Financial Statements Analysis: Marriott International
Marriot International limited is a catering and hospitality service provider based in the United States of America. The corporation has grown to extend its businesses in other parts of the world and thus the name international. The purpose of this paper is to analyze the Marriot financial statements for the trading year ending 31st December 2017as given out to the shareholders during the annual general meeting. The statements are available on the company`s website http://investor.shareholder.com/MAR/reports.cfm named as Form 10-K. The company is of interest to me because am an accountant who is interested in the hospitality industry and as such Marriot as a successful multinational company will be an ideal study. The organization has grown in relation to its net worth, human and other resources and therefore it is an appropriate firm to examine and analyze its financial statements.
- The corporation has an operating income of $ 2 353 million by the end of the fiscal year.
- The balance sheet shows a total asset value of $ 2 3928 million as at 31st December 2017.
- The statement of shareholders contains the following information, the way the corporation is funded, changes that have occurred regarding the distribution of share capital, additional bonds that have been issued and the flow of retained earnings. The statement helps readers to know the sources of the corporation capital or equity. It is also useful in helping the shareholders trace the movement of their investments in matters about retained earnings
- The statement of cash flows contains information regarding the corporation liquidity and solvency. These include the cash received or paid in operating or investing activities undertaken within that year. It only recognizes money or short-term convertible securities but not credit transactions. The aim is to show the movement of cash throughout the year.
- While the income statement measures the corporation financial performance which includes credit and cash transactions, the statement of cash flow shows how cash has been received and used throughout the year. The cash flow statement utilizes cash only. Income statement is meant to show the profitability of the business while the statement of cash flow is meant to show how cash has been received and utilized.
- Apart from financial statements, the annual reports also contain other information such as the report of the external auditor, management reports on the internal control, financial and non-financial disclosures, notes to the financial statements, statements of corporate governance, social responsibility report and others
Independent Auditor Report
The report contains the opinion of an external auditor as to whether the financial statement represents an actual state of the company`s affairs and if they have been prepared as per the relevant statutory requirements such as the Securities Exchange Act of 1934. In this case, the opinion was given by Tysons, of Ernest and Young is a disclaimer in which he has failed to qualify or disqualify the statements because the internal controls are weak. The report can also be a qualified opinion in which the auditor explicitly says that the reports are not prepared in compliance with relevant statutory.
Management Report on the Internal Control
This is a report by the management on the steps it has taken to safeguard the corporation assets from misappropriation and loss. The report is aimed at making the management own the responsibility of taking care of the firm`s resources, and as such, it should explain the measures it has undertaken to achieve that objective. In the case of Marriot International, the report has shown they have tested their internal controls in accordance with ICF that provide internal controls procedures and standards as required by the COSO criteria. Therefore, Marriot internal control standards and procedures satisfy and meet the required minimum conditions. The management can also reveal that it cannot assure the shareholders that their assets are well safe guarded and as the investors will know what to do.
Current ratio (calculated based on the company’s current items; current assets: current liabilities ratio)
Gross-Profit ratio= it is a gross profit: total sales ratio and it arrived at by dividing gross profit by total sales.
Debt service ratio
Total debt service ratio= monthly debt obligations/monthly gross incomes
= (20535/12)/ (2836/12)
The company in question here is the Marriot International, a business that deals with hospitality services and as such falls in that industry. Therefore, even in the computation of the ratios and their subsequent analysis depends with the industry base. The ratios are calculated above, and their interpretations are as follows.
- Liquidity ratios are useful in determining whether a company is in a position to meet the current financial obligations. Availability of liquid assets means that the company has the potential of achieving the expected short-term financial needs.
- Profitability ratios are useful in determining the viability of business regarding the returns realized and the level of risks involved. They are useful in helping the investors make decisions regarding expansion, plowing back of profits or liquidation.
- Debt service ratio is useful to lenders who need to determine whether a borrower can manage the monthly debt payments and therefore repay the entire loan within the stipulated time.
The ratios have revealed the following concerning the Marriot international
- The company is in an excellent position to meet the current financial obligations because it has a favorable debt service ratio. Having a total debt service ratio of above 7 means that the corporation can acquire long term loans and will be in a position to meet them on time. This increases the credit worthiness of the business is high.
- It is also profitable because it has a positive profitability ratio. Therefore, it is worth investing in its shares.
- The liquidity ratio as seen reveals that the company cannot be caught in a liquidity trap because it has favorable rates. It can meet the financial obligations as they arise as long as the industrial rates are not considered.
The three ratios calculated above can be interpreted as follows.
- A current ratio of less than one means that the corporation is facing a liquidity problem because its current assets are fewer than its current liabilities. This implies that it cannot meet short-term financial requirements.
- A gross profit ratio of 0.12 means that the operating expenses are way too much and the company needs to establish means of dealing with the problem and at least have a margin of 0.5
- A total debt service ratio of 7.24 can be translated to mean that the company can be given loans as it will be in an excellent position to meet the monthly payments and thus service the entire loan within the stipulated time
Comparing the calculated ratios with the industry averages and the leaders can reveal several issues about Marriot International. Firstly, the current ratio of the industry stands at 1.0, and this means that the corporation is operating at a lower ratio than the industrial base. This can be taken to say that it is having problems in meeting the daily financial needs as most of its assets are not liquid and thus liquidity trap issues. The corporation can thus meet the financial obligations as they arise. The ratio reveals that Marriot international is not having a liquidity issue.
Secondly, the current debt service ratio base in the industry is 2.0 while the company is having above 7 and thus it is best placed to acquire long-term debts because it can service them. Additionally, the profitability ratio of Marriot international is 0.12 if compared to the industrial base of 2.7 reveals that the corporate profits are not very appealing to investors. A potential investor will choose to invest in another firm within the same industry because there is a higher return there compared to Marriott international. Most investors will look at this ratio to determine if it is risky to extend credit to them or not. In this case the business is at a good position because its assets can be used to meet the future financial obligations.