Speech FINS3625

Good afternoon to everyone, today myself, Ricky, Allan, Julia, Jinyue and Max will be
discussing about Marriot Corporation.
So What is Marriot?
Well Marriott Corporation possesses an attractive and well known position in the hotel
industry, providing services broadly categorized into three divisions; lodging, contract
services and restaurants. It was initially established by J. Willard Marriott in 1927 where it all
began as a root beer stand set up by him and his wife. Marriot is a company that had a vision
to become the premiere provider and facilitator of leisure and vacation experiences across the
world. After 60 years Marriot grew to be one of the leading lodging and food services
companies in the United States. Marriot aims to remain a premier growth company and in
order to achieve this, their growth objectives are to become the preferred employer, preferred
provider in lodging, contract services, and restaurants, and to be the most profitable company
in their industry. Marriot plans to fulfil these objectives through different components of their
financial strategy which is to manage rather than own their hotel assets, invest in projects that
increase shareholder value, optimise the use of debt in the capital structure, and to repurchase
undervalued shares when necessary.
I will now discuss whether each component of Marriots financial strategy aligns with its
growth objectives.
Firstly by deciding to manage rather than own hotel assets Marriott can attain significantly
greater control and authority over their employees, customer satisfaction, and where their
funds are being distributed for continued operation of the hotel. Ultimately this improves
profitability, decreases unnecessary expenses which can then be channelled towards other
causes such as increasing employee salaries to motivate employees, and improve the quality
of services they provide to the customers. This satisfies the growth objective of preferred
employer and being the most profitable company.
Also by choosing to manage as opposed to outright owning Marriot, they effectively lower
the amount of assets they have in their books, and thus increasing their Return on Assets
(ROA). This works because as you all know ROA =

Period Net Income

Average Total Assets

Another component was to invest in projects that increase shareholder value which is
consistent with the growth objective for obvious reasons. I am sure most of you or I hope all
of you know that the aim of every company is to maximise shareholder value, and this can be
achieved by investing in projects. Can someone tell me what we use to evaluate whether a
project is appropriate to invest in?

Thats right. Net present value is a widely accepted tool for verification of financial
rationality of planned investment projects. In simpler terms positive NPV projects increase
company value and negative NPV decreases company value. Ideally, Marriot can evaluate
their potential projects and use discounted cash flow techniques to determine and invest in
projects that have the highest Net Present Value, ultimately increasing shareholder value.
Furthermore, Marriot believes that by optimising the use of debt in the capital structure it will
improve the company growth. And This is true because in April 1988 Marriots unsecured
debt was declared as A-rated thus the company has the capability to borrow funds when
required, and if the use of debt is not optimised effectively it could potentially induce the
company towards becoming heavily in debt or even bankruptcy. Also like any other company
when company debt is reduced it improves the debt to equity ratio which is appealing to
shareholders. A high debt to equity ratio signifies that a company has been aggressively
taking on debts as a means of leveraging and is not always advisable.
The final component was the repurchasing of shares which is the one that we believe is not
consistent with Marriots goal towards growth and expansion. Marriot regularly calculated a
warranted equity value for its common shares and was committed to repurchasing stock
whenever its market price fell substantially below that value. Generally, repurchasing shares
is thought of as a scheme to elevate earnings and is a sign that the company is depleted of
ideas. This strategy should only be considered when there are no future projects in the
foreseeable future that can instil company growth.
I will now pass it over to Ricky