Marriott Case

In: Business and Management

Submitted By mohankichlu
Words 592
Pages 3
DATE: 08/01/2011
BRIEF SUMMARY AND BACKGROUND INFORMATION
Marriott initiated a financial reform process during the mid 1970s which was very successful in bringing the company back on a solid foot by 1980. The four year plan included steps to introduce fiscal discipline and maintain certain limits on debt to capital ratio, rating and fund raising activities. Also growth in hotel management fees and cash inflows from selling stakes in low return operations generated an excess amount of cash for the firm. The firm strongly believed in investing its cashflows as it believed in the operating model and the fact that investors would gain higher returns than if dividends were paid out. This higher cash inflow led to reduced need to raise debt. Also this excess cash could be used to pay down outstanding debt (expected to be $125 million by 1883). On the other hand the firm’s equity value was rising and this led to a declining leverage ratio.

The management of the company believed that its expertise was in hotel development and management and not in long term hotel ownership. The strategies they designed were based on these factors and they started producing excellent results. In 1980 the growth prospects looked great, especially when compared to its competitors. While its peer companies had stopped growing in businesses they owned and grew very selectively in those they managed without owning, the independent companies weren’t even able to obtain financing for their planned expansion. Marriott wanted to make use of their advantage in position to accelerate their hotel room growth to 20%-25%. Their management contracts earned them a minimum constant percentage of hotel profits and the new contracts also provided then with an increased share once certain target levels were reached. The management of Marriott was also optimistic in terms of their financial…...

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