Marriott Case Study
1. Are the four components of Marriott’s Financial Strategy consistent with its growth objective?
Marriott's sales grew up by 24% and its return on equity stood at 22% in the year 1987, the sales and earnings per share has doubled over the previous year as stated in the case study.
The company operates in three divisions: lodging, contract services and restaurants which represents 41%, 46% and 13% of sales in 1987 respectively.
Marriott is determined to develop and to enhance its position in each division and remain a premier growth company as stated in the annual report (1987).
This key objective implies to become the most profitable company, be the preferred provider as well as preferred employer.
Analysis the four key elements of Marriott’s financial strategy we arrive at the following conclusion:
a) Managing rather than owning hotels assets, Marriott can become more focused on its core competency of hotel management in order to generate a profit without the distraction related with real estate ownership. Marriott also limits partners carefully under long-term management contracts with appropriate management fee conditions and guarantee a portion of the partnership’s debt. Though the strategy will enable Marriott to use its resources to develop other opportunities, it may as well hamper the growth object of being most profitable as it must stand aside while investors earn their pre-specified returns.
b) Investing in projects that increase shareholder value makes Marriott focus on only project which will give potential return to the company by comparing to expected return from discounted cash flow techniques with considerations of other significant conditions such as project risk. However it can as well be seen that this strategy may conflict with the objective, as the company uses the hurdle rate to evaluate potential investments where the cost of equity is higher, then the WACC would appear higher as well(hurdle rate)and distract the company to invest in some
Marriott's sales grew up by 24% and its return on equity stood at 22% in the year 1987, the sales and earnings per share has doubled over the previous year as stated in the case study.
The company operates in three divisions: lodging, contract services and restaurants which represents 41%, 46% and 13% of sales in 1987 respectively.
Marriott is determined to develop and to enhance its position in each division and remain a premier growth company as stated in the annual report (1987).
This key objective implies to become the most profitable company, be the preferred provider as well as preferred employer.
Analysis the four key elements of Marriott’s financial strategy we arrive at the following conclusion:
a) Managing rather than owning hotels assets, Marriott can become more focused on its core competency of hotel management in order to generate a profit without the distraction related with real estate ownership. Marriott also limits partners carefully under long-term management contracts with appropriate management fee conditions and guarantee a portion of the partnership’s debt. Though the strategy will enable Marriott to use its resources to develop other opportunities, it may as well hamper the growth object of being most profitable as it must stand aside while investors earn their pre-specified returns.
b) Investing in projects that increase shareholder value makes Marriott focus on only project which will give potential return to the company by comparing to expected return from discounted cash flow techniques with considerations of other significant conditions such as project risk. However it can as well be seen that this strategy may conflict with the objective, as the company uses the hurdle rate to evaluate potential investments where the cost of equity is higher, then the WACC would appear higher as well(hurdle rate)and distract the company to invest in some