Question

1. Analyze and compare Marriott and Hyatt

   Marriott International, Inc. (MAR), and Hyatt Hotels Corporation (H) are two major owners and managers of lodging and resort properties in the United States. Abstracted income statement information for the two companies is as follows for a recent year (in millions):

   	Marriott	Hyatt
   Operating profit before other revenue and interest	$1,368	$299
   Other revenue (expense)	50	66
   Interest expense	(234)	(76)
   Income before income tax expense	$1,184	$289
   Income tax expense	(404)	(85)
   Net income	$ 780	$204

   Balance sheet information is as follows:

   	Marriott	Hyatt
   Total liabilities	$18,783	$ 3,841
   Total stockholders’ equity	5,357	3,908
   Total liabilities and stockholders’ equity	$24,140	$ 7,749

   The average liabilities, average stockholders’ equity, and average total assets are as follows:

   	Marriott	Hyatt
   Average total liabilities	$14,228	$3,719
   Average total stockholders’ equity	883	3,951
   Average total assets	15,111	7,670

   1. Calculate the following ratios for each year (Round ratios and percentages to one decimal place.)

   			Marriott			Hyatt
   a.	Return on total assets			%			%
   b.	Return on stockholders’ equity			%			%
   c.	Times interest earned
   d.	Ratio of total liabilities to stockholders’ equity

   2. Which of the following statements are correct?

   1. Marriott has a higher return on total assets and a higher return on stockholders’ equity compared to Hyatt.

   2. Hyatt’s weaker performance relative to Marriott’s appears to be due to its weak earnings relative to its debt level. Hyatt has less leverage than Marriott.

   3. The times interest earned ratio shows that Hyatt covers its interest charges better than Marriott; however, both companies do not have sufficient coverage.

   4. Hyatt’s weak earnings and low debt levels are affecting the company’s ability to earn returns for stockholders.

Answer 1

Requirement 1:

a. Return on total assets

Return on total assets = Operating profit before other revenue and interest / Average total assets * 100

Return on total assets	Marriott	Hyatt
Return on total assets	$1,368 / $15,111 * 100 = 9.1%	$299 / $7,670 * 100 = 3.9%

b. Return on stockholders' equity

Return on stockholders' equity = Net Income / Average total stockholders' equity * 100

Return on stockholders' equity	Marriott	Hyatt
Return on stockholders' equity	$780 / $883 * 100 = 88.3%	$204 / $3,951 * 100 = 5.2%

c. Times Interest earned

Times Interest earned = (Income before income tax expense + Interest expense) / Interest expenses

Times Interest earned	Marriott	Hyatt
Times Interest earned	($1,184 + $234) / $234 = 6.1 times	($289 + $76) / $76 = 4.8 times

d. Ratio of total liabilities to stockholders' equity

Ratio of total liabilities to stockholders' equity = Total Liabilities / Stockholders's equity

Ratio of total liabilities to stockholders' equity	Marriott	Hyatt
Ratio of total liabilities to stockholders' equity	$18,783 / $5,357 = 3.5 times	$3,841 / $3,908 = 1.0 times

Requirement 2:

Answer: 3.The times interest earned ratio shows that Hyatt covers its interest charges better than Marriott; however, both companies do not have sufficient coverage.

All the best...