Temasek Polytechnic Hospitality & Tourism Management Management Accounting & Finance for Hospitality & Tourism
Study Preparation
Lesson 1: Introduction
Types of Business Sole Proprietorship – owner has total control over resources and operations
Partnership – 2 to 20 persons, formed by agreement, profit and losses are split. • Limited Partnership: at least one general and one limited partner. • Limited Liability Partnership: no general partners, only certain types of business.
Company • Private: max. 50 members, cannot invite public to subscribe shares, restrictions on right to transfer shares. • Exempt Private: max. 20 members, do not need to declare to ACRA, family-owned businesses. • Public: large business, invite public to buy shares, may be listed on Stock Exchange.
Profit & Cost Centres Profit Centre
Cost Centre
• a centre which manager is responsible for both revenue and costs e.g f&b outlets, rooms division.
• a centre which is responsible only for the costs incurred e.g HR, Sales & Marketing departments.
P&L Statement Comprises mainly of 3 sections: 1. Operating Department’s Results (profit centres) 2. Undistributed Operating Expenses (cost centres) 3. Fixed Charges (hotel-wide expenses)
Lesson 2: Revenue, Purchasing & Inventory Cycle
Guest & City Ledger
Guest Ledger
City Ledger
• Receivable ledgers from all in house guests.
• Receivable ledgers for debtors other than in house guests.
Revenue Cycle (Rooms Division) 1. Guest checks In. 2. Room folio is created – source document for in-house guests. 3. Night Audit is run – charges are updated nightly. 4. System looks for folio with valid occupied room status.
5. System post room rate into room folio#. 6. Room revenue captured in daily sales journal. 7. Accumulated room revenue posted to general ledger at the end of the month.
# Dr Guest Ledger Cr Room Revenue
Lessons 3 & 4(A): Management of Working Capital
WC = CA – CL CA WC
FA
CL LTL OE •Shared capital •Retained earnings (profit)
Profitability: • Relationship between revenue and costs (expenses). • Investment in CA is less profitable than FA.
Risk: • Probability that firm will be unable to pay bills when due. • Insolvency.
Profitability & Risk
Too little CA increases profitability but also increases risk of not being able to pay.
Too much CA reduces risk but also reduces profitability.
Cash Management Strategies Speed up cash receipts by collecting A/R asap efficient mailing Turn over inventory system, accelerating asap. collection efforts, collect cheque by hand, use collecting services, direct bank transfers.
Slow down A/P by paying as late as possible without damaging firm’s credit standing.
A/R Management
Credit Policy Who to extend the credit to How much For how long (credit selection) credit to extend based on profile, (credit terms). (credit line). financial status, collaterals etc.
Inventory Management 1. Stock too low = stock out = loss of sales, loss of customers, interruption to production and operation. 2. Stock too high = higher holding cost, product becomes obsolete due to change in customer preference.
Daily Usage Rate
Amount of shelfspace
Ordering Cost
Amount of time needed to place and receive order.
Holding Cost
Major Sources of WC Net Profits*
Proceeds from sale of long-term/ fixed assets.
Additional long term borrowing.
Additional capital from shareholders.
Major Uses of WC
Financing loss from operations.
Purchases of long term or other assets.
Reduction of share capital.
Principal repayments of long term liabilities.
Payment of dividends (tied to shareholders).
Lesson 4(B), 5 & 6(A): Financial Analysis
Ratios
Liquidity
Solvency
Profitability
Activity
Operating
Liquidity – measures the firm’s ability to meet its current liabilities. Current Ratio
Acid-Test Ratio
= CA/CL
= CA-InventoryPrepaid Expenses/ CL
A/R Turnover
Avg. Collection Period
= Cr Sales Revenue/ Avg A/R
= 365 days/ A/R Turnover
Solvency – ability of company to meet all of its financial obligations.
Solvency Ratio
= TA/TL
Debt-Equity Ratio = TL/TOE
Activity – measures management effectiveness in using its resources.
Inventory Turnover = COGS/ Avg. Inventory
Profitability – evaluate the profitability of the business, overall performance, efficiency in managing assets and equity. Gross Profit Margin
Net Profit Margin
ROA
= Gross Profit/ Total Revenue
= Net Profit/ Total Revenue
= Net Profit/ Avg. Total Asset
ROE = Net Profit/ Avg. Owner’s Equity
EPS
= Net Profit/ No. of Ordinary Shares Issued
P/E Ratio = Market Price Per Share/ EPS
Operation – monitor operating performance, evaluate success in meeting goals, budgeted plans. Occupancy Percentage
Avg. Room Rate
Room Yield
= no. of roomnights sold/ no. of room night available.
= room revenue/ no. of room sold.
= occupancy percentage X avg. room rate.
Dbl Occupancy Percentage = room occupied by 2 or more ppl/ no.of rooms occupied by guests (rooms sold + comp rooms).
Avg. Occupancy per Room
= No. of Guests (paid guest + comp rooms)/ no. of rooms occupied by guests.
Avg. Length of Stay = rooms occupied for a period of time/ no. of guest registered during that period.
Avg. food service check = total food revenue/ no. of food covers Food cost percentage = cost of food sold/ food sales
Labour cost percentage = labour cost by departments/ department revenue.
Other operating expenses ratio = xx department expenses/ department revenue.
Lessons 6(B) & 7: Costing a Product or Service
Costs. Variable Cost • Food Cost, Beverage Cost, Room Supplies etc.
Fixed Cost • Rent Expense, Depreciation Expense, Insurance Expense etc.
Mixed Cost • Telephone Expense, Marketing manager’s salary etc.
Costs
Direct Cost • Cost that can easily be traced to a particular cost object – food cost etc.
Indirect Cost • Cost that cannot be easily traced – maintenance cost etc.
Bases of Cost Allocation Rent Expense • Square feet of area occupied.
Telephone • No. of telephone extensions.
Marketing • Ratio to sales revenue.
Engineering • No. of jobs ordered.
Lesson 8: Pricing a Product or Service
REFER TO PRACTICE PAPER AND ACTUAL LECTURE NOTES.
Lessons 9 & 10(A): Cost-VolumeProfit Approach to Decisions
Profit Equation
Sales Revenue – TC (VC+FC) Sales Revenue – VC – FC
(Price X Qty) – (VC per unit X Qty) – FC
Big Picture
Units = FC + Profit P - VC
Lessons 10(B) & 11: Planning & Budgeting
Big Picture Variance
Revenue – Expense = P/L
• Price Increase = F • Qty Increase = F
Variance • Price Increase = UF • Qty Increase = UF
Variance Analysis Situation
• Revenue
• Expense
• Actual above budget • Actual below budget • Actual above budget • Actual below budget
Variance • Favourable • Unfavourable • Unfavourable • Favourable
Lessons 12 & 13: Capital Investment Decisions
Big Picture Fv = Pv*(1+i)n Table A Pv = Fv*1/(1=i)n Table B Pv = Fv Annuity*∑ 1/(1+i)n Table C
REFER TO PRACTICE PAPER AND ACTUAL LECTURE NOTES.
THE END & REALLY GOOD LUCK TO YOU HAMIZAN ROSLAN