Valuation of the Company: Marriott International Incorporated - Research Paper Example

Valuation of the Company Equity cash flows refers to the money that the business attempts to gain from external investors. This is usually in the form of common and preferential stocks. Equity financing can be used to measure the performance of the company. A company should preferably have a lower equity ratio as this shows that it can easily pay this debt in case it is demanded. This can be calculated by finding the percentage of the equity debt in relation to the total capital base of the company. The financial statements of the company show that the company has a decreasing level in the shareholders equity of the business. In 2006, the company had a high amount of equity shareholders of 2618000. However this figure has reduced until the year 2013 when it is at a negative figure which is (1414500). This shows that over time, the company is reducing the rate at which it relies on external sources of funding. This shows that the company might have found other sources of cash or it is slowly building up its assets and therefore does not need external monies to fund its growth. The company has a high capital surplus and an increase in the amount of retained earnings. The amount of retained earnings in 2006 was 2904000 and in 2013, this figure had increased to 3793000. This shows that in the next 10 years, the company will have very limited requirements for external funding. This is a good sign for any investor as it shows that in future the business will be able to meet its financial obligations. The retained capital can further be used to to expand the business and grow its operations and this shows that in the long run it is the shareholders who will benefit from such a move. The key assumptions that are made in this regard is that the business environment of the business will remain the same as it is. It is assumed all the stakeholders involved in the business will not have any major policy changes that will impact the rate of growth in the business operations. It is further assumed that the management will always have in place policies that ensure that the company is on a growth phase for the next 10 years, it is only in this way that the profits that the business is earning can be maintained over the long term. The recruitment policy should also ensure that only the best and most qualified people are hired in the company so as to ensure continuity in a certain level of success. A major factor that affects all businesses is government policy it is assumed that the regulations in regards to the business will remain the same. This is because the government can introduce extra restrictions such as extra taxes on the class of business or can even make the operations illegal. This can adversely affect the business, so it is hoped that policy changes will be favorable to the company. Another assumption that is the number of competitors in this line of business will lead to increase. This is because many startups occur in fields of business that are seen to be profitable. The end result is that there will be a decrease in the amounts of profits for dominating firms like Marriot Intl Inc. The market capitalization The market capitalization of the company as at April 25th was at 14 per share. Over the years from 2006 to 2014, there has been an increase in the earnings per share from 1.770 to 2.050 per share. 14 is therefore the terminal value at the end of the trading period.The terminal value is the value of the stocks of any given company at the end of a particular trading period. This shows that the value of the company has been on an increasing trend over a number of years and as such it is expected to grow over the next few years. Although the earnings per share of the company have been on an increase for the last few years, there have been no dividends that have been paid for preferential shareholders by the business. The only dividends that have been paid are for common shareholders. This shows that the company is trying to increase its capital base and therefore new investors should not expect to receive dividends on a regular basis. However, this Is not to mean that this is not a profitable investment as the earnings per share of the company from the last few years indicate that it is a viable business opportunity and there will be an increase in the value to the investor. To be able to analyze the company appropriately there are several factors that are to be considered. Some of these include the management structure of the company, the financial strength of the company, economic value and the dividend payout by the company. This is a guarantee that he has faith in his company and he understands the importance of the products and the services that the company offers. Having built the company from scratch it is expected that he will lead the company to further growth which will have a direct impact on shareholders wealth The company runs the most popular search website in the world and provides advertising technology to clients on a global scale (Koller, 54). It has technology that enables the users to get better information in regards to search results. There is a clear representation of pictures, videos and text that has made it very popular with users. The company might be in the technology industry and success in this industry is dependent on the ability of an organisation to come up with innovative products and services on a regular basis. The company has been active in the research end and as a result has been able to regularly come up with products that suit the needs of the consumers. The company has an experimentation culture and this ensures that the company always produces new products that keep potential competitors at bay. Therefore this makes a good investment due to the fact that it will always have products that will keep consumers interested. The operational strategy adopted by this company has proven effective. It produces products that are user specific and are targeted towards a certain group of people or companies. This ensures that these products are tailor made for them at a low cost that gives the company a competitive advantage over its competitors. The company can introduce an investment arm that enables it venture into other areas such as software applications that ensure its earnings are protected from future disruptions. Ever since it went public, the company has been posting positive returns, this is a surety to investors that the company is on the right track and cannot face any financial difficulty that can majorly affect their business. The value of the company can be obtained by using the operating free cash flow method. This method determines the operating cash flow that is left after payment of recurrent expenditures. The formula for calculating this is: Operating free cash flow method: Operating Cash flow- capital expenditures Capital expenditures = $2.26 billion Operating cash flow = $3.92 billion Operating free cash flow method: ($3.92-$2.26) = $1.66 billion The company’s Relative Value: this is by use of historical and forward ratios as shown below: Price/earnings ratio This shows how the much money an investor in the common shares pays per dollar of the current earnings of the company (Koller, 21). This figure is 30.87 and is an increase from the previous year, when it was 23.14 Price to book value ratio This is used to show the markets judgment in regards to the relationship between the company’s actual rate of return and its required return date. This figure is 4.57 and is an increase from 3.46. These show that the company is on a positive trend and will make a worthy investment. Investor expectations are that any investment they make today will be able to yield positive returns in future. According to my analysis of the company, the company is profitable and will be able to meet the expectations of the investors. In regards to the company the best strategy would be a protective put strategy (Damodaran, 98). This would greatly reduce the risk of losing money by the investor if the value of the security declines. By purchasing a put option the investor is still able to benefit from future gains in the value price but will not incur any losses should the value drop below the option price. Executive summary This company is on the path of success and therefore the investor should be able to receive a return in any investment in this company. It creates value for the investors and therefore is a viable investment opportunity. From its financial evaluation and projections, there are chances that it stands a chance to achieve the best of its investments. In order to achieve a good finaincial position, organizations are expected to evaluate and valuate their assets in order to know how to cope with the emerging issues and competitiveness of similar organizations. Therefore, it is necessary to have a good financial position and evaluation to know how an organization performs. Works cited Koller, Tim, Marc Goedhart, and David Wessels.Valuation: Measuring and Managing the Value of Companies. Hoboken, NJ [u.a.: Wiley, 2005. Print. Damodaran, Aswath. Damodaran on Valuation: Security Analysis for Investment and Corporate Finance. Hoboken, N.J: Wiley, 2013. Internet resource. Read More