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Financial Ratios for Food Service Operations

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Food Cost Percentage

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Formula: \(\frac{Cost~of~Food~Sold}{Food~Sales}\) Use Case: Measures the percentage of sales spent on food, helping to control food costs.

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Beverage Cost Percentage

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Formula: \(\frac{Cost~of~Beverage~Sold}{Beverage~Sales}\) Use Case: Used to determine the percentage of sales used to pay for beverages, aiming for cost optimization.

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Labor Cost Percentage

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Formula: \(\frac{Total~Labor~Cost}{Total~Sales}\) Use Case: Assesses the proportion of sales that go towards paying the staff, critical for budgeting and scheduling.

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Prime Cost

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Formula: \(Food~Costs~+~Beverage~Costs~+~Labor~Costs\) Use Case: A combined metric used to determine the fundamental costs of operation for profit maximization.

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Gross Profit Margin

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Formula: \(\frac{Sales~-~Cost~of~Goods~Sold}{Sales}\) Use Case: Reveals the portion of revenue that exceeds the costs of goods sold - a high margin suggests efficiency.

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Net Profit Margin

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Formula: \(\frac{Net~Profit}{Total~Sales}\) Use Case: Indicates the effectiveness of a business in converting sales into actual profit, revealing the bottom line.

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Current Ratio

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Formula: \(\frac{Current~Assets}{Current~Liabilities}\) Use Case: Measures the ability of a company to pay its short-term obligations, reflecting liquidity.

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Quick Ratio

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Formula: \(\frac{Current~Assets~-~Inventory}{Current~Liabilities}\) Use Case: Like the current ratio but excludes inventory, for a stricter measure of liquidity.

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Return on Investment (ROI)

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Formula: \(\frac{Net~Profit}{Investment}\) Use Case: Calculates the gain or loss generated on an investment relative to its cost, guiding future investment decisions.

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Debt to Equity Ratio

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Formula: \(\frac{Total~Liabilities}{Shareholders'~Equity}\) Use Case: Gauges the financial leverage of a company by comparing its total liabilities to its shareholders' equity.

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Occupancy Percentage

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Formula: \(\frac{Number~of~Rooms~Occupied}{Total~Number~of~Available~Rooms}\) Use Case: A key performance metric to determine the percentage of available rooms that are occupied.

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Average Daily Rate (ADR)

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Formula: \(\frac{Total~Room~Revenue}{Number~of~Rooms~Sold}\) Use Case: Helps understand the average price at which rooms are being sold, integrating it into revenue management.

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Revenue per Available Room (RevPAR)

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Formula: \(ADR~\times~Occupancy~Percentage\) Use Case: Combines the effects of room rate and occupancy to understand overall room revenue performance.

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Cash Flow Margin

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Formula: \(\frac{Cash~Flows~from~Operating~Activities}{Total~Sales}\) Use Case: Shows the efficiency at which a business converts sales to cash, being essential for day-to-day operations.

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Break-even Point

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Formula: \(\frac{Fixed~Costs}{(Selling~Price~per~Unit~-~Variable~Cost~per~Unit)}\) Use Case: The sales level at which total revenues equal total costs, used for basic financial planning.

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Inventory Turnover Ratio

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Formula: \(\frac{Cost~of~Goods~Sold}{Average~Inventory}\) Use Case: Indicates how frequently a company replaces its inventory over a period, crucial for inventory management.

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Payroll to Sales Ratio

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Formula: \(\frac{Payroll~Cost}{Total~Sales}\) Use Case: Gauges how much a company's sales are being spent on payroll, indicating staffing efficiency.

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Gross Operating Profit Per Available Room (GOPPAR)

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Formula: \(\frac{Total~Gross~Operating~Profit}{Total~Available~Rooms}\) Use Case: Measures the amount of profit made per room, providing broader insights than RevPAR.

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EBITDA Margin

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Formula: \(\frac{EBITDA}{Total~Revenue}\) Use Case: Gives investors a clearer view of company performance by excluding interest, taxes, depreciation, and amortization.

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Menu Mix Analysis

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Formula: Not applicable. Use Case: A qualitative analysis to determine which menu items contribute most to sales and profits, for menu planning and design.

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