Good Report On Wyndham Worldwide Corporation
The whole purpose of this document can be expressed in one line: To create the financial analysis of Wyndham Worldwide Corporation and its importance in the decision-making level at the Company. Financial ratios have been taken as the majors sources of financial data for the Company. The ratios indicate that the Company has been growing at a healthy rate over the years and given the strategies adopted by the Company, the rise is bound to continue.
The aim of this report is mainly to understand the financials of a Company, operating in the service sector. The concerned and most important ratios differ as per industry and in the service industry there are specific ratios such as the return on assets or the return on equity that reflect the overall performance of the Companies. Other financial considerations are also taken into account as these considerations will shape a way of deciding the policies and procedures in the future. Wyndham Worldwide Corporation is thus analyzed from overall financial views and recommendations are given on the basis of the gap identified in the overall financial system of the Company.
Importance of Financial Data to Management
There are a number of significant matters that may be brought into the consideration of management because of the financial data available to a Company. The following many be the major points:
Knowledge about the Profit Margins
The management of any Company determines its profit margins with the use of the financial statements available to the institution. Profit margin is the income in proportion of sales. There is a problem with the Company as the profit margins fluctuate in terms of being too high or too low. The implication of this knowledge is in various folds. Low margins on the sale of products mean that the overhead for manufacturing or the obligations of debts are high. High margins on the sale of services mean non-competitive products in the market. The adjustment of price in relation to margins will be an important function of the manager.
Tracking of Money
A proper track of where the revenues of the Company are arising from and where the expenses are flowing is necessary in order to keep the business sailing in perfect conditions. The applications in these cases may be the periods when manager needs to investigate on matters in case the amount spent on inventory is high as compared to what is normal. These abnormal costs may have been the result of external forces of the economy or the agreements that are outdated. The tracking of these flows is impossible without the presentation of financial statements.
There are many areas in which the Company can improve. These areas may be well tapped only when abundant amount of information is available to the managers for decision-making. The instance of this may be that there may be product lines, which need devoted resources and there may be divided areas in the Company, where some products may excel, while others may not be able to excel the same way. Why the other product is not doing well and how it can be understood in Company manager’s perspectives may be given by the financial statements and analysis. Based on this analysis, the specialization or discontinuation of a product may be planned.
Planning for the Company Future
The future of a Company in terms of growth and fulfilling mission and vision is in the hands of effective decision-making. This decision-making is ample only when quality financial data is made available to the decision maker. The decision maker may look into the financial data and determine what levels and nature of capital and what amount of debt is suitable for the Company. For instance, in case a Company carries very little debt; there are higher chances of profitability for numerous quarters, and these funds may be thus used for expanding the line of production and authorization of additional stores.
Retrieving Background Information on Financial Situation
When there are situations where the financial background of the Company is to be assessed, financial data may act as a source of that assurance. Financial history, as well as the reasons for the Company doing well in the past and any fluctuations in performance over the period, may be assessed with the use of financial data.
Financial Data Comparison and Analysis
The availability of financial data not only allows comparison in terms of different periods, but also on account of different companies in the same industry. A competitive analysis will be the outcome of this analysis, and it will give a way for helping develop a system, which maintains the core competency of the Company in terms of products, processes or services.
Background Information of the Company:
Wyndham Worldwide Corporation stands as one of the greatest hospitality Companies worldwide and thus caters to the needs to a varied range of customers. The major customer bases of the Company include consumers, business to business customers, and maintain a portfolio that is premium, because of the service quality that it provides and also the renowned brands it associated itself with. The Company has a maintained portfolio accommodating almost 55 diversified brands, including Ramada, Days Inn, Wyndham Hotels and Resorts, Super 8, RCI, Landal GreenParks, Novasol, English Country Cottages, Novasol and Worldmark. Because of the diversification and differentiation, the Company has been able to mark its presence and create a brand name that is well recognized by all the industry competitors and customers worldwide (Wyndhamworldwide.com, 2015).
The financial analysis of the Company is to be done on the basis of the following financial ratios:
Return on Equity (ROE):
The return on Equity may be defined as the ratio, which gives the mathematical association between the equity invested by the shareholders in the business and the return derived from that equity investment (Morley).
ROE = Net Profit/Total Equity
The implications of this ratio may be summarized as:
The return on equity is an indication for prospective shareholders to decide which Company share to invest on (My Accounting Course).
The return on Equity truly reflects the ability of a Company to stand up to the expectations of its shareholders.
The value of a Company grows if the Return on Equity for a Company is higher.
Analysis: The Return on Equity ratio for the Wyndham group in 2014 is 42.1%. The same ratio in the year, 2013 was found to be 26.58% and in 2012, it was 20.7%. Thus, we may see a trend of increase in the returns to shareholders by the Company. There has a significant rise in the percentage of return and the major reason for this may be given to the expansion and diversification strategies that the Company has been adopting, on a much larger basis now.
The recommendation to the Company on the part of the Return on equity may be to maintain its portfolio further, in order to attract new investors in newer projects and increase the overall return.
Return on Assets (ROA):
The return on assets may be defined as the ratio, which gives the mathematical association between the assets invested in a business and the return derived from this asset investment (Horrigan). The return on assets is an important indicator in the organization that helps in taking a number of decisions by the management. ROA is calculated as
ROA = Net Profit/Total Assets
The implications of this ratio may be summarized as:
The return on assets ratio provides bases of decision making for the Company in order to maintain those assets that give the highest return.
The ratio gives an implication that its strength determines how the Company has been able to utilize the assets that it has at hand. For instance, a lower return on assets ratio means that the Company has not been able to utilize its assets optimally, so the Company may need to reconsider its asset policies (Investopedia).
Analysis: The return on assets ratio for the Wyndham group in 2014 is 20.12%. The same ratio in the year, 2013 was found to be 18.67% and in 2012, it was 15.73%. Thus, we see that the return on assets is also increasing. There may an indication that the Company is shifting from an aggressive policy of maintenance of assets to conservative policy. However, since the changes are small, we may not be sure as to whether the assets have fluctuated or are it the return that has been changing.
The recommendation with regards to return on assets to the Company would be to maintain those asset classes that give the maximum returns. Also, an assessment is required to understand how the Company can utilize the assets at hand optimally.
The profit margin of a Company is the revenue, which is above the sales. It is calculated on a percentage basis and may be of two types: Net profit margin and gross profit margin. The net profit margin stands at that margin from the sales, which keeps into account all other considerations such as administrative expenses, selling expenses. The gross profit margin is the one that takes into account just the cost of production of the goods and services (Investopedia).
Gross profit margin = Gross Profit/Net Sales
Net profit margin = Net Profit/Net Sales
The implications of net as well as gross profit margin to a Company may be summarized as:
The margin helps to understand what profits above contribution the Company is earning.
The margin is an assessment of how the Company may be able to reduce costs in order to increase the margins, generate as much revenue, and profit as possible.
Analysis: The net margin percentage for the Company in the year 2014 was 10.02. The figures dropped to 8.62 in 2013 from 8.82 in 2012. Thus, we could say that the Company has picked up well on the profits given by the Company in comparison to the sales made. The growing margin means that the Company has eventually been able to reduce its cost of production and other administrative costs and derived value out of the opportunities of economies of scale.
Assets turnover ratio may be taken as the mathematical expression of what contribution in sales is made by the asset management of the Company (Accountingexplained.com). Assets turnover is calculated as
Assets Turnover = Net Sales/Total Assets
The assets turnover ratio may have the following implications:
A low asset turnover ratio as compared to the industry indicates that the sales of the Company are at a slow pace and that the Company has not been able to utilize its assets well for the generation of sales.
The various categories of assets can be well analyzed individually to calculate turnover and decide where the problem lies and fix it.
Analysis: The assets turnover for the Company in 2012 has been as low as 1.79 times, which increased by a small amount to 2.16 times in 2013 and then there was again a decrease in the ratio to 2.01. This denotes that the Company has increased the rotation of inventory in the1. Company. This is a favorable indication for the Company as inventory turnover is high when the sales are high, denoting that the Company and its businesses are in profit.
Debt to Equity ratio:
The ratio of the amount of debt in a Company to the amount of shareholder’s equity that a Company holds is given by the Debt to Equity Ratio. The debt to equity ratio is a great way to assessing the liability portion of a Company and deciding whether to issue further debts or not (Hansen and Palmer).
Debt to equity Ratio = Total Debt/Total Equity
The implications of this ratio may be summarized as:
A low debt to equity ratio in comparison to the overall industry indicates that the business is relatively more stable and will be able to derive more benefits.
The ratio is more crucial for creditors as compared to investors because the amount of funding of operations is higher by the creditors, as compared to investors.
Analysis: The Debt to Equity ratio for the Company has been on an increasing trend from 2013 to 2014. The ratio stood at 2.26 in 2014 and 1.77 in 2013. This implies that the Company has shifted to being more leverage based and that the Company has issued higher debts. The recommendation in this situation would be correct to identify the most suitable debt equity mix and apply it in a way to maximize overall profits. There are risks associated with the high debt-equity ratio, and a Company needs correctly to tap that potential where risks and returns are as per the favorability of the business.
The American Depositary Receipts for the Wyndham Corporation may not be applicable to all Companies because of the rounding effects. The Company does have an account of ADR that it holds in different periods of time.
The REVPAR calculations for the Company are still not applicable because of the rounding effects.
The conclusion of all this discussion is that Wyndham Worldwide Corporation has shown a good financial health position and has been growing in terms of expansion and revenue over the years. It is necessary for the Company to not let go any potential opportunity where it can capitalize on its financial strengths and create a much stronger financial system. Wyndham Corporation should now focus on creating an environment where the Company may be able better to utilize the assets that are at hand, which seems to be quite missing. If the Company is able to realize certain gaps pertaining to the inventory, asset management, and finance management systems, we may be correctly able to see Wyndham for even higher positions in the financial markets.
Accountingexplained.com,. 'Asset Turnover Ratios | Formula | Example | Analysis'. N.p., 2015. Web. 2 Mar. 2015.
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Horrigan, James O. Financial Ratio Analysis. New York: Arno Press, 1978. Print.
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