This is a financial analysis report of three competitors; Hyatt, Shangri-la, and Starwood from different countries. In the process of studying the ratios and performance of these three companies, calculation and comparative analysis for the years 2010 and 2009 has been done to evaluate which company performs better than the others do.
The paper shows calculations of liquidity, solvency, activity, comparative ratios, and profitability ratios of Hyatt and her competitors for the years 2009 and 2010. These ratios will show the success of the firms and the shareholders.
|Hyatt 2010||Hyatt 2009||Shangari-La 2010||Starwood 2010|
|Net Working Capital( millions)||1,565||1,514||-88.303||145|
The liquidity of a firm shows the ability to pay –off its short-term expenses without touching the long-term fixed assets. From the above, it appears that Hyatt’s current ratio decreased from 4.06 to 3.63 from the year 2009 to 2010. The ratio is still within the recommended value of times 1. The quick ratio for the company also decreased from 3.79 to 3.46, which is also within the recommended values. For quick ratio, also known as the acid-test ratio, uses current assets minus stock divided by current liabilities. Both ratios have shown that the company is still within the ability to meet short-term liabilities without touching long-term assets. Failure to meet short-term liabilities may lead to technical insolvency. On analyzing the networking capital for both years; 2009 and 2010, we find positive figures of 1514 million and 1565 million respectively.
If the performance of Hyatt Company is compared with her competitors, it is noted that the company has higher liquidity ratios than her competitors. For instance, Shangari-la has a current ratio of 0.379 and a quick ratio of 0.318 with negative working capital, meaning that the company can meet the short–term liability with the help of long–term assets. This is very dangerous because it may be declared insolvency if the management will not correct the position. For Starwood, it has a current ratio of1.07 and a quick ratio of 0.7 with a networking capital of 145 million. This is an implication that the company does not have adequate current assets to meet short-term obligations, most especially, if inventory is not considered since it is not a liquid asset. From the above, Hyatt is performing better than other competitors are.
|Hyatt 2010||Hyatt 2009||Shangari-La 2010||Starwood 2010|
|Debt to total assets ratio||0.292||0.296||0.2||0.746|
|Debt to equity||0.139||0.167||0.053||1.146|
The analysis of the solvency position of these companies indicates that the debts to total assets ratio for the company for both years 2009 and 2010 were below 0.3 (0.292 and 0.296). Meaning that for both years, less than 30% of the total assets were financed by debt. This is a better ratio because only 30% of the assets will be used to pay off the debt-holders in case of insolvency. Long-term debt to equity ratio analysis in 2009 is 0.17 before it decreased to 0.14 in 2010. Therefore, from this ratio, one can comfortably affirm that the reliance on debt capital to finance the capital structure of the company has decreased. This is healthy for the company because the issues of insolvency will not be of great concern to the management and shareholders.
Comparing the Hyatt ratios with the competitors’, you will find that Shangri-la had debt to total assets ratio of 0.2 and a debt to equity ratio of 0.05 while Starwood had a debt to total asset ratio of 0.75 and debt to equity ratio of 1.15. in terms of insolvency, it shows that Hyatt was performing better than Starwood. However, Shangri-la was doing well as it had low ratios.
|Hyatt 2010||Hyatt 2009||Shangri-La 2010||Starwood 2010|
|Average Collection Period(days)||22||27||23||34|
|Average payable period(days)||15||18||244||32|
|Inventory turn over(times)||30.28||21.98||46.93||6.40|
|Fixed asset turn over(times)||0.7||0.65||0.41||0.68|
|Total asset turn over(times)||0.49||0.47||0.39||0.52|
Inventory turnover ratio shows how the stock was turned during the year. From these ratios, noted that the 2009 and 2010 ratios were times 22 and 30.3 respectively; implying that the company management improved in the selling of stock, thus increasing the sales revenue. If one looks at the same ratios for Starwood and Shangri-la, they had times 6.4 and 46.9 respectively. Among the three companies, Shangri-la appears to perform better than the rest in managing their inventory and their sales.
The management appears to have improved their credit policy for the good of the company i.e. for the average collection period, Hyatt improved from 27 to 22 days from 2009 to 2010, whereas, Shangri-la and Starwood have average collection periods of 23 and 34 respectively. Therefore, it is clear that Hyatt had a better crediting policy followed by Shangri-la and finally Starwood. When considering the average accounts payable period, the time the company was taking to pay creditors was reduced from 18 to 15 days for the years 2009 and 2010 respectively. The same ratios for Starwood and Shangri-la are 244 days and 32 days to pay the creditors. Therefore, Hyatt was paying their creditors promptly as compared to her competitors. However, it is noted that they have a poor net working capital policy since they take a long to collect cash from the credit sales while they take a shorter period to pay creditors.
Analysis of the assets turnover ratios, to start with the, fixed assets turnover ratio was 0.65 and 0.7 for 2009 and 2010, while the total assets turnover ratio was 0.47 and 0.49. This indicates that for every dollar of total assets, there were 0.47-dollar sales in the year 2010, meaning the management was not utilizing the assets properly to generate revenue. In the case of competitors, Shangari-la had a total assets turnover ratio of 0.39 and fixed assets turnover ratio of 0.41, while Starwood had 0.52 and 0.68 for fixed asset turnover and total asset turnover. Therefore, Starwood was utilizing the assets better than the competitors were.
|HYATT 2010||HYATT 2009||SHANGARI-LA 2010||STARHOOD 2010|
|Gross profit margin (%)||0.60||0.87||61.89||11.83|
|Operating profit margin (%)||1.56||-1.38||18.84||6.07|
|Net profit margin (%)||1.56||-1.38||18.84||6.07|
|Return on total asset (%)||0.76||-0.64||7.3||3.15|
|Return on equity (%)||1.07||-0.91||9.13||12.40|
|Earning per share||1.2||0.9||0.16||2.16|
Profit and operating profit margins signify that the ratio improved from -1.4% to 1.6% for Hyatt, like that of Shangri-la was 18.8% and for Starwood was marked as 6.1%. There is an indication that Hyatt had a poor profit-operating margin, with an improvement of Return on total assets from -0.6% to 0.8%, the same ratios for the competitors show that Shangri-la and Starwood had 7.3% and 3.1% respectively in 2009 and 2010. Therefore, the competitors performed well as compared to Hyatt. Considering the return on equity for it, the conclusion is the same as it improved from -0.9% to 1.1% in 2010.for the competitors, Shangri-la had 9.1%, while Starwood had 12.4% for the year 2010.
Looking at the earning per share, it is noted that it improved from -0.36 to 0.03 from 2009 to 2010. However, Shangri-la and Starwood had better results of 0.16 and 2.61 respectively.
Overall Analysis and Recommendation
In terms of solvency and ability to meet the obligations, Hyatt was doing better than the competitors were since the results improved from year to year. The fact that Hyatt has remained successful in increasing its operating profit margin, it is quite commendable that the company is pursuing expansionary strategies. This suggests that the financial strength of the company will continue to improve in the future because of the increasing profit margins, which will allow the management to utilize more funds. In this case, as their return on assets closes in on the break-even point as well as the return on equity, the hospital is in great shape to continue growing in future. Furthermore, if they could find a way to increase the gross profit margin, this would inevitably increase the net profit, leading to a decrease in the debt ratio and in total expenses.
Unfortunately, not all of the financial ratios showed improvement between the two years. The debt ratio is twice as high as the year before, and this factor is not good at all. If the debt ratio increases at this rate, the hospital will sink within the next two years. Therefore, the future of Hyatt looks bright as their profits start to bring them back towards a gain instead of a loss on their financial records. Their future looks highly profitable indeed.