Quantitative Analysis

Ratios Analysis

Operational Analysis

Marriott has current ratio on average of 0.59 which means that Hotel could only support half of its operations. Meanwhile, it does not have sufficient assets to continue current operations. Thus, it has negative working capital that indicates that company has no current assets to meet with the current liabilities, it could only meet half of the responsibilities which are not enough for such a large company. In order to meet with the working capital needs company has been focusing on debt financing; which shows inefficiency of the company to maintain the working capital.

Debt financing would create long-term problems for the company because it would need to pay interest to banks and financial institutions and it would mark company as overexposed to debt financing, it would make company more risker before the investors as compared to companies those have maintained debt to equity ratio with the industry. Company would lose value in the market because it would be considered more risker and investors would expect higher return. Furthermore, the debt/equity ratio of the company is -1.06, company has equal debt to equity, which is a major concern for the shareholders.

Profitability Analysis

Company has gross profit of 14% each year on average, and has average net profit of 5% each year. It is good enough for the investors that company has net income from the operations. But, how long could it maintain the profitability cannot be measured quantitatively. It could be analyzed that company’s net income doesn’t grow, and it has constant net income ratio; which indicates that company would have lower operating profit in the future due to the negative working capital. It might contribute to lower net income. On the other hand, average return on assets (ROA) is 9%, and ROA in 2012 was 9%, and it has consistent 9% for four years, but in 2016 it suddenly fell to 3%. See Exhibit 1 for the ratios

It indicates that net income has declined due to the increased operating expenses which should not increase. Meanwhile, return on equity (ROE) is negative which indicates that shareholders owe money of the company. For example assets = liabilities + Shareholders equity which so if shareholders equity is negative that means shareholders owe money, and they have to pay money to company in which they have invested capital. Similarly, it is red alert for the investors to consider this while investing in sucha company that doesn’t give capital gain or profit, but it makes investors to owe money.

Investment Thesis

Shareholders equity is negative which indicates that investors owe money to company, and shareholders have to pay money. So, it is a major concern for the investors that why should they invest in such company that doesn’t give them capital gain, but puts debt burden on them. Market hastwo types of investors first those who want to take risk, and want higher return. Second those investors who do not want to take more risk, and their intention is capital gain and dividend only. So, both types of investors do not fall into situation to invest in such company that hasnegative shareholders’ equity………………….

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