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Questions from Choice Hotels Note: Use the ratios in your answers, and explain what the ratios...

Questions from Choice Hotels

Note: Use the ratios in your answers, and explain what the ratios mean.   Note: Shareholder equity remains negative at the end of 2017. The deficit is declining. The large negative equity was caused by earlier purchases of Treasury Stock. This will make the equity multiplier, return on equity, and the debt to equity ratios meaningless.

1. To help improve our operations, comment on how we are doing with respect to asset management. Are there any areas for improvement? 2. To measure our company's solvency, which of these ratios would we use and why? For Companies with deficits in shareholder equity, many analysts look to consistent stron cash flow from operations as the best indication of solvency

Consolidated Statements of Cash Flows - USD ($) $ in Thousands 6 Months Ended
Jun. 30, 2018 Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 104,925 $ 74,954
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,722 3,385
Depreciation and amortization – marketing and reservation system 10,048 10,157
Franchise agreement acquisition cost amortization 4,375 3,305
Loss (gain) on disposal of assets (82) 4
Provision for bad debts, net 4,356 1,707
Non-cash stock compensation and other charges 7,716 8,082
Non-cash interest and other (income) loss 808 (274)
Deferred income taxes 3,828 (732)
Equity in net losses from unconsolidated joint ventures, less distributions received 6,702 3,543
Franchise agreement acquisition cost, net of reimbursements (20,326) (14,108)
Change in working capital and other, net of acquisition (65,258) (25,915)
Net cash provided by operating activities 63,814 64,108
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (21,611) (10,687)
Investment in intangible assets (1,329) (2,228)
Proceeds from sales of assets 3,052 0
Business acquisition, net of cash acquired (231,317) 0
Contributions to equity method investments (7,206) (42,127)
Distributions from equity method investments 1,210 1,696
Purchases of investments, employee benefit plans (2,047) (1,736)
Proceeds from sales of investments, employee benefit plans 1,828 2,094
Issuance of mezzanine and other notes receivable (19,005) (14,977)
Collections of mezzanine and other notes receivable 3,505 552
Other items, net 232 110
Net cash used in investing activities (272,688) (67,303)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings pursuant to revolving credit facilities 69,000 23,200
Principal payments on long-term debt (362) (309)
Purchase of treasury stock (70,573) (7,414)
Dividends paid (24,454) (24,333)
Debt issuance costs (914) 0
Proceeds from issuance of long term debt 352 0
Proceeds from transfer of interest in notes receivable 173 0
Proceeds from exercise of stock options 38,059 6,590
Net cash provided by (used in) financing activities 11,281 (2,266)
Net change in cash and cash equivalents (197,593) (5,461)
Effect of foreign exchange rate changes on cash and cash equivalents (595) 955
Cash and cash equivalents at beginning of period 235,336 202,463
Cash and cash equivalents at end of period 37,148 197,957
Cash payments during the period for:
Income taxes, net of refunds 22,470 30,813
Interest, net of capitalized interest 21,558 21,206
Non-cash investing and financing activities:
Dividends declared but not paid 12,114 12,133
Investment in property and equipment acquired in accounts payable $ 3,393 $ 895

Homework Answers

Answer #1

1) As far as asset management of the company is concerned the company has a cash outflow of 272688$ in ivesting activitis which includes investment in property and equioment of $21611 which is also higher than previous gear.

Apart form thus ut also made investment in intagible asst of $1329, which is little lower than previous year.This part shows that the company is constantly making moves to increase its current assets and grwoing .

2)To measure the solvency of the company we can use interest coverage ratio which is given by

Net profit before intrest and taxes to interest on lonh term debt.

Here these are 148953 (105925+22570+21558)÷362=411

Here it is 411 which means the company is generating sufficinet returns for its shareholders.

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