Ratio Analysis of Hilton Hotel Company

This document provides a detailed ratio analysis of Hilton Hotel Company, including profitability ratios, liquidity ratios, efficiency ratios, and investment ratios. The analysis helps in understanding the financial performance and position of the company. The profitability ratios indicate good profitability, while the liquidity ratios suggest a need for more liquid assets. The efficiency ratios show the efficient use of assets, and the investment ratios assess the company's performance for potential investors.

ACCOUNTANCY AND
FINANCE.

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
A. Hilton Profile and sectors they are operating in......................................................................3
B. Calculation of ratios................................................................................................................4
C. Interpretation Of Ratio analysis............................................................................................11
D. SWOT and PESTLE strategies that should be adopted by the Hilton..................................14
E. Reasons based on strategic and financial analysis for the investor to invest in this Hilton.. 16
CONCLUSION..............................................................................................................................18
REFERENCES................................................................................................................................1

INTRODUCTION
International Accounting Standard (ISA) is an older accounting standard which is issued
by the International Accounting System Board (IFSB) which is based in London which is later
replaced by the International Financial Reporting Standard (IFRSs) in 2001. ISA was the first
international accounting standard that were issued by the IASC (International Accounting
Standard committee) formed in 1973 (Galli, 2017). the main aim was to increase the
transparency, trust in financial report and to make the business easier to compare with other.
Globally comparable accounting standards helps the business to promote the transparency,
efficiency of the financial market and accountability around the world. This help the market to
get more of the investor and participate to make the economic decision to know the investment
risk and opportunities to improve the capital allocation. Whereas, IFRSs sets the conman rule for
the countries to follow the financial statements that provide transparency and comparable. ISAB
gives the guideline to maintain the financial report and financial impacts. This reports shows the
financial statement of Hilton industry of two consecutive year financial year and analysis to
make the strategies. Whereas, this report also shows the SWOT/PESTLE analysis of the
company which affect the Hilton hotel industry and can overcome with those situations.
MAIN BODY
A. Hilton Profile and sectors they are operating in.
Hilton Hotels corporation, an American multinational Hospitality company that deals in
the hotels and resort founded by Conrad Hilton which id now lead by Christopher J. Nassetta.
Hilton had over 6215 properties all over the 118 countries and territories where 690 managed
and 5405 are the franchises of the Hilton hotels. It has ranked having 36th largest property
privately held company. The company also owned the other hotel companies like Waldorf
Astoria hotels and resort, Conrad hotels, Hampton etc. Hilton hotel is an international series
which have the most luxury hotels and resort in the world. In addition to their hotels and resort
they also offer the holiday ownership program by Hilton grand holiday program. Hilton have
more than 3 lac team members globally that work for the Hilton industry. It is one of the largest
fast growing hotel industries in the world. In 1919 Hilton buys the Mobley hotel situated in
Cisco, Texas and further purchases the Texas hotel. In 1925 aims to manage the best hotel in the
taxes with commitment and innovation in the industry. In 1927, Hilton expands to Waco, taxes
and open the first hotel providing the services with air condition and cold running water in public

and continue with acquiring the hotels of Roosevelt in New York city and become the first hotel
in coast-to-coast hotel group. Were in 1947, Hilton become the first hotel to install the television
in the guest room. Whereas, in 1954 Hilton purchases the Statler hotel in 111 million dollar and
became the largest real estate deal. Hilton become the separate company in 1964 and Conrad
become the president of the Hilton group also first company to list in the NYSE in 1970. Hilton
set the goal of operating in luxury hotels and resort to increase the tourism capital and make the
debut with four new locations and expand more than 500 properties. And in 2002 Hilton
launches the Holiday ownership to provide their member with a premium and luxury experience
and again listed in New York Stock Exchange in 2013.
B. Calculation of ratios
Ratio analysis is used for comparison of financial statement which is a tool for company
that improves company's understanding for business position and market trend. Ratio helps
company to compare its position with other firms from same industry (Norton, Dowd and
Maciejewski,, 2018.). Ratios should be paired with other metric to obtain broader picture of
company's financial health.
 Profitability Ratio (in millions)
Proportion-ability ratio is a tool used by financial analyst and investors to measure
company's performance in the terms of profitability. It helps to evaluate that company is
generating income in relative to its revenue or not. It is calculated for specific period.
Particulars Formula 2018 2019
Operating Profit 1432 1657
Sales 9542 9542
Operating Profit Ratio Operating profit
/sales×100
15.01% 17.36%

Particulars Formula 2018 2019
Net income 764 881
Sales 9542 9542
Net Profit Ratio Net income/ sales
*100
8.05% 9.23%
Operating Profit Ratio
0.135
0.14
0.145
0.15
0.155
0.16
0.165
0.17
0.175
0.18
15.01%
17.36%
2018
2019
Net Profit Ratio
0.074
0.076
0.078
0.08
0.082
0.084
0.086
0.088
0.09
0.092
0.094
8.05%
9.23%
2018
2019

 Liquidity Ratios
Liquidity Ratio is calculated to determine an organization's capability to pay its debt in time
manner. These ratios are used by creditors and lenders to have idea about creditworthiness of
borrowers or financial situation of their customers. It used to determine liquid assets to short
term liabilities.
Particulars Formula 2018 2019
Current Assets 1983 2093
Current Liability 2871 2871
Current ratio Current Assets
/Current Liability
0.69% 0.73%
Particulars Formula 2018 2019
Liquid Assets 1823 1963
Current Liability 2871 2871
Quick ratio Liquid Assets / current
liability
0.63% 0.68%
Current ratio
0.0066
0.0067
0.0068
0.0069
0.007
0.0071
0.0072
0.0073
0.0074
0.69%
0.73%
2018
2019

 Efficiency Ratios
An efficiency ratio is used by company to analyse that how well company is using its
assets and liabilities internally (Bitar, Pukthuanthong and Walker, 2018). These ratios can
calculate turnover of receivables, the quantity and usage of equity fund and repayments of
liability is used for comparison of company's expenses with its revenues earned. Efficiency ratios
are used by financial analysts.
Particulars Formula 2018 2019
Revenue 8906 9542
total Assets 13995 14957
Assets Turnover Revenue / total Assets 0.64% 0.64%
Quick ratio
0.006
0.0061
0.0062
0.0063
0.0064
0.0065
0.0066
0.0067
0.0068
0.0069
0.63%
0.68%
2018
2019

Particulars Formula 2018 2019
Credit sales 8906 9542
account receivable 1150 1261
Receivable Turnover
ratio
Credit sales/ account
receivable
7.74% 7.56%
( No credit sales was given so sales has been taken as credit sales)
Assets Turnover
0
0.001
0.002
0.003
0.004
0.005
0.006
0.007 0.64% 0.64%
2018
2019

 Gearing Ratio
A gearing ratio measures company's proportion of borrowed funds to its equity. It is related to
financial risk which is subjected to business. A higher debt ratio indicates high proportion of debt
to equity.
Particulars Formula 2018 2019
Total debt 7266 7956
total equity 558 -472
Gearing Ratio. Total debt /total equity 13.02% -16.82%
Receivable Turnover ratio
0.0745
0.075
0.0755
0.076
0.0765
0.077
0.0775
0.078
7.74%
7.56%
2018
2019

Particulars Formula 2018 2019
EBITDA 1800 2048
Interest expenses -371 -414
Interest Coverage
Ratio
EBITDA/ Interest
expenses
-4.85% -4.94%
Gearing Ratio
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15 13.02%
-16.82%
2018
2019
Interest Coverage Ratio
-0.0496
-0.0494
-0.0492
-0.049
-0.0488
-0.0486
-0.0484
-0.0482
-0.048 -4.85% -4.94%
2018
2019

 Investment Ratio
Investment ratios are used to assess performance of company's share. Potential investors,
competitors and analyst uses this to assess performance and take their decision regarding
investment.
Return on equity
Particulars Formula 2018 2019
Net income 764 881
shareholders equity 558 -472
Return on equity Net income /
shareholders equity
*100
136.90% -186.60%
C. Interpretation Of Ratio analysis
Profitability Ratio
Having higher profitability ratio means your company is more competitive that over
companies (Linares-Mustarós, Coenders and Vives-Mestres,2018.). Operating Profit margin
informs business and investors how efficiently converting revenue into return on revenue.
Return on equity
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
2018
2019

Operating profit ratio is more than 10 % for both the financial year 2018 and 2019 means Hilton
Company has good profitability ratio which is 15.01% and 17.36%respectively which is showing
good profitability of Hilton Hotel Company. As Operating profit ratio has increased from 2018
to 2019 for 2% which is showing that Hilton operation activities has risen as compared to
previous year. Hilton company can focus more on reduction of cost of production so it can
increase more operating profit for upcoming years.
Ideal Net profit ratios varies from company to company. A net profit margin helps the investors
to assess that company is gearing enough profit from its sales. An ideal net profit ratio is
considered to be average 10% and 20 % margin is considered as good profitability of company.
Hilton company earned 8.05% in the year 2018 and 9.23% in 2019 which low as compared to
ideal but as it is said it differs from industry to industry so it can be taken as good ratio as it is
increasing as compared to previous year. Company can increase more net profit by expanding
sales and reducing expenses.
Liquidity Ratio
Having good liquidity ratio indicates its Debt paying capacity. Current ratio is use to
measure the ability of company to meet firm's current obligation (Le and Viviani, 2018) A ideal
current ratio is between 1:2 to 2 which means firm has 2 times assets than its liabilities and if its
below 1 than company don't have enough liquid assets to meet its short term liability. In the year
2018 the Hilton company have current ratio is 0.69 which not a good sign for company and in
2019 it increased from 0.69 to 0.73 , Hilton company require more liquid assets to meet its short
term obligation.
Quick ratio refers to current assets than can be converted into cash within 90 days, it
excludes prepaid expense and inventory. An Ideal quick ratio is considered to be 1 if its less than
1 then company is not in position to pay its short term liability. Hilton company quick ratio in
2018 is 0.63 and in 2019 it is 0.68 which is increasing as compared to previous year. But the firm
is not in good position to pay its short term liability as it is less than 1.
Efficiency Ratio
Efficiency ratio includes assets turnover ratio and receivable turnover ratio which
measures that how well Hilton is using its assets and liability. Assets turnover ration is also
considered as total asset turnover ratio which measures the efficiency of company to use assets to
produce sales. An ideal ratio is 0.25 - 0.5, in 2018 the Hilton company's ratio is 0.64 and in 2019

it is 0.637 which approximately similar and represents good position of company (Kadim,
Sunardi, and Husain, 2020).
Receivable turnover ratio measure how effectively company can convert its account
receivable into cash within given accounting period. It is used by companies to manage credit
that they can extent to customers by evaluating how long it takes to collect outstanding debts. In
2018 the ratio was 7.74 times and in 2019 the ratio was 7.56 times which is also point to be a
good ratio as its ideal ratio is 6 times.
Gearing Ratio
Gearing ratio compares some form of owners equity to debt, or a measurement od
financial leverage which demonstrate degree to which firms activities are funded by shareholders
versus creditor's fund. Gearing ratio less than 25% is considered as low risk by lenders and
creditors and if its more than 50 % than its highly levered and highly geared. In 2018 the ratio
was -16.82 and in 2019 it was 13.02 which is pointing bad situation as Hilton company is
focusing more on debt, company should make balance between equity and debt so it can achieve
ideal ratio.
A interest coverage ratio is how well a company can pay interest in its outstanding debts.
An ideal coverage ratio is 3 and if less than 1 than its not in god position. In 2018, it is -4.85 and
in 2019 it is -4.94 which is indicating that company can not pay interest easily for its outstanding
debt. It ned to improve it by focusing on paying debt.
Investment ratio
Return on equity compares annual net annual income of business to its shareholders'
equity(Husain and Sunardi, 2020.). It usually used by investors to determine the return that an
organization is generating in relation to its investment. An increase in its return of equity
indicates that company is increasing profit without any more need of capital. Return on equity on
2018 was 136.9 and in 2019 it became -186.6 which points that company is returning very bad
returns to investors. it's a bad sign for Hilton company's growth as it affects its capital and also
creditworthiness of company. Hilton can improve this situation by earning more profits so it can
give returns to its investors as they are also owners of company.
From the interpretation it can be analysed that the Hilton company need to improve its
performance by increasing sells and generating more profits and reducing operating cost. As debt
paying capacity as very bad so it needs to improve it by focusing on interest coverage ratios.

Ratio analysis is used bys various parties like creditors, investors, lenders and customers to see
its market position and point its growth with period. The analysed statements help in making
decisions regarding investment or lending funds. It also helps in comparing previous year and
current year performance so management can also take strategic decisions regarding production,
and important departs of organization. Hilton company's current position can be evaluated
through these ratios that is not sustainable and require majors changes for stability in market as
competition in industry has increased. It also helps company in comparing its receivable and
payables so according to it can manage its working capital and short term liabilities.
D. SWOT and PESTLE strategies that should be adopted by the Hilton.
It helps the business to identify their strength and weakness, opportunities and threat
from theSWOT analysis. It is an internal process where SWOT complete the business plan. Here
internal factors is strength and weakness which are controllable and external factor are
opportunities and threat which are non controllable.
Strength: This is the advantages of the company over the competitor and what make them
unique from others. Strength can be brand name, goodwill, loyal customer, unique technology.
This can attract the investor and other for the business. Hilton has the strong strength over the
competitor as it gives full satisfaction to the customers and employees, with comprehensive
property portfolio, strong business history, positive brand impact on investors (Christodoulou,
Cullinane, 2019).
Weakness: This are which the company have to improve to remain in the competitor and
stops to perform with effective commonly know as weak point of the company. For example:
poor goodwill, high debt in the market, lack of capital etc. Hilton weak points are that they too
much depend on the US market and limited presence in Asia region, and having high level opf
debt from the market.
Opportunities: This is the favourable external factor that gives an advantage to the
company to make the profits. Hilton has the opportunities to expand their market in
internationally, Hilton can increase their hotels in Asia of the affordable section. Opportunities
can be come in any form due to change in environment, technology which have to grab by the
company.

Threat: This factor has potential to harm the business operations. This threat can be
increase in competition, increase in the price of raw material, were Hilton have some threat
which may affect their working in the countries like: political instability, terrorism, adverse
change in the economy and change in taste of customer.
These tools are highly effective to analysis the threat and future consequences that will affect the
company and help in to develop the strategic plan for the company. When they are used in
combination it is more significant and more effective for the business. PESTLE is consider as the
broad factor of environment and affect the business changes. SWOT analysis interpret this factor
and find the weakness, opportunities, strength and threat that are coming to business in the future
and covert them into opportunities and sustain the market stability by the company.
PESTLE analysis include:
Political factor: This factor includes the government interference in the economy and in
some business. This intervention van be done by federal, state or local government. This change
the business planning due to change in environment, change in government and their policies,
taxes, policies, change in labour law or trade restriction with countries which impact the
company directly and affect the financially. Hilton may affect the political conditions in different
countries and may affect their operations.
Economical factor: This factor directly affect the economy of the country. Economy may
influence due to inflation rate, deflation rate, interest rate, economic growth and exchange rate of
the currency etc. this can also influence by the local economic activities like import and export of
coal and mat differ from each city and must be analysis the impact on their businesses. Hilton
may affect the economic factor that affect the working in the countries.
Social factor: This factor effect the demographical factors like population growth rate,
culture, age, social behaviour of the people and distribution of the population. This may increase
or decrease the frame of Hilton and many of this factor affect the working of doing business in
the country.
Technological factor: Change in technology and research and development, artificial
intelligence are changing rapidly and very dynamic in nature. This factor may affect the Hilton
decision, planning, quality and efficiency consideration. For examples: mobile applications,
internet, etc. where over the past year technology has been change rapidly and change the
working of the company with an effective manner.

Legal factor: this factor includes the law of the business and rule and regulation of doing
business in the area of working. Every country have different law for doing the business which
affect the company directly and may cause lose from it. These laws include consumer law,
labour law etc.
Environmental factor: this factor directly affect and related to surrounding environment
which include weather, natural disaster, climate, and sustainability changes for the business
which are affected. The planning and strategies are affected directly which cause the working of
Hilton industry in the particular city and country.
E. Reasons based on strategic and financial analysis for the investor to invest in this Hilton..
These report analysis the strategic and financial report of the Hilton hotel and the
measure that are taken by the company to i8mprove the performance and maintain the
sustainability development. The company future growth while strengths and weakness are
mention whereas future opportunities and that are analysis by the company to take the advantage
over the competitor. Also, it measures the external factor of the company that will affect the
company directly and indirectly. Hilton have taken the several steps to make them unique from
their competitor (Widhiyaningrum, and et.al).
SWOT analysis shows that the Hilton have many strength over their competitor like they
have stronger dealer network, they have strong reputed in the market, their track record were
awesome, having large investor network, while also giving heavy return to the investor and
having the strong trained employees. Weakness of the Hilton are the culture of every country is
different that make the problem to country's people top adopt the change, the Hilton do not invest
in their Research and development properly, high rate of employee turnover affect the
performance of the company. (Opportunities) shows that Hilton have opportunities as the
customers are inclining toward the modern facilities and luxury life style which give the
opportunities to open in new areas, online platform can be developed by the company to make
the customer satisfaction and efficiency, low economy rate will give more stability to the market
as the interest rate is low in the market. Threat for the Hilton are increasing the prices of raw
material effect the smooth flow of working in the company, as operating in more than 118
countries which cause prone to currency fluctuation, new regulation by the government can
affect the company.

Whereas, PESTLE provide the external factors where Political factor affect the running of
the business as they are in more than 118 countries, economic factor affect the working of the
company due to change in the inflation rate and tax rate by the government which results in high
cost of the company to invest in the countries and have to invest according to the economy of the
countries, social change are occurred due to change in trends and taste of the consumer where the
company have to make the proper steps to convert them into opportunities like trend to move
towards the modern and luxury staying in the hotels, technological factor affect the due to
change in environment as it is very dynamic and change in technology is changes rapidly from
past few years like online services from the hotel can became easy for the customer to book the
room with various new offers, whereas, legal factor are the government laws form the hotel
industry which may change according to time and affect the working of the company due to
change in any law like labour law, industry law and acts and the environmental factor are the
change in surroundings around the hotels and taking proper care of environment must be
maintain by the hotels and also can affect due to disaster or cyclone or any natural calamity.
Financial analysis: This analysis shows the financial position of the Hilton hotel of
financial year of 2018 and 2019 which shows the performance of the Hilton. From the following
ratio details for investor can invest in the company by seeing their following ratios which are
give from the financial year 2018 and 2019:
Profitability ratio: The operating profit ratio of 2018 is 15.01% which increase in 2019 to
17.36% which shows the performance of the Hilton group and investor have positive side to
invest in the company to rely on. These means company is moving towards the profit comparing
to next previous year which can increase the investor chances to invest in the company to earn
good returns. Whereas, net profit of the company in 2018 is 8.05% and which increase to 9.23%
in next year 2019 shows the good indicator to investor and showing the company performance
increase every year from past years. (Sydney-Hilton, Vila-Lopez, 2019).
Liquidity ratio: Hilton current ratio in 2018 is 0.69 which and increase to 0.73 in 2019
where the firm should have more liquid assets to meet the short term obligation where it is
increasing in the next year 2019 and results in increasing the assets to meet the liability and
moving toward the ideal ratio to get more of customers and the investors from the worldwide.
Efficiency ratio: Assets turnover of the Hilton in 2018 is 0.64 where 2019 shows 0.637
which similar to shows the good position of the company and shows the utility of their assets and

liabilities in a efficient manner. Whereas receivable turnover ratio shows 7.74 times in 2018 and
7.56 time which indicate the good ratio for the investors to invest in the company to get the good
return.
Gearing ratio: Gearing ratio shows in 2018 is -16.82 and in 2019 shows 13.02 which
shows the company is focusing more on debt to achieve the ideal ratio whereas interest coverage
ratio in 2018 is 4.85 and in 2019 it shows -4.94 which shows the company can't pay interest rate
easily for its outstanding which may bring second thought for the investor to invest in the
company. This creates the problem to company as to gain the investor trust and to raise the
funds, company may face issues due to poor ratio of the company.
Investment ratio: According to the report of 2018 is shows
136.9 and it became -186.6 which results in very poor return to investors. Investor may think
twice before investing in the Hilton because of poor returns to the investor and company may
find difficulties to raise the funds from the public and also affect the performance of the
company.
CONCLUSION
This report concludes that the Hilton Group of hotels is making profit profits and are also
improving the profitability ratio in 2018 to 2019 which shows the positive side of company. The
sales remains the same but the operation increase by 2% in 2019 which shows the efficiency
working of the company which results in increase in net profit of the firm by 9.23% in 2019.
Whereas, current ratio shows the Hilton is not good idea to invest as their assets are not enough
of the Hilton group is almost similar in both the financial year and the receivable ratio has been
to meet their liability and quick ratio shows slightly increasing in 2019 is 0.05. Efficiency ratio
decrease but the ideal ratio was met by the company, gearing ratio shows -16.82 in 2018 to 13.02
in 2019 which means Hilton is focusing on debt. Last the inventory ratio of Hilton Group is very
poor to their in investor as it decrease in 2019 and shows -186.6 (Eccles, Klimenko, 2019). This
all shows the investor should be very careful to invest in the Hilton as some points are favourable
and some points may affect the investor to think twice on the investment.

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Online
Hilton Worldwide Holdings Income Statement 2005-2020 | HLT. 2020.
[Online]. Available through: <https://www.macrotrends.net/stocks/charts/HLT/hilton-
worldwide-holdings/income-statement
https://sec.report/Document/0001585689-20-000013/>
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