Case: Hospitality Services – The University of Western Ontario

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Case: Hospitality Services – The University of Western Ontario
Student’s Name
Institution Affiliation
Course Name
Instructor Name
Date

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Case: Hospitality Services – The University of Western Ontario
Introduction
Hospital Services (HS) manages all food services (residences, vending machines) on the
University of Western Ontario – Western Campus. As the associate director of the HS, Kevin
McCabe is mandated to choose between two profitable opportunities that would improve the net
profit of the Centre Spot (CS). CS is the largest foodservice in campus generating a lot of income
to the campus; however, there is too much congestion due to the high demand. Based on the
presented proposals, there are two options to resolve this issue, either addition of an eighth
register or the addition of a new restaurant. This paper is meant to evaluate the benefits of either
option, based on the financial health of the HS, and the expected profit, depending on the options
available.
Financial Health of HS
The best way to measure the financial health of the HS is by evaluating the growth of revenue
using the statement of comprehensive income to determine the change over the years. There are
various tools, such as the financial ratios that can be used to determine the financial position of a
company. Beginning with the growth of sales, there is an increase in retail sales in 2002 from
$4,377,445 to $4,896,621. However, the overall net profit has greatly reduced from the $73,292
in 2001 to $36,865 in 2002. This can be due to various factors such as increased expenditure and
debt among other staff. Based on this data, I believe that HS is eligible for either option as it can
swing the expenses.

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Financial Ratios
Financial Ratios 2002 2001
Gross Margin 6.66% 6.55%
Net Profit Margin 0.7529% 1.6743%
Quick Ratio 0.22 0.22
Current Ratio 0.42 0.42
Debt to Equity Ratio 8.53 8.27
Days Sales Outstanding 6.53 7.15
Days Inventory
Outstanding
9.15 10.27
Receivables Turnover 56.51 50.52
Inventory Turnover 40.10 35.35
Inventory to Sales 0.02 0.02
Debt to asset ratio 0.90 0.89
Return on Assets 0.02 0.06
Return on Capital 0.02 0.06
Asset Turnover Ratio 3.57 3.19
Days Payable
Outstanding
45.76 51.70
Net profit margin = net income (after taxes) ÷ revenue
Gross margin = gross profit ÷ revenue
Quick Ratio = (Current Assets – Inventories) / Current Liabilities
Current Ratio = Current Assets / Current Liabilities
Debt to Equity Ratio = Total Liabilities / Shareholders Equity
Days Sales Outstanding = (Receivables / Revenue) x 365
Days Inventory Outstanding = (Inventory / COGS) x 365
Receivables Turnover = Revenue / Average Accounts Receivables
Inventory Turnover = COGS / Average of Inventory
Inventory to Sales = Inventory / Revenue
Debt to asset ratio=Total liabilities / total assets
Return on Assets=Net Income/Total Assets
Return on Capital= (Net Income-Dividends)/(Debt + Equity)
Asset Turnover Ratio = Net sales/Average Total Assets
Days Payable Outstanding = (Accounts Payable / COGS) x 365