MBA 620: Analyzing Financial Reports and Business Performance

This report analyzes and compares the financial performance of two companies using their financial statements, including profit and loss accounts, balance sheets, and cash flow statements. It assesses profitability, asset changes, and equity variations. The report delves into cost and investment decisions, evaluating the suitability of traditional and activity-based costing methods. It also includes a capital budget and profitability analysis, utilizing ratios like quick, acid-test, and debt ratios, along with return on equity and assets. The report further examines the benefits and risks associated with mergers and acquisitions, citing relevant sources. This assignment offers a comprehensive financial analysis, providing insights into business performance, cost management, and investment strategies.

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Project 3: Analyzing Financial Reports
Report to MCS Management
[Student’s Name Here]
[Date Here]
[Faculty Name Here]
MBA 620-[Section Number Here]

Compare Business Performance Using
Financial Statements
On perusal of the Financial Statement i.e. Profit and Loss Account, Balance
Sheet and Cash flow statement of both the companies, it may be inferred
that the net income of Marriot International has seen a very sharp increase
compared to Choice whose net profit has seen a decrease of 18% compared
to past year. However, if one consider the net profit margin, Choice Hotel is
better compared to Marriot which is operating a margin of 5% (approx.) on
sales compared to 10% of Choice Hotels.
From Balance sheet analysis, it can be inferred the total assets of both the
company have undergone a change, the highest is for Choice hotels which is
9% (Positive). On liabilities front, the company whose liability has increased
higher is Marriot Limited compared to Choice Limited. Further, the equity of
both the firm has undergone a change, while the maximum wealth has been
added for Choice Limited as it has gained 32% of equity compared to Marriot
which lost 30%.
Cash Flow Analysis
On operating front Choice Hotels have performed better compared to Marriot
International as they have witnessed a growth of 69% compared to 45% of
Marriot.

On investing front, Marriot has seen fall in investment compared to previous
year while for Marriot there has been a drastic fall in investment
In financing front, it can be seen that both the companies have tried to pay
off their financing liability to significant level.
Analyze Cost and Investment Decisions
For cost and investment decision, two method have been analyzed for the
purpose of allocating indirect cost i.e. Traditional Method of Costing
(absorption costing) and modern method of costing (Activity Based Costing).
The method which has been decided as suitable is Activity Based Costing as
it allocates the indirect cost of production on the basis of various activities
and cost driver which influence the indirect cost of production rather than on
the basis of traditional system of costing under which costs are allocated on
the basis of single driver or Overhead Allocation rate like Volume, Direct
Labour Hour. Thus, it helps in identification of true cost and profitability.
Complete a Capital Budget and Profitability
Analysis
The ratios that have been used is Quick ratio, Acid test ratio and Debt ratio
for budgeting. The results of these ratio are in favour of choice Hotels

compared to Marriot International. (See excel for detail). Further, the first
two ratios are measures of liquidity of the company and the debt ratio is
used for the purpose of ascertaining the leverage position of the company
and determining the portion of capital structure which is funded by debt.
The ratio used for profitability analysis include Return on Equity and Return
on Asset. For choice hotel, return on equity is negative on account of
negative equity. However, for Marriot the same stands at 36.8 % and has
undergone a change of 153% compared to previous year. Further, return on
asset is higher for Choice Hotel (Refer excel for detailed information).
The importance of these ratio is that it help in analyzing the return the
shareholder receive on their investment and Sterling earned per Sterling of
asset employed.
Mergers and Acquisitions
The benefits and risk of merger has been detailed here-in-below:
(a) Increase in stock price in the short run shall lead to increase in value of
investment; (khatri, 2017)
(b) Dilution of shareholding Voting Power may impact the say of investor in
decision making;
(c) Change in leadership shall impact the future business of the company;
(Schwab, 2012)

Refernces:
khatri, y. (2017, july 17). How corporate mergers and acquisitions impact small investors.
Retrieved november 14, 2018, from economictimes.indiatimes.com:
https://economictimes.indiatimes.com/wealth/invest/are-mergers-and-takeovers-wealth-
creation-opportunities-for-investors/articleshow/59606562.cms
Schwab, e. (2012, April 25). Reduce Investment Risk to Maximize Potential Rewards with
Mergers and Acquisitions. Retrieved November 14, 2018, from
www.oswaldcompanies.com: https://www.oswaldcompanies.com/blog-feed/lets-make-a-
deal-reduce-investment-risk-to-maximize-potential-rewards-with-mergers-and-
acquisitions/