Chapter 10

Ratio Analysis of the

Balance Sheet
Accounting for Hospitality Managers
Fifth Edition
(362TXT or 362CIN)

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 Competencies for
Ratio Analysis of the Balance Sheet
1. Describe the use of ratios in the analysis of a hospitality
business balance sheet.
2. Explain the purpose and use of the current ratio, and describe its
formula and interpretation.
3. Explain the purpose and use of the quick ratio, and describe its
formula and interpretation.
4. Explain the purpose and use of the accounts receivable turnover
ratio, and describe its formula and interpretation.
5. Explain the purpose and use of the average collection period
ratio, and describe its formula and interpretation.

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 Competencies for
Ratio Analysis of the Balance Sheet
(continued)

1. Identify the formulas for food and beverage inventory turnover.

2. Explain the purpose and use of the fixed asset turnover ratio,
and describe its formula and interpretation.
3. Explain the purpose and use of the debt-to-equity ratio, and
describe its formula and interpretation.
4. Explain the purpose and use of the assets-to-liabilities ratio, and
describe its formula and interpretation.
5. Describe the computation, composition, and importance of
working capital.

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 Ratios for Analyzing the
Balance Sheet
• Current ratio
• Quick ratio
• Accounts receivable turnover ratio
• Average collection period ratio
• Inventory turnover ratio
• Fixed asset turnover ratio
• Debt-to-equity ratio
• Assets-to-liabilities ratio
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 Current Ratio
Current Assets
Current Liabilities

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 Quick Ratio
Cash + Short-Term Investments + Receivables (Net)
Current Liabilities

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 Accounts Receivable Turnover Ratio
Net Revenue
Average Accounts Receivable (Net)

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 Average Collection Period Ratio
365
Accounts Receivable Turnover

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 Inventory Turnover Ratio
Cost of X Used
Average X Inventory

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 Fixed Asset Turnover Ratio
Net Revenue
Average Fixed Assets

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 Debt-to-Equity Ratio
Total Liabilities
Total Equity

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 Assets-to-Liabilities Ratio
Total Assets
Total Liabilities

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 Computation of Working Capital
Current Assets
– Current Liabilities
Working Capital

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