Starwood Hotels (Starwood) owns and operates many hotel properties under well-known brand names, including Sheraton, W, Westin, and St. Regis. Starwood focuses on the upper end of the lodging industry. Choice Hotels (Choice) is primarily a franchisor of several hotel chains, including Comfort Inn, Sleep Inn, Clarion, EconoLodge, and Rodeway Inn. Choice properties represent primarily the midscale and economy segments of the lodging industry. Exhibit 4.39 (page 315) presents selected profitability ratios and other data for Starwood, and Exhibit 4.40 (page 315) presents data for Choice. (Note that ROCE is not meaningful for Choice because of negative common shareholders’ equity due to open market share repurchases, not accumulated deficits. As of the end of 2008, Choice had repurchased over one-third of all common shares issued: 34,640,510 out of 95,345,362 shares.) One of the closely followed metrics in the lodging industry is occupancy rate, which gives an indication of the capacity utilization of available hotel rooms. A second measure is the ADR (average daily rate), which measures the amount actually collected for an average room per night. Finally, REVPAR (revenue per available room) also is an important measure, which measures periodto-period growth in revenues per room for comparable properties (adjusted for properties sold or closed or otherwise not comparable across years). The interaction of occupancy rate and ADR is REVPAR.
Exhibit 4.39
Exhibit 4.40
REQUIRED
Analyze the changes and the differences in the profitability of these two hotel chains to the deepest levels available given the data provided. Compare and contrast the ROAs and ROCEs of both companies. Do the results match your prior expectations given the type of lodging for which each company specializes?
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Financial Reporting, Financial Statement Analysis and Valuation
- Phoenix Inc., a cellular communication company, has multiple business units, organized as divisions. Each division’s management is compensated based on the division’s operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division B produces similar cellular equipment that it sells to outside customers—but not to division A at this time. Division A’s manager approaches division B’s manager with a proposal to buy the equipment from division B. If it produces the cellular equipment that division A desires, division B will incur variable manufacturing costs of $60 per unit. Relevant Information about Division B Sells 90,000 units of equipment to outside customers at $130 per unit Operating capacity is currently 80%; the division can operate at 100% Variable manufacturing costs are $70 per unit Variable marketing costs are $8 per unit Fixed manufacturing costs are $900,000 Income per Unit for Division A…arrow_forwardWith its broad portfolio of market-leading businesses, the Jardine Matheson Group is an Asian-based conglomerate with extensive experience in the region. Its business interests include Jardine Pacific, Jardine Motors Group, Hongkong Land, Dairy Farm, Mandarin Oriental, Cycle & Carriage and Jardine Lloyd Thompson. These companies are leaders in the fields of engineering and construction, transport services, motor trading, property, retailing, restaurants, hotels and insurance broking. The Group’s strategy is to build its operations into market leaders across Asia Pacific, each with the support of Jardine Matheson’s extensive knowledge of the region and its long-standing relationships. Through a balance of cash producing activities and investment in new businesses, the Group aims to produce sustained growth in shareholder value. Incorporated in Bermuda, Jardine Matheson has its primary share listing in London, with secondary listings in Singapore and Bermuda. Jardine Matheson Limited…arrow_forwardEastlawn Travel has two operating divisions, Tours and Resorts. The two divisions meet the requirements for segment disclosures. Before transactions between the two divisions are considered, revenues and costs are as follows: Revenues Costs Tours $ 35,200,000 19,800,000 The two divisions have an arrangement by which Resorts gives coupons redeemable for tours and Tours gives discount coupons good for stays at a resort. The value of the coupons for the tours redeemed during the past year totaled $5.3 million. The discount coupons redeemed at the resorts totaled $2.2 million. As of the end of the year, all coupons for the current year expired. Tours Resorts Resorts $ 24,200,000 17,600,000 Required: What are the operating profits for each division considering the effects of the costs arising from the joint agreement? Note: Enter your answers in thousands. Operating Profitsarrow_forward
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