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Wednesday December 3rd, 2008 |
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Cornell Study Finds Restaurants Make Wise Use of Capital |
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A commonly used assessment of a company's short-term liquidity paints too pessimistic a picture of restaurants, according to a new study from the Cornell Center for Hospitality Research. |
The study, 'Short-term Liquidity Measures for Restaurant Firms: Static Measures Don't Tell the Full Story,' analyzed restaurants using an integrative measure of liquidity, which takes into account both the firm's operating and financial sources of capital. The Report, written by Linda Canina and Steven Carvell, is available at no charge from the Cornell University Center for Hospitality Research website at http://hotelschool.cornell.edu/research/chr/pubs/reports/2007.html. Canina and Carvell are both associate professors at the School of Hotel Administration, and Carvell is associate dean of academic affairs at the school.
Liquidity measures attempt to gauge a company's ability to cover its short-term financial obligations. The most common approach is to apply static measures, such as the current ratio or the quick ratio. But those measures assume that the company's current assets are being sold.
In contrast, the dynamic measures take into account a company's ability to generate operating capital-that is, to cover its obligations and continue to operate. 'We compared restaurant and manufacturing firms using both static measures of liquidity and dynamic measures,' said Canina. 'The static measures imply that manufacturing companies are far more liquid than are restaurant companies, but the integrative framework told a different story.'
In the dynamic test, restaurant firms were shown to be more liquid than were manufacturing firms, based on their financial and operating liquidity. 'Our analysis suggests that financial analysts, creditors, and managers should evaluate both dynamic liquidity measures and static measures in assessing short-term liquidity,' Canina added. 'We believe that this finding that restaurants, particularly owner-operator firms, have high operating liquidity should be an argument for favorable financing terms, even though static ratios make restaurants seem like poor short-term risks.'
Thanks to the support of the partners listed below, all Cornell Hospitality Reports and Tools are made available free of charge from the center's website, www.chr.cornell.edu.
About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the Center's 57 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The Center also publishes the award-winning hospitality journal, the Cornell Hotel and Restaurant Administration Quarterly. To learn more about CHR and its projects, visit www.chr.cornell.edu.
CHR Partners and sponsors: AIG Global Real Estate Investment, Denihan Hospitality Group, Expedia, Inc., Four Seasons Hotels and Resorts, HVS International, JohnsonDiversey, Inc., Kohinoor Group, LRP Publications, Marriott International, Inc., Marsh's Hospitality Practice, Mobil Travel Guide, Nestlé, PricewaterhouseCoopers, Proskauer Rose LLP, Smith Travel Research, Southern Wine and Spirits of America, Inc., SynXis (a Sabre Holdings Corporation), Taj Hotels Resorts and Palaces, Thayer Group of Companies, Travelport, and Wimberly Allison Tong & Goo.
CHR friends: 4Hoteliers.com Caribbean Hotel and Restaurant Buyers Guide Cody Kramer Imports Cruise Industry News DK Shifflet & Associates ehotelier.com Estrela Marketing Solutions Fireman's Fund Insurance Company Gerencia de Hoteles & Restaurantes Global Hospitality Resources Hospitality Confections Hospitality Financial and Technology Professionals (HFTP) hospitalityInside.com hospitalitynet.org Hotel Asia Pacific Hotel China HotelExecutive.com Hotel Interactive Hotel Resource International CHRIE International Hotel and Restaurant Association International Hotel Conference iPerceptions KPMG Japan/Global Management Directions Lodging Hospitality Lodging Magazine PKF Hospitality Research The Resort Trades RealShare Hotel Investment & Finance Summit RestaurantEdge.com Shibata Publishing Co. The Lodging Conference TravelCLICK UniFocus WageWatch, Inc. WIWIH.COM
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