Question

Analyze and compare Hilton and Marriott

Hilton Worldwide Holdings, Inc. (HLT) and Marriott International, Inc. (MAR) are two of the largest hotel operators in the world. Selected financial information from recent income statements for both companies follows (in millions):

	Hilton	Marriott
Operating income	$1,861	$1,368
Interest expense	(587)	(234)
Other income (expense) items	(19)	50
Income before income tax expense	$1,255	$1,184
Income tax expense	(891)	(404)
Net income	$364	$ 780

a. Compute the times interest earned ratio for each company. Round to one decimal place.

Hilton: _________

Marriott: ________

b. Based on the data provided and your calculations which of the following statements are correct.

1. Marriott’s earnings provide its creditors greater protection of their interest charges than Hilton’s earnings provide to its creditors.

2. The income before income tax expense is close to the same for both companies.

3. The major difference is in the interest expense.

4. Marriott apparently uses more debt to finance its operations than Hilton.

a: 1,2, and 3

b: 1,2, and 4

c: 2,3, and 4

d; All of the above

Answer 1

SOLUTION:

a) Interest earned ratio Hilton= Income before Interest and Taxes/ Interest Earned

= 1842/ 587

= 3.13 times

Interest earned ratio Marriot= Income before Interest and Taxes/ Interest Earned

=1318/234

=5.6 times

Working Motes:

Income before interest and taxes= Operating income-other expenses

b) Statement 1,2,3 are correct which means option a is correct

in 4 th statement it is mentioned that marriot usses more debt while it is wrong as interest expenses of marriot is less then hilton.