Marriot Cas Study

2396 Words10 Pages
Marriot Case Study Financial Policy, Professor Thorsten Truijens Jana Jauffret, Moari Avancini, Julian Gole, William Dottax, Toba Horombo EMBA; Geneva University 12 Q1. MC is experiencing a difficult period due to the real estate market crash in the late 80’s, which lead to a sharp drop of income in 1990 ($47 million). In its attempt to readjust to the economic downturn which followed the real estate crash, MC restructured and sold off unprofitable businesses. The cost of restructuring was high, leading to a depletion of cash and followed by important loan payments. The policy of reducing debt made MC leave the company with just $36 million cash which was well under the number of 1990 ($283 million cash ). MC’s stock prices fell more than two-thirds from $33.38 in 1989 to $10.50 in 1990, resulting in a drop of $2 billion in market capitalization; even if in 1991 it went up to $16.50. Another consequence was an important decrease of Times interest earned from 2.6 in 1989 to 1.4 in 1990 and 1.5 in 1991 which triggered a depreciation of bond rating from A3 in 1989 to Baa3 in 1991 quite close to junk bonds. For the future this is a strong signal of the MC financial crisis situation. Most liquidity and solvency indicators show that the group would have not been unable to cover its current obligations/liabilities and was close to bankruptcy. Although, the company’s ROE was at 11% and in 1990 and 12% in 1991. Please find the ratio calculation on which we have based our analysis in Schedule 1. Q2. By introducing Project Chariot the company will improve the chances for MII to be profitable and for HCM to recover its value in the long run. Firstly, in 1991 MC (Marriott Corporation) had the investment rating is Baa (TIE = 1.63), close to junk, reducing the chance to be granted loans with an attractive interest rate. After the split, MII would have AA (TIE = 10.36)

More about Marriot Cas Study

Open Document