Project 2 Choice Hotels
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MBA620ProfFeedbackProject2balance_sheet_ratio_worksheet5-11--19.xlsxBalance Sheet Ratio
| Choice Hotels | |||||||||||||||||||
| Ratios | September 30, 2018 9 Month End | Dec. 31, 2017 | Formulas | * Prof feedback: Working Capital is wrong for both years and Total Asset Turnover are all wrong. Since you did not show your work, I can't determine what is wrong. | |||||||||||||||
| Current ratio | 0.94 | 1.41 | current ratio = current assets / current liabilities | Consolidated Balance Sheets - USD ($ in Thousands) | Sep. 30, 2018 | Dec. 31, 2017 | |||||||||||||
| Working capital | $ (663,823.00) | $ (641,918.00) | working capital = current assets – current liabilities | $ in Thousands | |||||||||||||||
| Total Asset Turnover ratio | 0.25 | 0.27 | total asset turnover ratio = net sales / total assets | Note: Net sales can be described as operating income from the income statement. | Current assets | ||||||||||||||
| Cash and cash equivalents | $ 30,916 | $ 235,336 | |||||||||||||||||
| Receivables (net of allowance for doubtful accounts of $15,509 and $12,221, respectively) | $ 185,586 | $ 125,870 | |||||||||||||||||
| Income taxes receivable | $ 308 | $ - 0 | |||||||||||||||||
| Notes receivable, net of allowance | $ 32,642 | $ 13,256 | |||||||||||||||||
| Other current assets | $ 31,163 | $ 25,967 | |||||||||||||||||
| Total current assets | $ 280,615 | $ 400,429 | |||||||||||||||||
| Property and equipment, at cost, net | $ 117,610 | $ 83,374 | |||||||||||||||||
| Goodwill | $ 173,641 | $ 80,757 | |||||||||||||||||
| Intangible assets, net | $ 263,923 | $ 100,492 | |||||||||||||||||
| Notes receivable, net of allowances | $ 83,034 | $ 80,136 | |||||||||||||||||
| Investments, employee benefit plans, at fair value | $ 21,542 | $ 20,838 | |||||||||||||||||
| Investments in unconsolidated entities | $ 107,905 | $ 134,226 | |||||||||||||||||
| Deferred income taxes | $ 32,730 | $ 27,224 | |||||||||||||||||
| Other assets | $ 80,037 | $ 67,715 | |||||||||||||||||
| Total assets | $ 1,161,037 | $ 995,191 | |||||||||||||||||
| Current liabilities | |||||||||||||||||||
| Deferred Revenue | Accounts payable | $ 71,684 | $ 67,839 | ||||||||||||||||
| Deferred revenue consists of the following: | Accrued expenses and other current liabilities | $ 78,591 | $ 84,315 | ||||||||||||||||
| December 31, | Deferred revenue | $ 65,810 | $ 52,142 | ||||||||||||||||
| 2017 | 2016 | Current portion of long-term debt | $ 1,099 | $ 1,232 | |||||||||||||||
| (in thousands) | Liability for guest loyalty program | $ 82,346 | $ 79,123 | ||||||||||||||||
| Loyalty programs | $ | 127,921 | $ | 115,851 | Total current liabilities | $ 299,530 | $ 284,651 | ||||||||||||
| Long-term debt | $ 781,433 | $ 725,292 | |||||||||||||||||
| Initial, relicensing and franchise fees | 8,905 | 9,352 | Long-term deferred revenue | $ 107,370 | $ 98,459 | ||||||||||||||
| Deferred compensation and retirement plan obligations | $ 26,137 | $ 25,566 | |||||||||||||||||
| Procurement services fees | 3,939 | 7,668 | Income taxes payable | $ 26,276 | $ 29,041 | ||||||||||||||
| Deferred income taxes | $ - 0 | $ 39 | |||||||||||||||||
| Other | 346 | 347 | Liability for guest loyalty program | $ 50,085 | $ 48,701 | ||||||||||||||
| Other liabilities | $ 38,285 | $ 42,043 | |||||||||||||||||
| Total | $ | 141,111 | $ | 133,218 | Total liabilities | $ 1,329,116 | $ 1,253,792 | ||||||||||||
| Commitments and Contingencies | |||||||||||||||||||
| SHAREHOLDERS' DEFICIT | |||||||||||||||||||
| Common stock, $0.01 par value; 160,000,000 shares authorized; 95,065,638 shares issued at September 30, 2018 and December 31, 2017; 56,223,839 and 56,679,968 shares outstanding at September 30, 2018 and December 31, 2017, respectively | $ 951 | $ 951 | |||||||||||||||||
| Additional paid-in-capital | $ 209,053 | $ 182,448 | |||||||||||||||||
| Accumulated other comprehensive loss | $ (5,317) | $ (4,699) | |||||||||||||||||
| Treasury stock, at cost; 38,841,799 and 38,385,670 shares at September 30, 2018 and December 31, 2017, respectively | $ (1,148,441) | $ (1,064,573) | |||||||||||||||||
| Retained earnings | $ 775,675 | $ 627,272 | |||||||||||||||||
| Total shareholders’ deficit | $ (168,079) | $ (258,601) |
Questions from Choice Hotels: Note: Use the ratios in your answers, and explain what the ratios mean. 1. Based on your calculations of current ratio and total-asset turnover ratio, what would you recommend we do to improve our asset management? Comparing current ratios of both year 2018 and 2017 : [280,615/299,530 =0.9368 and 400,429/284,651 =1.4067] respectively. It says that 2018 was better than 2017. The company has been paying down its debts. With regard to total asset turnover ratio: 291,490/1,161,037 =0.25106 The current assets reduced in 2018 as indicated by reduction of the current ratio from 1.41 to 0.94 while the working capital has also reduced from 2017. The assets were turned 0.27 times in 2017 before declining to 0.25 times in 2018. overall, the assets management has worsened . The company recorded lower revenues in 2018 than in 2017 while the assets of the business increased making the turnover to the lower. 2. We would like to improve the use of our working capital. Based on your ratio calculations. What are your specific recommendations? Please note that the current liability for deferred revenue consists primarily of amounts owed to customers in loyalty programs. This will limit what can be done to increase working capital. See the table below. Improve on the collection of the receivables, which reduces the allowance doubtful debts. The business should reduce the use of current debt and consider using long term debts. The business can also consider selling the long term assets for cash, which boosts the working capital.
