MFD LU 1
LU 1.1
Financial Statements
Balance Sheet Income Statement Cashflow
Statement LU4
- Statement of a - overview of how much a 1. Operating
financial position company has earned (revenues,
- Prepared at end of over a period of time expenses)
each accounting period - considered most useful 2. Investing
for management 3. Financing
Left (shows how
Assets: Represents: you can use
Current Revenues your cash)
Non-current - inflow of assets
- Reduction of liabilities
Right - F&B sales, room sales,
Liabilities: interest and dividends
Current from investments
Non-current Expenses
- outlfow of assets
Equity (does not need to - Increase in liabilities
be payed back – except - Costs of goods sold,
if both agree) labor, utilities,
advertising
Limitations:
Gains
- less useful to
- increase in assets
investors
- Decrease in liabilities
- Doesn’t show the
Losses
whole picture
- decrease in assets
- Based on cost
- Increase in liabilities
principle, often does
not reflect current Simple Structure:
values of some assets Revenue
(appreciation, Cost of Sales
depreciation) = Gross Profit
- Differences between Operating Expenses
book value and Fixed Expenses
current value (Hilton = Net Income/ Loss
Hotels difference in
2.14$ billion)
1
, Analysis of Financial Statements
Horizontal Vertical Base Year Ratio
- Compares - States each - A base period - Financial ratios
income account is selected and are compared
statements for balance on a figures are with standards
2 accounting financial assigned a to evaluate the
periods both statement as a value of 100% financial
absolute (€) % of a base condition
- All subsequent
and relative amount of the
periods are
(%) statement
compared with
- Always - Shows relative the base as %
compares importance of
- Always
newest to the each account
compares to
year before to the
the first year
company
- Reveals with data
significant - Shows for
changes in more
account reasonable
balances comparisons of
2 or more
periods when
the activity for
the 2 periods
was at
different levels
Ratio Analysis
Liquidity Shows ability of hospitality establishment to meet short-
term goals & debts (current assets & liabilities)
Solvency Shows ability of hospitality establishments to meet its
long-term goals & debts (non-current assets & liabilities)
Activity Reflects managements ability to use property’s assets —>
information from balance sheet
Profitability - Shows management’s overall effectiveness
Measured by returns on sales & investments.
- Relationship between profit & revenue, cost or capital
Operational - Assists in the analysis of hospitality establishment
2
, operations
- Relationship between revenues/ expenses and operating
activity
Leverage
Operating Leverage Financial Leverage
Ratio between fixed and variable Shows how company is financed:
costs capital structure
High fixed costs = high OL (How much is financed by debt,
High OL = increased profits when how much by equity) funding
sales increase, but also increased
losses, therefore higher risk The higher the financial leverage,
the higher the return on equity
Degree of Operating Leverage
(DOL)= This is only if everything stays
Measures how well a company constant:
generates profit using its fixed costs (Equity / Assets) = (ROE%/ROA%)
(Sales- variable costs)
Profit Financial leverage can multiply
Fixed costs / variable costs gains and wipe out equity in case
Fixed costs / total costs of unexpected losses
Measures sensitivity of earnings
per share (EPS) to fluctuations
High financial leverage = more
volatile EPS
Financial Statement Analysis
Identifying financial strength or weakness of a business by establishing a
relationship between the elements of balance sheet and income
statement
Example: DuPont Analysis
- expanded version of
ROE (ROE only
looks at how well a
company utilizes
shareholder’s
capital)
- Reveals what drives
changes in ROE or
why it is low/high
- Considers
opperating
efficiency
3
LU 1.1
Financial Statements
Balance Sheet Income Statement Cashflow
Statement LU4
- Statement of a - overview of how much a 1. Operating
financial position company has earned (revenues,
- Prepared at end of over a period of time expenses)
each accounting period - considered most useful 2. Investing
for management 3. Financing
Left (shows how
Assets: Represents: you can use
Current Revenues your cash)
Non-current - inflow of assets
- Reduction of liabilities
Right - F&B sales, room sales,
Liabilities: interest and dividends
Current from investments
Non-current Expenses
- outlfow of assets
Equity (does not need to - Increase in liabilities
be payed back – except - Costs of goods sold,
if both agree) labor, utilities,
advertising
Limitations:
Gains
- less useful to
- increase in assets
investors
- Decrease in liabilities
- Doesn’t show the
Losses
whole picture
- decrease in assets
- Based on cost
- Increase in liabilities
principle, often does
not reflect current Simple Structure:
values of some assets Revenue
(appreciation, Cost of Sales
depreciation) = Gross Profit
- Differences between Operating Expenses
book value and Fixed Expenses
current value (Hilton = Net Income/ Loss
Hotels difference in
2.14$ billion)
1
, Analysis of Financial Statements
Horizontal Vertical Base Year Ratio
- Compares - States each - A base period - Financial ratios
income account is selected and are compared
statements for balance on a figures are with standards
2 accounting financial assigned a to evaluate the
periods both statement as a value of 100% financial
absolute (€) % of a base condition
- All subsequent
and relative amount of the
periods are
(%) statement
compared with
- Always - Shows relative the base as %
compares importance of
- Always
newest to the each account
compares to
year before to the
the first year
company
- Reveals with data
significant - Shows for
changes in more
account reasonable
balances comparisons of
2 or more
periods when
the activity for
the 2 periods
was at
different levels
Ratio Analysis
Liquidity Shows ability of hospitality establishment to meet short-
term goals & debts (current assets & liabilities)
Solvency Shows ability of hospitality establishments to meet its
long-term goals & debts (non-current assets & liabilities)
Activity Reflects managements ability to use property’s assets —>
information from balance sheet
Profitability - Shows management’s overall effectiveness
Measured by returns on sales & investments.
- Relationship between profit & revenue, cost or capital
Operational - Assists in the analysis of hospitality establishment
2
, operations
- Relationship between revenues/ expenses and operating
activity
Leverage
Operating Leverage Financial Leverage
Ratio between fixed and variable Shows how company is financed:
costs capital structure
High fixed costs = high OL (How much is financed by debt,
High OL = increased profits when how much by equity) funding
sales increase, but also increased
losses, therefore higher risk The higher the financial leverage,
the higher the return on equity
Degree of Operating Leverage
(DOL)= This is only if everything stays
Measures how well a company constant:
generates profit using its fixed costs (Equity / Assets) = (ROE%/ROA%)
(Sales- variable costs)
Profit Financial leverage can multiply
Fixed costs / variable costs gains and wipe out equity in case
Fixed costs / total costs of unexpected losses
Measures sensitivity of earnings
per share (EPS) to fluctuations
High financial leverage = more
volatile EPS
Financial Statement Analysis
Identifying financial strength or weakness of a business by establishing a
relationship between the elements of balance sheet and income
statement
Example: DuPont Analysis
- expanded version of
ROE (ROE only
looks at how well a
company utilizes
shareholder’s
capital)
- Reveals what drives
changes in ROE or
why it is low/high
- Considers
opperating
efficiency
3
