Financial Analysis Report Hyatt Finance Essay
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This report is prepared to analyse the financial statements for Hyatt Hotel Corp. I have analysed three years Balance Sheet and Income Statement for the year 2009 to 2011. An introduction has been provided with the key data of Hyatt, its geographic spread, market, brands, strategy and a brief history is covered. Income Statement Analysis is performed followed by various financial ratios, profitability ratio, solvency ratio, liquidity ration and activity ratios has been calculated and compared for the years 2009 to 2011. A discussion on how well the Hyatt has performed with in the industry has been provided. Its performance is benchmarked with two other industry leaders, Accor Hotels and Marriott Hotels. Some of the issues identified are discussed in conclusion. All the findings are supported with data available from the financial statements.
Balance sheet analysis is done and various ratios have been discussed in details. Hyatt's performance is evaluated for the year 2009, 2010 and 2011. At the end a conclusion is made followed by some recommendations to buy, sell or hold on the investment is provided.
HYATT was established in 1957 by Mr. Jay Pritzker, after acquiring Hyatt House Motel located near Los Angeles International Airport. Hyatt became a public company sector company in 1962 as both Pritzker brothers Jay & Donald expanded the family business into North American Management & Hotel ownership country. Hyatt became the global hospitality leader after its Launching of innovatively designed Hyatt Regency Atlanta in 1967. Hyatt is now named as Hyatt Hotels Corporation after Hyatt International & Hyatt Corporation was conjoined in to one company and operating for Pritzker Family's interest (Hyatt 2013).
Hyatt believes in expansion, innovativeness & diversification this represented by its 9 competitive brands owning 500 properties which are globally spread around the world into 46 countries. (Hyatt 2013). Each brand is designed uniquely to offer a distinguished experience of Food & Beverages, ambience and services to the guests. It is their attitude and personalized touch that makes the stay memorable. Park Hyatt which is known for its luxury & sophistication has a spread of 30 hotels in major gateway cities of America, Europe, Africa Middle East, and Southwest Asia & Asia Pacific. ANDAZ as the name suggests has a unique design and at the same time has insights of local neighbourhood. The company has 9 hotels under this brand. Grand Hyatt has huge infrastructure and spectacular design, with innovative concepts of food and beverage. It is preferred brand for grand weddings, convections and meetings. Hyatt brand has 28 properties. Hyatt Regency is aimed for business travellers & convention travellers, equipped with most of modern technologies and guest friendly atmosphere. Hyatt Place is ranked no. 1 select service brand by Business Travel News 2012 Survey, it has a wide range of 172 properties in United States and Costa Rica. Hyatt House was formerly known as Summerfield Suites and is designed in residential size to make the guest feel at home as it offers extended stay in all their 54 properties. Hyatt Resorts are all located at the vacation destinations thus they are well known as beach resort, mountain resort, dessert Resort etc. they are most conveniently constructed with all the leisure around to make the tour relaxing and adventurous. Hyatt Vacation Clubs are time share properties which offers ownership to the members to enjoy access to any Hyatt Vacation club in addition to their home destination, Hyatt entered into vacation ownership in 1994(Hyatt 2013).
Hyatt has partnership with 19 diversified non profit organisations and contributes them in their various activities; this is a part of their social responsibility. Hyatt has identified specific market segments and their competitors in order to make their services the best and customer friendly, like introducing Web Check in for any Hyatt properties, various spas and leisure activities at tourists and business properties, has identified requirements of amenities by guest feedback and introduced it. The company understands that customer satisfaction is totally dependent on employee satisfaction in a service industry and their asset is their work force, therefore Global Hyatt was awarded as '2011 Best place to work'. Hyatt has also been awarded as Best Elite program in Asia-2012 for boosting their guests' loyalty through Gold, Diamond and Platinum memberships. This strategically planned program offers complimentary stays and services; this ensures higher frequency of their guests. One of its major introductions of competitive strategy is 'ANDAZ' which is an eco friendly brand and an intelligent innovativeness to decrease the carbon footprints. Hyatt accomplishes it mission and goals by Diversity and Inclusive Framework for building and focusing on their work place, work force and market place (Hyatt 2013).Hyatt has 60 individual spas with the original concept of healing with water and it introduced its spa in 1972, in Indonesia. This is a strategy of diversification and expansion.
Hyatt plans to introduce an Eco Track web based tool for monitoring Hyatt's environmental impact by gathering monthly data of their environmental goals, it aims to start full fledge by 2015. This would include reduce energy consumption, water consumption, green house emission and waste sent to the landfills in comparison to 2006 levels. Hyatt Union Square in Manhattan along with restaurants of One Five hospitality group is in pipeline for April 2013, besides that Andaz Tokyo, first Andaz Hotel in Japan is to open in 2014. Park Hyatt Mallorca is the first Hyatt hotel in Mallorca, an island in Mediterranean for which Hyatt has entered into an agreement with Spanish real estate company. Moreover Hyatt plans for expansion and growth in the competitive hospitality industry by diversification and innovativeness (Hyatt 2013).
Income Statement Analysis
How has the group performed?
In last three years of Hyatt's performance (year 2009 to 2011) review I can state that its sales has been increased each year, the increase is not constant but each year has shown overall increase from the previous year as shown in Appendix-I Profit & Loss Statement of Hyatt. The % movement (sales) of year 2009, 2010 and 2011 is 6, 5 and 11 respectively. From the last three years of review, it can be said that the performance indicators are showing a positive upward trend for the company (Hyatt 2013).
The percentage movement of rooms in the year 2009 was not very promising for the company but the positive trend of sales improved the room % movement for the year 2010 and 2011 as 4.1 and 8.5 respectively. The average occupancy data supports the increase in sales for years 2009-2011. For the said period average occupancy is 65.7, 70.9 and 72.5. (Hyatt 2013)
REVPAR defined as 'revenue per available room' has shown an upward increase from year 2009 to 2011 ($103 to $122) refer to the values in Appendix-I Profit & Loss Statement of Hyatt. The company's revenue has been on steady increase as per REVPAR. The average room rate (ARR) often known as average daily rate (ADR) has been on increase in the last three of review. The ADR or ARR for the said years are $157, $163 and $169 for the year 2009, 2011 and 2011 respectively. The % movement increase for the years 2009 to 2011 is 4% to 7.6%. The company has seen a growth of REVPAR despite some of its properties were under renovations during the period 2009-2010 as mentioned in the annual report of the company. From its North American Management and Franchising, the company's revenue has increased due to the increase in franchisee and other fees increased due to improved profitability across the portfolio.
Hotel industry/companies are evaluated in terms their ability to generate profits on sales, known as profit margin. Poor pricing and sales volume can bring down the profit margin. The gross profit for the last three years of the company has increased from $579 to $741 thereby increasing the gross margin % from 17.4% to 20%. This shows that the company has been performing well and its management has control over its expenses.
The net profit has fell sharply in the year 2009 which is -$43. This sharp fall was due to the high operating expenses and low operating income, added to it was low equity earnings and high interest expenses. Net profit shows a rapid upward trend in the year 2010 and 2011 i.e. $66 and $113. This was due to the high operating income at hand and low interest expenses. This indicates that the company has recovered from losses and looks more promising in the year 2010-11.
The net profit margin of the company has increased from negative to positive value showing profitable growth earnings for the company. The net profit margin for the last three years is -1.29%, 1.87% and 3.06%.
Benchmarking of the Company (Hyatt):
The benchmarking of the company is performed with two of industry leaders named Accor Hotels and Marriott Hotels. Various financial ratios are compared for the years 2009, 2010 and 2011.
Profitability comparison of two industries:
ROA: Hyatt has shown a better return on assets or in other words a better profitability of hospitality industry (-0.65) as compared to Accor (-2.3) and Marriott (-5.3). The performance of Hyatt's has been steady and its profitability has increased in three years term to 1.53%. In the year 2011, Hyatt is under performing as compared to Marriott but better than Accor which has ROA of 0.60% as shown in following graph:
In the year 2010, Accor has a very high ROA followed by a sharp fall in year 2011, which indicates that very high fluctuations of ROA possess a higher risk of instability of the company.
ROE: Another key ratio is return on equity which compares the net income of the companies with owner's investment. Hyatt's ROE has shown a gradual increase for the last three years. Compared to Accor and Marriott in the years 2009, it was the best investment company in hospitality. In 2010, Hyatt has shown a gradual increase of 1% on ROE as compared to Accor and Marriott which has shown a very sharp rise of 100% and 29% respectively.
A company with a higher ROE is a better investment than one with a lower ROE since it has a stronger ability to generate cash flows internally; however, this is not completely accurate. Looking at the Accor and Marriott for the year 2010, they show a high ROE values, but the following year they have shown a greater investment risk as compared to Hyatt, the graph below represent the same.
EBIT: Lower EBIT ratio means the company is less capable of meeting its liabilities. If the ratio is 1.5 or less, then it is considered a high risk and its ability to meet its interest expenses may be questionable. As compared in 2009, Hyatt is not performing well as compared with Marriott whose EBIT is 3% as compared to Hyatt's -0.09; however, in 2011 the situation is upside down. Hyatt is performing well as compared to Marriott. The EBIT of Hyatt is -2.49% whereas Marriott stands on -12%, refer to the graph below:
After analysing various financial ratios between three groups of hotels, I have analysed that, Hyatt has performed better and shown constant improvement in recent three years, whereas Accor and Marriott's have shown huge up and downs throughout, which describes these groups have less stability.
Balance Sheet Analysis
The total assets of Hyatt have shown an upward movement for the year 2009 to 2011 from $7,155 to $7,507 or in other words, the percentage movement of total assets has a sudden rise from 1% to 5% for the year 2009-2011. This is due the fact that the total non-current assets have increased from $5,146 to $5,916 even though the current assets have decreased from $2,009 to $1,591 for the said period. Looking at the current assets trend the financial perform has taken the downward trend from year 2009 to 2011. This downward trend of current assets has raised the questions about 'how quickly the company can meet its liabilities if the need arises?' Combined with the non-current assets of the company the overall movement is upward. The reason for the increase in total assets is the year 2011 is due to the high increase in property & equipment assets; refer to the Appendix-I Balance sheet of Hyatt. (Hyaat 2013)
Current ratio of the company shows its liquidity power, in other words, liquidity ratio analyse the company ability to carry out its short term obligations. For company's liquidity ratio for the year 2009, 2010 and 2011 are 4.06, 3.63 and 2.8 respectively. High current ratio in the year 2009 and 2010 indicates a high risk as management was not investing the company's assets productively to grow the revenue in 2009-10. This also means that the company has too many idle assets not being invested.
Total current liabilities has increased from year 2009 to 2011 from $495 to $568, this is mainly due to the Accrued expenses increase for the year 2011 from $188 to $306. The total current liabilities movement has taken a sharp dip from 20% to -5% and then rise to 15% for the year 2009, 2010 and 2011 respectively. This also led to the net assets for the company decreased from $5040 to $4828 from year 2009 to 2011.
The inventory turnover rate of the company has risen from 25.1 in 2009 to 42.5 in 2011. This growth was appreciated by the shareholders because it implies that company has become more capable of efficiently turning its inventory into sales in these three years.
Company's earnings before interest and taxes (EBIT) increased quickly in the last three years (from $5 to $142), which finally resulted in a big increase of profit margin in 2010.
Return on assets measures how much profit a company can squeeze out of its assets. A higher return is preferred. The situation of the company is much better in the later years as compared to the starting years of analyses. Its return on assets ratio has increased year by year in the last three years. The ROA % has increased from -0.6% to 1.5%.
Return on equity ratios are used to interpret a company's ability to generate earnings from its investments. (Andrew, Damitio, Schmidgall 2007). ROE% for the company has shown a steady increase from -1% in 2009 to 2% in 2011, the profit margin% increased to 3.06% from -1.29% (because company's net income had become positive) respectively(Hyatt 2013)
Debt ratio measures how much debt a company has in its total assets. A lower debt ratio can be interpreted as the company being capable of carrying its liabilities since there are enough assets (Andrew, Damitio, Schmidgall 2007). Company's debt ratio increased from 42% to 55% thereby meaning that the company's ability to satisfy its liabilities has decreased.
The financial leverage of the company is the ratio of its total liabilities and total assets. The lower the ratio is, the better the company is performing and has a lower risk of failing down or becoming bankrupt. The leverage ratio for the company has shown a decline from -29.6% to -35.7% from year 2009 to 2011 which shows a lower financial risk for the company.
Interest coverage ratio determines companies' ability to pays interest on outstanding debts, here company has shown constant downfall in interest cover from -0.09, -2.91 and -2.49 for year 2009-11 respectively. Here companies' ability to meet interest expenses are questionable, company is in burden by debt expenses (Andrew, Damitio, Schmidgall 2007).
The Hyatt has shown an increase in its performance and reviewing its last three years of Income Statement and Balance Sheet it is evident that this group is doing better than its other two competitors in hospitality sector; however, there are some issues with its investment policies. Its management did not invest its assets efficiently which led to a higher current ratio in the year 2009-10 exposing the company as high risk to meet its liabilities. This behavior is also supported by return on assets ratio. In the later year, the company has shown a decline of leverage ratio, putting the company into better financial shape and making low risk company in its sector.
To sum up, there was a significant increase in company's financial statement in 2011. Compared to 2009, its revenue and net income increased sharply, while its total assets grew by $7507 million dollars. The equity of company decreased to $4828 million, while there was an increase of the total liability to $2679 million.
According to the previous analysis of Hyatt Hotel Corporation's financial performance from 2009 to 2011, it is clear that company has experienced a sharp increase of its revenue and net income in 2011. One of the main reasons is that the occupancy rate and room rate increased. Overall, trends are looking decent and I would recommend buying the investments in the company.
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