Report Example: Hilton and Marriott Financial Analysis

2021-07-19 11:48:04
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Middlebury College
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Report
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The hospitality industry is a key sector in the economy as it generates significant revenue to the GDP of a country. According to Kimes (2010), growth and success of companies in hospitality industry has been brought about by globalization, incentives from government support, franchising, embracing diverse and rich culture, economic growth and prosperity as well as good financial management. Between the period 2001 to 2016, the hotel industry in the United States recorded a total revenue of $199.3 billion as measured by occupancy rate, average daily rate (ADR) as well as revenue per available room (Statista, n.d). External threats such as cyber-attacks, security threats as well as food safety still remain to be a great challenge to many travel and hospitality companies (Enz, Kosova, & Lomanno, 2011). Ideally, Hilton Inc. and Marriott International Inc. are good epitomes of global hospitality companies which have been operation for close to a century. In this report, an in-depth analyses of Hilton Inc. and Marriott International Inc. will be carried out using various ratio analysis such as liquidity, solvency, activity and profitability ratios. From the analyses, appropriate inferences will be made helpful to investors and creditors in making investment decisions.

Hilton Worldwide Holding Inc.

Hilton Worlwide Holdings Inc. which was formerly Hilton Hotels Corporation is an American multinational hospitality company which manages and franchises a huge brand array of hotels and resorts. Hilton was founded by Conrad Hilton in Cisco, Texas in 1919 and at the time, the headquarters were in Beverly Hills, California from 1969 upto 2009 and later on moved to Tysons Corner, Virginia. It is currently headed by Christopher J. Nassetta. The vision of Hilton is to fill the earth with light and warmth of hospitality through delivery of exceptional experiences suitable for every guests, hotel at all time. To achieve this vision, Hilton embarks on a mission which essentially involves being the most hospitable company in the world through creation of a heartfelt experiences for Guests, meaningful opportunities for team members, high value for Owners as well as positive impact in the society (Maxwell & Lyle, 2002). The core values of Hilton which is essentially coined from its name include hospitality, integrity, leadership, teamwork, ownership and well as urgency and timeliness. As of 2016, the company recorded a revenue of $11.663 billion and about 169,000 employees (Hotel Hotels & Resorts, n.d). As one of the largest and most rapid growing hospitality companies in the global scenes, Hilton Hotel has over 5,000 properties and more than 825,000 rooms in over 100 countries.

Mariott International, Inc.

Marriott International, Inc. is one of the top American multinational hospitality organization with a vast array of hotels and lodgings (Hormby, Morrison, Dave, Meyers and Tenca, 2010). It is headquartered in Bethesda, Maryland, USA. It has a portfolio of more than 6,100 properties in about thirty leading hotel brands in roughly 124 countries (Marriott, n.d). It operates and franchises hotels and licenses vacation ownership around the globe. In NASDAQ Global Select Market, it is listed as Mariott International, Inc (MAR) ( ). There are three core segments that the company specializes in, the North American Full-Service, North American Limited-Service, as well as the International (O'Brien, 1995). With a revenue of more than $17 billion in the fiscal year of 2016 and an employee base of more than 10,000, Marriott International Inc. has grown to become one of the top companies in the hotel industry (Wernick & Von Glinow, 2012). The company embraces innovation, hospitality, diverse cultures and has transformed the lives of many job seekers. In its 90th anniversary, the company celebrates its success and growth

Liquidity Ratios

Liquidity ratios are useful in showing the ability of the company in meeting the short term and immediate obligations expenses. Essentially, liquidity rations help analyze the financial strength of the company in catering for its current liabilities as they become due as well as the long term liabilities as soon as they become current. Cash levels of a respective company can best be shown by the liquidity ratios especially in terms of showing the financial ability of a given company in terms of the ability of the organization in catering for the short-term obligations through assets which are easily convertible to cash. Liquidity ratios may also show the easiness with which a company can raise enough cash or transform assets into cash. In a short span, it is quite easy for accounts receivables, securities as well as inventory to convert into cash. Common liquidity ratios include:

Current Ratio

Quick Ratio (acid test ratio)

Current Ratio

The current ratio shows the ability of the company to cater for the current liabilities using the assets which are readily convertible to cash. It is an important ratio in that it indicates the short-term liabilities which are due within the coming year. The higher the current ratio, the higher the ability of the company in making current debt payments. The current ratio enables investors and creditors to comprehend about the liquidity of the company and how easy it is to pay current liabilities.

It is computed as follows:

Current ratio = Current assets/ Current Liabilities

In 2014, Hilton had a current ratio of 1.1 while in 2015 it had a current ratio of 1.05. In 2016, the current ratio increased to 1.33 indicating that Hilton Worldwide Holding Inc was more able to make debt payments in 2016 that in was in the previous 2 years. The company made more revenue from current assets to cater for the current liabilities.

As for Marriott International Inc., the current ratio was 0.63 in 2014 but decreased to 0.43 in 2015 and increased in 2016 to 0.65. Ideally, this shows that the company improved its operations and obtained more revenue from the current assets to cater for the current liabilities which were due.

Comparing Hilton with Marriott International Inc., it plausible to see that the current ratio of Hilton Worldwide Holding Inc. was greater than that of Marriott International Inc. in all the years starting from 2014 to 2016 implying that Hilton Inc. was in a better position to pay the short term obligations than Marriott International Inc.

Quick Ratio

The quick ratio is also known as the acid test ratio. As a liquidity ratio, it is a useful indicator in showing the ability of the company in paying its current liabilities using the most liquid assets. Cash, cash equivalents, short term investments, current account receivable as well as marketable securities are considered to be quick assets. The higher the quick ratio, the more favorable a company can is in utilizing liquid assets to pay off current liabilities. To investor, the quick ratio is a good ratio to focus on and to the creditors, it helps them know exactly whether they will be paid back in time. In this case, the residual of the current assets is obtained after subtracting the inventory amount after which the amount is divided by current liabilities. i.e.

Quick ratio = (Total Current assets- inventory-Prepaid Expenses) / Current Liabilities

The quick ratio of Hilton in 2014 was 0.93 and in 2015, it decreased to 0.87. In the year 2016, the quick ratio increased to 1.12 positing that the Hilton was in the best position of paying off the current obligations using the most liquid assets in the year 2016.

Marriott International Inc., on the other hand had a quick ratio of 0.63 in 2014 while in 2015, the quick ratio decreased to 0.43. In the year 2016, the quick ratio increased to 0.65 indicating that Marriott International Inc. was in a better position to settle the current liabilities using the liquid assets. Comparing Hilton with Marriott International Inc., it can be seen that that Hilton Inc. had a higher quick ratio in all the years starting from 2014 to 2016 and this means that Hilton Company was in a better position to pay off the current liabilities out of the most liquid assets.

B. Solvency

Solvency ratio is a significant ratio which is used to show the ability of the company to pay the long term debts. Solvency ratios also referred to as leverage ratios are useful in showing the extent of risk of a company while it is in the pursuit of financing investment assets through debt and equity. The ratio quantifies the amount of the companys after tax income. It goes further to provide an assessment of the likelihood of a company to proceed with congregating the debt obligations. The company is able to sustain operations only by comparing debt levels with equity, assets and earnings. The going concerns which is critical and ascertained by the ability of the company to pay the financial obligations in the long term.

To the creditors, bondholders and banks, the solvency ratios are important in showing the ability of the company to pay off the long term obligations. The higher the solvency ratio, the more creditworthy and financially sound the company will be in the long term. Common solvency ratios include:

Debt to Equity Ratio

Equity Ratio

Debt Ratio

Total debt to equity ratio

Ideally, this ratio indicates measure the extent in which the company uses in debt and equity as sources of finances to steer the asset of the company as evaluated using book values of the capital sources. It is computed as follows:

Total debt to Equity Ratio = Total Debt (liabilities) / Total shareholders Equity

Hilton Inc. had a debt to equity ratio of 4.5 in 2014 which decreased in 2015 but later on increased to 3.44 in 2016. The increase in debt equity ratio shows that the company obtained a higher amount of debt to finance its operations in 2016.

Marriott International Inc. had a negative debt to equity ratio in 2014 and 2015 while in 2016, the ratio increased to attain an all-time high of 3.51. The negative sign is brought about by negative shareholder out of the treasury stock as well as negative accumulated other comprehensive income.

Both Hilton and Marriott International Inc. obtained more debt through the years. However, the debt to equity ratio of Hilton Inc. was higher than that of Marriott International Inc. in all the years starting from 2014 to 2016. While Hilton had a positive equity, Marriott International Inc. had a negative equity holding.

Equity ratio

The equity ratio is a solvency ratio which seeks to establish the amount of assets financed by owners investment. It does so by comparing the total equity in the company to the total assets. Investors finance companies in terms of rending the necessary resources and capital that companies need to conduct operations. The equity ratio helps measure the extent to which the investors finance the companys operations. Corporations with a higher equity ratios are attractive to new investors and creditors since the investors are confident that the company will invest their input appropriately and will therefore be willing to finance operations. The equity ratio is computed as follows:

Equity ratio = Total Equity / Total assets

The equity ratio of Hilton in 2014 was 0.18 while in 2015, it was 0.23 which was an increase from 2014. In 2016, the equity ratio decreased to 0.225 implying that the equity of the company decreased. The decrease in equity ratio could be limit to the company in sense that it is indication of reduced investment from the investors in Hilton Inc. While investors has more confidence in investing in Hilton Inc. in 2016, their confidence was low in 2014 and 2016.

Marriott International Inc., on the other hand began with a negative equity ratio of -0.32 in 2015 which decreased in 2015 to -0.59. In 2016, the equity ratio increased to...

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