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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Comprehensive profitability and solvency analysis

Marriott 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:

  1. a. Return on total assets
  2. b. Return on stockholders’ equity
  3. c. Times interest earned
  4. 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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