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# Analyzing and Comparing Information Income Statements

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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).

#### 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 ...

#### 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.

\$2.19

## Financial analysis of Shadracks or Brighams

You and your best friend have decided to quit your jobs, turn in your retirement, and purchase your own restaurant. In your market area there are a lot of restaurants, and you've looked at several that were available for sale. You'll narrowed your choices to either Shadracks or Brighams. From you and your friend's experience, both restaurants have good food, and generally good service. The owner of Shadracks' says that he and his wife want to retire and move to Key West. The owner of Brighams indicates that he is tired of the long hours, and has accepted a salaried position with his old employer, IBM. Both restaurants have provided you with a year end balance sheet and income statement (below).
Please prepare a paper on your analysis and recommendations regarding the following questions. (You must choose one or the other of the two restaurants to purchase):
1. Based solely on the financial analysis of the information provided, which restaurant would you buy? (Be sure to share the financial ratios and other pertinent financial analysis you use in making your decision)
2. Explain other financial information that could help you make a better decision if it were available.
3. What other questions that are not specifically financial in nature would you want answered about these two restaurants?
Current Assets
Cash 4500 8800
A/R 2000 6000
Inventory 20000 44000
Total Current Assets 26500 58800

Fixed Assets
Land 50000 100000
Building 250000 45000
Equipment 80000 120000
less accumulated depreciation -22000 -180000
Total Fixed Assets 358000 490000

Total Assets 384500 548800

Current Liabilities
A/P 22000 55000
Wages Payable 8000 4000
Total Current Liabilities 30000 59000

Long-term Dept 180000 320000

Total Liabilities 210000 379000

Owners Equity
Capital 100000 50000
Retained Earnings 48000 61000
Total Owners Equity 148000 111000

Total Liabilities & Equity 358000 490000

Revenue 460000 700000
Cost of Goods Sold 276000 413000
Gross Profit 184000 287000

Expenses
Payroll 92000 136400
Benefits 13800 20460