About Hilton Hotels and Resorts
Hilton Hotels and Resorts was founded by Conrad Hilton in 1919. The company is managed by Hilton Worldwide. Hilton Worldwide Inc. is responsible for managing the hotels and issuing of permits to self-governing traders. The company had about 3,900 hotels in 90 locations in about all the continents. The hotel is headquartered in Washington DC. The brand name of the hotel still remains outstanding in the world. Besides, the company offers a number of additional services such as business and leisure travel. The CEO of the company is Christopher J. Nassetta. The top competitors are Choice Hotels International Inc., Intercontinental Hotels Group PLC, and Marriott International Inc.
Aim of the paper
The treatise seeks to carry out a comprehensive review of the financial statements of the company. The treatise also carries out ratio analysis of key components such as profitability, efficiency and leverage for the past five years. The financial results of the company will be compared to the results of two other companies one of the company being the industry leader. Finally, recommendations will be made to the Chief Finance Officer on the financial position of the company.
Analysis of financial results of the company
The reported financial statements of the company do not give an in depth analysis of the strengths and weaknesses of the company. Therefore, it is necessary to carry out an in depth analysis of the financial analysis of the financial statements so as to have a better view of the company. Further, analysis of the company helps in making informed decision. Ratio analysis breaks down the financial data into various components for better understanding of the financial strengths and weaknesses of the company. Ratio analysis will focus on the profitability, liquidity, efficiency, and the gearing level of the company from 2010 to 2012.
Profitability ratios give an indication of the earning capacity of an entity. The ratios measure the effectiveness of a company in meeting the profit objectives both in the long run and short run. The ratios show how well a company employs its resources to generate returns. Commonly used profitability ratios comprise of gross profit margin, operating profit margin, net profit margin, the return on asset ratio, and the return on equity. The table presented below summarizes profitability ratios for AGL Energy Limited for the five year period.
|1||Net Margin %||4.22||27.06||5.39||7.9||1.54|
|2||Return on Assets %||1.94||17.27||4.02||6.08||0.94|
|3||Return on Equity %||3.98||29.49||6.12||9.2||1.71|
|4||Return on Invested Capital %||0.51||21.26||4.18||7.1||0.59|
|5||Operating profit margin %||9.1||-23.8||6.9||9.1||5.5|
The ratio presented in the table above indicates that the profitability of the company was quite erratic. The company reported a significant increase in profitability in the year 2009 and 2011 despite the economic recession that most countries including Australia experienced. In 2012, the profitability of the company was quite low. This is attributed to significant expenditure incurred in controlling carbon emission and controlling environmental degradation. The graph presented below shows the trend of profitability ratios over the years.
Liquidity ratios show the ability of an organization to maintain positive cash flow while satisfying immediate obligations, that is, the availability of cash to pay current debt. The common ratios used to analyze liquidity are current and quick ratio. It is necessary to maintain optimal liquidity ratios since either low of very high ratios are not favorable. The table presented below summarizes the liquidity ratios for the company.
The liquidity ratios of the company were quite favorable over the five year period. Both current ratio and quick ratio were greater than one. This implies that the company does not have difficulties in meeting its current obligations. It shows a strong ability to manage liquidity of the company. The same trend is observed in the cash flow values above. However, there was a decline in the liquidity ratios between 2009 and 2010. The graph below shows the trend of liquidity of the company.
Efficiency ratios focus on the internal operations of the company. These ratios show the level of activity in a company, that is, how well a company manages resources to generate sales. Commonly used turnover ratios are fixed asset turnover ratios, asset turnover ratios, stock turnover ratios, debtor collection period, and creditor payment period. A summary of the efficiency ratios is shown in the table presented below.
|1||Days Sales Outstanding||96.68||73.65||67.48||64.69||70.84|
|4||Cash Conversion Cycle||2.37||13.68||15.59||17||18.45|
|7||Fixed Assets Turnover||3.03||2.7||2.76||2.76||1.77|
There was a general increase in the values of efficiency ratios. The inventory turnover, asset turnover and receivables turnover increased over the period. This shows improvement in managing of resources to generate sales.
A company’s leverage is explained by the amount of debt financing it holds. The ratios are vital since they show the investor the extent of exposure of equity financing. A commonly used ratio is the debt to equity ratio. A high leverage ratio is not favorable since it scares away capital providers. It is because high ratios imply an increase in interest expense. This reduces the income attributable to shareholders. On the other hand, very low ratios are not favorable since it shows that the management of the company is not willing to exploit the potentials of the company. The table presented below gives the leverage ratios of the company for the five year period.
|3||Financial Leverage (Average)||1.9||1.55||1.5||1.53||2.07|
The debt to equity ratio was quite low. It is a favorable indication because it shows that the company has a potential of taking more debt for growth and expansion. Besides, it shows that most of the profits of the company are attributed to shareholders. It is a positive indication to potential shareholders. The interest coverage ratios continued to improve over the years. It shows improvement of solvency of the company.
Comparison of financial performance
This section will compare the financial performance for Hilton Worldwide Inc. with two other companies these are Marriott International and Intercontinental Hotels Group PLC. The table presented below gives a comparison of the financial performance of Hilton Worldwide Inc. and the two additional companies.
|Ratio||Hilton Worldwide Inc.||Intercontinental Hotels Group PLC||Marriott International|
|Net profit margin||1.54||1.26||4.83%|
|Return on assets||0.94||1.01||9.32%|
|Debt to equity||0.52||0.97||1.7|
From the comparison above, it can be observed that the profitability of the leader in the industry (Marriott International) is higher than the other two companies. It can further be observed that the profitability Intercontinental Hotels Group PLC is fairly the same as that of Hilton Worldwide Inc. Based on liquidity ratios; it can be observed that the liquidity of Hilton Worldwide Inc. is higher than that of the other two companies.
This implies that the company is in a better liquidity position than the other companies. Based on leverage, Marriott International is highly levered than the other two companies. It implies that the company has high amount of debt in its capital structure than the other two companies. Hilton Worldwide Inc. has the least amount of debt in its capital structure when compared to its peers in the industry. Finally, Marriott International is more efficient than the other two companies. The efficiency ratios of the company are higher than those of the other two companies. It is an indication that the company is efficient is managing resources hence the high profitability.
The review of the financial status of Hilton Worldwide Inc. indicates that the company is in a sound financial position. The decline in profitability that was experienced between the year 2009 and 2011 as a result of the global recession. The hospitality industry was highly affected. However, the company has been able to recover from the recession and shown improvement in performance. The same trend was experienced in the other two companies. Therefore, the company can open new markets in other rich new markets.
ABC News Network 2013, Marriott International, Inc. (MAR). Web.