ALTERNATE MULTI-CONCEPT PROBLEMS Problem 2-10A Making Business Decisions: Loanin

Question

ALTERNATE MULTI-CONCEPT PROBLEMS Problem 2-10A Making Business Decisions: Loaning Money to Starwood Hotels& Resorts Worldwide, Inc. As chief lending officer for a bank, you need to decide whether to make a loan to Starwood Hotels & Resorts Worldwide, Inc. The current items, listed in alphabetical order, are taken from the consolidated balance sheets of Starwood Hotels &Resorts; Worldwide, Inc., and its competitor Hyatt Hotels Corporation and Subsidiaries at the end of 201l and 2010 (included in the companies' Form 10-Ks for the years ended December 31, 2011; all amounts are in millions of dollars) RATIO ANALYSIS BUSINESS DECISION MAKING Starwood Hotels & Resorts Worldwide, Inc. 12/31/11 12/31/10 Accounts payable Accounts receivable, net of allowance for doubtful accounts S 144 $ 138 of $46 and $45, respectively Accrued expenses Accrued salaries, wages and benefits Accrued taxes and other Cash and cash equivalents 569 1,177 375 163 454 513 1,104 410 377 753 Continued)

Explanation / Answer

A)

Comparison:The current ratio for Starwood is less than the Hyatt

Interpretation:The Hyatt has current assets 1.68 times the current liabilities as compare to 1.28 for Starwood therefore the Hyatt is more able to meet the short term liabilities with current assets as compared to Starwood.

B)

Analyzing the ratios and performance of these two hotel groups,the high margins and high profitability ratios suggests to make a loan to Starwood. The Earnings power for Starwood is also high and the efficiency measures of turnovers area also quite good enough. Times interest earned is also high.

Gather ('$ millions) Starwood Hyatt A/c Receivble 569 225 Cash&cashEqs 454 534 Inventories 812 87 Prepaid expenses 125 78 ST investments 588 Prepaid income taxes 29 Current Assets 2548 953 Accounts Payable 144 144 Accrued expenses 1177 306 Accrued salaries&exp 375 114 Accrued taxes 163 current maturity of sec. Debt 130 ST and curent portion of LTDebt 3 4 Current Liabilities 1992 568

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