Reference no: EM132161669

Project 2

Instructions for completing this workbook:

To complete the CHH Income Statement 10-Q and 10-K worksheet:

1. Locate the CHH 10-Q and 10K income statements by using the links in row 1 above the respective quarter and year.

2. When you arrive at the SEC.gov website, click the 10-Q or 10-K document.

3. Click the Table of Contents link in the upper left corner.

4. Use the links in the Table of Contents to find the information you need to complete the worksheet.

5. Enter or copy the respective data into the worksheet.

6. Solve for the percent (%) change columns by using this example formula: Q3/Q2 - 1.

7. Convert the change columns to percentages.

8. Substitute any question marks with zeros (0).

9. Answer the questions in each worksheet.

10. Highlight significant changes of ±25 percent in the income statement categories of total revenues, total operating expenses, and net income in the Income Statement worksheet.

Repeat Steps 1 to 9 above for the Balance Sheet and Statement of Cash Flows worksheets.

To complete the Business Performance and Balance Sheet Ratio tabs:

1. Use the data from the respective Income Statement, Balance Sheet, or Statement of Cash Flows worksheets.
2. Substitute the respective formula information with the data.
3. Solve the respective formulas.
4. Answer the questions in both worksheets.CHH Income Statement
Questions from Choice Hotels:

1. Explain the various sources of revenue recognized by Choice Hotels. You may wish to read the first two pages of the 10-K business section for explanations
2. We would like to increase our net income next year. Based on your 10-K income statement analysis, which accounts should we look at to achieve this goal and why? Do you expect the new lower federal income tax to increase net income ?
3. Which of these income statement accounts would have the greatest impact on reducing our overall debt and why? Recognize that only cash can be used to reduce debt.

CHH Balance Sheet

Questions from Choice Hotels:

1. What portion of assets are finance with debt and what portion with equity? What difference does it make? Does it matter that Liabilities are higher than Assets and equity is negative?

2. Based on your estimation, do we have enough cash and cash equivalents to pay off our current liabilities? Would you advise eliminating the loyalty program or is it better to keep some liabilities? If we have more than enough cash and cash equivalents, what percentage of long-term debts, if any, can we pay?

3. Which balance sheet account(s) on our 10-K report, in your estimation, should we consider to reduce our long-term debt, and why? Management has chosen to make investments in other entities such as loans to hotel owners, and funding employee benefit plans. Management considers these to be wise and necessary for growth.

CHH Cash Flow

Questions from Choice Hotels:

1. Should the company try to reduce debt or to grow rapidly to return to a positive stock holder equity? We are trying to reduce our debt. How would you recommend modifying the cash flow (increase or decrease) in each of the three activities: (1) operating activities, (2) investing activities, and (3) financing activities? Explain. Remember that positive

2. We are trying to improve our operations by increasing cash flow in one of the three activities: (1) operating activities, (2) investing activities, or (3) financing activities. Which one of the three activities would you recommend, and why?

3. Is there sufficient operating cash flow to sustain the capital expenditures

CHH Business Performance 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 decline. 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
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 strong cash flow from operations as the best indication of solvency
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 strong cash flow from operations as the best indication of solvency
4. Why might the ratios have

CHH Balance Sheet Ratios

Questions from Choice Hotels:

Note: Use the ratios in your answers, and explain what the ratios mean.

1. Based on your calculations

2. We would like to improve the use of our working capital. Based on your ratio calculations. What are your specific recommendations? Please note that the current liability for deferred revenue

3. Based on the ratios you calculated above, would you invest in our company? Why or why not?

Project 3

Instructions
Read and follow these instructions to complete the workbook.

1. To complete the Income Statement worksheet, Balance Sheet worksheet, and Cash Flow worksheet:
a. Use the data you already collected in Project 2 to fill in the Choice Hotels table.
b. Collect Marriott International's 10-K data from the Securities Exchange Commission website.
c. Complete the percent change table on the right side of the workbook. (In the Balance sheet workbook, provide data only for the requested totals.)
d. Answer the questions in the space given.
2. Given the supplied data in the Cost and Investing worksheet, answer the questions in the space provided.
3. To complete the Budgeting worksheet and Profitability worksheet:
     a. Solve the ratios provided.
b. Answer the questions in the space given.

Income Statement

Questions:

1. Based on your horizontal analysis of Choice Hotels' and Marriott International's total revenue, total expenses, and net income, which company would be a more attractive target for an acquisition by the equity firm and why?

2. Given the changes in total revenue, operating income, and net income from 2016 to 2017, did Choice Hotels or Marriott International experience more change? Which area (total revenue, operating income, or net income) changed most?

Balance Sheet

Questions:

1. Based on your horizontal analysis of Choice Hotels' and Marriott International's total assets, total liabilities, and total equity, which company is most attractive for an acquisition by the equity firm and why?

2. What advice would you give to the client, Choice Hotels, to reduce its total liabilities?

Cash Flow
Questions:

1. Based on your horizontal analysis of Choice Hotels' and Marriott International's operating, investing, and financing activities, which company is most attractive for an acquisition by the equity firm and why?

2. What advice would you give to the client, Choice Hotels, to improve their investing and financing activities?

Cost and Investing

Questions:
1. The cost-allocation system Choice Hotels has been using allocates over 90 percent of overhead costs to the Standard Guest Room and the Junior Suite, because over 90 percent of the models produced were one of these two models. How much overhead was allocated to each of the three models last year? Discuss why this might not be an accurate way to assign overhead costs to products.

2. Choice Hotels' production manager proposes allocating overhead by direct labor hours instead, since the different models require different amounts of labor. How much overhead would be allocated to each guest room (per unit and in total) using this method? Show all supporting calculations.

Budgeting
Questions:

1. Quick ratios between 0.5 and 1 are considered satisfactory, as long as the collection of receivables is not expected to slow. Does the client, Choice Hotels, have enough current assets to meet the payment schedule of current liabilities with a margin of safety?

2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition by the equity firm and why?

Profitability
Questions:

1. The return on assets ratio tells us the profit generated by each dollar in assets. You will want to compare this ratio to Choice Hotels' historical performance and to Marriott International to understand if it is an acceptable ratio. Is the return on assets ratio acceptable? Why or why not?

2. Which of the above ratios would you use to determine which company, Choice Hotels or Marriott International, is more attractive for an acquisition? Why?

3. Based on the financial statement analysis, earnings per share analysis, budgeting ratios, and the above profitability ratios, which company would you invest in and why?

STEP 1: Use the Choice Hotels 10-K reports we gathered in the last project and compare them with Marriott International's 10-K reports," Frank tells you. You will need to find Marriott's 10-K reports the same way you did for Choice Hotels, by accessing the Securities Exchange Commission (SEC) website. Frank continues, "Choice has asked for advice on attracting new investors.

You need to complete a horizontal analysis and vertical analysis by comparing financial reports and measuring the difference between the two companies." Frank recommends using financial ratios for analysis and cost-volume-profit analysis concepts for this task.The client, Choice Hotels, is also interested in bolstering their assets and improving their costing model to account for these assets.

Choice has been building their own guest rooms and selling them to Choice Hotels franchise owners. The company allocates overhead costs equally to each guest room and prices them to achieve a greater profit on the higher-priced guest room. Choice Hotels is concerned that this traditional costing model may not be accurately assigning costs based on activities, and the selling price of one of its guest rooms, Presidential Suite, may not be covering its true cost.

You will need to know the marginal costs, incremental costs, cost of equity, cost of debt, and the pros and cons of debt vs. equity to advise Choice Hotels on resolving the company's costing issue with the Presidential Suite guest room. In addition, you will need to understand the concepts of activity-based costing (ABC), production cost allocation, and breakeven to put together an analysis that compares costing models that account for Choice's guest room sales.

Two cost allocation methods of production are being considered. Frank needs your help determining if overhead cost allocation (Choice's traditional model) or ABC (a new model) is best to use in this case. Using the same Project 3 Excel Workbook you used in Step 1, complete the Cost and Investing worksheet. The worksheet contains information that will aid in comparing the cost allocation methods for building guest rooms for Choice Hotels' franchise owners.

STEP 2: Frank recently informed you that a large equity firm may be interested in acquiring either Choice Hotels or Marriott International. The client, Choice Hotels, would like to know if they would be a more attractive target for an acquisition than their competitor, Marriott International.

Now you will need to determine if it would be more beneficial for the equity firm to acquire Choice Hotels or Marriott International. You will need to look at Choice Hotels' and Marriott International's latest 10-K reports and complete a budget and profitability analysis to see which acquisition, if any, should take place.

Since you are now a senior analyst, you know you have to learn more about capital budgeting analysis and profitability ratios to be able to develop a capital budget and profitability analysis.

You will also need to calculate the liquidity ratios and debt-management ratios to determine whether it is a viable option for the large equity firm to acquire Choice Hotels or Marriott International.

Using the same Project 3 Excel Workbook you used in Steps 1 and 2, complete the Budgeting and Profitability worksheets, where you will calculate the quick ratio, acid test ratio, debt ratio, basic earnings power ratio, return on equity, and return on assets ratios and answer questions to determine if the equity firm should acquire Choice Hotels or Marriott International.

Attachment:- Projects.zip