Financial Analysis of Marriott & Hilton Hotels

This assignment delves into a comparative financial analysis of Marriott International and Hilton Hotels. It examines various financial ratios such as Net Profit Ratio and Current Ratio to evaluate their performance in terms of profitability, liquidity, and debt management. The analysis draws insights from the companies' financial statements for FY 2015 and provides recommendations for improvement based on the findings.

MANAGING FINANCIAL
RESOURCES AND
DECISIONS

INTRODUCTION
At the workplace of an organisation there are several numbers of resources are available
and among them very significant are financial resources. When the organisation has the financial
resources then it is highly necessary to manage them in appropriate way which will support to
improve profitability at the year ending. Along with this, to take effectual decisions is also one of
the key aspect and process of the company. In this the government of UK provide 3 Billion GBP
extra amount up to the FY 2020 to those firms which operate at the small level. In the current
study RL Maynard business entity is chosen which operates at the small scale in construction
sector of the UK. When the company going to raise fund for expanding business then there are
many financing sources are available which are analysed through present case. In the second part
of the report it shows cost imposes by financing sources along with its effect the company's
financial statements. At the task third there is cash budget. Cost and price of one unit are shown
and analysed. At the end of respective report, various financial statements of Marriott
International hotel are to be analysed on the basis of financial ratios.
TASK 1
1.1 Variety of source of financial available for RL Maynard company
External and Internal source are main source of finance they are:
External Source are source from which company arrange its financial need to run business.
Finance is lifeline of any company without finance no business even can start. So Some External
sources of finance are: Bank Loan,Equity Financing and personal savings.
Bank loan:If in any business financial needs arises entrepreneur go for business loan from
banks. Interest rates are decent as compared to personal financing. last 3 yr balance sheet and
property papers presented against loan manager for approval of business loan (The 12 Best
Sources of Business Financing, 2010). There are few types of Bank loan are:
Bank loan on basis of guarantee: For businessman they should have proper plan and
experience in particular field. Bank to secure itself against loan they take grantee from guarantor
it could be anything like third person guarantor, security deposits or property papers is guarantee
which banks demand. So for companies like RL Maynard which is construction company can
represent property papers for approval of business loan..
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Consortium Bank loan : If firm want huge amount then banks to minimise risk two corporate
banks get together and approve a loan to owners.
Equity financing: It is source of financing where to raise capital company sells its equity to its
investors. In need of finance company either opt for equity or debts. In equity financing to raise
capital company sells a portion of capital in form of stocks to shareholders in exchange of cash.
So for RL Maynard company its majority of financing is in equity stocks (Siano, Kitchen and
Giovanna Confetto, 2010).
Personal Savings: Personal Savings are in form of Bank balance,Term deposits , Investments in
property, Assets and properties.
1.2 Implications and impact of source of finance on RL Maynard
Sources Financial
Implications
Legal
Implications
Dilution of
control
Bankruptcy
Equity Source Company have
huge burden of
cost of equity so
if no. of shares is
huge then
dividend cost will
also going to be
high.
Company have to
obey Stock
Exchange rules
and regulation
they need to first
list on stock
exchange then
after they can
issue shares. They
are abide by laws
of Company act,
in terms of
capitalization,
profitability etc
(Hayre, 2015).
As no. of shares
increase the
power of
shareholders
dilute. Means
ownership in
company splits
among
shareholders.
In bankruptcy
first company pay
its creditors and
banks, then after
company is liable
to pay preference
share holder and
lastly company
pays to its equity
share holders.
Bank loans Cost of bank
loans are also
Banking norms
and laws are
No dilution of
controls
No impact
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hight as file
charges and
interest rates are
considered in it.
included in it.
Like possession,
instalment
payment rules
and regulations
etc.
Personal Savings In personal
savings, interest
on saving is
financial
implications
because it can be
taxable.
No legal
implications.
No dilution of
control.
Same as above.
Consortium
banking Finance
Cost of loans are
generally higher
and payment of
interest are done
towards involved
2 banks or more
then two banks.
Rules and legal
implication could
be banking norms
as per above and
government.
Dilution of
control are splits
toward financial
institution of joint
banks (Baranov,
2015).
In bankruptcy
impact on both
banks seen. So it
is risky for all
involved financial
institution or
banks.
1.3 Evaluation of suitable financing sources
Bank loans and Equity Source are major source of financing in business world because they
have the capacity to provide such a huge amount that no other source can generate the same.
Advantages Of Equity source of financing: Equity is major source of financing. From equity
company can raise required capital by issuing stocks to its investors like equity share holder,
preference share holder etc. Advantages are
1. Finance can be generated in quick succession.
2. No need to rely on banks and debts equity
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3. As company grow the profit of investors also grow.
4. Outside investors can seek opportunity and they can help in growth of business and ideas.
Disadvantages of equity financing:
1. Raising equity source of financing is demanding and costly and time consuming.
2. Investors have the right to check past performance and deep interest in company profit
(Salisbury, 2014).
3. can lose decision making power depends on no. of investors.
Advantages of Bank Loans:
1. It is best source of short term finance or medium source of financing.
2. Exemption of tax can be gained as interest paid on loans under tax expenditure.
Disadvantages:
1. Some banks charge prepayment penalty.
2. Borrowing to much can leads to decrease in cash flow because instalment on monthly basis
deposited in banks.
3. Some Banks not sanction whole loans as they sanction below demanded.
TASK 2
2.1 Financing costs which are associated with different source of finance
 Personal savings: It is the internal source of finance which is raised from those saving
which are done by entrepreneur in his personal life. Due to this condition, any kind of
costs and expenses are not comes into consideration at the workplace. Hence, it can be
said that while using personal savings RL Maynard not need to pay any kind of costs.
 Bank loan: The current source of finance take cost in form of interest amount which is
higher as compare to another available sources (Kunreuther and et.al., 2013). When the
RL Maynard going to raise and take capital from bank then it has to pay charges in form
of the interests to commercial banks.
 Equity financing: Through enhancing level of capital by issuing equity in the market RL
Maynard limited company has to give cost in form of amount of dividend. The shares of
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the company are purchased by shareholders and cost is given to them from the amount
generated by it. Higher the profitability ratios help to the firm to provide more amount of
the dividend to potential shareholders.
2.2 Significance of the financial planning in context to RL Maynard
Financial planning is process of framing objectives and policies, procedure and
programme and financial budget regarding business. Basic planning started for business. So
adequate funds need to be ensured. It helps in insuring supplier of funds as easily investment in
company which easily exercise financial planning. It insures adequate balance between outflow
and inflow of fund so that stability is maintained. It helps in making growth and expansion of
business that helps in long term survival of business (Greenbaum, Thakor and Boot, 2015). It
reduces uncertainity which can be life saviour for business and growth of company. It gives
stability and profit concern. Financial planning help in determining capital requirement as cost
incurred in current and fixed assets, expenses and long term planning. It also helps in
determining capital structure, it is composition of capital i.e. Need and available capital in
business. This include Equity and debt ratio, both short and long term. Best significance of
financial planning is framing plans and policies related to cash control, borrowing and issuing of
capital i.e. Landing. It helps manager to maximum utilization of scarce capital and maximise
profit in it.
2.3 Assessing those informations which needs at the time of taking financial decisions
There are many kinds of sources are available which provide financial services up to
better level. At the time of allowing capital for expanding business such sources needs variety of
informations and among all main information is related to the profitability (Lee and Lam, 2012).
Because higher the ratio of profitability lead to pay the cost and amount of total capital within
less number of years and in the smooth way. Here bank loan and equity financing are the source
which can use d by RL Maynard. Here these needs information of firm in terms of liquidity
position as well. The reasons are that higher the profit and liquid conditions support to pay more
return to shareholders as well as fulfil debt obligations in short time.
2.4 Explanation regarding influences on financial statements of financing source
Income statement- When the management of RL Maynard enhance fund through varies
financing sources then it has to give cost of them behind using financial services. Due to this
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reason, total expenses are increase which lead to create negative impact on the accounts of profit
and loss. Moreover, the cost and expenses are made from the sales and profit generated in an
accounting year which lead to reduce total profit. Financing cost is indirect expenses for the RL
Maynard which paid from operating profit and then net profit gets reduce (MacDonald, 2012).
Hence, it can be said that because of financing sources the income statement affects in the
negative manner.
Balance sheet- When the company raising finance then it leads to enhance total capital level at
the workplace which is positive impact in the liabilities side of B/S. In the liabilities section of
statement of financial position total capital as well as total liabilities both will increase which is
positive for RL Maynard. On the other side, in the assets side cash balance also improve and it is
positive impact on current financial statements by which liquidity position will increase.
TASK 3
3.1 Formulating cash budget along with the analysis
The budget aspect supports to an entity for predetermine any kind of financial data and
then make strategies and decisions according to that. Cash budget is the most widely used by RL
Maynard in order to analyse future financial performance by determining incomes and level of
outflows (Paul, 2013). Projected cash budget statement for the small business firm is formulated
as below:
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The aforementioned table of cash budget clearly indicates that the company is not able to
generate positive net cash balance at the end of every month. From the month of January to the
end of June cash balance declines which is negative condition of the entity. From this it has been
interpreted that RL Maynard's management is not efficient to improve incomes and sales by
reducing various kinds of expenses. The budget shows business performance for the half yearly
by presenting data of every month. By interpreting and analysing the formulated cash budget it
can be suggested to the managers of RL Maynard that it needs to frame highly effectual
strategies for attracting customers as well as controlling the expenses (Reay and Hinings, 2009).
By this sales will improve along with cost declines which make more positive difference
between inflows and disposals.
3.2 Presenting calculation of cost and selling price of each unit or item
When the company produce and manufacture items and units then make the cost of unit
by taking base of the whole costs which associated with business. On the basis of cost of every
unit price to sale it in the market is to be determined using different strategies. Furthermore,
calculation of such both the aspects is stated in the below section:
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It has been ascertained from the above computation that to make the decision of cost of
every building or house in RL Maynard firm fixed as well as flexible or variable expenses are
added. After adding these all expenses total cost of the production is assessed which is in the
current case worth of 60000 GBP along with 5000 units. It can be said by the respective analysis
that the RL Maynard will sale its products worth of 14.6 GBP. There are variety of the strategies
and techniques are available for make the price for sale the products and services (Greenbaum,
Thakor and Boot, 2015). In current case, selling price is assessed with the help of cost plus
pricing strategies at where profit which the firm wish to charge is added in the cost of one item.
3.3 Assessment of viability of the project through financial tools
While expanding the business in other market and country there are many projects are
there and from that all anyone projects has to select to an entity. For this the management of RL
Maynard use financial tools and then determine viability of one project among all. In this cortex,
there are various tools used by firm which are such as net present value, internal and average rate
of return, profitability index, payback and discounted payback period etc. In the current study,
the RL Maynard adopt NPV as well as IRR method which is show as below:
Net present value
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Internal rate of return
Analysis
Net present value (NPV) is a method which gives future value of initial investment by
assessing all the factors associated with the project. Apart from this, internal rate of return
indicates that project will give how much return at the end of project completion. From the above
table of financial tools it has been assessed that from NPV the project will give 352866 GBP of
the investment worth of 300000 which is made at initial level (Hodler, Luechinger and Stutzer,
2015). According to IRR method it will give 39.45% return at the end of five financial periods.
By analysing these all it can be suggested to the RL Maynard firm that it needs to undertake the
current project which will enhance its performance within construction segment of the country
UK.
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TASK 4
4.1 Elements of variety of financial statements
In the financial world there are many varieties of statements are prepared by firm which
has different elements along with various purposes and objectives. Furthermore, such statements
and accounts are analysed as below:
Income statement- The account and statement by which the management of the firm capable to
asses and determine profitability condition in the industry is known as income statement. In there
are mainly two kinds of elements are associated which are such as expenses and income side.
Apart from this it shows three types of profits such as gross, operating and final or net. While
making any decisions related to financial are taken on the basis of net profit only because in this
all expenses are deducted (Baranov, 2015).
Statement of financial position (SOFP)- The current type of accounting book requires for an
entrepreneur or entity to determine and calculate liquidity condition or position in the segment
from where it earns money. In there are two key heading are analysed according to that
accounting treatments are to be done which are such as assets and liabilities. In the liability side
there is a main content is utilized which is total shareholder's equity which express amount and
fund which is invested by shareholders after purchasing its stock ad equity shares.
Cash flow statement- On the basis of the respective type of statement the management asses cash
position and condition in the market and sector. It has three key components or elements which
are like as inflows or incomes, outflows or cash disposals and net cash balance. The third kind of
element is calculated by making difference of the incomes and outflows (Dekker, Ding and
Groot, 2016).
4.2 Comparison between format of key financial statements of different organisations
Sole trader- The company which operates in the industry without following any kind of legal
rules and having fully ownership with the only one entrepreneur is known as sole trader. While
making profit and loss account then here these kinds of companies not need to include taxation
amount. In addition to this, there is not any need to prepare all the books of account and make
the accounting treatments of each and every financial transactions.
Limited organisation- In the corporate world, when an entity follow all kinds of legal terms and
conditions along with listing in the stock market is identified as limited kind of company
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(Greene, Brush and Brown, 2015). Such organisers when make and prepare profit and loss
statement then it has to make accounting treatment of the taxation expenses. For these firms it is
compulsory to prepare those books of accounts and statements which are associated with the
accounting and financial world in appropriate and legal manner.
4.3 Interpreting financial statements of the Marriott International with its competitor
In order to interpret and analyse financial statements there are variety of financial ratios
are used by the business entity and on the basis of it effectual decisions are taken. In the current
analysis Marriott International hotel is to be chosen which operates at the global level in
hospitality sector. For doing the external analysis there are Hilton hotel is selected which is
competitor of Marriott international hotel. Profitability and liquidity ratios of both the hotels are
calculated as below:
Marriott International Hotel
Kind of ratios FY 2014 FY 2015
Profitability ratios
GP (Gross profit) ratio 14.25 % 14.66 %
NP (Net profit) Ratio 5.46 % 5.93 %
Liquidity ratios
Current ratio (CR) 0.63:1 0.43:1
Hilton Hotel
Kind of ratios FY 2014 FY 2015
Profitability ratios
GP (Gross profit) ratio 61.73% 63.94%
NP (Net profit) Ratio 6.41% 12.46%
Liquidity ratios
Current ratio (CR) 1.11:1 1.05:1
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GP (Gross profit) ratio
The level of profit at which only cost of goods sold (COGS) is to be subtracted from the
revenue earned by it is known as gross margin. The company uses the respective profit level as a
base for calculating operating and net income or level of the profit. From the aforementioned
table it has been analysed that in the FY 2014 GP ratio is 14.25% which is increase in the further
year which is like as 14.66%. On the basis of such output it has been said that firm utilize the
stock and assets for generating sales and revenue along with managing the costs which are
associated in selling of the accommodation and other services of Marriott hotel (Salisbury,
2014). When comparing with the Hilton hotel which is competitor of it then it has been analysed
that it Marriott performs poor kin the hospitality industry. In both the hotel profitability ratios
enhances but in Hilton growth rate is higher. At the end of FY 2015 GP ratio of Marriott and
Hilton is 14.66% and 63.94% respectively which shows that Hilton's performance is higher
compare to another firm.
NP (Net profit) ratio
In the profit another variety is net or final which is derived by deducting and subtracting
overall production and non production as well as direct and indirect costs from the turnover
made by Marriott hotel. In context to this, the hotel generates more net profit due to which NP
ratio increase from 5.46% to 5.93%. It can be clearly said that the management has efficiently
utilized the resource along with attracting more users as well as reducing indirect kind of
expenses. The managers of Marriott hotel needs to continue with the existing strategies by
making some modifications which make it healthier in the industry in form of financials. On the
basis of NP ratio Hilton hotel performing well because value of such ratio at the end of FY 2015
is 12.46% whereas Marriott's NP ratio is only 5.93%. It can be clearly said that Hilton able to
attract more customers and manage or control on the costing in better manner as compare to the
Marriott international hotel.
Current ratio (CR)
It is the type of liquidity ratio by which internal and external stakeholders can known
capability of the hotel for paying amount of debt which is taken by external parties and sources
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(Reay and Hinings, 2009). In the current scenario of hotel it can be analysed that management of
the entity unable to reduce debt amount which lead to reduce its capability to fulfil financial
obligations. Profit goes higher but in opposite it has more high amount of debt compare to
previous. This is the reason that current ratio goes shown from 0.63:1 to 0.43:1 from the
accounting year 2014 to 2015. Hence, it needs to manage the debt and cost along with improving
higher profit. Current ratio of Hilton hotel reduce from 1.11:1 to 1.05:1 at the end of FY 2015
which indicate that capability to meet with the short term debt declines but as compare to
Marriott its rival company is more strong.
CONCLUSION
From the above analysis it has been ascertained that there are many kinds of the source
are available which supports to the RL Maynard in order to improve and increase fund and
capital within business to expand in other market. Apart from this, sources of finance which are
used by the respective firm are take different costs which lead to make influences on the books
of profit and loss or financial position. From the third task it has been found that cash budget is
effective tool for the company to make the financial plan along with take effectual business
decisions. It can be said that with the help of cost plus pricing method the RL Maynard takes as
well as derive selling price of the buildings and property which it going to sell. It can be
concluded that different types of companies has to follow different formats in order to prepare
financial statements. On the basis of financial ratios it can be interpreted that Marriott
international hotel is performing well in the hospitality industry of UK from previous year but
when compare with the Hilton hotel then Marriott performs poor.
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