Financial Performance of Marriott Corporation - Case Study Example

The paper "Financial Performance of Marriott Corporation" is a perfect example of a case study on finance and accounting. Marriott International, Inc. is one of the leading hospitality firms with an estimated three thousand nine hundred properties around the world and 18 brands. Alice Marriott and J. Willard founded it. It is headquartered in Bethesda USA. In the 2013 fiscal year, the company earned revenues of almost $13 billion. This shows the company’s rate of growth has been satisfying. In 1987, the company’s sales increased by 24% while return on equity remained at 22%. The company deals in three divisions: contract services, restaurants, and lodging. The growth of the company is in line with its three main objectives of being the preferred employer, being the preferred provider and lastly being the most profitable company.

What is the proper way for Marriott management to measure the firm's debt capacity?

Measuring the debt capacity of Marriott Company involves evaluating the amount of debt the company can repay on time without forfeiting its financial capability. It involves determining the company's appropriate maximum value of long-term debt that could remain outstanding at a given time. When determining its debt capacity, the company should consider its cash flow, current assets, and fixed assets. In addition to this increase in interest rates of a company shares as well as the floating rates can also increase its debt capacity. Other methods that can be used to measure the company debt capacity include the company’s ability to pay above the government bond rates. The part of debt at a floating rate, the market value of its shares, the fraction at fixed rates as well as the credit spread for the company as a whole could also be used to increase its debt capacity as well as motivate investors to lend the company some money.

Has Marriott fully utilized its debt capacity?

It is very hard to determine if Marriott has fully utilized its debt capacity. According to its chief financial officer, 74% of the company operating income would be provided for by the hotel management operations. The low volatility of cash flows coming from management contracts enabled Marriott Company to a higher level of debt capacity relative to cash flows that would not have been possible had the company had a bad debt capacity.  The company acknowledged the link between the debt capacity and the stability of cash flows in its financial statement. The statement states that the debt capacity of the firm is determined by the variability and amount of its cash flows’. A combination of high debt capacity and of low capital requirements enabled the Marriott family to maintain the control of the firm even though its revenue by 512% from 1980 to 1992.

Repurchasing its own stock

Repurchase of stock could lead to financing the firm, investing in the firm, controlling the firm as well as distributing shareholders. It can also be viewed as a way of using the company’s excess debt capacity. The company would be able to reduce the cost of equity financing. This is likely to enable the firm to reinvest in the company while at the same time increase its capacity to earn more profits in the future. Consequently, the corporation would determine the value of its share rather than depending on the market price of shares.