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Marriott hotels strategic case analysis
Marriott hotels strategic case analysis
Marriott hotels strategic case analysis
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Marriott's corporation: the cost of capital
What is the weighted average cost of capital for Marriott Corporation?
Are the four components of Marriott's financial strategy consistent with its growth objective?
Marriott Corporation is an international company who's the growth over the year has been more than satisfactory.
In 1987, Marriott's sales grew up by 24% and its return on equity stood at 22%.
Moreover the sales and earnings pr share has doubled over the previous year.
The company operates in three divisions: lodging, contract services and restaurants which represents 41%, 46% and 13% of sales in 1987 respectively.
Marriott is determined to develop and to enhance its position in each division.
This main goal contains 3 others more detailed components:
- To become the most profitable company.
- To be the preferred employer.
- To be the preferred provider.
In order to achieve its goal, the managers of Marriott have developed a financial strategy with 4 main decisions.
Manage rather than own hotel assets.
The first measure is simply to be more involved in the management of theirs hotel.
It means for the company to have more control on how the money is used but also to have more responsibilities concerning the employees and especially the customers. The company is able to monitor and control its resources and expenses. By having more control, Marriott can try to improve its efficiency and its profitability, for example, by searching the best suppliers with long term contracts for what the company really needs and it could decrease useless expenses.
There is another benefit if Marriott performs well on increasing its profit; Marriott will be able on the one hand to increase the salary of their employees and on the other hand to improve the quality of services provided to the customers.
Invest in projects that increase shareholders values
This object is one of the financial goals to invest properly. Marriott used discounted cash flow techniques to evaluate potential investment. It is beneficial because it is considered present time value. Projects which increase shareholder value could be formed with benchmark hurdle rates, the company can ensure a return on projects which results in profitable and competitive advantage.
Optimize the use of debt in the capital structure.
Marriott invests a lot of money in long term assets that's why it is really necessary for the company to maximize and optimize its debt. And the company has an A rating. It means that Marriott is able to borrow an important amount of money to invest and it could be heavily indebted.
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
Six Flags Entertainment Corporation prides itself on entertaining millions of families each year as the worlds largest regional theme park company with 18 theme parks spread across North America (Six Flags, 2013). Six Flags primary source of revenue comes from providing world-class entertainment to families and individuals who pay for admission into its parks to ride its coasters, themed rides, and water park attractions. Six Flags has had its ups and downs during its 50-year history but over the past three years it has remained a strong company with total assets increasing year over year. The following analysis will show the financial health and well being of Six Flags Entertainment Corporation.
Costco Wholesale Corporation was an uncommon type of retailers called wholesale clubs. These clubs differentiated themselves from other retailer by requiring annual membership purchase. Especially in case of Costco, their target market is wealthier clientele of small business owners and middle class shoppers. They are now known as a low cost or discount retailer where they sell products in bulk with limited brands and their own brand. The company is competing with stores like Wal-Mart, SAM’s, BJ’s, and Sears. The case begins with an individual shareholder, Margarita Torres, who first purchased shares in 1997 and who is trying to evaluate the operational performance of the business in order to make a decision rather or not purchase more shares
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
Discounted Cash Flow Method takes the forecast free cash flows during forecasted horizon. Then we estimate the cost of capital (weighted average cost of capital) and estimate continuing value (value after forecast horizon). The future value is discounted to the present value. We than add back cash ($13 Million) and non-current assets and deduct total debt. With the information provided several assumptions had to be made to obtain reasonable values (life period of 30-years, Capital expenditures not to exceed $1 million dollars, depreciation to stay constant at $1.15 Million and a discounted rate of 10%). Based on our analysis, the company has a stand-alone value of $51 Million at the end of fiscal year end 1990 with a net present value of cash flows of $33 million that does not include the cash and non-current assets a cash of and non-current assets.
When testing if a corporate strategy is leading the company to success, there are techniques that can be used to project data collected from the company. Long term attractiveness, competitive strength, and the nine cell industry attractiveness/business strength matrix are used to highlight strategic positions of each business in a diversified company. The industry attractiveness gages the prospects for long-term performance. Competitive strength measures how strong the units are positioned in a business in their industry. Lastly, the nine cell industry attractiveness/business strength matrix merges information on attractiveness and competitiveness to show where in the industry does a unit fit when it comes to long-term success. Walt Disney
Discounted cash flow is a valuation technique that discounts projected cash inflows and outflows to evaluate the potential value of an investment. There are three discounted cash flow methods: Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR). The net present value discounts all cash inflows and outflows at a minimum rate of return, which is usually the cost of capital. The profitability index refers to the ratio of the present value of cash inflow to the present value of cash outflows. The internal rate of return refers to the interest rate that discounts cash inflow projections to the present to ensure that the present value of cash inflows is equivalent to the present value of cash outflows (Brown, 1992).
Hilton Worldwide carries out business through three segments: (1) management and franchise; (2) ownership; and (3) time-share. These business segments enable management to capitalize on strengths like brand recognition and economies of scale. The company focuses primarily on the management and franchise segment which consist of 3,918 hotels with 610,413 rooms. Managing the properties, rather than owning them, allows the company t...
47% of Marriott’s rooms are in North American Limited Service, 30% are classified as North American Full Service, and the remaining 23% of its rooms are in the international segment (Marriott, 2015). Recognizing that travelers have a range of budgetary and amenities needs, Marriott operates its properties under a variety of different brand names, 19 in total, each of which has its own “price and service points” (Marriott, 2015). Most of Marriott’s brands are at the high end of the market, which includes such widely recognized luxury brands as the Ritz-Carlton, JW Marriott, Renaissance Hotels, Bulgari Hotels, Marriott Executive Apartments, Marriott Vacation Club, Edition Hotels, Autograph Collection Hotels, Gaylord Hotels, and Marriott Hotels (Marriott, 2015). These properties often command nightly rental rates that can run several hundred dollars a night and offer a wide range of amenities well suited for both business and pleasure travelers. These properties are classified as “Full-Service.” Marriott also offers a range of “Limited-Service” brands that do not contain as many amenities and tend to be much cheaper than the Full-Service line. Examples of these properties include Courtyard, Residence Inn, SpringHill Suites, and Fairfield Inn & Suites (Marriott, 2015). Even though these properties are considered Limited-Service, they do offer considerably nicer accommodations and more amenities than other types of budget motels and hotels. In contrast to many of the other hotel brands, Marriott International does not operate any midscale, economy, or budget
When you visit a Four Seasons, you can tell that every internal customers, or employees, genuinely cares about the wellbeing of the company. This starts all the way from the top, and has a ripple effect through the hotel. Isadore made this point clear as he toured his hotels, telling management at every level that “we can’t change employee behavior without changing ours.” This commitment to treating the employee as they deserved to be treated led to the great customer service that the Four Seasons is known
The hotel industry performs within a saturated market, driven by customer loyalty and competitive pricing to stand-out. This competitive nature makes it extremely important to capitalise on strengths while improving on
Moreover there is a strategy involved, in which is stated where Marriott has to focus on (those focus points are listed in picture 1.2).
Present theoretical arguments for the choice of net present value as the best method of investment appraisal;
The Hotel industry has become very important in the past years due to immense traveling and growth of international business. Hotel industry not only plays an important role in the life of people but as well as the economy of the country. Development and advancement in the Hotel industry have rapidly been taking place and especially since the rapid change in technology, it is very important for hotels to be promptly keeping up to date. When the hotel industry is spoken of, there are many famous hotels but one hotel company that has been outstanding in growth and other aspects of business, like in Leadership, Teamwork (Employee turnover), Motivation (Customer retention and satisfaction, Goals and objectives, (changing the way hotel business has worked), and Change within the company; structurally inside and physically outside, adding elements, like entertainment, gaming, and outdoor activities, is the Hilton Hotel Company.
b) Managers – that they have very little to no control over their property or employees. It seems like many important decisions have been taken away from managers, and they can not react in the best interest for the hotel chain because what’s in the customer’s best interest is usually not the same as the company’s best interest.