October 17, 2011
University of Phoenix
John R. Triplett
Team B: Assignment from the Readings
Ch. 11: Interpreting Financial Statements BYP11-4
BYP11-4 Marriott Corporation split into two companies: Host Marriott Corporation and Marriott International. Host Marriott retained ownership of the corporation’s vast hotel and other properties, while Marriott International, rather than owning hotels, managed them. The purpose of this split was to free Marriott International from the “baggage” associated with Host Marriott, thus allowing it to be more aggressive in its pursuit of growth. The following information (in millions) is provided for each corporation for their first full year operating as independent companies.
Host Marriott Marriott International
Sales $1,501 $8,415
Net income (25) 200
Total assets 3,822 3,207
Total liabilities 3,112 2,440
Stockholders’ equity 710 767
(a) The two companies were split by the issuance of shares of Marriott International to all shareholders of the previous combined company. Discuss the nature of this transaction. The transaction suggest that the plan was to split one company into two companies while ensuring that all shareholders of the one company received equal share of stocks between the new two companies.
(b) Calculate the debt to total assets ratio for each company. Debt to total assets ratio:
Host Marriott – ($3,112 /$3,822) = 1.23%
Marriott International – ($2,440 / $3,207) = 1.31%
(c) Calculate the return on assets and return on common stockholders’ equity ratios for each company.
Return on Assets: Host Marriott – (25)/3822= .0065
Marriott Intl – 200/3207= .0624
(d) The company’s debt holders were fiercely opposed to the original plan to split the two companies because the original plan had Host Marriott absorbing the majority of the company’s debt....