Free Financial Analysis: Marriot International Report Sample

Executive Summary

The report discusses the financial standing of Marriot International, one of the largest hotel chains in the world, for the year 2013. To achieve a comprehensive analysis, we converted the raw financial numbers into meaningful items using the tool of ratio analysis, which were then compared with the industrial averages. Our analysis indicated that the company is earning sustainable profit margins of 4.21%, while the industry is running into losses. Another financial metric that went in favor of the company was its efficiency in using the asset base and generating profit from it. Important to note, both the ROA multiple and the asset turnover of the company was significantly higher than the industrial average.
Even the customary performance measurement tool in the hotel industry such as occupancy rate, ADR and REVPAR were under an appreciable horizon with each performance measurement increasing by, 1.9%, 2.8% and 5.6%, respectively on year-to-year basis.
It is also noteworthy to comment here that investors might be moved to witness negative ROE of the company that stood at -44.24% during the year. However, it should be noted that the negative ROE is sourced from high amount share-repurchase program of the company, which can be considered as a positive sign because a company repurchases its shares at the time it feels the stock to be undervalued.

Overall, we did not found any source of concern in the financial performance of the company.

Introduction
The main objective of this report is to attain an understanding of the financial statements of a public limited company, and how to analyze its financial standing using the tool of ratio analysis. Hence, for this purpose, we will be putting the financial data for the year 2013 of Marriot International under the microscope and will unearth its existing financial position with the help of multiple ratios. We are assured that with while working on this report with an eye of an analyst, a comprehensive conclusion relating to the financial performance of the company will be achieved.

Theoretical importance of data to the management

The data included in the financial statements of the company carries great significance for the management of the company as the same is turned into multiple financial ratios which assist the management in knowing their well-being under various sections of the businesses. Below discussed are the relative significance for each ratio section and how it assist the management:
-Liquidity Ratios
Also known as Working Capital Ratios, these financial multiples indicate the ability of the company to honor its short-term obligations as and when they become due. Two popular liquidity ratio generally used by the financial analysts are, Current Ratio and Acid Ratio.
-Profitability Ratios
These ratios indicate the profit margins being earned by the company from its business activities. Thus, management can have a look over the profit outcome at the end of the year, and take follow up measures if profit margins do not align with the budgeted figures. Some of the profitability ratio used by the analysts is:

Net profit Margin

Return on Equity
Return on Assets
Operating Profit Margin
-Solvency Ratios
Also known as financial leverage ratios, these financial multiple provides an overview relating to the composition of the financial structure of the company, i.e. what proportion of the financing is sourced from debt borrowings and how much from the equity capital.
Thus, by witnessing their solvency ratios, management can check if the company is overleveraged or not, and can then take appropriate decision relating to their capital structure. Important to note, any company that is overleveraged can suffer unwanted financial risk, while an underleveraged company may let the tax benefit associated with debt financing go. Hence, a balanced debt situation is always desired by the management.
-Efficiency Ratios
Also known as Asset Management Ratios, these ratios indicate the efficiency of the management relating to the use of the company to generate revenue. Some of the popular efficiency ratios are:

Asset Turnover Ratio

Inventory Turnover Ratio
Payable Turnover Ratio
About the company and its financial situation
Founded in the year 1927 by John Willard Marriot as Marriot Corporation, the company is now known as Marriot International after the original company was split into two companies, Host Marriot Corporation and Marriot International. The core business activities of the company include management and franchising of multiple portfolios of hotels and lodging facilities around the world. During 2013, the company created record by signing in one hotel almost every day and thus, added 67000 rooms, making a total of 195000 rooms under development targeted to be completed by 2014 year end. By the time of writing this report, the company had its presence in more than 70 countries with a hotel property of more than 3900 hotels constituting 697000 rooms. Marriott International operates its hotels and other properties under varied brand names, such as , Ritz Carlton, JW Marriot, Marriot International, Gaylord Hotels, et cetera.
As of the latest annual report of the company, during 2013, the company had total revenue figure of $12784 million and net income of $626 million. As for the asset base, the company was holding total asset base of $6794 million.

Comparison of Financial Data

This is the core section of this report, where in order to unearth the real financial standing of the company; we will first calculate multiple ratios which will be followed by their interpretation by comparing them with the industrial averages and a short brief about the management discussion over the financial metric.

Return on Equity

-Definition
It is a profitability measure that will indicate return earned by the company on the amount invested by the common shareholders. Below is the formula for calculating ROE multiple:

ROE: Net Income/ Total Shareholder Equity(excluding preferred stock)

-Calculation

ROE: 626/-1415

= -44.24%
-Comparison to industrial average and additional discussion
While Marriot International is generating negative return on equity, the average industrial multiple is 6.36%. However, this should not be a sense of worry for the shareholders of the company because the negative ROE is sourced from large amount of treasury stock purchase and any organization would exercise stock repurchase program if it believes that the stock is relatively undervalued.
-Management Discussion on financial performance during the year
The management of the company is elated with the financial performance of the company during the year as the company added 161 commercial and five residential properties to their system. However, what was most encouraging for the management was the increased revenue and net income that surged by $970 billion and $55 Billion, respectively, even at the time of uncertain economic conditions around the world.

Return on Assets(ROA)

-Definition
A profitability measure that indicates how much profitable is the company in relative to its total asset base. The return on equity metric indicates how efficient the management of the company in using its asset base. Below is the formula for calculating ROA multiple:

ROA: Net Income /Total Assets

-Calculation

ROA: Net Income /Total Assets

= (626/6794)*100
= 9.21%
Note: Some analyst calculate ROA by including interest expenses(net of tax effect) in the numerator to calculate returns before cost of borrowings.
-Comparison to industrial average and additional discussion
The above ROA multiple of 9%, indicates that Marriot Hotels earned a net margin of 9.21% on their asset base. The results are very much appreciable against the industrial average of 1.3%. This indicates that Marriot International has been generating significantly higher returns on its asset base as compared to its industrial peers(on average basis).
* Industrial Average Ratios included in Appendix.
-Difference between ROA and ROE

ROA: Net Income /Total Assets

= 626/6794
= 9.21%

ROE: Net Income/ Total Equity

= 676/(-1415)
= -47.77%

As noted from the above calculations, yes, there is a difference between ROA and ROE multiple of the company

-Relation between ROA and ROE
The difference between ROA and ROE is spelled out my Dupont equation which reveals that the point of difference between two financial multiple is related to the financial leverage. Below is the formula that indicates the difference between ROA and ROE:

ROEDupont: ( Net Income/ Total Revenue)* (Total Revenue/ Total Assets)* (Total Assets/ Total Equity)

Return on Assets
Return on Equity
Thus, referring to the equation above, we can witness that the ROE multiple is just the continuation of ROA multiple and includes financial leverage.

Profit Margin Ratio

-Definition
This ratio indicates the bottom line profits of the company after all the operating and non-operating items are adjusted for in the gross margins. In other words, profit margin ratio indicates how much of each dollar earned by the company is translated into profits. Below is the formula for calculating profit margin ratio:
= (Net Profit/ Revenue)*100
-Calculation
= (Net Profit/ Revenue)*100
= (626/12784)*100
= 4.89%
-Comparison to industrial average and additional discussion
The above results indicate that during 2013, of the total revenue dollars earned by the company, 4.89% of the amount was converted into bottom line profits. The results when compared to the industrial profits were highly appreciating as the average industrial net margins were -59.11%. This financial metric shall be encouraging for various stake holders, including the shareholders which will be ecstatic to witness sustainable profit margins of the company while the industrial peers are operating under net losses(on average basis).
* Industrial Average Ratios included in Appendix.
Asset Turnover Ratio
-Definition
This ratio multiple indicates the company’s ability to use its assets to generate revenue figures. In other words, asset turnover ratio indicates what amount of revenue figures are generated per dollar of assets. Below is the formula for calculating asset turnover ratio:
Asset Turnover Ratio = Revenue/ Total Assets
-Calculation
Asset Turnover Ratio = Revenue/ Total Assets
= 12784/6794
= 1.88
-Comparison to industrial average and additional discussion
Referring to the calculation above, we can assert that during 2013, Marriot International earned revenue 1.88 times its asset base, which is a sustainable figure for a company in the hospitality industry. We even compared the results with the industrial averages and found that the on an average the companies in this industry are generating asset turnover of 0.53 only. Thus, this proves that Marriott International is efficiently using its asset base to generate revenue figures.
* Industrial Average Ratios included in Appendix.

Debt-Equity Ratio

This financial metric measures the financial leverage of the company, i.e. on calculation of this ratio, the analyst is able to judge composition of the capital structure of the company and thus, the proportion of debt and equity involved in the financial structure of the company.. Below is the formula for calculating the ratio:

Debt-Equity Ratio: Long-term debt(including current portion)/ equity

-Calculation

Debt-Equity Ratio: Debt/ Equity

= (3147+6)/-1415
= -2.22
-Comparison to industrial average and additional discussion
No industrial average was available for this financial metric. Please refer to appendix.

Current Ratio

A primary liquidity ratio that accesses the short-term payment ability of the company by comparing the current assets with its current liabilities. Below is the formula for calculating the current ratio:

Current Ratio: Current Assets/ Current liabilities

-Calculation

Current Ratio: Current Assets/ Current Liabilities

= 1903/2675
= 0.71
-Comparison to industrial average and additional discussion
Referring to the calculation above, we can witness that the current assets of the company account or only 0.71 times of the current liabilities of the company, and this is not a very encouraging sign for the liquidity position of the company. We even compared the results with the industrial averages and found that while the average industrial current ratio is 2.04, Marriott International scores low with the current ratio as low as 0.71. Thus, the management should take due consideration of their working capital position.
* Industrial Average Ratios included in Appendix.

Occupancy Rate

A financial metric that is used primarily in the real estate industry to indicate what percentage of the total units in the property and rented out. Occupancy rates are important as they provide an indication of success of the real estate unit and is also an indication of anticipated cash flow from the property.. Below is the formula used for calculating the occupancy rate of the real estate property:
= Leased/ Rented Units/ Total Units
-Calculation
Referring to the annual report of the company, we found that during 2013, the worldwide occupancy rate of the company was 71.8%.

Interpretation and comparison with past year performance

An occupancy rate of 71.8% means that of the 697000 available units with the company, approx. 500446 were regularly occupied by the company’s guests. The performance during 2013, was marginally better than the previous year when occupancy rate was 70.9%.

Average Daily Rate

Another performance measure used in the hospitality industry that indicates average room rental realized per day. It is generally abbreviated as ‘’ADR’’.
-Calculation
Referring to the annual report of the company we found that during 2013, the worldwide ADR of the company was $170.35.
-Interpretation and comparison with past year performance
ADR of $170.35 meant that on worldwide basis, the company earned a rental of $170.35/ room on daily basis. In comparison to the previous year, the performance of the company improved during the year as the ADR surged by 3.3% in comparison to the previous year.

Revenue per available room

A popular performance measurement metric in the hotel industry that is calculated by multiplying occupancy rate with average daily rate. It is usually abbreviated as ‘REVPAR’
-Calculation
Referring to the annual report of the company, we found that during 2013, on worldwide basis, the revenue per available room was $122.32.
-Interpretation and comparison with past year performance
REVPAR of $122.32 indicated that on the company earned this much amount of money from the available rooms in all its properties worldwide. The performance was better when compared to the previous year, the multiple surged by 4.6%.

Management Discussion on performance measures

Referring to the MD& A section of the annual report of the company, we found that the management acknowledged the increase in all their performance measured which was primarily driven by demand in luxury hotels.
‘’Comparable worldwide systemwide average daily rates for the twelve months ended December 31, 2013 increased 3.4 percent on a constant dollar basis to $143.33, RevPAR increased 4.6 percent to $102.46, and occupancy increased 0.9 percentage points to 71.5 percent, compared to the same period a year ago’’.

Conclusion

At the end of this report, we can conclude that financial standing of Marriott International during 2013 was very much appreciable when compared with the industrial averages. Strong profitability, high asset turnover and good occupancy rates and ADR is what makes it one of the most largest and financially sound hotel chain in the world. While every we put under the microscope of ratio analysis seemed fine, what may concern the investors shall be low current ratio and negative return on equity. However, a deeper analysis of the balance sheet revealed that negative equity was sourced from large scale treasury stock purchase by the company which is also likely to use huge amount of cash, thus affecting the liquidity at the same time.
Hence, we believe that the investors should not be worried regarding the financial standing of the company and we expect Marriot International to continue their bullish financial marathon.

Works Cited

Average Daily Rate - ADR. (n.d.). Retrieved March 9, 2015, from Investopedia: http://www.investopedia.com/terms/a/average-daily-rate.asp
Current Ratio. (n.d.). Retrieved March 9, 2015, from Investopedia: http://www.investopedia.com/terms/c/currentratio.asp
Debt-Equity Ratio. (n.d.). Retrieved March 9, 2015, from Investopedia: http://www.investopedia.com/terms/d/debtequityratio.asp
Net Margin. (n.d.). Retrieved March 7, 2015, from Investopedia: http://www.investopedia.com/terms/n/net_margin.asp
Occupancy Rate. (n.d.). Retrieved March 9, 2015, from Investopedia: http://www.investopedia.com/terms/o/occupancy-rate.asp
Return on Assets- ROA. (n.d.). Retrieved March 7, 2015, from Investopedia: http://www.investopedia.com/terms/r/returnonassets.asp
Return on Equity. (n.d.). Retrieved March 9, 2015, from Investopedia: http://www.investopedia.com/terms/r/returnonequity.asp
Revenue Per Available Room - RevPAR. (n.d.). Retrieved March 9, 2015, from Investopedia: http://www.investopedia.com/terms/r/revpar.asp
Appendix:
Refer to excel sheet