Marriott Case Study

Are the four components of Marriott's financial strategy consistent with its growth objective?

With a growth in sales of 24% (note that growth and earnings per share had double over the previous four years) and an ROE of 22% in 1987, it can be concluded that yes, Marriott’s financial strategy has been consistent with its growth objective using the four components, which are:

Manage rather than own hotel assets – Marriott achieved this goal by successfully developing over $1 billions worth of hotel properties and then selling those hotel assets to limited partners whilst still retaining control as the general partner under a long-term management contract. Aside from the profit they would have obtained from the sale of the hotel assets, this strategy agreement that provided the company with revenues of 23% (3% as management fees and 20% as profits) ensured that the company would have a stable stream of substantial income (from the management of $7 billion worth of syndicated hotels) for an extended period of time but for a relatively small amount of financial risk and commitment, which in turn, would allow the company to increase its focus and efficiency on more pressing matters.

Invest in projects that increase shareholder value – By using discounted cash flow techniques that consider the time value of money, a hurdle rate that took into account the market interest rates, project risk, estimates of risk premiums and other measures such as corporate templates and rigorous auditing of a project throughout its life; Marriott could ensure it only accepted and invested in profitable projects with positive NPVs that would increase shareholder value.

Optimize the use of debt in the capital structure – The company ensured that is only took on debt that it was capable of servicing regardless of how much debt was available to it. By doing so, the company ensured that capital for shareholders was not exposed to too much risk and that at no time did the company have...