Marriott Case Essay

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Project Part2 3/18/13

Ratio Analysis by Marriott Group

*For each section please refer to the charts at the end Liquidity Ratios Liquidity ratios can be used to measure how fast the company can be liquidated. Generally speaking, a current ratio of 2:1 is preferred by most firms. In the case of Marriott, however, it is 0.52, which is a very low number. It shows that Marriott’s liabilities are far greater than its assets, and therefore it would take a relatively long time to liquidate the company. A low current ratio poses more danger to less stable firms. Nevertheless, since Marriott is an established firm which very little doubt about going bankrupt, a low current ratio such as 0.52 can be tolerated. The Acid­test or quick ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Generally a quick ratio less than 1 shows that the company isn’t able to make payments on its current liability. It may pose a threat to Marriott if the ratio does not improve in the future, and it is probably the best for Marriott to start accumulating more current assets, especially cash. AR turnover ratio measures the number of times, on average, receivables are collected during the period. Marriott takes 26.86 days on average to collect its receivables. Given that Marriott is in hotel industry, 26.86 days is a very low number of days. It is generally considered that an AR turnover days fewer than 60 is very good in restaurant and hotel business. Therefore, Marriott is doing a very good job collecting its receivables more than twice as fast as industry standard. Overall Marriott is not in good standing against Hyatt in terms of its liquidity ratios. Other than AR turnover ratio Marriott seems to be less attractive if considering liquidation. Profitability Ratios Profit Margin measures how much out of every dollar of sales/revenue the company actually keeps in earnings. This is a good indicator when comparing companies within the same industry because it shows how efficient each company is in controlling their costs relative to their peers. As you can see in

the chart, Marriott has higher profit margin than Hyatt especially in 2010. With a profit margin of 13.27% Marriott was able to take away larger percentage of their revenue when compared to Hyatt (1.87%). In 2011 Hyatt was able to close this gap by improving their profit margin to 3.06% while Marriott’s decreased to 5.70%. The ROA (Return on Assets) measures how well a company is able to utilize their assets to generate profits. The higher the ratio the more efficient a company is in utilizing their assets. In 2011 and 2010 Marriott had a ROA of 2.66% and 5.41%, respectively, while Hyatt had 1.51% and 0.76% respectively. Again we see a stronger performance by Marriott. Although Marriott’s ROA decreased in 2011 from 2010, they still beat Hyatt in their ability to efficiently utilize their assets. Hyatt was able to double their ROA in 2011 from 0.76% to 1.51%. Return on Equity (ROE) is a ratio that determines how much profit the company is able to generate in respects to the money that was invested by their investors. This value is important particularly to investors as it measures how well the company is able to use the investors’ funds to generate profit. Marriott International had a very strong ROE in 2010 and 2011 with 33.59% and 49.25%, respectively, while Hyatt had 1.08% and 2.23%. There is significant difference between the two companies which signals a red flag for Hyatt. When an investor looks at these two companies Marriott would seem like a much more attractive investment compared to Hyatt. An attractive ROE is definitely important when it comes to investors looking for companies to invest their money in. EPS (Earnings per Share) is a ratio that calculates how much the company can earn based on how many stocks they have outstanding. This is another important ratio for investors
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