Ratio Based Performance Analysis Of Marriot Versus Intercontinental Finance Essay - Free Essay Example

Marriott International, Inc. is one of a leading worldwide hospitality company with its heritage being traced to a root beer stand opened in Washington, D.C., in 1927 by J. Willard and Alice S. Marriott. Today, Marriott International has about 3,100 lodging properties located in the United States and 67 other countries and territories across 17 lodging and vacation resort ownership brands.This group was established in the year 1927 .This is basically a public limited company . InterContinental Hotels Group is a global hotel group whose brands include Inter-Continental Hotels and Resorts, Crowne Plaza Hotels and Resorts, Holiday Inn, Holiday Inn Express and Staybridge Suites.The intercontinental brand was founded in 1946 by pan American airlines,and currently owned by Philp Charles naughton . IHG is primarily engaged in managing hotels owned by other parties and inÂÂ  franchisingÂÂ  its hotel brands. That is, it sells its expertise in hotel management, systems, and marketing, while leaving investment in real property, which is far more capital intensive, requires different skills, and has a different risk profile, primarily to its partners. ÂÂ  As of 2007 it franchises over 3,200 hotels, manages over 510 and owns only 18.The owned hotels do however include many of the key properties of companys flagship InterContinental brand. This group basically runs by partnership Comparative ratio based Performance analysis of Marriot vs Intercontinental group We as group strived hard to compare all the important ratios of both the hotel groups. The ratios that were focussed were profitability, liquidity, efficiency, investors and gearing ratios. The ratios of two years, 2007 and 2008 were calculated to come to a point where we could determine the situation of both the companies. Below I have summarised and interpreted the ratios that we have strived to calculate, which gives us a financial picture of both the companies. Profitability ratio assessment. Profitability ratio means, how much the firm is capable to generate profit. Under the calculation of profitability ratio The gross profit margin ratio determines the profit a company from its cost of sales. Gross profit margin for Marriott is went down from 7.09% to 6.37% , because there total income went down from 150811m to 149482m . In other case with IHG there Revenue increased as a result even the gross profit has increased. The net profit margin ratio is calculated by finding the net profit as a percentage of the revenue. Low profit margin shows a low margin of safety The revenue of Marriott group has gone down but their percentage of net profit is increasing as they have controlled their expenses on the other hand the revenue of IHG is increased but the ratio has gone down because their is greater increase in their expenses. Source: group analysis notes Liquidity ratio is concerned with the ability of the company or groups to meet short-term obligations. Current ratio says how fast the assets are turned into cash against the liabilities. The ideal current ratio is 2:1.Acid test ratio is better tool to identify exact liquidity as it reduces stock from the current assets the ideal ratio is 1:1.Considering analyzing both the groups rapidly on liquidity ratio Marriotts is doing better than IHG as it has more assets than liabilities looking at both the years even though we detected the stock from the current assets in acid test ratio .Marriott group is in the better position for the investor shareholders to invest for both the years 2007 and 2008 . Even though there was recession period both the groups showed the significant figures in liquidity .this shows that both the groups are well established universally. Source: group analysis notes Effeciency ratio This ratio measures, how efficiently the company is utilizing its assets .In this we can see that Inventory :The inventory turnover ratio for IHG in 2007 was 4 DAYS as compared to the year 2008 which was 3 days. Generally a low number of days inventory is held are a sign of efficient management. The faster the inventory the less cash that is tide up in the inventory. However this is important that inventory is not too low because this would indicate under stocking of inventory. In 2008 the number of days inventory was tied up was less which shows that IHG had improved on selling its inventories, quicker than in the year 2007 Receivable collection period: we can see here that in the year 2007 ,the receivable collection period was 19 days for the Marriot ,which was improved to 14 days in 2008.This shows that Marriot has a good receivable collection period ,which seemed to have improved more in the year 2008.On the other hand The receivable period is not appreciable ,when compared to the Marriott. The receivable collection period for IHG was 86 days ,which is not good from the part of company ,because their cash is still tied up in the market. Moreover its collection period increased to 72 days in 2008 , which shows a slight improvement in their collection period. Asset turnover ratio : For the Intercontinental in 2007,we can see that they had more assets (1807), but their revenue (883) is less as compared to assets,that means,that they have assets, but their business is less, which shows ,that they might have to sell some assets or take up a new strategy. Whereas in 2008,we can see that ,they worked on a strategy of buying new assets (2123) ,which increased their revenue(1278),but still they are way behind Marriott in this case. For Marriott,we can see that ,their revenue was8 times greater than the assets ,which is appreciable,but in 2008,theirrevenue went down, and also it shows an increase in Marriotts assets in 2008 with a slide in revenue,but still 7:1 is good as it shows 7 time revenue than assets. Investors ratio ÂÂ  commonly used by investors to assess the performance of a business as an investment ROCE ratio for Marriott is fallen as their liabilities are gone up on the other hand there is a bit change in the liabilities for IHG . This ratio is for Investors because higher ratio will trend them to invest more. ratio shows the returns over the investments made by the shareholders we here have calculated Return o Equity for IHG Group and figures give us the brief idea of how well the return on the equity of IHG group are. Since we dont have the details for Marriott Group we conclude that though the percentage is for IHG is low it gives better benefits to its shareholder. Gearing is a measure of financial leverage, demonstrating the degree to which a firms activities are funded by owners funds versus creditors funds. Here we can see that, in 2007 IHG had a gearing ratio of 95.82% his is higher then the 50%, but in 2008 the scenario got worse, as it went up to 107.45%. This means that they had more debt over their capital employed.On the other Marriot had very little debt against their capital employed Which means they invested their money without borrowing from out side. Interest cover: in 2007 the interest cover ratio for the Marriott was 1.8 times which is not very good as they were in weaker position to pay the interest. Whereas in the year 2008 the interest cover ratio increased to 2.3 time which is appreciable. This shows either their profit might have increase or their expenses might have decrease On the other hand IHG had a very better interest cover ratio in 2007 but in 2008 they have decrease by 3.5 times of interest cover, which show either their expenses went up or they might loss profit for business Source: group analysis notes Working capital Positive working capital means that the company is able to pay off its short-term liabilities.ÂÂ  NegativeÂÂ  working capital means that a company currently is unable toÂÂ  meetÂÂ  its short-term liabilities withÂÂ  its current assetsÂÂ  .If a companys current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy.ÂÂ  A declining working capital ratio over a longer time periodÂÂ  couldÂÂ  also be a red flag that warrants further analysis. For example, it could be that the companys sales volumes are decreasing and, asÂÂ  a result, its accounts receivables number continues to get smaller and smaller. Here we can see that Intercontinental had 135 million gbp in 2007 which increased to 145 million GBP .On the other hand Marriotts working capital is many times more than that of IHG,which shows that it has a strong base of working capital, but we can see that its working capital decreased from 7606 ml gbp to 5153 ml which is a trigger for the Marriot for further analysis into their account,but still when it is compared to Marriot, ,intercontinental has to improve its working capital Source: group analysis notes Conclusion: Comparing all the ratios, It is evident that Marriot is in a healthier position than Interciontinental.Ratio analysis of Marriot showed a balanced state, financially in the year 2007 and 2008 as compared to Intercontinental in the same years. On the whole Marriott is healthier and has driven in an efficient and effective manner during these financial years, However IHG has diverse approach due to their colossal volume of business. As far as the future prediction is concerned, Marriot has to maintain its current state of balance as it showed promising figures in collection period ratio, asset turnover ratio and good working capital. On the other hand Intercontinental has to improve on various aspects as it showed alarming figures under many ratios, such as lengthy debt collection period, less working capital and alarming gearing ratios. Alarming figures pointed to the high ongoing debt of the company, which might still worsen in future years. Based on groups final thought Group work experience The most imperative part of the whole research and analysis was our group effort .We were fortunate enough to have all the members who acted as power players during the whole course.Although every one is from distinctive educational background,it didnot become a hurdle to us as our concepts were very clear,because of the professional and indepth knowledge imparted to us by our course lecturer.This helped us take on different responsibilities pre- presentation and report.To implement this more accurately we maintained a timetable for all our group meetings and a full attendance of all the members in all our group meetings showed the level of commitment everyone was ready to expend.During the course of our meetings ,we would discuss on the responsibilities assigned and would note down their findings in one place,so as to improve more on it before putting it into our final presentation and reports . Overwhelming the weaknesses and identifying the strengths As every project has some weakness to overcome,we also had some weaknesses during the course.As we were very confident in our calculations,we found some difficulties in assessing the and analysing the ratios which was also a very important part of our presentation and report.We overcame this by thourogh reading of our lecture notes and reffering Peter Atrill tet book.This helped us to understand in detail , how to compare and analyse both the companies. Also we got a good assistance from our team leader(Neha) and one of our group member(Hasan) as they are from finance background. They helped us to ease the concept of analysis in more easy and understandable way from a sophisticate one .This helped every one to analyse and compare both the companies in depth.We also got an appreciable helping hand from one of our team member(Simran),who made the work easy for us ,by preparing tentative slides ,at the same when we discussed our findings .Speaking of our strengths ,i would say that ,we as a group were successfull in utilising the best of everyones capability.I would say that we had to utilize our strenghths,for eg:good understanding of accounting terms by Hassan helped us to compare and analyse the companies in a better way. Contribution of our group Contribution of every group member has been immense. Choosing a person, who contributed the least ,would be vey unfair as everyone in the group contributed their best .Most important thing to mention is the amount of enthusiasm every one had to get this task completed .The example of this is the meeting,in which no one would stay absent as everybody were excited to propose their findings and home work during the meeting and fortunately there has been no meeting ,where any person has not putforth his assigned home work .Â