   Chapter 9, Problem 9.5.2C

Chapter
Section
Textbook Problem

Comprehensive profitability and solvency analysis Starwood Hotels & Resorts Worldwide Inc. (HOT) and Wyndham Worldwide Corporation (WYN) are two major owners and managers of lodging and resort properties in the United States. Financial data (in millions) for a recent year for the two companies are as follows: The average liabilities, stockholders' equity, and total assets were as follows: Analyze and compare the two companies, using the information in (1).

To determine

Introduction:

Accounting ratios are used to evaluate the financial performance of the business organisation

Profitability analysis:

Itis used to evaluate the company's ability to generate income relative to revenue, assets, operating cost and shareholders' equity during a specific period. It measures how efficiently the resources have been utilised to generate profit.

Solvency analysis:

It is used to evaluate companies' ability to pay its long-term debt, it also helps owner to determine the chances of firm's long-term survival.

To analyze:

The derived ratios.

Explanation
 Ratios S Co. W Co. Return on total assets 633+139 8,711=0.08 612+125 9,698=0.08 Return on shareholder's equity 633 1525=0.42 612 950=0.64 Times interest earned 782+139 139=6.63 916+125 125=8.33 Debt ratio 7,1348,659=0.82 8,7669,716=0.90 Debt to equity ratio 7,1341,525=4

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