Financial ratios of Hilton and Marriott years 2016, 2017, and 2018 (Essay Sample)
This is accounting assignment , 2000 words.
Our client choose Hilton and Marriott，U need find annual report，You need to research the 2018, 2017 and 2016 fiscal years annual reports of Live Nations (10-k annual reports are available online on the respective company’s web).
The financial section of the annual report should be analyzed through financial statements analysis and ratios, with specific emphasis on; Liquidity, Solvency, Activity and Profitability. A maximum of 8 ratios should be used (2 ratios for each of the 4 sections).
Introduction( 400 words)
Analysis (1200 words)
Conclusion( 400 words)
APA format, also need in-text citations.
Financial ratios of Hilton and Marriott for the year 2016, 2017, and 2018
Company performance is depicted by its key performance indicators. One of the most indicative and influential way of measuring performance in a firm is the use of ratio analysis to estimate the level of liquidity, efficiency, growth, margins, profitability, performance, valuation and gearing level (Garrett, et.al, 2014).
Hilton Worldwide formally known as Hilton Corporations is an American multinational in the hospitality industry. It was founded in 1919 and makes use of franchises to expend into other regions through hotels and resorts. On the other hand, Marriot international Inc. is a multinational of American origin in the hospitality sector. Operates under franchises for boarding facilities and hotels and was founded in 1927.
There are four major categories of rations that are used to assess the overall level of sustainability and a final conclusion on the going concern ability (Manurung & Hadian, 2013). The ratios are derived from financial statements including the income statement, statement of financial position, and cash flow statement. This includes; liquidity, leverage, efficiency, profitability, and market value.
The rations for the different types are used to assess the overall firm performance. Ration analysis have been seen to be very important to firms. Some of the major uses of the ratio would include; majorly, the ratio results would be used to track the performance of a firm (Son et.al, 2006). For instance, a firm that is highly liquid is seen to be good in clearing its short-term obligation. However, when it’s too liquid question on long-term investments may arise putting in question the sustainability of the business. Also, looking at the gearing rations, it is possible to assess whether the firm has over reliance on debt or it has been able to balance between their debt and equity financing.
A firm that has been able to balance is seen to be strong and a going concern and thus it is able to address both short-term and long-term obligations. In addition, profitability ratios have widely been used to assess how well a firm is able to realise return form sales and good that are for sale (Wong & Wickham, 2015). Firms that have high profitability ratios are attractive to investors as they are able to realise high return since the conversion of purchases is high. The solvency ratios provide a signal for risk. In addition, they are able to give an indication as to the going concern capability of the firm. Also investors and creditors are bale to assess the likelihood of getting their investments back (Huckestein & Duboff, 1999). Firms that have low solvency ratios are seen to be more solid and sustainable in future. This is because they have high investments and thus they are not likely to collapse in the near future hence worth investing.
Liquidity ratios include use of assets that can be quickly turned into cash. Therefore, they assess a company ability to pay for their short-term. Major ratios are current ratio and quick ratio. A ratio greater than 1 indicate that the firm can be able to pay off its obligations without straggle (Newman et.al, 2012). The current ratio of Marriot for 2018 is 0.42 and 2017 is 0.47 while 2016 was 0.65 as indicated in appendix 1. The value is less than 1 an indication that the firm has been straggling to settle its short-term liabilities. The quick ratio likewise is less than 1 since in 2018 it is 0.42, 2017, 0.45 and 2016 it was 0.54 which is indicative that the assets of the firms are not able to finance their liabilities as they arise.
On the other hand, Hilton in 2018, the current ratio was 0.76, 2017 was 0.9 while in 2016 it was 1.33 an indication that in 2016 it was not having problems paying for its short-term obligations. The quick ratio was below 1 for 2016, 2017 and 2018 which was indicative that the firm assets that can be quickly turned into cash cannot be able to attend to its short-term obligations.
This are ratios that are used to measure a firm’s performance. It assesses a firm’s ability to realise income inform of profit form the revenue generated. The ratios include; gross profits, operating income, net profit margin, return on assets and return on equity (Bruner & Vakharia, 2017). The current analysis made use of return on assets and return on equity to assess the firm’s performance. The return on assets and equity of a firm should be positive and the higher it is compared to industry the better the firm is able to realise profit from its revenue.
For the case of Marriot, the return on assets was 8% in 2018, 6% in 2017, and 3% in 2016. On the other hand, Hilton had a return on assets of 5% in 2018, 9% in 2017, and 1% in 2016. Both firms have a relatively low conversion since favourable profitability ratios lie at around 5% which is the value around which the firms are operating. Therefore, could be said to be average performers.
Making use of return on shareholders’ equity, Marriot had a ratio of 86% in 2018, 41% in 2017, and 15% in 2016. On the other hand Hilton has a return on equity of 138% in 2018, 61% in 2017, and 6% in 2016.
Research has shown that a good ROE lies between 15% and 20%. Therefore, it is indicative that Marriot is able to overly generate profits from its shareholders. As for the case of Hilton, they have improved from 2016 and have continually been able to overly rely on their shareholder wealth to generate profits.
This are ratios that are used to assess the level of dependency on debt financing. Therefore, they are used to evaluate the level of debt in a firms and thus its sustainability and riskiness. They include the debt ratio, debt to equity, interest coverage, and debt service coverage (Noonan & Rankin, 2017). For the current analysis debt ratio and conversion ratios were used.
For Marriot the debt ratio for 2018 was 0.91, 2017 it was 0.85 and 2016 it was at 0.78. For the case of Hilton, the ratio was 0.96 in 2018, 0.85 in 2017, and 0.78 in 2016. Research has shown that favourable debt ratio is one that is 40% and below. Those that are 60% and above are said to be poor since they show that the firm is too risky and thus could fall into financial crises by being unable to attend to its debts as they fall due. This shows that for both Marriot and Hilton which have a debt ratio above 60%, are risky enterprises to invest since they overly on debt to finance their assets and thus could be unable to pay their debts that fall due in the future.
Looking at the times interest earned ration, for Marriot, the ratio was 6.96 times in 2018, 8.69 in 2017, and 6.09 times in 2016. On the other hand Hilton had a ratio of 3.86 times for 2018, 3.36 for 2017, and 2.42 for 2016. A good ratio is said to be 2.5 times and above for the business to be seen as less risky to creditors and investors. For the case of Marriot, their ratio is higher for all the years which is an indication that it is able to pay for its debts. On the other hand, Hilton had problems in 2016, but has since been moving up and is now above the acceptable limit thus it is able to finance its debts.
Market value ratios
These are ratios that are used to asses a company’s stock and its share price. These includes the book value ratio, divided yield, EPS, and P/E ratio. The EPS helps assess the amount of income that is generated for every share owned (Noonan & Rankin, 2017). The higher it is the better the firm is able to sustain its investment as well as attract investors for high return on investment.
Marriot had an EPS of 5.45 in 2018, 2.89 in 2017, and 2.78 in 2016. On the other hand Hilton hand 2.53 in 2018, 3.88 in 2017, and 1.06 in 2016. The analysis show that Marriot is able to better compensate their investors for investments made to the firm. In addition, it has been improving over the years an indication that income for each share has been improving and thus returns through the firm has been high which makes its more attractive as compared to Hilton which has had low EPS and which has not been growing but instead it has been volatile.
The P/E ratio is used to compare the forms earnings to its price. A good P/E should be around 13 to 15 times. For the case of Marriot, the P/E was 19.92 for 2018, 34.44 for 2017, and 29.74 for 2016. This is an indication that the firms investors expect high growth compared to the overall market growth. Also, it is indicative that the firm s
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