Aim of the paper
The paper carries out a financial analysis of four companies. The analysis will entail the application of several theoretical and empirical approaches and tools to evaluate the companies. Some of the ratios that will be used are earnings per share, price/earnings ratios, return on equity, dividend yield, long-term debt to equity, price to book value, and net profit margin. Finally, a recommendation will be made to a potential investor. The recommendation will provide information on the most profitable and stable company to invest in.
About valuation ratios
The valuation ratios indicate the performance of the shares of a company. For instance, the price-earnings ratio is obtained as a result of the division of market value per share and the earnings per share. A higher value would imply that the shareholders are expecting higher returns in the future. The second ratio is the price to book value. It is obtained by dividing the market value of shares and the book value of the firm. The ratio indicates whether shares of a company are overvalued or undervalued. The other ratios are dividend yield and earnings per share (Williams et al., 2010).
Hyatt Hotels Corporation (H)
The table presented below shows the value of the seven ratios for three years for Hyatt Hotels Corporation. It also shows business averages for the seven ratios.
The ratios presented in the table above give information on profitability, leverage, and the valuation of the company. The return on equity and net profit margin gives information on the profitability of the company. Long-term debt to equity shows the financial leverage of the company. Finally, earnings per share, price-earnings ratio, dividend yield, and price to book value give information on the valuation of the company. The profitability of Hyatt Hotels Corporation increased from the year 2010 to 2011; thereafter it declined in 2012. Both the return on equity and net profit margin took the same trend.
For instance, the amount of return on equity increased from 1.87% in 2010 to 3.06% in 2011. The value further declined to 2.23%. Similarly, the return on equity increased from 1.30% in 2010 to 2.27% in 2011. The value further declined to 1.83% in 2012. Further, the profitability of the company is lower than the industry average. The leverage of the company was low compared to the industry average. The value decreased from 0.30 in 2010 to 0.25 in 2012 while the industry average was 0.79, implying that the company is not highly levered in comparison with the industry averages. The valuation ratios show that the shares of the company are highly valued as indicated by high values for earnings per share and price-earnings ratio. Besides, the values were higher than the industry averages.
Starwood Hotels & Resorts World (HOT)
The table presented below shows the value of the seven ratios for the three years for Starwood Hotels & Resorts World. It also shows business averages for the seven ratios.
The ratios presented in the table above give information in regards to the profitability, leverage, and valuation of the company. The return on equity and net profit margin gives information on the profitability of the company. Long-term debt to equity shows the financial leverage of the company. Finally, earnings per share, price-earnings ratio, dividend yield, and price to book value give information on the valuation of the company. The profitability of the company was quite high. The values declined between 2010 and 2011; thereafter, they increased. The earnings per share for the three years were more than the industry average.
The profitability ratios were above the industry averages. The leverage ratio of the company declined from 1.3 in 2010 to 0.53 in 2012. It is a good indication since it shows that the leverage of the company is declining. Also, the value declined to a level lower than the industry average. The valuation of shares of the company is lower than the industry averages. The price-earnings ratio and the price to book value were lower than the industry average for the three years.
Wyndham Worldwide Corporation (WYN)
The table presented below shows the values of the seven ratios for three years for Wyndham Worldwide Corporation. It also shows business averages for the seven ratios.
The ratios presented in the table above gives information of profitability, leverage and valuation of the company. The return on equity and net profit margin gives information on the profitability of the company. Long term debt to equity shows the financial leverage of the company. Finally, earnings per share, price earnings ratio, dividend yield, and price to book value give information on the valuation of the company. The net profit margin declined over the three year period.
Besides, the values were higher than the industry average. The earnings per share increased during that period, which can be attributed to an increase in profitability or a decline in shareholder’s equity. The value of return on equity increased in the period. It is an indication of improvement in management efficiency. The leverage of the company increased from 1.2 to 2.08, being a bad indication since it shows that the company uses more debt than equity than its capital structure.The price earnings ratio was erratic during the period. However, the price to book value increased from 1.8 in 2010 to 3.8 in 2012. It shows an increase in the book value of the shares.
Stamford Land Corporation (H07.SI)
The table presented below shows the values of the seven ratios for Stamford Land Corporation for a three year period. It also shows business averages for the seven ratios.
The ratios presented in the table above give information on the profitability, leverage, and valuation of the company. The return on equity and net profit margin gives information in regards to the profitability of the company. Long-term debt to equity shows the financial leverage of the company. Finally, earnings per share, price-earnings ratio, dividend yield, and price to book value give information on the valuation of shares of the company. The return on equity and net profit margin was erratic over the three years. The values increased between 2010 and 2011. Thereafter, they declined. The profitability ratios for 2011 were higher than the industry average.
The earnings per share also followed the same trend though they were quite lower than the industry average. The long-term debt to equity ratio declined between 2010 and 2011. It is a favorable indication to a potential shareholder since it shows that the amount of debt in the capital structure is declining. Thus, the amount of interest expense will decline. The ratio reduced to a value lower than the industry average from the year 2011. The price-earnings ratio of the company increased over the three years. It is a favorable indication to a potential shareholder. However, the ratio was lower than the industry average.
Conclusion
The above review aimed at assessing the financial position of four companies which are, Hyatt Hotels Corporation, Starwood Hotels & Resorts World, Wyndham Worldwide Corporation, and Stamford Land Corporation. The paper reviews several ratios that give information on profitability, leverage, and valuation of shares of the four companies. The analysis carried out in the sections above shows that all the four companies had an erratic performance during the three years. None of the companies displayed a consistent positive trend over this period. Thus, it is difficult to single out a specific company among the four that performed better, based on the trend of the ratios presented in the table above.
Also, it is worth mentioning that some ratios for the company were lower than the industry average. When the four companies are compared, it can be seen that the ratios for Starwood Hotels & Resorts World were better than the other three. Thus, an investor should consider investing in that company. However, it is prudent to collect information about the company for a longer period, such as five or ten years. Besides, the investor should consider investing in several shares to diversify the portfolio. This will minimize the risks that arise from investing in one instrument (Williams et al., 2010).
References
ABC News Network. (2013a). Hyatt hotels corporation (H). Web.
ABC News Network. (2013b). Stamford land corporation ltd. (H07.SI). Web.
Williams, J., Haka, S., Bettner, M., & Carcello, J. (2010). Financial & managerial accounting: The basis for business decisions. USA: Mc Graw-Hill.