Restaurant financial management: a practical approach41597

RESTAURANT FINANCIAL MANAGEMENT RESTAURANT FINANCIAL MANAGEMENT A PRACTICAL APPROACH Hyung-il Jung, PhD Rosen College of Hospitality Management, University of Central Florida, Orlando, Florida, United States Apple Academic Press Inc Apple Academic Press Inc 3333 Mistwell Crescent Spinnaker Way Oakville, ON L6L 0A2 Waretown, NJ 08758 Canada USA © 2019 by Apple Academic Press, Inc Exclusive worldwide distribution by CRC Press, a member of Taylor & Francis Group No claim to original U.S Government works International Standard Book Number-13: 978-1-77188-645-1 (Hardcover) International Standard Book Number-13: 978-1-315-14739-0 (eBook) All rights reserved No part of this work may be reprinted or reproduced or utilized in any form or by any electric, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publisher or its distributor, except in the case of brief excerpts or quotations for use in reviews or critical articles This book contains information obtained from authentic and highly regarded sources Reprinted material is quoted with permission and sources are indicated Copyright for individual articles remains with the authors as indicated A wide variety of references are listed Reasonable efforts have been made to publish reliable data and information, but the authors, editors, and the publisher cannot assume responsibility for the validity of all materials or the consequences of their use The authors, editors, and the publisher have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained If any copyright material has not been acknowledged, please write and let us know so we may rectify in any future reprint Trademark Notice: Registered trademark of products or corporate names are used only for explanation and identification without intent to infringe Library and Archives Canada Cataloguing in Publication Jung, H (Hyung-il), author Restaurant financial management : a practical approach / H Jung, PhD (Rosen College of Hospitality Management, University of Central Florida, Orlando, Florida, United States) Includes bibliographical references and index Issued in print and electronic formats ISBN 978-1-77188-645-1 (hardcover). ISBN 978-1-315-14739-0 (PDF) Hospitality industry Finance Restaurant management I Title TX911.3.F5J86 2018 647.95068 C2018-903678-8 C2018-903679-6 CIP data on file with US Library of C ​ ​ongress Apple Academic Press also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic format For information about Apple Academic Press products, visit our website at www.appleacademicpress.com and the CRC Press website at www.crcpress.com CONTENTS About the Author xiii List of Abbreviations xv Preface xvii Foreword xix PART I: HOW TO ORGANIZE COMMERCIAL ACTIVITIES INTO FINANCIAL INFORMATION 1 Chapter 1: Introduction: The Role of Accounting in a Business 1.1 A Business as a Separate Entity 3 1.2 Assets and Equity 1.3 Assets and Liabilities 5 1.3.1 Examples of the Description Above (Owners’ Investments) 1.4 Recording Process of Financial Accounting for More Details of Business Activities 1.5 Journalizing 1.6 Debit and Credit 10 1.7 Posting to Individual T-Accounts 13 1.8 Preparing the Initial Balance Sheet of R&B Grill 17 1.9 Activities of Resource Allocation (Internal Investing Activities to Prepare for Business) 18 v vi j Restaurant Financial Management 1.10 Revenues and Expenses – Operating Activities 27 1.11 Revenues 27 1.12 Expenses 28 1.13 The Income Statement – Temporary Result 36 1.14 Conclusion 44 Chapter 2: Adjusting Entries for Missing Information 45 2.1 Introduction 45 2.2 Adjusting Entries to Uncover Hidden Activities 47 2.2.1 Cost of Sales 47 2.2.2 Prepaid Expenses 49 2.2.3 Accrued Expenses 51 2.2.3.1 Additional Labor Expenses (Payroll Expenses) 51 Interest Expenses 53 2.2.4 Depreciation 55 Balance Calculation and Error Checking with the Adjusted Trial Balance 57 2.3.1 Adjusted Trial Balance 62 2.4 Income Tax 63 2.5 Preparation of Financial Statements 65 2.5.1 The Income Statement 65 2.2.3.2 2.3 2.5.1.1 Analysis of the Operational Result with the Income Statement 66 2.5.2 The Balance Sheet 68 Chapter 3: Analyzing Business Progress Presented in the Financial Statements 71 3.1 Introduction 71 3.2 Changes of Financial Position 71 Contents 3.3 3.4 The Impact of Operational Results on Financial Position 73 Commonly Used Format of Financial Statements in the Industry 76 3.4.1 Advanced Format of the Income Statement 77 3.4.2 Advanced Format of the Balance Sheet 79 3.4.3 Explanation of the Revised Balance Sheet Information After the First Month 81 3.5 Summary of Annual Operations 89 3.6 Analysis of R&B Grill’s Performance 102 PART II: HOW TO USE FINANCIAL INFORMATION FOR FORECASTING AND PLANNING 105 Chapter 4: Ratio Analysis: Advanced Tools to Analyze Business Performance 107 4.1 Introduction 107 4.2 Flows of Wealth to and from a Business 107 4.3 Vertical and Horizontal Analysis 112 4.4 Ratio Analysis 116 4.4.1 Major Ratio Groups 117 4.4.2 Profitability Ratios 120 4.4.3 Activity Ratios (or Turnover Ratios) 123 4.4.3.1 Asset Turnover Ratio 123 4.4.3.2 Inventory Turnover Ratio 124 4.4.3.3 Inventory Turnover Ratio: Cost of Goods Sold (COS)/ Average Inventory 125 4.4.3 Advanced View of Ratio Analysis 126 4.4.3.1 ROA Disaggregation 126 4.4.3.2 ROE Disaggregation 127 j vii viii j Restaurant Financial Management Chapter 5: Cost Analysis and Control 131 5.1 Introduction 131 5.2 Food and Labor Costs 132 5.3 The Standard Food Cost 133 5.4 Food Cost as a Variable Cost 136 5.5 The Standard Labor Costs 139 5.6 Fixed Costs 140 5.7 Mixed Costs 141 5.8 Cost Structure of Individual Mixed Costs 143 5.9 How to Handle the Variance Between the Theory and Practice 146 5.10 Break-even Analysis 146 Chapter 6: Forecasting and Planning 151 6.1 Introduction 151 6.2 Naïve Method 152 6.3 Moving Average Method 152 6.4 Causal Forecasting Method 153 6.5 Exponential Smoothing Method 153 6.6 Revenues Forecast 154 6.6.1 Daily Operating Hours with Expected Customer Count, Revenues, and Food Cost 154 6.7 Forecasting the Ideal Food Cost 156 6.8 Forecasting Labor Costs 156 6.8.1 Wage Forecasting of the Front of the House 157 6.8.2 Wage Forecasting of the Back of the House 163 6.8.3 Salary Forecasting 163 6.8.4 Payroll-Related Costs 163 Contents 6.9 Forecasting All Other Costs (Expenses) Using Excel 168 6.10 Other Costs and Pro Forma Income Statement 171 6.11 Conclusion 178 PART III: CASH FLOWS, PROJECTION, AND VALUATION 179 Chapter 7: The Concept of Cash and the Cash Flows Statement 181 7.1 Introduction 181 7.2 Profits Versus Cash 181 7.3 The Concept of Cash Flows 182 7.4 Cash Flows From Operating Activities 184 7.4.1 Tax-Effect of Depreciation (as a Non-Cash, Tax-Deductible Expense) 185 7.4.2 Working Capital Adjustment 186 7.4.2.1 Net Income of Y-1 188 7.4.2.2 Plus: Non-Cash Expenses 188 7.4.2.3 Accounts Receivable 188 7.4.2.4 Inventory 188 7.4.2.5 Prepaid Rent and Prepaid Insurance 189 7.4.2.6 Accounts Payable 190 7.4.2.7 Accrued Expenses 190 7.4.2.8 Unearned Revenues 190 7.5 Cash Flows From Investing Activities 192 7.6 Cash Flows From Financing Activities 192 7.7 Conclusion of the Cash Flows Statement 193 7.8 Additional Information on Determining the Value of a Business Using Its Cash Flows Information 193 j ix 272 j Restaurant Financial Management Table PA-02 The Impact of Depreciation on Tax, Profit, and Cash – Usage Method With no tax Revenues/Sales Year Year Year 1,00,000 1,20,000 1,40,000 Cost of Sales 30,000 40,000 50,000 Gross Profit 70,000 80,000 90,000 Expenses… 50,000 60,000 70,000 1,800 3,600 2,400 18,200 16,400 17,600 Depreciation EBT Cash Amount Earned through Operation – No Tax EBT (Taxable Income) 18,200 16,400 17,600 Add Depreciation exp 1,800 3,600 2,400 Cash from Operations 20,000 20,000 20,000 With tax Revenues/Sales Year Year Year 1,00,000 1,20,000 1,40,000 Cost of Sales 30,000 40,000 50,000 Gross Profit 70,000 80,000 90,000 Expenses… 50,000 60,000 70,000 2,400 2,400 2,400 17,600 17,600 17,600 Tax (40%) 7,040 7,040 7,040 Net Profit 10,560 10,560 10,560 Depreciation EBT Cash Amount Earned through Operation – After Tax Net Profit Add Depreciation Cash from Operations 10,560 10,560 10,560 2,400 2,400 2,400 12,960 12,960 12,960 Appendix 3.1 (DOUBLE) DECLINING METHOD This method, different from all other techniques, uses the entire purchase amount of the asset in the first year; and the remaining balance (net book value) is used in the following years In our example, the vehicle was purchased at $13,000 From this amount ($13,000), annual depreciation expense is calculated Since the vehicle was estimated to be in use for years, the vehicle is supposed to lose 1/5 of its net book value (20%) each year As the name says, however, we are “Doubling” the loss of value – from 20% per year to 40% per year (this is what “Double Declining” means) In the first year, the vehicle will lose 40% of its original purchase amount (0.4 x $13,000 = $5,200) With this value lost, the vehicle will be work only ($13,000 - $5,200 =) $7,800 in the second year During the second year, the vehicle will lose another 40% of its remaining value ($7,800) The depreciation expense will be (0.4 x $7,800 =) $3,120 The vehicle’s Net Book Value is only $4,680 During the third year, it will lose another 40% of its $4,680 Its annual depreciation will be $1,872, leaving the Net Book Value at $2,808 This process continues until the asset reaches its originally estimated Salvage Value at $1,000 The last year’s deprecation is usually the difference between the net book value and its predetermined salvage value Refer to the table below; and observe the impact of this technique on the tax, net profit, and cash as presented in the previous two cases As seen in the Usage Method scenario, the cash amount earned when no tax is considered remains at $20,000 However, when tax expense is assessed, the first year’s cash amount earned is the largest although the net profit amount was the smallest in the first year 3.2 SUM-OF-YEARS’ DIGITS The other technique of Accelerated methods is the Sum-of-Years’ Digits method The only difference of this technique is the way to calculate the portion of the Asset item’s annual depreciation As its name implies the Sum (total) of the digit of each year (within which the item depreciates = Useful Life) is used to calculate j 273 274 j Restaurant Financial Management Table PA-03 The Impact of Depreciation on Tax, Profit, and Cash – Double Declining With no tax Revenues/Sales Year Year Year 1,00,000 1,20,000 1,40,000 Cost of Sales 30,000 40,000 50,000 Gross Profit 70,000 80,000 90,000 Expenses… 50,000 60,000 70,000 4,000 3,200 2,400 16,000 16,800 17,600 Depreciation EBT Cash Amount Earned through Operation - No Tax EBT (Taxable Income) 16,000 16,800 17,600 Add Depreciation exp 4,000 3,200 2,400 Cash from Operations 20,000 20,000 20,000 With tax Revenues/Sales Year Year Year 1,00,000 1,20,000 1,40,000 Cost of Sales 30,000 40,000 50,000 Gross Profit 70,000 80,000 90,000 Expenses… 50,000 60,000 70,000 4,000 3,200 2,400 16,000 16,800 17,600 Tax (40%) 6,400 6,720 7,040 Net Profit 9,600 10,080 10,560 Depreciation EBT Cash Amount Earned through Operation – After Tax Net Profit 9,600 10,080 10,560 Add Depreciation 4,000 3,200 2,400 13,600 13,280 12,960 Cash from Operations Appendix The vehicle used in this example was purchased at $13,000; and is scheduled to be depreciated for years (Useful Life) to $1,000 (Residual Value or Salvage Value) Thus, the digit of each year is 1, 2, 3, 4, and The sum of these five digits is (1 + + + + =) 15 This total (sum) is used as the “denominator” in the fraction to calculate each year’s Depreciation Expense To report the largest amount of depreciation in the first year, the last digit of the years (which is “5”) is used as the numerator Thus, “5/15” is applied to the entire amount of depreciations ($12,000, which is $13,000 purchase cost – $1,000 Salvage Value) to determine the first year’s depreciation ($12,000 x 5/15 = $4,000) In the second year, “4/15 x $12,000 = ($3,200)” is applied; and “3/15 x $12,000 = $2,400)” for the third year; and so forth This way, the total amount of years’ depreciation ($12,000) is allocated to each year from the largest amount to the smallest gradually The table above shows the amounts of annual depreciation expenses Gradually decreasing amounts of annual depreciation expenses result in growing amounts of EBT However, if we add each year’s depreciation to the EBT of the year, the cash amount obtained through operations remain the same as those that used other methods introduced earlier So, the conclusion can be made here that regardless of the methods used, the amount of cash obtained from operations remains the same if tax is not considered However, when tax is considered, the larger the depreciation is reported, the more tax expense is saved; and more cash amount remains in the company for its use, and for the investors MACRS (sounds like “makers”) – Modified Accelerated Cost Recovery System Most companies depreciate their long-term assets using one of the methods introduced in this chapter However, to make the depreciation methods more consistent, a governmental guideline called “MACRS” has been designed Under this guideline, assets are grouped into a few categories; and each category of assets can be depreciated within the given terms For example, Panera Bread Co depreciates its long-term assets as follows: j 275 276 j Restaurant Financial Management Table PA-04 The Impact of Depreciation on Tax, Profit, and Cash – Sum of the Years' Digit With no tax Revenues/Sales Year Year Year 1,00,000 1,20,000 1,40,000 Cost of Sales 30,000 40,000 50,000 Gross Profit 70,000 80,000 90,000 Expenses… 50,000 60,000 70,000 4,000 3,200 2,400 16,000 16,800 17,600 Depreciation EBT Cash Amount Earned through Operation – No Tax EBT (Taxable Income) 16,000 16,800 17,600 Add Depreciation exp 4,000 3,200 2,400 Cash from Operations 20,000 20,000 20,000 With tax Revenues/Sales Year Year Year 1,00,000 1,20,000 1,40,000 Cost of Sales 30,000 40,000 50,000 Gross Profit 70,000 80,000 90,000 Expenses… 50,000 60,000 70,000 4,000 3,200 2,400 16,000 16,800 17,600 Tax (40%) 6,400 6,720 7,040 Net Profit 9,600 10,080 10,560 Depreciation EBT Cash Amount Earned through Operation – After Tax Net Profit 9,600 10,080 10,560 Add Depreciation 4,000 3,200 2,400 13,600 13,280 12,960 Cash from Operations Appendix  Leasehold improvements 15 – 20 years  Machinery and equipment – 15 years  Furniture and fixture – years  Computer hardware and software – years Finally, depreciation expenses are not used to assess the value of assets They are used to recover the Capital Investments spent to obtain the assets For this reason, they are considered Cost Recovery System Regarding the depreciation methods, the Consistency Principle must be applied However, it does not mean that a restaurant (or any other businesses) must use the same method for preparing the tax report that it uses for preparing financial statements for investors A business may use different methods for different purposes, as long as they use the same method consistently for the same purpose Even in a company that has multi-unit operations, for example, the straight-line method be used for one unit, and an accelerated method of depreciation may be used to depreciate another unit j 277 INDEX A Accelerated method, 82, 268, 271, 277 Account, doubtful account, 265 payable, 6, 9, 25, 26, 30, 32, 35, 37, 38, 41, 43, 44, 59, 63, 65, 68, 74, 76, 81, 96, 101, 186, 187, 190, 191 receivable, 6, 9, 27, 31–33, 37–39, 44, 59, 63, 64, 68, 72, 74, 80, 90, 94, 96, 101, 183, 184, 186, 188, 190, 191, 263, 265 Accounting, methods, 262 principles, 257 Accrual basis accounting, 264 Accrued expenses, 6, 9, 34–37, 41, 43, 50–54, 63–65, 68, 74, 76, 81, 91–93, 95, 96, 101, 186, 187, 190, 191, 268 Accumulated depreciation, 57, 268 Activity ratios (or turnover ratios), 117, 118, 123 Adjusted, entry, 58 trial balance, 57, 58, 62, 63 Administrative expenses, 87, 98, 100, 171, 175, 185, 201 Advanced deposits, 261 After-tax, 243 Allowance for doubtful account, 263 American, Accounting Association, 107 Institute of Certified Public Accountants (AICPA), 178, 257 Annual, depreciation, 56, 93, 242, 269, 273, 275 operations summary, 89 Assets, 3–12, 16–21, 23–30, 32, 34, 36, 37, 40–47, 50, 53, 55–57, 62, 68, 69, 72–74, 76, 79–83, 92, 101, 108–111, 113, 118–124, 127, 128, 176–178, 183, 186, 188, 190, 192–194, 201, 215, 216, 221, 228, 239–241, 245, 246, 248, 249, 252, 253, 255, 260–263, 267, 268, 271, 275, 277 turnover, 124, 127–129, 177, 201, 202, 216 ratio, 118, 123, 129 Average, assets, 121, 123, 124, 201 check price (ACP), 135, 139, 147, 149, 152, 155, 174, 195, 198–202, 217 B Bad debt, 263, 265 Balance, calculation, 17, 57, 58 sheet, 17–20, 23–26, 29, 30, 32, 36, 37, 40–43, 46, 47, 62, 65, 67, 68, 71–74, 79–81, 83, 92–94, 100, 101, 108, 110, 112, 113, 116, 184, 186, 188, 190, 192, 194, 201, 215, 239, 240, 245, 246, 248, 250, 259, 264, 265, 267 advanced format, 79 Beginning, assets, 121, 123 inventory, 48, 267 Benefits, 78, 92, 143, 163, 186, 208, 243, 271 Bloomin brands, 126, 198, 246, 252 Breakdown process, 175 Break-even, analysis, 146, 147 point, 147 Brinker International, 246, 252 Budgeting process, 146, 171, 175 Business, analysis, 123 entity, 3, 5, 257, 258 principle, 258 279 280 j Restaurant Financial Management C Capital, asset pricing model (CAPM), 232, 233, 238, 244, 251 application to R&B Grill, 233 expenditure, 21, 194, 267, 268 investments, 268, 277 Cash account, 193, 271 basis accounting, 264 Cash flows, 83, 182, 184, 186, 189–194, 218, 219, 230, 246, 249–251, 253–255 activities financing, 192 investing, 192 operating, 184, 190 concept, 182 statement, 191–193 Causal forecasting method, 151, 153 Chilli’s, 233 Common stock, 6, 8–11, 14–17, 26, 30, 37, 40, 41, 60, 61, 63, 65, 75, 98, 102, 191 Compensation of the equity investors’ risk, 230 Competitors, 225 Computerized technology, 58 Conservatism principle, 258, 261 Conservative projection of revenues, 196 Consistency principle, 258, 262, 266, 277 Continuity principle, 258, 260 Contra asset, 57, 265 account, 76, 263 Correlation coefficient, 146, 148 Cost, benefit analysis, 198 control, activities, 178 effort, 129 debt, 234, 242 equity, 234, 242, 246, 250 principle, 21, 258 recovery system, 277 sales (COS), 28, 47–49, 57, 60, 63, 65–67, 74, 77, 78, 84, 90, 96, 100, 103, 116, 125, 132, 136, 141, 169, 174, 181, 185, 200, 202, 203, 214, 218, 223, 266, 267, 269, 270, 272, 274, 276 structure of individual mixed costs, 143 Credit entry, 11 Creditors, 9, 23, 28, 36, 69, 108, 122, 221, 223, 224, 228–230, 234, 235, 237, 238, 240, 245, 264 Crude oil, 226 Current, assets, 79–82, 101, 186, 188 liabilities, 25, 81, 83, 186 Customer, 134, 155, 156, 169, 197, 225, count, 145, 149, 152, 153, 156, 195, 197, 200 projection (maximum/minimum scenario), 152, 197 D Daily, operating hours, 154 wage projection, 204, 209 Darden, 233, 246, 252 restaurants, 233 Debit entry, 11 Debt service, 83, 228, 242, 243, 250 Decision-making, 128, 264 Declining method, 273 Denominator, 116, 275 Dependent variable, 153, 176 Depreciation, 40, 55–57, 61–68, 74, 76, 77, 79, 80, 82, 83, 87, 92, 93, 98–101, 140, 141, 169, 171, 176, 181, 182, 184–187, 192, 201, 215, 218, 219, 222, 242, 243, 246–248, 259, 262, 263, 265, 268–277 expenses, 55, 57, 63, 65–67, 74, 77, 79, 82, 83, 92, 93, 98, 99, 141, 184, 186, 246, 262, 265, 268, 269, 275, 277 methods, 275, 277 non-cash expense, 268 Disaggregation, 126–129 Double, declining, 268, 273 method, 271 entry system, 11, 46 E Earnings before, interest and taxes (EBIT), 77, 79, 110, 116, 123, 185, 223, 228, 243 taxes (EBT), 77, 79, 82, 95, 110, 119, 123, 148, 176, 185, 223, 243, 269–272, 274–276 Economic entity principle, 258 Economy of scale, 202 Electricity, 21, 34, 143 Ending, assets, 121, 123 inventory, 48, 49, 124, 189, 266, 267 Index Energy (utility) expense, 175 Environmental analysis, 226 Equity, 3–11, 16–18, 20, 23, 24, 26, 30–32, 36, 37, 39–43, 45, 46, 59, 65, 67–69, 72–75, 81, 84, 96, 101, 110, 113, 118, 119, 122, 128, 177, 187, 194, 201, 215–217, 230, 240, 243, 245, 248, 249, 252, 255, 265 holders, 128, 221, 223, 230, 232, 240, 256 investors, 127, 128, 223, 231, 234, 238, 239 Error checking, 57, 58 Excel, 135, 144–147, 153, 174, 228 Expected, return, 232 value, 200, 201 Exponential smoothing method, 151, 153 F Federal Government, 231 FIFO (first-in, first-out), 266, 267 Financial, accounting, 182, 257, 260, 264 standard board, 257 position changes, 71, 73 returns, 228 risk, 227 statements preparation, 65 structure, 8, 228 Fixed, asset turnover ratio, 118 cost (FC), 139–141, 143–149, 153, 169, 170, 174–176, 195, 200, 208, 214, 217, 218, 227, 247 Food costs, labor costs, 132 variable cost, 136 Forecasting expenses using excel, 168 labor costs, 156 Form 10-K report, 266 Free cash flows, 194, 219, 230, 249–251, 253–255 Full disclosure principle, 258, 262, 266 Furniture, fixture, and equipment (FF&E), 6, 9, 21–24, 26, 30, 37–39, 41, 43, 55–57, 61, 63, 64, 68, 72, 74, 76, 80, 82, 83, 87, 92–94, 98, 100, 101, 185, 187, 191, 192, 201, 218, 247, 259 Future value (FV), 235, 236, 254 G Generally accepted account principles (GAAP), 78, 257, 265 conservative principle, 265 Going concern principle, 258 Governmental bonds, 82, 251 Great recession, 226 Gross profit, 77, 100, 123, 200, 214, 218, 270, 272, 274, 276 H Handling variations of accounting routines, 264 Historical, cost principle, 21, 258 data, 154, 155, 231 Horizontal analysis, 112–114 Hospitality, management, 257 organization, 259 Hotel industry, 152 I Impact of depreciation on tax, profit, and cash, double declining, 274 straight line, 270 sum of the years’ digit, 276 usage method, 272 Income, before income taxes, 79, 185, 201, 215, 219, 248 statement, 32, 36, 40–42, 48, 53, 62, 63, 65–68, 73, 74, 76, 77, 79, 83, 95, 100, 102, 110, 112, 114–116, 120, 122, 131, 132, 136, 138, 141, 171, 174, 182, 184, 185, 190, 199–201, 203, 208, 214, 218, 222, 240, 242, 243, 246, 247, 250, 253, 267, 268 advanced format, 77 temporary result, 36 tax, 63–67, 74, 77, 79, 95, 100, 110, 119, 176, 185, 201, 215, 219, 223, 228, 242–244, 248 Independent variable, 153, 176 Insurance, 23, 24, 30, 37–39, 41, 43, 50, 51, 60, 63, 64, 66–68, 72, 74, 77, 80, 86, 91, 92, 97, 100, 101, 131, 163, 171, 175, 186, 189, 191, 208 expense, 51, 65 j 281 282 j Restaurant Financial Management Interest, expense, 53, 54, 61, 63, 65–67, 74, 77, 79, 95, 99, 100, 110, 171, 185, 201, 215, 219, 243, 244, 248 rate, 54, 219, 226, 228–230, 237, 242–245, 250, 251 Inventories, 6, 9, 188 Inventory, 25, 26, 28, 30, 34, 35, 37–39, 41, 43, 47–49, 53, 57, 60, 63, 64, 67, 68, 72, 74, 80, 90, 97, 101, 103, 118, 124–126, 133, 136, 138, 151, 156, 174, 186, 188, 189, 191, 250, 261, 262, 266, 267 turnover ratio, 124 Invested capital, 241, 245, 246, 268 Investing activities, 219 Investment activity, 267 Investors, 3, 6, 23, 76, 108, 110, 120–122, 127, 128, 151, 183, 184, 216, 217, 223, 228, 230–240, 250, 254, 255, 268, 275, 277 J Journal entry, 11–15, 19, 21, 24, 25, 29, 31, 33–35, 46, 48–52, 54–56, 58, 64, 89, 90, 92–95 Journalizing, 9, 12, 58 L Labor, cost, 78, 132, 139, 140, 154, 156, 157, 168, 203, 213, 217 breakdown, 168 expense, 28, 35, 51–53, 57, 63, 65–67, 74, 77, 79, 92, 96, 100, 131, 139, 174, 185, 208 productivity, 132, 157, 171 scheduling, 151, 198 cost, 198 Lawsuit, 261 Leasehold improvement, 80, 83, 98, 101, 185, 187, 192 Liabilities, 3, 5–11, 16–18, 20–26, 28–30, 32, 36, 37, 40–43, 45, 46, 53, 54, 62, 68, 69, 72–76, 81, 83, 96, 101, 102, 108–110, 113, 119, 122, 176, 177, 184, 186–190, 192, 194, 201, 215, 216, 241, 245, 246, 248, 252, 255, 262, 265, 268 Life-cycle, 253 theory, 253 LIFO (last-in, last-out), 266, 267 Liquidity ratios, 117, 118 Long-term, assets, 79, 80, 82, 101, 187, 192, 268 debt, 7, 54, 57, 94, 117, 118, 192–194, 228, 229, 234, 236, 243–246, 249–251 advantage, 243 forecasting model, 195 liabilities, 83 projection, 202, 203, 208, 214, 216–218, 246, 247 analysis, 247 M Maintenance expenses, 98, 100, 171, 185 Market, price, 226, 256 value, 118, 194, 195, 217, 227, 239, 254, 255, 259, 260 ratios, 117 Marketable securities, 82 Marketing, 91, 146, 175, 208 expenses, 97, 100, 143, 146, 171, 175, 185, 200, 208, 218 Matching principle, 258, 262, 263, 265 Materiality principle, 258, 263 Menu items and cost structure, 133 Methods of, estimating depreciation expenses, 267 inventory valuation, 266 Microwave oven, 263, 264 Mixed costs, 141, 144 Moderate, 199, 200 Modified accelerated cost recovery system (MACRS), 275 Monetary value, 29, 259 Moving average method, 151, 152 N Negative numbers, 193 Net book value, 273 cash flows, 191, 193, 194, 219 income, 77, 100, 116, 120, 121, 123, 185, 188, 201, 215, 219, 248, 265, 271 present value (NPV), 252, 255, 256 profit, 65–67, 69, 76, 83, 100, 110, 119–122, 127, 128, 132, 176, 177, 181, 184, 190, 191, 238, 242, 243, 246, 266, 268–270, 272–274, 276 revenue, 264 Non-cash expenses, 83, 188 Normal market, 231–233, 251 Index premium, 231, 233, 251 Notes payable, 6–10, 12, 14–17, 21–23, 25, 30, 37, 41, 55, 60, 63, 65, 73, 74, 76, 83, 94, 95, 97, 192, 193 A, 81, 95, 187, 192 B, 81, 95, 187, 193 O Objective evidence, 53, 257, 258, 260 principle, 258, 260 Occupancy, 91, 152 Operating, activities, 186, 191, 194, 219 expenses, 77, 100, 110, 146, 171, 176, 185, 200, 214, 218, 269 profits, 201, 215, 219, 248 ratios, 117, 118 risk imposed by the debt capital, 228 system, 228 Operational, capacity, 271 plan, 157 results impact on financial position, 73 Operations, 4, 19, 21, 27, 32, 33, 35, 36, 42–44, 49, 55, 65, 69, 71, 73, 77, 78, 83, 89, 100, 103, 109, 110, 114, 116, 118–122, 124–126, 133, 136, 138, 139, 148, 154, 157, 162, 163, 171, 176, 178, 181, 182, 188, 194, 203, 216, 221, 222, 226–228, 230, 234, 239, 245, 246, 249, 250, 260, 264, 266, 268–270, 272, 274–277 Optimistic, 199, 200 Outback steakhouse, 126, 198, 233 Owners’, equity, 4, 6, 8, 30, 40, 42–44, 46, 62, 69, 73, 76, 101, 109, 119, 122, 176, 216, 255, 256 investment, 5, 27, 43, 122 P Panera Bread Company, 226 Payroll, 35, 36, 51, 91, 141, 143, 145, 161, 163, 169, 171, 198, 203, 207, 217 expense, 28, 51, 143, 145, 146, 169 related costs, 163 taxes, 208 Per capita spending, 135, 139, 156, 198 Perpetuity, 254 Pessimistic, 199, 200 Petty cash, 263 Physical inventory, 47, 57, 266 Plumbing, 21 Point-of-sales (POS), 32, 155 Posting, 13–15, 17, 20, 22, 24, 26, 29, 31, 32, 34, 35, 44, 48, 50–52, 54, 57, 58, 64, 94, 95 Prepaid, expenses, 6, 9, 19, 23, 44, 49, 50, 80, 91, 189 insurance, 51, 189 rent, 19, 20, 23, 24, 30, 37, 39, 41, 49–51, 60, 63, 64, 72, 74, 80, 91, 97, 101, 186, 189, 191 Present value (PV), 235–239, 252–256 future payments, 237 Pro forma, 171, 174, 199, 201, 203, 242, 243, 246, 250, 253 income statement, 171 Probabilistic method, 199, 217 Profitability ratios, 117, 118, 120, 123, 126, 202 Profits, 27, 79, 100, 110, 176, 181 versus cash, 181 Projected performance analysis, 216 R R&B Grill, 5, 6, 16–20, 22–27, 29–37, 39, 41, 42, 48–51, 53–56, 63, 65–69, 71, 73, 74, 77, 79, 81–83, 89, 93, 95, 100–103, 111–116, 118, 119, 121, 122, 124–126, 128, 129, 132, 134–136, 138, 140, 141, 145, 147, 148, 152–156, 163, 168, 169, 174–177, 182, 184–186, 188–190, 192–194, 196, 198–203, 208, 214–218, 225, 228–230, 233–236, 238–240, 244–246, 248, 250–255 cost breakdown, 170 loan amortization table, 229 mixed costs breakdown, 144 Ratio, analysis, 116, 117, 126, 177, 195, 246 groups, 117 Recording process, 8, 9, 13, 39, 44–47, 57, 58, 63, 107 Regression analysis technique, 169, 170, 175, 176, 195, 217 Regulators, 225 Remote environment, 225, 226 Rent expense, 19, 28, 49, 50, 60, 63, 65–67, 74, 77, 91, 92, 98, 100, 185, 201, 218, 247 Repair & maintenance, 98, 100, 146, 171, 176, 185 j 283 284 j Restaurant Financial Management expenses, 201, 218 Restaurant operating expense, 100, 174 Retained earnings, 6, 9, 42–44, 65, 67, 68, 75, 76, 81, 100, 101, 111, 119, 187, 265 Return on, assets (ROA), 118, 121–123, 126–129, 216, 242, 245 equity (ROE), 118, 122, 123, 127–129, 216, 242 investment (ROI), 121, 122, 127–129, 234, 241 sales (ROS), 118, 120–122, 127–129, 176, 216, 242 Return, 120–122, 127, 128, 177, 201, 215, 216, 221, 243, 248, 249, 254 Revenue, 27–33, 39, 42, 46, 48, 59, 62, 63, 65–67, 74, 77, 84, 89, 96, 100, 120, 123, 124, 137, 154, 156, 168, 174, 177, 181, 185, 200, 203, 214, 216, 218, 243, 264, 269, 270, 272, 274, 276 forecast, 154 recognition principle, 258, 264 Risk, 221, 231–234, 251 entire market, 231 free rate, 232, 234 individual firm, 232 premium, 231–234, 251 S Salary forecasting, 163 Sales projection, 156, 195 Salvage value, 273, 275 residual value, 275 Schmidgall’s book, 263 Service, charge, 264 exchange, 222, 241 Short-term investments, 82 Smallware, 80, 83, 92, 99–101, 185, 187, 191, 192, 201, 215, 219, 248 Solvency (leverage) ratios, 117, 118 Sources of uncertainty, 224 Southwest Airline Company, 226 Stakeholder group, 4, 23, 226 Standard, food cost, 133 labor costs, 139 Straight line method, 268, 269, 271 Strategic management, 216 Sum-of-the-years’ digit method, 268, 271, 273 Suppliers, 225 T T-account, 13–17, 19, 20, 22, 24, 25, 32, 35–37, 39, 40, 48–50, 52–55, 57, 62, 64, 83, 84, 89, 93, 95, 96, 100 Task environment, 225 Tax, 63–65, 79, 95, 110, 132, 176, 185, 186, 223, 228, 242–245, 251, 258, 269–277 effect of depreciation, 185 expense, 110, 223, 271, 273, 275 saving, 243 Taxable income, 110, 243, 269, 270, 272, 274, 276 Terminal value, 252, 254 Time value of, creditors’ invested money, 236 money (TVM), 221, 235, 236, 240 with expected return, 234 Total, assets, 17, 18, 20, 23, 24, 26, 30, 37, 41–43, 68, 72, 74, 80, 101, 113, 121, 187, 243, 265 debt, 243 operating expenses, 201, 215, 219, 248 Treasury bond, 230, 231, 233, 251 Trial balance, 17, 58, 62–65 Turnover ratios, 117 U Uncertainty, 221, 224, 225, 227 Unearned revenues, 29–31, 37, 41, 43, 63, 65, 68, 74, 81, 187, 190, 191, 261 Unit of, measurement principle, 258, 259 production (or usage) method, 269 US Federal Government, 233 Usage method, 268, 271–273 scenario, 273 Used inventory, 267 Utility, 36, 53, 91, 131, 223 expense, 28, 34, 53, 63, 65–67, 74, 77, 97, 185 V Valuation, 129, 194, 217, 239, 251–253 table, 251–253 Value-adding through the service exchange process, 221 Variable cost (VC), 138, 139, 141, 143–149, 153, 156, 169, 170, 174–176, 195, 200, 208, 214, 217, 218, 227, 247 Variance (theory and practice), 146 Index Vertical, analysis, 67, 78, 112, 113, 115, 120, 132, 175 and horizontal analysis, 112 W Wage, forecasting, 157, 163 projection, 157, 158, 164, 198 Weekly wage, 162, 163, 168, 208, 213 Weighted average cost of capital (WACC), 242, 244, 245, 250–252, 254 Working capital adjustment, 186 Writing off, uncollectable amount (accounts receivable), 265 j 285 .. .RESTAURANT FINANCIAL MANAGEMENT RESTAURANT FINANCIAL MANAGEMENT A PRACTICAL APPROACH Hyung-il Jung, PhD Rosen College of Hospitality Management, University of Central Florida, Orlando,... infringe Library and Archives Canada Cataloguing in Publication Jung, H (Hyung-il), author Restaurant financial management : a practical approach / H Jung, PhD (Rosen College of Hospitality Management,... 30 j Restaurant Financial Management Table 1-15 The Balance Sheet After Party Contract (Example 1-08) The Balance Sheet R&B Grill, Inc On January ##, 2XX1 – after a Party Contract Assets: Liabilities