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Fast Food Business Finance

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Sonoma State University
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Running Head: FAST FOOD BUSINESS FINANCE 1
Fast Food Business Finance
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FAST FOOD BUSINESS FINANCE 2
Fast Food Business Finance
There are various financial ratios used to evaluate businesses in the fast-food industry.
The first one is the current ratio. It’s calculated by dividing the assets on hand by all incurred
liabilities. If the fast-food restaurant gets a ration greater than one, it’s evident that it can only
use short-term assets to pay short-term debts if liquidation is inevitable (Gorton, 2019). It
indicates that the firm can pay for items on a short term basis, such as staff wages, foods, and
beverages.
The second ratio is inventory turnover. Fast food businesses mostly perishable stock
items; thus, managers must maintain optimum stock levels. The ratio is calculated by dividing
net sales by the average cost of inventory. A turnover of less than seven days is suitable for fast
food shops dealing with fresh stock. A higher metric shows that the industry is risking stock-outs
(Gorton, 2019). A metric lower than the average means that the purchases are high and the food
quality is downgrading due to stale products in the store.
The third one is the specific food cost to the total food cost ratio. It’s used to measure the
real expenses of each product listed in the menu (Gorton, 2019). The ratio is mostly used when
planning for a change in the menu. Fast food businesses use the ratio to determine the
discontinuation of any menu item.
The fourth ratio is the prime costs to total costs. Prime costs include expenses for wages,
beverages, foods, and benefits for staff. The metric holds that prime costs should be no more
than 65% of any restaurant's total sales (Gorton, 2019). The prime costs are typically 60% or less

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Running Head: FAST FOOD BUSINESS FINANCE Fast Food Business Finance Student’s Name: Institution Affiliation: 1 FAST FOOD BUSINESS FINANCE 2 Fast Food Business Finance There are various financial ratios used to evaluate businesses in the fast-food industry. The first one is the current ratio. It’s calculated by dividing the assets on hand by all incurred liabilities. If the fast-food restaurant gets a ration greater than one, it’s evident that it can only use short-term assets to pay short-term debts if liquidation is inevitable (Gorton, 2019). It indicates that the firm can pay for items on a short term basis, such as staff wages, foods, and beverages. The second ratio is inventory turnover. Fast food businesses mostly perishable stock items; thus, managers must maintain optimum stock levels. The ratio is calculated by dividing net sales by the average cost of inventory. A turnover of less than seven days is suitable for fast food shops dealing with fresh stock. A higher metric shows that the industry is risking stock-outs (Gorton, 2019). A metric lower than the average means that the purchases are high and the food quality is downgrading due to stale products in the store. The third one is the specific food cost to the total food cost ratio. It’s used to measure the real expenses of each product listed in the menu (Gorton, 2019). The ratio is mostly used when planning for a change in the menu. Fast food businesses use the ratio to determine the discontinuation ...
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