Marriott and Hilton comparison analysis part two

¶ … challenging for many of the different businesses that are in the travel and hospitality industry. In the case of both Marriot and Hilton Hotels, they have been facing similar kinds of challenges from the global financial crisis and ensuing recession. To determine the underlying amounts of financial strength for both companies requires: looking at different profitability ratios. Simply put, profitability ratios will tell investors the strengths or weaknesses of the company from a financial standpoint. Where, you are looking at a number of different ratios in conjunctions with one such as: liquidity ratios, financial leverage ratios, asset turnover ratios, dividend policy ratios and profitability ratio. To determine the overall amounts of strength for both companies requires, comparing theses different ratios of each company in conjunction with one another. This will be achieved by looking at: the debt ratio over the last two years. Together, these different elements will provide the greatest insights, as to the strengths of both companies from a financial standpoint.

The Current Ratio vs. The Debt Ratio

To determine the above ratios for both companies, will require examining these ratios of the parent companies or entities that owns the hotel chains. The debt ratio is important because it will tell you if the company has more debt than the assets. Where, a reading above 1.0 would indicate that the total amount of assets, outweigh the total amount of debts. While a reading below 1 would indicate that the total amount debts are greater than the total amount of assets. During times of economic challenge, this number is useful because it will tell you the total financial strength of the company, based upon debt levels. ("Debt Ratio," 2010) In this case, Marriot is owned by the parent company Marriot International. While, the Hilton is owned by the Blackstone Group. (Story, 2007) To determine the debt ratio you would divide: the total debt into the total assets (debt ratio = total debt / total assets). In the case of Marriot the company has debt ratio for 2008 of: 1.02; while the debt ratio for 2009 is: 2.09. This was calculated by: dividing the total debt into the total assets (debt ratio = total debt / total assets). The 2008 number was determined by: dividing $1.38 billion into 1.34 billion ($1.38 billion / $1.34 billion = 1.02). The ratio for 2009 was calculated by: dividing $2.851 billion into $1.142 billion ($2.851 billion / $1.142 billion = 2.09). ("Marriot 2009 Annual Report," 2010) The Blackstone Group has a debt ratio for: 2008 of 2.81 and 2009 of 1.50. The number for 2008 was calculated by dividing $9.489 billion into $3.37 billion ($9.489 billion / $3.37 billion = 2.81). The ratio for 2009 was determined by dividing $9.049 billion into $6.017 billion ($9.049 billion / $6.017 billion = 1.50. ("The Blackstone Group 2009 Annual Report," 2010)

When you compare the debt ratio of Marriot with that of the Blackstone Group, they both have a debt ratio above 1.0, indicating that they have more assets than debt. With Marriot this number increased between 2008 and 2009, highlighting that the company has been taking aggressive steps to reduce the underlying amounts of debt. Evidence of this can be seen by looking no further than the ratio rising from 1.02 to 2.09. While the Blackstone Group, saw their debt ratios decrease between 2008 and 2009. Where, their debt ratio showed a reading of 2.81 for 2008 and 1.50 for 2009. This is significant, because it shows how two different strategies were used, when it came to the different companies. In the case of Marriot, they wanted to reduce their underlying amounts of debt. While Blackstone Group, was continuing to make purchases of other companies, which would cause the overall debt ratio to decline.