Comparison of Marriott International and Choice Hotels

Deducting from the information and analysis undertaken on Choice Hotels and Marriott International income statements, it is evident that Choice Hotels has a higher financial performance than Marriott International. The 10-k reports for the years 2015 and 2016 for the two companies indicate growth in the total revenues generated by the businesses at hand. However, while Marriott International posts a higher percentage change of 18% in 2016 from the amount generated in 2015 as compared to the 8 percent made by Choice Hotels over the same period, the change in the net income of Choice Hotels is higher. In the year 2016, Choice Hotels depicts a 9 percent growth in net income as compared to the 9 percent decline posted by Marriott International. Also, the operating incomes of the two corporations increased as per the figures posted in the years 2015 and 2016. Here, Choice Hotels indicated a higher change in the company’s operating income of six percent as compared to the one percent increase recorded by Marriott International. It is evident that Marriott International posted higher figures in the years 2015 and 2016 10-K reports. However, from an investor’s point of view, the financial health is determined by the profitability and the growth potential of a company realized by assessing the percentage changes in vital reference figures such as the revenues, operating income and the net income (Grosgold, 2018). Here, Choice Hotels indicate a higher financial performance from the favorable change in the items presented in the income statement.

In the assessment of Choice Hotels and Marriott International balance sheets for the 2015 and 2016 fiscal years, it is prudent to consider the percentage changes in the given companies’ total current assets, total assets, total current liabilities, retained earnings and the total liabilities and equity. Regarding the current assets, Choice Hotels recorded a change of 11 percent while Marriott International indicated a 144 percent in 2016 from 2015. The total assets of Choice Hotels increased by 19 percent while Marriott International’s rose by 297 percent in 2016 from the figures posted in 2015. The total current liabilities of Choice Hotels increased by 27 percent as compared to Marriott International’s 59 percent in the year 2016 from the amounts recorded in 2015 and the retained earnings of Choice Hotels changed by 18 percent while Marriott International’s rose by 33 percent. Total liabilities and equity of Choice Hotels increased by 19 percent in 2016 from the figure recorded in 2015 as compared to Marriot’s International 297 percent increase. Here, it is imminent that as far as assets and liabilities are concerned, Marriot International is posting a higher increase in the given items of analysis. However, while Choice Hotels can be deemed as experiencing a lower percentage change in assets, liabilities, and equity, it is important to note that the increase in Marriott International’s assets is accompanied by a higher increase in the liabilities and the owner’s claim in the business. The assessment of the balance sheets indicates an increase in Marriott International’s level of operation and not necessarily the company’s profitability, efficiency or liquidity.

Also, the cash flow statement of Marriot International indicates a significantly higher negative percentage change of cash flows from investing activities and financing activities in the year 2016 from 2015. Here, the information from the cash flow statement can be used to explain the cases in Marriott International’s balance sheet whereby, the high changes in liabilities and assets can be deemed to have resulted from seeking external funding and acquiring more assets in the firm as opposed to the case in Choice Hotels.

Analyze Cost and Investment Decisions

Cost allocation methods in a company provide important grounds for the determination of the values of projects, profitability and the desirability of a given investment (Grosgold, 2018). In analyzing the cost allocation methods, the traditional costing method and the activity-based methods presented different results. It is evident that different projects have varying level of activities and hence, for efficiency, different cost pools are required. Taking the example of standard guest rooms, junior suites and the presidential suites, adopting a fixed cost system is deemed as inappropriate as the given units require varying expenses.

It is recommended that activity-based costing is adopted. Here, the increased number of cost drivers involved in activity-based costing makes the evaluation process more accurate and realistic by ensuring that all variables specific to an activity are considered as opposed to adopting a universal system. By using the activity-based costing, the true cost of a project is derived thus allowing for the determination of the appropriate profit margin for the formation of an informed decision.

Complete a Capital Budget and Profitability Analysis

Choice Hotels and Marriott International recorded positive operating and profit margin, basic earning power and the return on assets rations. While the given ratios are positive and hence acceptable, Choice Hotels have higher ratio values in comparison to Marriott International. In the year 2016, Choice Hotels recorded a return on equity ratio of negative 45 percent while Marriott International posted a positive 15 percent return on equity ratio. Here, it is evident that Marriott International is more efficient in utilizing the shareholders’ equity to create income as compared to Choice Hotels.

The computation of the financial ratios provides an important ground for the analysis of the true performance of a company. While revenue and expense figures of a company can be high or low, investors are able to determine the efficiency and profitability of a company by assessing the financial ratios. In the case of Marriott International and Choice Hotels, it is from the financial ratios that an investor is able to deduce that Choice Hotels have higher earning power ratio, return on assets ratio, profit margin as well as the operating margin ratios despite lower revenue levels. Financial ratios provide accurate and reliable instruments for assessing the financial performance of a company for comparison with others and the making of investment decisions.

Mergers and Acquisitions

Both the mergers and acquisitions provide viable investment opportunities based on the performances of the involved companies as well as the interests of the investors (Falk et al., 2017). In the case of a merger, the involved companies lose their previous identities and fuses into a single company with a new identity (Kepczynski et al., 2018). Here, the companies are able to exclusively incorporate resources, market infrastructures and strategies to increase the collective income of the formed company. However, the risks involved with the case of a merger involve the fact that the previous owners lose the primary control of the company as well as the previous identity as a new company with a new name, management structure, and more owners is formed. Merging may also lead to the loss of loyal customers and the name brand built previously by the merging companies (Chalençon, 2017).

In the case of an acquisition, the acquiring company assumes the ownership of the acquired company while allowing the two firms to operate separately (Denicolo, 2018). Here, the acquired and the mother company retains individual names and identities thus preventing the imminent loss of built brands, reduces the costs associated with managerial restructuring while preventing the transfer of business risks from one firm to another. The risks associated with acquisition include the retaining of business inefficiencies and the failure to conduct business overhaul in the event that the acquired company was operating inefficiently (Rani et al., 2017). Also, acquisition prevents the exclusive joint usage of resources by the involved firms (Kepczynski et al., 2018). Acquiring Marriott International or Choice Hotels will indicate that the given names are lost and new companies are formed with different names, managerial structures while transferring the resources from the merging firms to the new corporation. In the case of an acquisition, Marriott International and Choice Hotels retain their identities while the ownership is transferred to the acquiring firm. Here, deducting from the financial statements, it is evident that the higher earning power, return on assets, profit and operating margin ratio renders Choice Hotels more desirable for acquisition or merger

References

Chalençon, L. (2017). Location strategies and value creation of international mergers and acquisitions. London, UK : ISTE, Ltd. ; Hoboken, NJ : Wiley, 2017

Denicolo, M.-A. (2018). Acquisitions 2018. Guildford: College of Law Publishing, 2018.

Falk, R. S., Jebejian, S., Schiele, E. L., & Practising Law Institute,. (2017). Hot topics in mergers & acquisitions, 2017. New York, New York : Practising Law Institute, 2017

Grosgold, D., Hao, A., & Practising Law Institute. (2018). Doing business in and with emerging markets 2018. New York, New York: Practising Law Institute. 2018

Kepczynski, R., Jandhyala, R., Sankaran, G. M., & Dimofte, A. (2018). Integrated business planning: How to integrate planning processes, organizational structures and capabilities, and leverage SAP IBP technology. Cham: Springer.

Rani, N., Yadav, S. S., & Jain, P. K. (2016). Mergers and acquisitions: A study of financial performance, corporate governance and motives. Singapore: Springer.