FINANCIAL ANALYSIS

Ratio Analysis for Regency Blue Ribbon Restaurant

Table of Contents

Introduction1

Ratio Analysis1

Key Financial Ratios2

Gross Profit2

Net profit3

Return on investment (ROI)5

Working capital5

Debt ratio6

Inventory turnover6

Accounts receivable turnover7

Recommendations7

Forecasted sales for 2011 and 20128

Actions for improvement9

References10

Appendix11

Ratio Analysis for Regency Blue Ribbon Restaurant

Introduction

The Regency Blue Ribbon Restaurant wants to improve its performance in the future. The Regency Blue Ribbon Restaurant is in the food and hospitality business and is Blue Ribbon Hotel's the important part. It offers lunch and dinner and is opened 7 days a week. The restaurant seats 90 patrons and offers a varied à la carte menu with daily seasonal special menu items. The staff members at Regency Blue Ribbon Restaurant are casually employed. The specialities of the restaurant are its high volume menu items but are also low profit.

Whenever understanding the performance of a business entity it is important to look the firm's financial statements for at least 5 years and calculate key ratios to measure its performance (Besley, 2005). The ratio analysis aims at providing the General Manager, Regency Blue Ribbon Restaurant with analysis on the financial performance of the restaurant and give recommendations that can help her with decision making. The report provides horizontal analysis of the calculated ratios.

The financial performance of Regency Blue Ribbon Restaurant as calculated by the ratios is given in the following table along with industry averages.

Ratio Analysis

When analyzing the performance of Regency Blue Ribbon Restaurant, it is important to compare the performance of Regency Blue Ribbon Restaurant with the industry average. This has two benefits. The management is able to make comparison and see how well it is doing relative to other restaurants operating in the industry. In addition, the management will be able to benchmark its performance against the best performing restaurant in the industry, and make strategic decisions to achieve those benchmarks. Moreover, the ratios have been calculated for the period 2007-2012 so that the company can see its performance over time.

Key Financial Ratios

Ratios

Industry Ave

2007

2008

2009

2010

2011

2012

Gross Profit

62%

67%

67.22%

65.66%

58.87%

68.11%

61.46%

Net Profit

9.10%

6.24%

5.55%

2.72%

-0.53%

17.57%

1.33%

ROI

12.10%

44.52%

36.69%

12.92%

-3.52%

29.93%

Working Capital

0.95 : 1

5.38

1.41

1.20

0.94

0.94

Debt

0.75 : 1

0.48

0.47

0.39

0.35

0.35

Inventory T/O

7 days

5 days

15 days

15 days

30 days

30 days

A/C's Receivable T/O

26.75 days

16 days

7 days

5 days

17 days

17 days

Gross Profit

Gross profit ratio is a more accurate measure of the company's performance than using just gross profit. Looking only at the Gross Profit, it is difficult to compare different companies. Hence, the gross profit ratio may be used for effective analysis (Brigham, 2009). It is a good way of measuring the efficiency of production and distribution of the restaurant. The gross profit margin for the restaurant industry is 62%. Comparing this with the Gross Profit margin of Regency Blue Ribbon Restaurant, we can see that for the period 2007-2009, Regency Blue Ribbon Restaurant's ratio was above the industry average. However, for the year 2010, the gross profit margin declined slightly than the industry average of 62% and was at 58.87%. This decline in the gross profit is attributed to the fact that the industry revenue from beverages is 35% whereas Regency Blue Ribbon Restaurant earned 33% of its ...