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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
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
    RatiosS Co.W Co.
    Return on total assets633+139 8,711=0.08612+125 9,698=0.08
    Return on shareholder's equity633 1525=0.42612 950=0.64
    Times interest earned782+139 139=6.63916+125 125=8.33
    Debt ratio7,1348,659=0.828,7669,716=0.90
    Debt to equity ratio7,1341,525=4

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