Wk 4 EOC: Chapter 4 Quiz, Question 3

a. Compare Rachel’s Cash % with the chain’s %.  Is it higher or lower?  What might this mean?

b. Compare Rachel’s Inventories % with the chain’s %.  Is it higher or lower?  What might this mean?

c. Compare Rachel’s Accounts Payable % with the chain’s %.  Is it higher or lower?  What might this mean?

d. Compare Rachel’s Notes Payable % with the chain’s %.  Is it higher or lower?  What might this mean?

Answers:

a. Rachel's cash % is lower at 4.5% than the chain's at 6.70%. This could mean that her assets aren't as high which means that she's not making money.

"The term cash, refers to the cash held in cash banks, money held in checking or savings accounts, electronic fund transfers from payment card companies" (123).

b. Rachel's inventory % is at 2.7% and the chain's is at 1.30%, so she is not selling everything that she has to lower it to 1.30%.

"Inventories will include the value of the food, beverages, and supplies used by a restaurant, as well as sheets, towels, and the in-room replacement items (hangers, blow dryers, coffee makers, and the like), used by a hotel. In most hospitality industry situations, the value of an inventory item will equal the amount the business paid for it" (124).

c. Rachel's is at 9.0% and the chain's is at 10.50% which means that she doesn't have any debt with any creditors. "It is important to remember that, even if the income statement indicates your business is very profitable, excessively large amounts of accounts receivable (which are not identified on your income statement) could be a tell-tale sign that:

• Too much credit has been extended.
• Credit collection efforts may need to be reviewed and improved if necessary. 
• Cash reserves could become insufficient to meet the short-term needs of your business."

d. Her's is at 2.0% and the chain's is at 1.10%, which means that she owes more money than the rest of the chain.