   Chapter 17, Problem 17.6CP

Chapter
Section
Textbook Problem

Comprehensive profitability and solvency analysisMarriott International, Inc., and Hyatt Hotels Corporation are two major owners and managers of lodging and resort properties in the United States. Abstracted income statement information for the two companies is as follows for a recent year (in millions):   Marriott Hyatt Operating profit before other expenses and interest $677$ 39 Other revenue (expenses) 54 118 Interest expense (180) (54) Income before income taxes $551$103 Income tax expense 93 37 Net income $458$ 66 Balance sheet information is as follows: Marriott Hyatt Total liabilities $7,398$2,125 Total stockholders’ equity 1,585 5,118 Total liabilities and stockholders’ equity $8,983$7,243 The average liabilities, average stockholders' equity, and average total assets are as follows:   Marriott Hyatt Average total liabilities $7,095$2,132 Average total stockholders’ equity 1,364 5,067 Average total assets 8,458 7,199 1. Determine the following ratios for both companies, rounding ratios and percentages to one decimal place: a. Return on total assets b. Return on stockholders’ equity c. Times interest earned d. Ratio of total liabilities to stockholders’ equity 2. Based on the information in (l) analyze and compare the two companies’ solvency and profitability.

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Given info: Items of financial statement

1.

To determine: The following ratios for three years:

1. (a) Return on total assets
2. (b) Return on stockholders’ equity
3. (c) Times interest earned ratio
4. (d) Ratio of total liabilities to stockholders’ equity
Explanation

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

Rate of return&#

2.

To determine

To analyze and compare: Two company’s solvency position and profitability position

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