1. The return on assets ratio tells us the profit generated by each dollar in assets....

1. The return on assets ratio tells us the profit generated by each dollar in assets. You will want to compare this ratio to Choice Hotels' historical performance and to Marriott International to understand if it is an acceptable ratio. Is the return on assets ratio acceptable? Why or why not?

2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition? Why?

3. Based on the financial statement analysis, earnings per share analysis, budgeting ratios, and the above profitability ratios, which company would you invest in and why?

	Choice Hotels		Marriott International		(2016/2015)-1	(2016/2015)-1
Ratios	2016	2015	2016	2015	Percent Change from 2015 to 2016	Percent Change from 2015 to 2016
					Choice	Marriott
Basic earning power (BEP) ratio = earnings before interest and taxes (EBIT) / total assets	3.5	3.2	0.06	0.23	0.09	2.98
Return on equity (ROE) = net profit / total equity	-0.45	-0.32	0.15	-0.24	0.41	-1.61
Return on assets (ROA) = net income / total assets	0.16	0.18	0.03	0.14	-0.08	-0.77
Profit margin = profit (gross or net) / sales	-0.14	-0.16	0.18	0.15	-0.13	0.41
Operating margin = operating income / revenue	0.26	0.26	0.16	1.57	-0.01	-0.90

Expert Solution

1. Though Choice Hotel's ROA is historically down in 2016 compared to 2015, it is still much higher than Marriott International. It is also seen even Marriot's ROA is significantly down in 2016 from 2015. Choice Hotel's ROA change is much lesser and significantly better compared to Marriott and acceptable.

2. For Private companies like these two Profitability is a strong factor for acquisition. Histocially, profit margin is negative for Choice Hotels. However Marriot has increasing and healthy profit margin. This easily makes it better candidate for acquisition.

3.Based on the financial statement analysis, earnings per share analysis, budgeting ratios, and the above profitability ratios, I would definitely go for Marriot. It's profit margin, ROA is much better. Also, Choice Hotel's much higher BEP ratio but continuous negative profit margin indicate high interest payment and higher debt burden. So, Marriot is better among these two for investment.

jeff jeffy answered 2 years ago

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