.

Operating efficiency ratio; This is ratio of operating cost to that of net sales in any given time period.

Operating cost is equal to cost of goods sold plus other operating expenses.In current aspect if we consider for year 20X5 which is 25%. This means 25% of sales revenue would be used to cover the cost of good sold and other operating expenses. A low ratio indicates higher profits.Here in all given year, if we compare from Industry average then company performnce is better with lower ratios compared with industry average and budget ratio.

Profit Margin; It is the ratio of net profit to that of sales.

Net profit is calculated by subtracting all the company expenses( Operating cost, material cost, tax cost) from it's revenue. This ratio indicates for each sales how much company is keeping as earnings.In current aspect for year 20X5 it is 4%. This means company has $0.04 as net income for each dollar of sales.Here if we compare profit margins in all years with Industry , then we see that it is lesser.This means that this company has lower sales as compared to other companies in this Industry.