Analyzing and Comparing Information Income Statements
Not what you're looking for?
Marriott International, Inc., and Wyndham Worldwide Corporation are two major owners and managers of lodging and resort properties in the United States. Abstracted income statement information for the two companies is as follows for a recent year:
x Marriott Wyndham
x (in millions) (in millions)
Operating profit before other expenses and interest $695 $718
Other income (expenses) 36 12
Interest expense (180) (167)
Income before income taxes $551 $563
Income tax expense 93 184
Net income $458 $379
Balance sheet information is as follows:
x Marriott Wyndham
x (in millions) (in millions)
Total liabilities $7,398 $6,499
Total stockholders' equity 1,585 2,917
Total liabilities and stockholders' equity $8,983 $9,416
The average liabilities, stockholders' equity, and total assets were as follows:
x Marriott Wyndham
x (in millions) (in millions)
Average total liabilities $7,095 $6,582
Average total stockholders' equity 1,363 2,802
Average total assets 8,458 9,384
1. Determine the following ratios for both companies (round to one decimal place after the whole percent):
a. Rate earned on total assets
b. Rate earned on total stockholders' equity
c. Number of times interest charges are earned
d. Ratio of liabilities to stockholders' equity
2. Analyze and compare the two companies, using the information in (1).
Purchase this Solution
Solution Summary
This two-step exercise, calls for the determination and analysis of various financial ratios, which are to be created from provided financial information.
Solution Preview
Solutions:
a. Calculate rate earned on total assets:
Rate earned on total assets = net income / average total assets
Marriott Wyndham
Rate earned on total assets 0.05 0.04
b. Calculate rate earned on stockholders' equity:
Rate earned on stockholders' equity (ROE)= net income / average total stockholders' equity
Marriott Wyndham
Rate earned on total stockholders' equity 0.34 0.14
c. Calculate number of times interest charged are earned
Times interest charged are earned = Earnings before interest and tax / interest expense
Marriott Wyndham
Times interest charged are earned 4.06 4.37
d. Calculate ratio of liabilities to stockholders' equity
Ratio of liabilities to stockholders' equity = total liabilities / total stockholders' equity
Marriott Wyndham
Ratio of liabilities to stockholders' equity 4.67 2.23
2. Analyze and compare the two companies, using information in (1).
a. Comparative analysis based on the rate earned on total assets:
The rate earned on total assets ratio reveals a firm's profitability on its business operations and thus serves to measure management's effectiveness, with the calculated ratio ...
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.