Business Finance
TCA 321 UNLV Hotel Manager Skills Discussion

TCA 321

University of Nevada Las Vegas

TCA

Question Description

I don’t understand this Management question and need help to study.

Assignment Instruction from the professor:

Based on what you have learned in this class (i.e., CH1-CH5), explain how you would use the knowledge and skills obtained from this class for your future career.

Format/Submission Instruction:

  • Your assignment should be typed using MS Word (One page, double-spaced; font size: 12).
  • In the upper left corner of your assignment, type your name. Do not need to include the course name or professor's name.
  • One point will be deducted per grammar error.

* I will upload the lecture Powerpoints and the handouts that we learned in class (Ch.1-Ch.5). All I learned in this class will be on the PowerPoints and the handouts. Please look over the slides and handouts before write this paper. My future career will be a general manager at the dining restaurant, but I am not quite sure. You can choose any career to write this paper, but it should be related to the hospitality field.

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Chapter 1 Introduction to Managerial Accounting Hospitality Industry Managerial Accounting 8th Edition TCA 321 Dr. Jungsun (Sunny) Kim Key leaning outcomes from this chapter 1. Describe characteristics of the hospitality industry and identify the major function of hospitality accounting. 2. Apply generally accepted accounting principles (GAAP) to hospitality situations. 3. Distinguish between cash basis accounting and accrual basis accounting. 4. Explain the fundamental accounting equation and identify debit and credit accounts. 5. Explain the steps in the accounting cycle. 1     ➢ - Seasonality of Business (p. 6) Short distribution chain and time span (Less than 5% of total assets as inventory for resale) Labor intensive (20-50% of total revenue) Major investment in fixed assets (55-85% of total assets) (why?) What accounting does in our industry? Provide financial information, statements, and reports to various users (Who are users?) - External users: Lenders and investors Internal users: managers, executives, shareholders 2 2.Generally Accepted Accounting Principles (GAAP) (pp. 10-15) (1) Cost: When a transaction is recorded, it is the transaction price or cost that establish the accounting value for the product. - Ashley recorded a hotel building at the purchase price of $1,500,000 when the market value is $1,750,000. (2) Business entity: Accounting and financial statements are based on the concepts that (1) each business is a business entity that maintains its own set of accounts, and (2) these accounts are separate from the other financial interests of the owners. - Kevin, a restaurant owner, decided to take some sushi home for his dinner. He has to record the cost of the sushi as a withdrawal. (3) Continuity of the business unit: We do not assume that we will shut down (liquidate) our business next year - Robert purchased a new limo. The cost is $50,000, however, the resale value will be $30,000. The limo recorded at cost and will be written off over the next five years rather than written down immediately. 3 2.Generally Accepted Accounting Principles (GAAP) (4) Unit of measurement: The financial value stated in financial statements should represent a stable unit of value (e.g., US$). - If we had huge inflation (e.g.,$1 in 2006 → $5 in 2008), you need to show current replacement cost in footnotes of your financial statements. (5) Objective evidence: Accounting transactions and the resulting accounting records should be based as much as possible on objective evidence - Kim contributed her Accord to her restaurant. She strongly believes her car is worth of $20,000, but the business records it with its Blue-Book (appraiser’s) value of $18,000. (6) Full disclosure: The financial statements must provide information on all the facts relevant to the interpretation of the financial statements. - Mr. Park’s hotel describes its depreciation method and inventory valuation method in the footnotes of the financial statements. 4 2.Generally Accepted Accounting Principles (GAAP) (7) Consistency: Once an accounting method has been adopted, it should be followed in future accounting periods unless a change is warranted and disclosed. - If Starbucks used a straight-line depreciation method in 2007, the company must use the same depreciation method in 2008 unless a change was warranted and disclosed. (8) Matching: Expenses should be matched with revenues they generated. → Related to Accrual basis accounting - Credit card fees of $10 should be recorded as expenses during the accounting period in which the generated sale of $200 is recorded. (9) Conservatism: Recognizing expenses as soon as possible, but delaying the recognition of revenues until they are ensured. - Kristine, a restaurant owner, reduces its tomato inventory value of $1000 (original cost) to $800 in order to reflect the market value. 5 2.Generally Accepted Accounting Principles (GAAP) (10) Materiality: Events must be recorded if they make a difference as determined by standard of comparison. - Spencer, a hotel manager, replaced ten frames ($10/frame) in his office and recorded his spending of $100 as “expense”, not as “equipment” because the value was too low to be recorded as fixed assets. The company set a $1,000 limit for recording expenditures as fixed assets. - Companies generally establish this limit by rules of thumb (e.g., 5% of net income or 1% of total assets) 6 7 3.Cash VS. Accrual • Cash basis accounting: recognizes accounting transactions at the point of cash inflow or outflow • Accrual basis accounting: recognizes “revenues” when earned and “expenses” when incurred, regardless of when cash actually changes hands (e.g., wages expense, insurance expense) http://www.youtube.com/watch?v=3RxJFyUPu_o • You purchased 50 bottles of wine Aug1, 2012 and sold them in your restaurant during August. You received a bill of $500 on Aug 23, but you will pay it on Sep 1. At the end of this month, you will record the expense of $500 when you use accrual basis. 8 4. The Six Branches of Accounting • Financial accounting (Preparing and distributing report) • Cost accounting (concerning with recording, allocating, and reporting current and future costs) • Managerial accounting (preparing performance reports, including comparisons to budget; providing in-depth information as a basis for management decisions) • Tax accounting (performed by specialists) • Auditing (providing opinions on reports/ by certified public firms) • Accounting systems (Review information systems) 9 5. Fundamental Accounting Equation Assets = Liabilities + Owners’ Equity (What my company has) (How my company got them) (1) A: Cash, Account receivables, Inventory, Building, Equipment, and Land (2) L: Payables, and Accrued payroll (wage) (3) OE : Permanent = Capital stock and Retained earning : Temporary = Revenue and Expenses A = L + POE + R - E 10 6. Normal Account Balances (Debit/Credit) (p.17-18) Let’s assume you are a hotel manager. Asset — debit (+) (What your company own) Liability — credit (+) (What your company owes to third parties) Owners’ Equity Permanent — credit (+) (What your company owe to the company’s investors) Owners’ Equity Revenue — credit (+) (It increases owners’ equity) Owners’ Equity Expense — debit (+) (It decreases owners’ equity) Contra asset accounts generally show a credit balance • • Accumulated Depreciation Allowance for Doubtful Accounts. 11 6. Normal Account Balances (1) Which of following account types normally has a debit balance? a. Liability b. Revenue c. Owner’s equity d. Asset (2) Permanent owner’s equity accounts have what kind of normal balance? 12 13  Try Problem 13 (#1 - #3) AGAIN… 14 Chapter 5 Ratio Analysis Dr. Sunny Kim TCA 321 0 © 2006, Educational Institute Topics we will cover in this chapter 1. Identify standards against which the results of ratio analysis may be compared. 2. Explain the purposes of ratio analysis. 3. Identify 5 common classes of ratios and describe the general purpose of each. 4. Calculate common liquidity and solvency rations and describe how creditors, owners, and managers view them. (ability to meet short-term and long-term obligation, debts). 6. Calculate common activity, profitability, and operating ratios and describe how creditors, owners, and managers view them. 7. Summarize the limitations of ratio analysis. 1 © 2006, Educational Institute (continued) 1. Potential Ratio Standards ALONE - RATIOS ARE NEUTRAL MUST COMPARE - TO BE AN INDICATOR  Ratios from a past period  Industry averages  Direct competitors’ ratios  Budgeted or planned ratios 2 © 2006, Educational Institute 2. Purposes of Ratio Analysis  Managers use ratios to monitor operating performance and evaluate their success in meeting goals.  Creditors use ratios to evaluate the solvency of a business and to assess the risk of future loans.  Investors and potential investors use ratios to evaluate the performance of a business and the business’s ability to generate profits for the investors.  Ratios reveal important information that may not be obvious or apparent in the financial statements. 3 © 2006, Educational Institute Creditors, Investors, Managers  All want something different from ratio analysis.  Each has needs that may contradict the others.  KEEP THIS IN MIND! (You will want to know what each is looking for as this will be part of the next exam!) 4 © 2006, Educational Institute 3. Five Classes of Ratios  Liquidity- ability to meet short-term obligations  Solvency- ability to meet long-term debts  Activity- how well management is using the company’s assets  Profitability- how much “profit” is being made  Operating- detailed analysis of operating departments 5 © 2006, Educational Institute (1). Common Liquidity Ratios 1. Current ratio 2. Acid-test ratio (quick ratio) 3. Accounts receivable turnover (ART) 4. Average collection period 5. Working capital turnover 6 © 2006, Educational Institute (1-1). Current Ratio  Current Assets/Current Liabilities ❖ Owners (=shareholders) normally prefer a low current ratio (=Low CA & High CL) to a high one because investments in most current assets are less productive than those in noncurrent assets. ❖ Creditors want a high current ratio, as this provides assurance that the company can make payments on debt. ❖ Managers are in the middle. 7 © 2006, Educational Institute (1-2). Acid-Test (Quick) Ratio  Measures liquidity by only considering “quick assets” Cash+ Marketable securities + Accounts receivable Current liabilities  Inventory and Prepaid expenses are not used: It can make lots of differences between this ratio and current ratio. ❖ Owners prefer low ratio (less than 1) ❖ Creditors prefer high ❖ Managers are in the middle 8 © 2006, Educational Institute (1-3). Accounts Receivable Turnover (ART) • Measures the speed of the conversion of accounts receivable (A/R) to cash • Revenue/Average accounts receivable ➢ Average accounts receivable = (A/R from the last year + A/R from this year)/2 ❖ Owners like a HIGH ART means A/R is being managed well. ❖ Creditors like a HIGH ART as it means the company will likely have more cash readily available to pay debt. ❖ Managers like a LOWART since offering credit helps maximize sales. 9 © 2006, Educational Institute (1-4). Average Collection Period  365days/Accounts Receivable Turnover  This conversation simply translates the turnover into a more understandable result.  Generally, the time allowed for average payment should not exceed the terms of sales by more then 7-10 days. E.g., If the terms of sales are n/30 (entire amount is due 30 days), the maximum allowable average collection period is 3740 days. 10 © 2006, Educational Institute (1-5). Working Capital Turnover (WCT) • Working capital (WC) = Current Assets – Current Liabilities • Revenue/Average Working Capital • E.g., Working capital turnover of 17 means that working capital was used 17 times to generate sales during this year. • How effectively is the company using its working capital to generate sales? ❖ Owners prefer a HIGH working capital turnover ratio ❖ Creditors prefer a LOW working capital turnover ratio (High WC) ❖ Management falls in between once again 11 © 2006, Educational Institute (2). Common Solvency Ratios     Measures the “cushion” that is available to absorb any losses Used primarily by lenders Lenders prefer less risk Leverage refers to how much long-term debt financing is being used by a company:  “High Leverage” = Lots of long-term debt  “Low Leverage” = Little long-term debt 1. Solvency ratio 2. Debt-equity ratio 3. Long-term debt to total capitalization ratio 4. Number of times interest earned ratio 5. Operating cash flows to total liabilities ratio 12 © 2006, Educational Institute (2-1). Solvency Ratio  Total Assets/Total Liabilities  Greater the leverage, the lower the solvency ratio. ❖ Owners want a LOW solvency ratio as that means greater return from leveraging (Note: “Total Liabilities” is the denominator). ❖ Creditors want a HIGH solvency ratio as that means less risk to their investment. ❖ Managers are neutral. 13 © 2006, Educational Institute (2-2). Debt-Equity Ratio  Total Liabilities/Total Owners Equity  Most common Solvency Ratios.  Compares the companies debt to its net worth (Net worth = Owners Equity).  Shows ability to meet long-term debts.  Owners want a HIGH debt-equity ratio as that means greater return from leveraging (Note: “Total Liabilities” is the numerator)  Creditors want a LOW debt-equity ratio as that means lest risk to their investment 14 Managers are neutral © 2006, Educational Institute (2-3). Long-Term Debt to Total Capitalization Ratio  Long-term Debts/(Long-term Debts + Owners Equities)  Current liabilities excluded in the numerator because current assets usually can cover them. ❖ Owners prefer HIGH because of they want high returns through leverage (Note: “Long-term debts” is the numerator). ❖ Creditors want LOW. ❖ Managers are in the middle! 15 © 2006, Educational Institute (2-4). Number of Times Interest Earned Ratio  EBIT / Interest Expense  EBIT (Earning before Interest and Taxes) in Income Statement = Operating Revenue – Operating Expenses + any additional gains = Net income + Income taxes + Interest expense  Greater the number of times interest is earned, the greater the safety for creditors.  E.g., The result of 5.8 times shows that a hotel could cover its interest expense by over five times.  All (owners, investors, managers) prefer high ratio 16 © 2006, Educational Institute (2-5). Operating Cash Flow to Total Liabilities Ratio  Operating Cash Flow/Average Total Liabilities  All users prefer a high ratio.  The cash flow from operating activities should be high as this is where the majority of cash inflows come from. 17 © 2006, Educational Institute (3). Common “Activity” Ratios  They measure management effectiveness in using its resources.  Management is entrusted (delegated) with the assets of the company so this is a way owners and creditors can evaluate their performance. 1. Inventory turnover 2. Paid occupancy percentage 3. Average occupancy per room 4. Seat turnover 18 © 2006, Educational Institute (3-1). Inventory Turnover  Cost of food (beverage) used /Avg. Food (beverage) Inventory  Shows how quickly the inventory is being used.  Quicker inventory turnover equals less spoilage and less inventory expense to maintain.  Food and Beverage is calculated separately. ❖ All wants high food and beverage turnover : However, increasing turnover rate may cause low stock problems. Guests may hear “we ran out”… 19 © 2006, Educational Institute (3-2). Occupancy related ratios  Managers’ success is measured by how well they sell their products!  Paid Occupancy percentage = (# of paid rooms occupied/# of available rooms) × 100 (Available rooms per year = # of rooms available per day × 365days)  Seat turn-over rate is used in restaurants = # of people served /(# of seats × # of days open) • Average occupancy per room (Unit=guests) = (# of guests/ # of rooms occupied by guests) = (# of paid guests + # of guests in complimentary rooms)/(# of rooms sold + # of complimentary rooms occupied) • 20 All (creditors, investors, and managers) want HIGH ratios. © 2006, Educational Institute (4). Profitability Ratios  The primary function of most organizations is to generate profit.  Owners and Investors want to increase their wealth through dividends and through increase prices in stocks.  Managers want high profits as it reflects their efforts in the organization.  Low profits can equal poor management practices.  Low profits generally mean the owners will be looking for another manager!!! 1. Profit margin 2. Operating efficiency ratio 3. Return on owners’ equity (ROE) 21 4. Earnings per share © 2006, Educational Institute (4-1). Profit Margin  Net Income/Total Revenue  Measures management’s ability to generate sales and to control expenses  Poor pricing and low sales volume lower Profit Margin.  All parties want a HIGH profit margin. 22 © 2006, Educational Institute (4-2). Operating Efficiency Ratio  Gross Operating Profit/Total Revenue  Gross Operating Profit (GOP) = subtracting “Expenses controlled by management” from “Revenue”  All parties want a HIGH Operating Efficiency Ratio. 23 © 2006, Educational Institute (4-3). Return on Equity (ROE)  Net Income/Average Owners Equity  Measures managements ability to produce for the owners  Compares profits of the organization to owners investments  Owners want high ROE 24 © 2006, Educational Institute (4-4). Earnings Per Share (EPS)  Net Income/Average Common Shares Outstanding  All want a high ratio.  However, an increase in EPS is not always a good thing.  A rise in EPS can be the result of the company repurchasing its own stocks (treasury stock). -Treasury stock is capital stock of a corporation that the company has repurchased for future issuance → Making 25 common stock reduced. © 2006, Educational Institute 5. Common Operating Ratios • Management day to day ratios • Every expense divided by total revenue • Departmental revenue divided by total revenue 1. Mix of sales (departmental revenues) 2. Average room rate (ADR) 3. Revenue per available rooms (RevPAR) 4. Food cost percentage 5. Beverage cost percentage 6. Labor cost percentage 26 © 2006, Educational Institute (5-1). ADR (Average room rate, Average daily rate) & RevPAR (Revenue per available room)  ADR = Rooms revenue / # of rooms sold  Paid OCC% = (Paid Rooms Occupied/ # of available rooms)  RevPAR = Rooms Revenue/ # of available rooms = Paid occ% × ADR e.g., Hotel A: Paid occ % = 90% and ADR = $100 Hotel B: Paid occ % = 95% and ADR = $90 Which one is in the preferable condition? ❖ All (owners, investors, and management) want HIGH ratios! 27 © 2006, Educational Institute 4. Limitations of ratio analysis  Ratio analysis does NOT solve problems. Ratios only indicate that you may have a problem!  Ratio analysis does NOT determine the causes of variances between planned goals and actual results.  Ratios must be compared to something meaningful. Most useful when compared to: • Ratios from past periods • Industry averages (or competitors’ ratios) • A budgeted figure  Multiple ratio analysis is needed to truly understand the organization. 28 © 2006, Educational Institute Chapter 4 The Statement of Cash Flows Dr. Sunny Kim TCA 321 © 2006, Educational Institute Competencies for The Statement of Cash Flows 1. Explain the purposes of the statement of cash flows and how the statement is used by hospitality managers. 2. Identify cash flows as reported on the statement of cash flows in terms of operating activities, investing activities, and financing activities. 3. Describe the four-step approach to preparing the statement of cash flows. 1 © 2006, Educational Institute (continued) 1. What is Cash?  “Sources of cash”  “Uses of cash”  Cash is defined as both cash and cash equivalents.  Cash equivalents are short-term, highly liquid investments such as U.S. Treasury bills and Money Market Accounts (saving accounts offered by banks and credit unions) 2 © 2006, Educational Institute 2. Purpose of Statement of Cash Flow  Information regarding cash receipts and cash payment (I/S is prepared on an accrual basis ...
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Surname 1
Name of student
Date

Hotel Manager Skills
As a hotel manager, I would do a functional analysis of costs. Analyzing costs will help to
determine the money spend on buying things such as drinks, foods, new beds and beddings in the
hotel. Once I have examined this kind of expenditure, I will find ways of making more sales
through the marketing of new and existing products and services. After doing this analysis, then I
will be able to make decisions on what to add to increase the profits.
Ensuring a clear definition of budgets is of importance. Budgets are best done when they
match the...

Lincolvin (13535)
University of Maryland

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