Analyzing Financial Reports

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Instructions

Choice Hotels 10-K In Project 3, you will learn how to access US Securities and Exchange Commission public information about companies. You will also learn how to calculate and analyze ratios, analyze and make decisions based on cost, and develop a sales forecast and budget. Start by looking up the 10-K for Choice Hotels (CHH) for year 2019 on the SEC website. Follow these steps: 1. Go to www.SEC.gov. 2. At the top on the right, click Company Filings. 3. In the fast search box, enter the Ticker Symbol for Choice Hotels, CHH. 4. Click Search 5. EDGAR search results will appear. Notice the name and address for Choice Hotels. Also notice the box that reads Filter Results: Filing Type. Enter "10-K" and click Search. 6. You should see a 10-K with a filing date of 2020-03-02. This is the latest available at the time this project was developed. 7. Repeat 1 through 6 for Marriott International (MAR) for year 2019 on the SEC website. You should see a 10-K with a filing date of 2020-02-27. This is the latest available at the time this project was developed. 8. There are two available formats of this 10-K data, and we will use the Documents to answer the questions. You will use the data provided in the worksheets to complete the Ratio Analysis and to answer related questions. 9. Complete the financial statements by filling in the Excel formulas for each grey box. 10. Answer all questions on each tab in this workbook. Note: Quarterly Financial Statements are not audited. Only annual financial statements are audited by a public accounting firm.

Income Statement.v2

Choice Hotels Marriott International
Common Size Income Statements 12 Months Ended Consolidated Statements of Income - USD ($) ($ in millions, except per share amounts) 12 Months Ended
Consolidated Statements of Income - USD ($) Dec. 31, 2019 % of Total revenues Dec. 31, 2018 % of Total revenues Dec. 31, 2017 % of Total revenues Dec. 31, 2019 % of Total revenues Dec. 31, 2018 % of Total revenues Dec. 31, 2017 % of Total revenues
REVENUES: REVENUES
Royalty fees $388,151,000 $ 376,676,000 $ 341,745,000 Base management fees $ 1,180 $ 1,140 $ 1,102
Initial franchise and relicensing fees $27,489,000 $ 26,072,000 $ 23,038,000 Franchise fees $ 2,006 $ 1,849 $ 1,586
Procurement services $61,429,000 $ 52,088,000 $ 40,451,000 Incentive management fees $ 637 $ 649 $ 607
Marketing and reservation system $577,426,000 $ 543,677,000 $ 499,625,000 Gross fee revenues $ 3,823 $ 3,638 $ 3,295
Owned Hotels $20,282,000 $ - 0 $ - 0 Contract investment amortization $ (62) $ (58) $ (50)
Other $40,043,000 $ 42,791,000 $ 36,438,000 Net fee revenues $ 3,761 $ 3,580 $ 3,245
Total revenues $1,114,820,000 $1,041,304,000 $941,297,000 Owned, leased, and other revenue $ 1,612 $ 1,635 $ 1,752
OPERATING EXPENSES: Cost reimbursement revenue $ 15,599 $ 15,543 $ 15,455
Selling, general and administrative $168,833,000 $ 170,027,000 $ 165,821,000 Total revenues $ 20,972 $ 20,758 $ 20,452
Depreciation and amortization $18,828,000 $ 14,330,000 $ 6,680,000 OPERATING COSTS AND EXPENSES
Marketing and reservation system $579,139,000 $ 534,266,000 $ 479,400,000 Owned, leased, and other-direct $ 1,316 $ 1,306 $ 1,411
Owned Hotels $14,448,000 $ - 0 $ - 0 Depreciation, amortization, and other $ 341 $ 226 $ 229
Total operating expenses $781,248,000 $ 718,623,000 $ 651,901,000 General, administrative, and other $ 938 $ 927 $ 921
Impairment of goodwill -$3,097,000 $ (4,289,000) $ - 0 Merger-related costs and charges $ 138 $ 155 $ 159
Impairment of long-lived assets -$7,259,000 Reimbursed expenses $ 16,439 $ 15,778 $ 15,228
Loss on sale of business -$4,674,000 Total operating expenses $ 19,172 $ 18,392 $ 17,948
Gain on sale of assets, net $100,000 $ 82,000 $ 257,000 OPERATING INCOME $ 1,800 $ 2,366 $ 2,504
Operating income $318,642,000 $318,474,000 $289,653,000 Gains and other income, net $ 154 $ 194 $ 688
OTHER INCOME AND EXPENSES, NET: Interest expense $ (394) $ (340) $ (288)
Interest expense $46,807,000 $ 45,908,000 $ 45,039,000 Interest income $ 26 $ 22 $ 38
Interest income -$9,996,000 $ (7,452,000) $ (5,920,000) Equity in earnings $ 13 $ 103 $ 40
Loss on extinguishment of debt $7,188,000 $ - 0 $ - 0 INCOME BEFORE INCOME TAXES $ 1,599 $ 2,345 $ 2,982
Other (gain) loss -$4,862,000 $ 1,437,000 $ (3,229,000) Provision for income taxes $ (326) $ (438) $ (1,523)
Equity in net (income) loss of affiliates $9,576,000 $ 5,323,000 $ 4,546,000 NET INCOME $ 1,273 $ 1,907 $ 1,459
Total other income and expenses, net $48,713,000 $45,216,000 $40,436,000 EARNINGS PER SHARE
Income before income taxes $269,929,000 $273,258,000 $249,217,000 Earnings per share - basic $ 3.83 $ 5.45 $ 3.89
Income taxes $47,051,000 $ 56,903,000 $ 126,890,000 Earnings per share - diluted $ 3.80 $ 5.38 $ 3.84
Net income $222,878,000 $216,355,000 $122,327,000
Basic earnings per share:
Basic earnings per share (in dollars per share) $4.00 $ 3.83 $ 2.16
Diluted earnings per share (in dollars per share) $3.98 $ 3.80 $ 2.15
Questions:
1. What are two accounts in the Choice Hotels income statement that show the biggest change over the past 3 years? What information in the 10-K report helps to explain these changes?
2. What are two accounts in the Marriott income statement that show the biggest change over the past 3 years? What information in the 10-K report helps to explain these changes?
3. Which of the two companies has the financially stronger income statement? Explain your rationale thoroughly.

Balance Sheet

Choice Hotels Marriott International
Common Size Balance Sheets 12 Months Ended Common Size Balance Sheets 12 Months Ended
Consolidated Balance Sheets - USD ($) $ in Thousands Dec. 31, 2019 % of Total assets Dec. 31, 2018 % of Total assets Consolidated Balance Sheets - USD ($) $ in Millions Dec. 31, 2019 % of Total assets Dec. 31, 2018 % of Total assets
Current assets Current assets
Cash and cash equivalents $33,766 $ 26,642 Cash and equivalents $ 225 $ 316
Receivables (net of allowance for doubtful accounts of $18,482 and $15,905, respectively) $141,566 $ 138,018 Accounts and notes receivable, net $ 2,395 $ 2,133
Income taxes receivable $11,126 $ 10,122 Prepaid expenses and other $ 252 $ 249
Notes receivable, net of allowances $25,404 $ 36,759 Assets held for sale $ 255 $ 8
Other current assets $24,727 $ 32,243 Total current assets $ 3,127 $ 2,706
Total current assets $236,589 $243,784 Property and equipment, net $ 1,904 $ 1,956
Property and equipment, at cost, net $351,502 $ 127,535 Intangible assets
Operating lease right-of-use assets $24,088 $ - 0 Brands $ 5,954 $ 5,790
Goodwill $159,196 $ 168,996 Contract acquisition costs and other $ 2,687 $ 2,590
Intangible assets, net $290,421 $ 271,188 Goodwill $ 9,048 $ 9,039
Notes receivable, net of allowances $103,054 $ 83,440 Goodwill and intangible assets, net, total $ 17,689 $ 17,419
Investments, employee benefit plans, at fair value $24,978 $ 19,398 Equity method investments $ 577 $ 732
Investments in unconsolidated entities $78,655 $ 109,016 Notes receivable, net $ 117 $ 125
Deferred income taxes $20,747 $ 30,613 Deferred tax assets $ 154 $ 171
Other assets $97,442 $ 84,400 Operating lease assets $ 888 $ - 0
Total assets $1,386,672 $1,138,370 Other noncurrent assets $ 595 $ 587
Current liabilities Total assets $ 25,051 $ 23,696
Accounts payable $73,449 $ 73,511 Current liabilities
Accrued expenses and other current liabilities $90,364 $ 92,651 Current portion of long-term debt $ 977 $ 833
Current portion $71,594 $ 67,614 Accounts payable $ 720 $ 767
Liability for guest loyalty program $82,970 $ 83,566 Accrued payroll and benefits $ 1,339 $ 1,345
Current portion of long-term debt $7,511 $ 1,097 Liability for guest loyalty program $ 2,258 $ 2,529
Total current liabilities $325,888 $318,439 Accrued expenses and other $ 1,383 $ 963
Long-term debt $844,102 $ 753,514 Total current liabilities $ 6,677 $ 6,437
Long-term portion $112,662 $ 110,278 Long-term debt $ 9,963 $ 8,514
Deferred compensation and retirement plan obligations $29,949 $ 24,212 Liability for guest loyalty program $ 3,460 $ 2,932
Income taxes payable $26,147 $ 26,276 Deferred tax liabilities $ 290 $ 485
Operating lease liabilities $21,270 Deferred revenue $ 840 $ 731
Liability for guest loyalty program $46,698 $ 52,327 Operating Lease liabilities $ 882 $ - 0
Other liabilities $3,467 $ 37,096 Other noncurrent liabilities $ 2,236 $ 2,372
Total liabilities $1,410,183 $1,322,142 Total Liabilities $ 24,348 $ 21,471
Commitments and Contingencies Shareholders’ equity
Common stock, $0.01 par value; 160,000,000 shares authorized; 95,065,638 shares issued at December 31, 2019 and December 31, 2018; 55,702,628 and 55,679,207 shares outstanding at December 31, 2019 and December 31, 2018, respectively $951 $ 951 Class A Common Stock $ 5 $ 5
Additional paid-in-capital $231,160 $ 213,170 Additional paid-in-capital $ 5,800 $ 5,814
Accumulated other comprehensive loss -$4,550 $ (5,446) Retained earnings $ 9,644 $ 8,982
Treasury stock, at cost; 39,363,010 and 39,386,431 shares at December 31, 2019 and December 31, 2018, respectively -$1,219,905 $ (1,187,625) Treasury stock, at cost $ (14,385) $ (12,185)
Retained earnings $968,833 $ 795,178 Accumulated other comprehensive loss $ (361) $ (391)
Total shareholders’ deficit -$23,511 -$183,772 Total shareholders’ equity $ 703 $ 2,225
Total liabilities and shareholders’ deficit $1,386,672 $1,138,370 Total liabilities and shareholders’ equity $ 25,051 $ 23,696
Questions:
1. What are two accounts in the Choice Hotels balance sheet that show the biggest change over the past 2 years? What information in the 10-K report helps to explain these changes?
2. What are two accounts in the Marriott balance sheet that show the biggest change over the past 2 years? What information in the 10-K report helps to explain these changes?
3. Which of the two companies has the financially stronger balance sheet? Explain your rationale thoroughly.

Cash Flow

Choice Hotels Marriott International
Common Size Statements of Cash Flow 12 Months Ended Common Size Statements of Cash Flow 12 Months Ended
Consolidated Statements of Cash Flows Dec. 31, 2019 % of Total Revenue Dec. 31, 2018 % of Total Revenue Dec. 31, 2017 % of Total Revenue Consolidated Statements of Cash Flows - ($ in Millions) Dec. 31, 2019 % of Total Revenue Dec. 31, 2018 % of Total Revenue Dec. 31, 2017 % of Total Revenue
CASH FLOWS FROM OPERATING ACTIVITIES OPERATING ACTIVITIES
Net income $ 222,878,000 $216,355,000 $122,327,000 Net income $ 1,273 $ 1,907 $ 1,459
Adjustments to reconcile net income to net cash provided by operating activities: Adjustments to reconcile to cash provided by operating activities:
Depreciation and amortization $ 18,828,000 14,330,000 6,680,000 Depreciation, amortization, and other $ 403 $ 284 $ 279
Depreciation and amortization - marketing and reservation system $ 17,294,000 19,597,000 20,609,000 Share-based compensation $ 187 $ 184 $ 181
Franchise agreement acquisition cost amortization $ 7,992,000 9,239,000 7,191,000 Income taxes $ (200) $ (239) $ 887
Impairment of goodwill $ 3,097,000 4,289,000 0 Liability for guest loyalty program $ 257 $ 520 $ 298
Impairment of long-lived assets $ 7,259,000 0 0 Contract acquisition costs $ (195) $ (152) $ (185)
Loss on sale of business $ 4,674,000 0 0 Merger-related charges $ 86 $ 16 $ (124)
Loss on debt extinguishment $ 7,188,000 0 0 Working capital changes $ (273) $ (76) $ (30)
Gain on disposal of assets, net $ (2,103,000) -56,000 -237,000 (Gain) loss on asset dispositions $ (147) $ (194) $ (687)
Provision for bad debts, net $ 8,240,000 10,542,000 5,514,000 Other $ 294 $ 107 $ 149
Non-cash stock compensation and other charges $ 17,615,000 15,986,000 22,857,000 Net cash provided by operating activities $ 1,685 $ 2,357 $ 2,227
Non-cash interest and other investment (income) loss $ (4,010,000) 3,695,000 -772,000 INVESTING ACTIVITIES
Deferred income taxes $ 9,810,000 -3,510,000 57,106,000 Capital expenditures $ (653) $ (556) $ (240)
Equity in net losses from unconsolidated joint ventures, less distributions received $ 12,562,000 7,389,000 6,579,000 Dispositions $ 395 $ 479 $ 1,418
Franchise agreement acquisition cost, net of reimbursements $ (38,944,000) -52,929,000 -30,638,000 Loan advances $ (30) $ (13) $ (93)
Change in working capital and other, net of acquisition $ (21,824,000) -2,031,000 40,158,000 Loan collections $ 51 $ 48 $ 187
Net cash provided by operating activities $ 270,556,000 $ 242,896,000 $ 257,374,000 Other $ (47) $ (10) $ (61)
CASH FLOWS FROM INVESTING ACTIVITIES Net cash (used in) provided by investing activities $ (284) $ (52) $ 1,211
Investment in property and equipment $ (57,342,000) -47,673,000 -23,437,000 FINANCING ACTIVITIES
Investment in intangible assets $ (6,699,000) -1,803,000 -2,517,000 Commercial paper/Credit Facility, net $ 951 $ (129) $ 60
Proceeds from sales of assets $ 10,585,000 3,053,000 1,000,000 Issuance of long-term debt $ 1,397 $ 1,646 $ - 0
Asset acquisition, net of cash acquired $ (168,954,000) -3,179,000 0 Repayment of long-term debt $ (835) $ (397) $ (310)
Proceeds from sale of unconsolidated joint venture $ 8,937,000 Issuance of Class A Common Stock $ 7 $ 4 $ 6
Business acquisition, net of cash acquired $ - 0 -231,317,000 0 Dividends paid $ (612) $ (543) $ (482)
Payment on business disposition, net $ (10,783,000) Purchase of treasury stock $ (2,260) $ (2,850) $ (3,013)
Contributions to equity method investments $ (27,828,000) -9,604,000 -50,554,000 Share-based compensation withholding taxes $ (148) $ (105) $ (157)
Distributions from equity method investments $ 10,241,000 1,429,000 4,569,000 Other $ (8) $ - 0 $ - 0
Purchases of investments, employee benefit plans $ (3,175,000) -2,895,000 -2,447,000 Net cash (used in) provided by financing activities $ (1,508) $ (2,374) $ (3,896)
Proceeds from sales of investments, employee benefit plans $ 2,217,000 2,825,000 2,245,000 DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH $ (107) $ (69) $ (458)
Issuance of notes receivable $ (20,722,000) -36,045,000 -19,738,000 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period (1) $ 360 $ 429 $ 887
Collections of notes receivable $ 14,231,000 4,997,000 655,000 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period (1) $ 253 $ 360 $ 429
Other items, net $ (1,875,000) -1,040,000 109,000 Restricted cash 28 44 $ - 0
Net cash used in investing activities $ (251,167,000) $ (321,252,000) $ (90,115,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long term debt $ 422,376,000 9,037,000 0
Net (repayments) borrowings pursuant to revolving credit facilities $ (72,400,000) 20,600,000 -115,003,000
Principal payments on long-term debt $ (256,809,000) -603,000 -660,000
Debt issuance costs $ (3,936,000) -2,590,000 0
Purchases of treasury stock $ (50,638,000) -148,679,000 -9,807,000
Dividends paid $ (48,089,000) -48,715,000 -48,651,000
Proceeds from transfer of interest in notes receivable $ (24,409,000) 173,000 24,237,000
Proceeds from exercise of stock options $ 21,410,000 41,360,000 14,107,000
Net cash used in financing activities $ (12,495,000) $ (129,417,000) $ (135,777,000)
Net change in cash and cash equivalents $ 6,894,000 -207,773,000 31,482,000
Effect of foreign exchange rate changes on cash and cash equivalents $ 230,000 -921,000 1,391,000
Cash and cash equivalents at beginning of period $ 26,642,000 235,336,000 202,463,000
Cash and cash equivalents at end of period $ 33,766,000 26,642,000 235,336,000
Cash payments during the year for:
Income taxes, net of refunds $ 41,859,000 77,357,000 39,181,000
Interest, net of capitalized interest $ 48,179,000 43,254,000 42,405,000
Non-cash investing and financing activities:
Dividends declared but not paid $ 12,535,000 11,977,000 12,185,000
Investment in property, equipment and intangibles acquired in accounts payable and accrued liabilities $ 959,000 5,949,000 1,099,000
Seller-financing to purchaser $ - 0 $0 $2,000,000
Questions:
1.  What were the two largest cash outflows for each company over the 3-year period?
2. Why did Marriott have a cash inflow in 2017 from investing activities? Hint: See 10-K Report.
3.  What are the most significant trends for both companies?
4. Can you check that CF(operations) + CF(financing) + CF(investing) is equal the the change of Cash position from one year to the other. What does it tell you? (open)

Cost and Investing.v2

Choice Hotels Sales, Production, and Cost Information Overhead Costs
Room Type Standard Guest Room Junior Suite Presidential Suite Type Cost
Volume 150 110 25 Depreciation $3,200,000
Price $140,000 $240,000 $1,050,000 Maintenance $1,800,000
Unit costs Purchasing $320,000
Direct materials $30,000 $92,000 $310,000 Inspection $850,000
Direct labor $54,000 $85,000 $640,000 Indirect materials $490,000
Manufacturing overhead $30,000 $30,000 $30,000 Supervision $1,700,000
Supplies $190,000
Total unit cost $114,000 $207,000 $980,000 Total manufacturing overhead cost $8,550,000
Unit gross profit $26,000 $33,000 $70,000 Note: Manufacturing overhead costs are fixed. They do not vary with the volume of manufacturing activity.
Direct labor hours 1,200 1,300 5,940
Rate per hour $45.00 $65.38 $107.74
1. The cost-allocation system Choice Hotels has been using allocates over 90 percent of overhead costs to the Standard Guest Room and the Junior Suite, because over 90 percent of the models produced were one of these two models. How much overhead was allocated to each of the three models last year? Discuss why this might not be an accurate way to assign overhead costs to products.
Total manufacturing overhead (MOH) costs
Room Type MOH per unit # of Rooms Total Overhead % of total Overhead
Standard
Junior
Presidential
Total $0 0.00%
2. Choice Hotels' production manager proposes allocating overhead by direct labor hours instead, since the different models require different amounts of labor. How much overhead would be allocated to each guest room (per unit and in total) using this method? Show all supporting calculations.
Room Type Labor Hours Units Total labor Hours Rate per hour Total Cost of labor Labor cost per unit % of total labor % of overhead per unit ABC Allocated Costs based on Direct Labor
Standard
Junior
Presidential
Totals - 0 $0.00 $0.00 0% 0.00% $0.00
TOTAL MOH
TOTAL LABOR HOURS - 0
ALLOCATED HOURLY LABOR RATE
3. Choice Hotels’ controller developed the following data for use in activity-based costing: Complete the calculations to help you answer the questions below.
Manufacturing overhead Amount Cost driver Standard Guest Room Junior Suite Presidential Suite Sum of Cost Drivers Cost per cost driver Costs for Standard Guest room Costs for Junior Suite Costs for Presidential Suite Check
Depreciation $3,200,000 Square feet 50,000 30,000 30,000 110,000 $ - 0
Maintenance $1,800,000 Direct labor hours 180,000 143,000 148,500 471,500 $ - 0
Purchasing $320,000 # of purchase orders 2,500 1,500 9,000 13,000 $ - 0
Inspection $850,000 # of inspections 1,000 850 3,500 5,350 $ - 0
Indirect Materials $490,000 Units manufactured 150 110 25 285 $ - 0
Supervision $1,700,000 # of inspections 1,000 850 3,500 5,350 $ - 0
Supplies $190,000 Units manufactured 150 110 25 285 $ - 0
Total manufacturing overhead cost $8,550,000 $ - 0 $ - 0 $ - 0 $ - 0
Manufacturing overhead cost per unit Units manufactured 150 110 25 $ - 0 $ - 0 $ - 0
Answer Questions 3 to 10 Below: Allocation Basis Activity Based Costing
3 Type Cost Cost Driver Standard Junior Presidential Totals Standard Junior Presidential Totals
4. Calculate the cost of one Presidential Suite using activity-based costing. Depreciation Square ft.
Direct Materials Maintenance Direct labor hrs.
Direct Labor Purchasing # purchase orders
ABC Allocated Overhead Cost Inspection # of inspections
Total Manufacturing Cost $ - 0 Indirect materials # of units
Supervision # of inspections
Supplies # of units
5. At the current selling price, is the company covering its true cost of production of the Presidential Suite? Briefly discuss Total manufacturing overhead cost Total manufacturing overhead cost
Manufacturing overhead cost per unit
4 Direct Materials
6. Assume that the Presidential Suite has the same profit margin as the standard guest room. What should its selling price be? Show all calculations. Direct Labor
Standard Margin Allocated Overhead Cost
Sales Price Total Manufacturing Cost
Direct Materials
Direct Labor 5
ABC MOH $ - 0
Less Total MOH
Gross Profit $0.00
6
Total Manufacturing Cost $ - 0
Cost Margin
New Selling Price
7. Based on your response to question 6, what is the unit volume breakeven? 7
Sales Price $ - 0
Variable Cost
Unit Contribution $ - 0
Fixed Cost $ - 0
Breakeven
8. What should Choice Hotels do if the price of the Presidential Suite cannot exceed $1,050,000?
8

Choice Hotels has contracted with a mid-size furniture manufacturer for the production of guestroom furniture for three models of guest rooms: the standard guest room, Junior Suite, and Presidential Suite. The Standard Guest Room comes with basic furniture, bathroom plan, and amenities. It sells for $140,000 to franchise hotels. The Junior Suite model is larger and includes an enhanced furniture selection, upgraded bathroom fixtures, more comfortable bedding. The guest room is considered an upgrade from the standard guestroom model. The Junior Suite sells for $240,000 to franchise hotels. The Presidential Suite model is a custom-made guest room with floors and walls constructed from specialty wood. The drapes are made from the traditional flax-based canvass. It has the look and feel of a room in the White House, with modern comforts and security. The Presidential Suite sells for $1,050,000 to franchise hotels. Workers who build the Presidential Suite are specialized craftsmen. They earn twice the hourly rate of those working on the Standard Guest Room and Junior Suite models. The labor rate is fully burdened to include benefits. Most of Choice Hotels’ guest room sales come from the Standard Guest Room and the Junior Suite, but sales of the Presidential Suite model have been growing. The company's sales, production, and cost information for last year is provided to the right.

RESPONSE:

RESPONSE:

DISSCUSION:

Budget and Forecast.v2

In a February 15, 2020 Press Release, Choice Hotels announced the company's 2019 fourth quarter and full year results. Using the data from this press release, create a 2020 budget and forecast.
http://investor.choicehotels.com/financial-performance-and-presentations?item=46
To complete the budget, use the following information:
Revenues are expected to grow at a rate of 2.5% according to the full-year outlook.
Given the expected growth and recent investments, expenses are expected to increase by 1%.
Income taxes are expected to be 22%
To complete the forecast, use the following information:
The low-range forecast is expected to be 2%
The mid-range forecast is expected to be 2.5%
The high-range forecast is expected to be 3%
Forecast Forecast Forecast
Budget Low Midpoint High
Consolidated Statements of Income - USD ($) Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2020 Dec. 31, 2020 Dec. 31, 2020
REVENUES:
Royalty fees $388,151
Initial franchise and relicensing fees $27,489
Procurement services $61,429
Marketing and reservation system $577,426
Owned Hotels $20,282
Other $40,043
Total revenues $1,114,820 $0 $0 $0 $0
OPERATING EXPENSES:
Selling, general and administrative $168,833 $ 172,210 $ 173,054 $ 173,898
Depreciation and amortization $18,828 $ 19,205 $ 19,299 $ 19,393
Marketing and reservation system $579,139 $ 590,722 $ 593,617 $ 596,513
Owned Hotels $14,448 $ 14,737 $ 14,809 $ 14,881
Total operating expenses $781,248 $0 $796,873 $800,779 $804,685
Impairment of goodwill -$3,097
Impairment of long-lived assets -$7,259
Loss on sale of business -$4,674
Gain on sale of assets, net $100
Operating income $318,642 $0 -$796,873 -$800,779 -$804,685
OTHER INCOME AND EXPENSES, NET:
Interest expense $46,807 $ 47,743 $ 47,977 $ 48,211
Interest income -$9,996 $ (10,196) $ (10,246) $ (10,296)
Loss on extinguishment of debt $7,188
Other (gain) loss -$4,862
Equity in net (income) loss of affiliates $9,576
Total other income and expenses, net $48,713 $0 $37,547 $37,731 $37,915
Income before income taxes $269,929 $0 -$834,420 -$838,510 -$842,601
Income taxes $47,051 $ (183,572) $ (184,472) $ (185,372)
Net income $222,878 $ - 0 -$650,848 -$654,038 -$657,229
Questions:
1. Which revenue category is the most important to forecast accurately? Explain your rationale for your selection.
2. Which expense category is the most important to forecast accurately? Explain your rationale for your selection.
3. Explain thoroughly why budgeting revenue and operating expense is important. And to what extent, it does provide a competitive advantage in an era of data analytics and big data as well as artificial intelligence, machine learning and blockchain?
http://investor.choicehotels.com/financial-performance-and-presentations?item=46