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RR 150712204747 Lva1 App6892 PDF
RR 150712204747 Lva1 App6892 PDF
RR 150712204747 Lva1 App6892 PDF
Submission Date :
Contents
Part One: Introduction and Overall Framework of the Research ........................................................ 5
1. Introduction...................................................................................................................................... 5
1.1. Aim of the research .................................................................................................................... 5
1.2. Research Objectives .................................................................................................................. 5
1.3. Research Questions .................................................................................................................. 5
1.4. Reasons for selecting the Research Topic and Organization ............................................. 6
1.5. Research Framework ................................................................................................................ 6
Part Two: Data Sources and Business and Accounting Techniques ................................................. 6
2.1. Source and Methods of Information Gathering...................................................................... 7
2.1.1. Financial Analyst‟s Reports .................................................................................................. 7
2.1.2. Online Libraries/Web Search................................................................................................ 7
2.1.3. Books ....................................................................................................................................... 8
2.2. Limitations of Information gathering ........................................................................................ 8
2.2.1. Web Search............................................................................................................................. 8
2.2.2. Annual Reports ....................................................................................................................... 8
2.3. Ethical issues .............................................................................................................................. 8
2.4. Accounting and Business Techniques .................................................................................... 9
2.4.1. Ratio analysis .......................................................................................................................... 9
a) Profitability ratios: ....................................................................................................................... 9
b) Liquidity ratios: ............................................................................................................................ 9
c) Leverage Ratios: ........................................................................................................................ 9
d) Investor‟s ratio: ......................................................................................................................... 10
2.4.2. Limitations of ratio Analysis ................................................................................................ 10
2.4.3. SWOT analysis ..................................................................................................................... 10
a) Strengths: .................................................................................................................................. 10
b) Weaknesses:............................................................................................................................. 10
c) Opportunities:............................................................................................................................ 10
d) Threats: ...................................................................................................................................... 11
2.4.4. Limitations of SWOT ............................................................................................................ 11
2.4.5. PESTEL analysis .................................................................................................................. 11
a) Political factors:......................................................................................................................... 11
b) Economic factors: ..................................................................................................................... 11
c) Social factors: ........................................................................................................................... 11
d) Technological factors: .............................................................................................................. 11
e) Legal factors:............................................................................................................................. 11
f) Environmental factors: ............................................................................................................. 11
2.4.6. Limitations of the PESTEL analysis .................................................................................. 11
Part-3 Analysis of Financial Performance and Business Environment ............................................ 13
Analysis of Business Environment ........................................................................................................ 13
3.1. SWOT Analysis......................................................................................................................... 13
3.1.1. Strengths: .............................................................................................................................. 13
3.1.2. Weaknesses:......................................................................................................................... 13
3.1.3. Opportunities: ........................................................................................................................ 14
3.1.4. Threats: .................................................................................................................................. 14
3.2. PESTEL Analysis ..................................................................................................................... 14
3.2.1. Political factors .................................................................................................................. 14
3.2.2. Economic factors .............................................................................................................. 15
3.2.3. Social factors..................................................................................................................... 15
3.2.4. Technological factors ....................................................................................................... 15
3.2.5. Environmental factors ...................................................................................................... 16
3.2.6. Legal factors ...................................................................................................................... 16
Analysis of Financial Performance ........................................................................................................ 16
3.3. Description of Business ........................................................................................................... 16
3.4. Revenue Analysis..................................................................................................................... 17
3.5. Short Term Solvency Ratios ................................................................................................... 18
3.5.1. Current Ratio ..................................................................................................................... 18
3.5.2. Quick Ratio ........................................................................................................................ 19
3.6. Profitability Ratios..................................................................................................................... 20
3.6.1. Gross Profit Margin .......................................................................................................... 20
3.6.2. Net Profit Margin............................................................................................................... 21
3.6.3. Return on Equity (ROE) .................................................................................................. 23
3.7. Investor‟ Ratios: ........................................................................................................................ 24
3.7.1. P/E: ..................................................................................................................................... 24
3.7.2. EPS: ................................................................................................................................... 25
3.8. Long Term Solvency Ratios.................................................................................................... 26
3.8.1. Debt to Equity Ratio ......................................................................................................... 26
3.8.2. Interest coverage ratio ..................................................................................................... 27
3.9. Conclusions and Recommendations......................................................................................... 28
Part One: Introduction and Overall Framework of the Research
1. Introduction
Evaluation of organizations is being carried out by all those who have their stakes in the
organization. Performance of any organization is being evaluated on the basis of not just its
financial performance but how the business is operating in its overall business environment as
well. Causes of its financial performance can be traced back to its business environment as no
organization can survive the competition remaining aloof to its business environment. Therefore
top management of the organization always makes strategic decisions in line with the business
environment. Those different stakeholders include internal and external stakeholders. The
internal stakeholders are usually the employees, the suppliers as well as the management at all
tiers. External stakeholders include the investors and the credit rating agencies etc (Autio,
Sapienza and Almeida, 2000).
a) Internet, being the most commonly used and major source of secondary information,
leads to the problem of „big data‟ which means that there is such a vast amount of data
available and accessible to everyone that it has become extremely difficult for any user
to differentiate and segregate the relevant and useful data from the irrelevant data
(Mindtools, 2007).
b) Validity and authenticity of the information need to be ascertained before utilizing
information on Internet (Johanson, 2005).
c) Time consumption is a constraint as heaps of information needs to be assessed in order
to look for the right sort of information.
a) Profitability ratios: These ratios help access the profitability potentials of the
organization and help the researcher analyze if the profit potentials are sustainable
(Damodaran, 2006). Profitability ratios calculated for Accor and Marriot in this report
comprise of gross and net profit margins as well as Return on equity (ROE).
b) Liquidity ratios: Liquidity ratios analyze the organization‟s potential to meet its short
term liability obligations with current assets (Dutta and Reichelstein, 2010). Liquidity
ratios calculated in this report comprise of current and quick ratios.
c) Leverage Ratios: Leverage ratios, as the term indicates, point to the capital structure of
the organization and accesses the share of debt and equity in its capital structure as well
as its potentials to meet the debt liabilities and its associated interest expenses (L a o n t
and Tirole, 2000). Leverage ratios calculated for Accor and Marriot comprise of Debt-
equity ratio and interest coverage.
d) Investor’s ratio: These ratios point to potential returns on investments and thus help
attract potential investors (Lundholm and Sloan, 2007). Investors‟ ratios calculated for
Accor and Marriot in this research report comprise of Earnings per Share (EPS) and
Price-Earnings (P/E) ratio.
a) Financial ratios do not help establish any link between the past and future predicted
data whereas most of the stakeholders are interested to make an informed decision
based on predictions about its future performance.
b) Ratio analysis is basically a quantitative analysis tool and thus fails to link to qualitative
aspects of analysis which are normally existent in the micro and macro factors
prevailing in the business environment.
c) Any false information contained in the data on which these ratios are based can render
the complete analysis faulty and misleading (McNichols, Rajan and Reichelstein,
2014).
a) Strengths: The internal aspects of an organization that offers it the ability to exploit any
opportunities offered in the external business environment i.e. brand name, perception
or technological edge.
b) Weaknesses: Internal aspects that put the business in a weaker position than its
competitors i.e. higher direct or indirect cost of sale, management inefficiency etc (Salmi,
2000).
c) Opportunities: External factors can be exploited by the business in its favor i.e. tax
rebates, favorable currency fluctuations etc.
d) Threats: External factors that pose potential threat to the strategic objectives of the
company i.e. inflation, competition etc.
a) The analyst needs to be in complete picture of all the elements of SWOT tool in order to
make the analysis meaningful.
b) SWOT is a time consuming process and requires continuous scanning of the internal
and external business environment.
c) SWOT helps diagnose existence of problems in the internal or external business
environment but does not point the researcher to a possible solution.
a) Political factors: These are the factors arising due to political decisions, political
stability/instability etc.
b) Economic factors: Factors affecting consumers‟ spending behavior and thus positively
or negatively affecting the business operations i.e. inflation or currency fluctuations etc.
c) Social factors: Factors including the demographic features of the target market i.e.
culture and lifestyle etc.
d) Technological factors: Technological inventions, innovations and breakthroughs fall in
the realm of technological factors.
e) Legal factors: Policies and law of the land favorably or unfavorably affecting the
business operations i.e. trade and employment laws etc.
f) Environmental factors: Policies and laws governing the environmental
degradation/safety etc.
A few limitations associated with the use of PESTEL analysis are as follows (Tsui, 2004):
a) PESTEL demands an undivided attention and time of the researchers as the external
business environment needs to be regularly monitored.
b) External business environment is dynamic and fast changing and thus can render the
complete analysis void even if there is a slight change in the dynamics of the macro
environment (VanLaar and Neubourg, 2005).
c) Findings of PESTEL analysis carried out by two different researchers/analysts may not
be in harmony or agreement with each other as perception vary from person to person.
Part-3 Analysis of Financial Performance and Business Environment
3.1.2. Weaknesses:
a) Online payment solutions: Accor does not offer the convenience of online payment
solutions to its customers which if incorporated can add great value to them (CNN,
2014). Though its „digital transformation‟ program does plan to offer online payment
solutions to its customers in a phased process, yet it is still in its embryonic stages and
the complete program is to be implemented over the next five years (Accor, 2013).
b) Brand recognition: As Accor offers a wide range of hotel brands from budget to luxury
suiting the needs of all economic segments thus customers are reluctant to relate to it
as a brand (Euromonitor, 2013). One of its biggest strengths is thus also perceived as
one of its weaknesses as well.
3.1.3. Opportunities:
a) Further Diversification: Accor has well established brand name trusted by millions of
its customers all over. Accor thus continues to inspire a large number of students
studying the subjects of hospitality and hotel management. Accor can exploit the
opportunity by going for this unrelated diversification feature and introducing its academy
for hotel management (BNET, 2007). Accor can even expand in the related
diversification field of restaurants under its own brand name. This will help further
reducing its business risks by virtue of maintaining a portfolio consisting of related as
well as unrelated diversification businesses.
b) Market expansion: There are vast potential markets that are still untapped by Accor i.e.
Southeast Asia. Accor can further expand its business by going for those untapped
markets which will help Accor generate greater revenues besides increasing its market
share as well as customers base.
3.1.4. Threats:
a) Competition: Fierce competition exists among many hotel giants to grab as much
market share as possible. Accor needs to proactively pursue its policy of increasing its
customers‟ base besides ensuring retention of existing customers in order to fully
capitalize on its growth potentials and beat the competition it faces from its competitors
like Hilton group and Marriot Inc (Research and Markets, 2013).
a) The principal rate of VAT applied in France has been 19.6% since 2000 which has now
been increased to 20%. However, the intermediate VAT rate affecting Accor has been
7% for the last 5 years which was increased by 3% and made effective @ 10% from 1 st
January 2013. This has adversely affected sales as well as profit margins for Accor in
2013 (Tradingeconomies, 2014).
b) Political governments in Southern Europe implemented austerity measures to combat
the economic downturn and thus adversely affected Accor as well.
a) The economic recession in southern Europe left many European countries struggling with
their economy. Businesses all across southern Europe were affected and Accor was one
among many whose business operations suffered due to this economic downturn. The
effects were visible on the income statements of Accor and its profit margins were
adversely affected in 2012 as the economic recession greatly reduced consumers‟
spending and their tourism activities (Spiegel, 2014).
b) One of the many fallouts of economic recession in Southern Europe were increase in the
tax expenses for businesses and wage cuts besides substantially reducing state
spending (Datamonitor, 2013). Accor was also affected by these measures yet Accor‟s
economy and midscale hotel brands proved instrumental in helping Accor to survive this
economic onslaught (Accor, 2013).
d) Rising oil prices all over the world increases inflation rate besides reducing consumers‟
spending and thus negatively affecting Accor‟s business operations (BBC, 2013).
Latin America has witnessed record high increase in the numbers of middle class citizens over
the last few years owing to economic growth and increase in employment rate (CNN, 2013).
The number of middle class families in Latin America has risen to being one-third of the total
population thus equaling the share of middle class to upper class (Worldbank, 2013). This offers
a great opportunity for Accor to further benefit its operations with its wide range of hotel brands.
3.2.5. Environmental factors: Accor is renowned for its environment friendly initiatives. Accor
has recently launched its „Green key eco rating‟ program of Motel-6 and Studio-6 following the
stringent environmental friendly measures (Accor, 2013).
a) As Accor‟s business is spread across almost around the entire globe, therefore Accor
needs to be very careful as far as local laws/regulations are concerned as any conflict
with the local laws can seriously hamper the business operations. Accor had to payback
€184.7 million to the French state in compliance to the ruling passed by the French
Supreme Court of Appeal.
b) Saudi Arabian labor regulations restrict all private companies to hire maximum number
of Saudi employees increasing this number by 5% annually in order to meet the long
term Saudi employment objective of 75% Saudis in every local and foreign company
(Reuters, 2013). For Accor, it means additional employees‟ training and expenses. Saudi
government has also decided to impose a monetary fine of 2,400 Riyals per excess
foreigner employee starting from 01 December 2012 (Reuters, 2013).
Accor‟s total revenue has been €5,568 million in 2011 with a 2.7% increase to being €5,649
million in 2012 whereas the revenues fell by 2% in 2013 to €5,536 million (Accor, 2012 and
2013). Accor underwent a huge expansion program in 2012 wherein it added 38,000 new rooms
which helped generate €154 million to its revenue in 2012 (Market and Research, 2013).
Moreover, positive currency effects as a result of gains in the British sterling and Australian
dollar against the euro in 2012, sustained demand over the year, increased room rates,
renovation programs, opening of upscale hotels especially in Middle East, addition of innovative
hotel reservation system TARS i.e. Travel Accor Reservation System and a complete shift of its
strategy positively contributed in generating revenues for Accor in 2012 (Datamonitor, 2013). On
the other hand, Accor‟s revenue were adversely impacted by the effects of its asset disposal
strategy and negative effects of exchange rates in 2013 whereas revenue from other
businesses saw a decline of 16% due to the disposal of Orbis Transport in Poland (Research
and Markets, 2013).
Marriot earns its revenues from management, franchise and incentive management fees
(Marriot, 2013). Revenues for Marriot were $12,317 million in 2011 falling by 4% to $11,814
million in 2012 and then rising by 8% to $12,784 million in 2013 (Datamonitor, 2013). Spin-off of
timeshare operations and development business and the sale of the ExecuStay® corporate
housing business caused the decline in revenues for 2012 (Marketline, 2013). On the other
hand, innovative approach of doing business operations, higher cost reimbursements, franchise,
management and incentive based fees resulted an increase in revenues for Marriot in 2013
(BBC, 2013).
Revenue
12784
Generation
14000 12317
11814
12000
10000
8000 Marriot
5568 5649 5536
6000 Accor
4000
2000
0
2011 2012 2013
1
0.71
0.8 Marriot
0.52 0.53 Accor
0.6
0.4
0.2
0
2011 2012 2013
(Amount in Million)
Prepaid
Expenses/Others 411 473 497 347 359 697
Current Liabilities 2,293 2,736 2,333 2,558 2,773 2,675
0.8
Marriot
0.6 0.45
0.41 Accor
0.38
0.4
0.2
0
2011 2012 2013
(Amount in Million)
30
28.2 Gross Profit Margin
25
20.4 19.5
20
15.4 15 15.6
Marriot
15
Accor
10
0
2011 2012 2013
(Amount in Million)
6
4.83 4.9 Net Profit Margin
4 2.51
1.61
0.9
2
0
2011 2012 2013 Marriot
-2
Accor
-4
-6
-8
-10
-10.33
-12
3.6.3. Return on Equity (ROE):
(Amount in Million)
60 49.25 ROE
40
20 7.35
1.4 Marriot
0 Accor
2011 2012 2013
-20 -18.5
-40
-46.3
-60 -55
3.7. Investor‟ Ratios:
3.7.1. P/E:
(Amount in Million)
20
0
2011 2012 2013
-10.43
-20
3.7.2. EPS:
(Amount in Million)
(Amount in Million)
5
4.78 Debt-Equity Ratio
422
4.5 3.97
4
3.5
3 Marriot
2.5
Accor
2
1.5
0.56 0.68
1 0.42
0.5
0
2011 2012 2013
4 3.2 Accor
3
2
1
0
2011 2012 2013
Accor decided to revamp its business strategy by changing its business model from being
„owner‟ of maximum hotel brands in its portfolio to being „franchiser‟. Its recently introduced
asset disposal strategy is in line with this business strategy. Though this strategy initially has
resulted in decline of its revenue in 2013 due to loss on its hotels‟ sale yet investors have
positive sentiments on the success of this strategy. Accor has also been rigorously pursuing its
„cost-saving‟ policy which has already resulted in increasing the operating income for Accor over
the years. Together with its asset disposal strategy and rising operating income, Accor is likely
to succeed in enhancing its returns and shareholders‟ value. Following is therefore
recommended for improving Accor‟s performance:
a) Further Expansion: Accor can further diversify its geographical reach by expanding into
untapped markets of South Asia which comprise a few emerging economies like India.
This will not just increase its market share but will also fetch additional revenues for
Accor.
b) Online Payment Solutions: Accor though rapidly adapts its business operations to the
changing technological developments/advancements. Though planned in its „digital
transformation‟ program, it has not yet incorporated online payment solutions in its online
booking system and thus needs to be incorporated at priority to avoid losing market
share to its competitors.
c) Increase in Debt: Accor‟s debt has been increasing over the three years in review i.e.
by 4.4% and 10.7% in 2012 and 2013 respectively (Accor, 2013). Its asset disposal
strategy has not being implemented in true letter and spirit as proceeds from its
sale/assets‟ disposal has instead been utilized to reduce the debt burden. Therefore,
Accor needs to rigorously pursue its „asset light‟ strategy in true spirits so as to ensure
that the gains are transferred to its shareholders.