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Word count : 7500

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Contents

Part One: Introduction and Overall Framework of the Research ........................................................ 5

1. Introduction ...................................................................................................................................... 5

1.1. Aim of the research .................................................................................................................... 5

1.2. Research Objectives .................................................................................................................. 5

1.3. Research Questions .................................................................................................................. 5

1.4. Reasons for selecting the Research Topic and Organization ............................................. 6

1.5. Research Framework ................................................................................................................ 6

Part Two: Data Sources and Business and Accounting Techniques ................................................. 6

2.1. Source and Methods of Information Gathering ...................................................................... 7

2.1.1. Financial Analyst‟s Reports .................................................................................................. 7

2.1.2. Online Libraries/Web Search ................................................................................................ 7

2.1.3. Books ....................................................................................................................................... 8

2.2. Limitations of Information gathering ........................................................................................ 8

2.2.1. Web Search ............................................................................................................................. 8

2.2.2. Annual Reports ....................................................................................................................... 8

2.3. Ethical issues .............................................................................................................................. 8

2.4. Accounting and Business Techniques .................................................................................... 9

2.4.1. Ratio analysis .......................................................................................................................... 9

a) Profitability ratios: ....................................................................................................................... 9

b) Liquidity ratios: ............................................................................................................................ 9

c) Leverage Ratios: ........................................................................................................................ 9

d) Investor‟s ratio: ......................................................................................................................... 10

2.4.2. Limitations of ratio Analysis ................................................................................................ 10

2.4.3. SWOT analysis ..................................................................................................................... 10

a) Strengths: .................................................................................................................................. 10

b) Weaknesses: ............................................................................................................................. 10

c) Opportunities: ............................................................................................................................ 10

d) Threats: ...................................................................................................................................... 11

2.4.4. Limitations of SWOT ............................................................................................................ 11

2.4.5. PESTEL analysis .................................................................................................................. 11

a) Political factors: ......................................................................................................................... 11

b) Economic factors: ..................................................................................................................... 11

c) Social factors: ........................................................................................................................... 11

d) Technological factors: .............................................................................................................. 11

e) Legal factors: ............................................................................................................................. 11

f) Environmental factors: ............................................................................................................. 11

2.4.6. Limitations of the PESTEL analysis .................................................................................. 11

Part-3 Analysis of Financial Performance and Business Environment ............................................ 13

Analysis of Business Environment ........................................................................................................ 13

3.1. SWOT Analysis ......................................................................................................................... 13

3.1.1. Strengths: .............................................................................................................................. 13

3.1.2. Weaknesses: ......................................................................................................................... 13

3.1.3. Opportunities: ........................................................................................................................ 14

3.1.4. Threats: .................................................................................................................................. 14

3.2. PESTEL Analysis ..................................................................................................................... 14

3.2.1. Political factors .................................................................................................................. 14

3.2.2. Economic factors .............................................................................................................. 15

3.2.3. Social factors ..................................................................................................................... 15

3.2.4. Technological factors ....................................................................................................... 15

3.2.5. Environmental factors ...................................................................................................... 16

3.2.6. Legal factors ...................................................................................................................... 16

Analysis of Financial Performance ........................................................................................................ 16

3.3. Description of Business ........................................................................................................... 16

3.4. Revenue Analysis ..................................................................................................................... 17

3.5. Short Term Solvency Ratios ................................................................................................... 18

3.5.1. Current Ratio ..................................................................................................................... 18

3.5.2. Quick Ratio ........................................................................................................................ 19

3.6. Profitability Ratios ..................................................................................................................... 20

3.6.1. Gross Profit Margin .......................................................................................................... 20

3.6.2. Net Profit Margin ............................................................................................................... 21

3.6.3. Return on Equity (ROE) .................................................................................................. 23

3.7. Investor‟ Ratios: ........................................................................................................................ 24

3.7.1. P/E: ..................................................................................................................................... 24

3.7.2. EPS: ................................................................................................................................... 25

3.8. Long Term Solvency Ratios.................................................................................................... 26

3.8.1. Debt to Equity Ratio ......................................................................................................... 26

3.8.2. Interest coverage ratio ..................................................................................................... 27

3.9. Conclusions and Recommendations ......................................................................................... 28

Part One: Introduction and Overall Framework of the Research

1. Introduction

Evaluation of organizations is being carried out by all those who have their stakes in the

organization. Performance of any organization is being evaluated on the basis of not just its

financial performance but how the business is operating in its overall business environment as

well. Causes of its financial performance can be traced back to its business environment as no

organization can survive the competition remaining aloof to its business environment. Therefore

top management of the organization always makes strategic decisions in line with the business

environment. Those different stakeholders include internal and external stakeholders. The

internal stakeholders are usually the employees, the suppliers as well as the management at all

tiers. External stakeholders include the investors and the credit rating agencies etc (Autio,

Sapienza and Almeida, 2000).

1.1. Aim of the research

The main and foremost aim of this research report is to scrutinize the financial performance of

Accor in context of its business environment and compared to its competitor Marriot over three

years from 2011 to 2013.

1.2. Research Objectives

This research report is written around following research objectives:

a) To draw a clear and well analyzed picture of the financial performance of Accor

compared to Marriot from 2011 to 2013.

b) To scan and analyze the business environment and identify any factors affecting the

financial performance of Accor.

c) To examine if there is any link in the business environment and performance of

Accor.

d) To recommend a viable course of action to improve the performance.

1.3. Research Questions

a) Examine the financial performance of Accor over the three most recent years and

compare it with that of Marriot.

b) Identify major factors existent in the internal and external business environment of

and establish if it can be linked to its financial performance?

c) What suggestions can be made to the management of Accor based on the analysis

of its business context as well as its financial performance?

1.4. Reasons for selecting the Research Topic and Organization

I selected topic number eight for my research report out of those twenty topics i.e. “An analysis

and evaluation of the Business and financial performance of an organization over three years

period”. The most difficult preposition was about selecting the company for the research report.

Accor with so diversified portfolio is found almost in every region with its business operations

spanning in North and Latin America, Asia pacific, Africa and Europe (Accor, 2013). Thus it was

not just fascinating but challenging as well to analyze the financial and business performance of

such a diversified portfolio. One of the main shortcomings of most of the research projects is

that the researchers tend to lose their focus on their aims and objectives (Birkinshaw, 2001). I

did not want this to happen with my research report especially in the wake of limited word count

available for this thesis. I therefore wanted to express best of my research abilities in this limited

word count available to me. I feel topic number eight is the only listed topic which offers me

ample opportunity to do so. A few major reasons leading to selection of topic 8 were:

a) I possess a „know-how‟ of financial management, accounting and business

techniques of business. Topic number 8 lets me apply all of my analytical skills onto

the business realm practically.

b) Analyzing the financial and business performance of live businesses is always a

challenging task.

1.5. Research Framework

A deductive approach of research will be adopted for the purpose of this research report

employing quantitative as well as qualitative analysis tools. Quantitative analysis tools include

use of numerical figures and data whereas qualitative analysis tools incorporate subjective

analysis (Fineman, 2003). Subjective approach can thus be related to the qualitative analysis

technique and the objective approach can be related to the quantitative analysis (Abel and

Eberly, 2011). Quantitative analysis of Accor has been carried out by way of horizontal trend

analysis over the three most recent years with the help of analysis of its different financial ratios.

Qualitative analysis, on the other hand, has been carried out by examining the business

environment of Accor with the help of SWOT and PESTEL.

Part Two: Data Sources and Business and Accounting Techniques

Information for any research work can chiefly be collected from two main sources namely the

primary and the secondary sources of information (Estrin, Meyer and Bytchkova, 2005). Primary

sources can be termed as unique, freshly gathered and generated by a researcher for the first

time (Forsgren, 2002). The primary information can thus be collected by means of focus group

discussions, surveys, questionnaires as well as interview techniques (Gelbuda, 2005). As for

secondary information, it is the kind of information which has been collected and generated by a

certain researcher and can be used by future researchers for further studies (Hohenthal and

Johanson, 2003). This information is hence second hand information which is available on the

internet and books as well as journals etc (Buisnessballs, 2006). Primary source of information

can be termed as more authentic, unbiased and relevant whereas on the other hand besides

being time consuming job, accuracy of the results greatly depends on the correct selection of

sample subjects as well as response rate (Hohnen, 2003). Secondary information is easily

available but a need to identify the level of its authenticity and biasness will always prevail

(Johanson, 2005).

2.1. Source and Methods of Information Gathering

Secondary sources of information have been made use of for the purpose of conducting

research for this project and for meeting the set research questions/objectives. Information

gathered from secondary sources need to be checked for its reliability, authenticity and

biasness etc (Johanson and Vahlne, 2003). A number of these limitations can effectively be

catered for by collecting information from a number of different authentic sources rather than

depending on a single or couple of secondary sources, so as to be able to include perspective

of different authors on a subject and thus increase the validity and reliability of the content.

2.1.1. Financial Analyst’s Reports

These are known to play a very significant role in the scrutiny of any organization in terms of

quantitative analysis. Financial experts spend time analyzing the various financial indicators of

organizations and can be both external as well as internal. A report which is generated by an

external financial analyst can be termed as neutral and authentic, painting the actual financial

standing of the organization.

2.1.2. Online Libraries/Web Search

Internet has really turned the world into a global village and everything seems be just a click

away. This research report has thus benefited greatly from the literature material available

online i.e. online publications, journals and articles etc. This also includes the vast information

available on different websites as well as official websites of both the selected organizations.

2.1.3. Books

Course books have been very helpful in refreshing knowledge of different formulae used in ratio

analysis as well as revising different concepts/theories on examining the business environment.

2.2. Limitations of Information gathering

Making use of secondary information from various sources is associated with following certain

limitations. It is of thus utmost importance to determine the credibility and the authenticity of the

source before using it for any research purposes (Johanson, 2005).

2.2.1. Web Search

A few major limitations attached with the use of Internet as a mean of gathering secondary

information are (Erickson and Whited, 2006):

a) Internet, being the most commonly used and major source of secondary information,

leads to the problem of „big data‟ which means that there is such a vast amount of data

available and accessible to everyone that it has become extremely difficult for any user

to differentiate and segregate the relevant and useful data from the irrelevant data

(Mindtools, 2007).

b) Validity and authenticity of the information need to be ascertained before utilizing

information on Internet (Johanson, 2005).

c) Time consumption is a constraint as heaps of information needs to be assessed in order

to look for the right sort of information.

2.2.2. Annual Reports

Limitations associated with the use of annual reports are (Johanson and Vahlne, 2005):

a) Annual reports are more oriented towards quantitative information as quantitative

information including the financial statements is abundantly found in the annual reports.

The amount of descriptive information found in the annual reports is generally included

to justify the quantitative data (Meyer, 2001).

b) Annual reports are primarily focused at attracting potential investments. They can thus

be biased and misleading. An analysis which is solely based on annual reports can thus

resultantly be erroneous and faulty.

2.3. Ethical issues

One of the prime responsibilities of any researcher is to ensure that the research work follows

the highest order of professional research ethics (Meyer, 2002). I have thus been very careful in

adhering to all norms of research ethics and above all avoid all types of plagiarism. I have been

very careful in giving due credit of writing to their original authors by following correct Harvard

referencing style. Another common issue with most of research works is that the authors go with

„stereo type‟ research analysis and findings even without realizing it (Newman, 2000). This can

effectively be checked if author does not rely on his instincts but rather make informed analysis

based on the information extracted from different sources.

2.4. Accounting and Business Techniques

2.4.1. Ratio analysis

Analysis of different financial ratios serves as an excellent quantitative tool for the analysis of

financial standing of any company (Bekaert and Engst rom, 2010) . A horizontal trend

analysis over a span of time and benchmarked against its competitors or industrial ratios can

help point to financial performance of an organization (Berk, Green and N a i k , 1 99 9 ). There

are a number of benefits associated with the use of financial ratios. Data for calculation of

financial ratios is easily available in the form of financial statements contained in the annual

reports of organizations, their calculation/interpretation is easy and is thus less time consuming

(Biglaiser and Riordan, 2000). Any sort of financial ratio can be created and applied on

quantitative data basing on researchers‟ perspective and thus can serve the purpose of all

internal as well as external stakeholders of the company (Carlton and Perloff, 2005). This

research report is however focused on analysis of following financial ratios:

a) Profitability ratios: These ratios help access the profitability potentials of the

organization and help the researcher analyze if the profit potentials are sustainable

(Damodaran, 2006). Profitability ratios calculated for Accor and Marriot in this report

comprise of gross and net profit margins as well as Return on equity (ROE).

b) Liquidity ratios: Liquidity ratios analyze the organization‟s potential to meet its short

term liability obligations with current assets (Dutta and Reichelstein, 2010). Liquidity

ratios calculated in this report comprise of current and quick ratios.

c) Leverage Ratios: Leverage ratios, as the term indicates, point to the capital structure of

the organization and accesses the share of debt and equity in its capital structure as well

as its potentials to meet the debt liabilities and its associated interest expenses (Laont

and Tirole, 2000). Leverage ratios calculated for Accor and Marriot comprise of Debt-

equity ratio and interest coverage.

d) Investor’s ratio: These ratios point to potential returns on investments and thus help

attract potential investors (Lundholm and Sloan, 2007). Investors‟ ratios calculated for

Accor and Marriot in this research report comprise of Earnings per Share (EPS) and

Price-Earnings (P/E) ratio.

2.4.2. Limitations of ratio Analysis

The efficacy of financial ratio analysis is primarily ushered by a few major limitations as

explained below (Martin, 2002):

a) Financial ratios do not help establish any link between the past and future predicted

data whereas most of the stakeholders are interested to make an informed decision

based on predictions about its future performance.

b) Ratio analysis is basically a quantitative analysis tool and thus fails to link to qualitative

aspects of analysis which are normally existent in the micro and macro factors

prevailing in the business environment.

c) Any false information contained in the data on which these ratios are based can render

the complete analysis faulty and misleading (McNichols, Rajan and Reichelstein,

2014).

2.4.3. SWOT analysis

SWOT analysis is carried out to examine the internal (strengths and weaknesses) and external

(threats and opportunities) environment of the business in order to evaluate and overcome the

weaknesses and threats and explore if there exists any window of opportunity in the external

business environment which the business can exploit with its strengths or competitive

advantages (Peng, 2003). SWOT analysis falls in the realm of qualitative research approach

(Piekkari and Welch, 2004). SWOT studies following four different aspects of an organization

(Mindtools, 2007):

a) Strengths: The internal aspects of an organization that offers it the ability to exploit any

opportunities offered in the external business environment i.e. brand name, perception

or technological edge.

b) Weaknesses: Internal aspects that put the business in a weaker position than its

competitors i.e. higher direct or indirect cost of sale, management inefficiency etc (Salmi,

2000).

c) Opportunities: External factors can be exploited by the business in its favor i.e. tax

rebates, favorable currency fluctuations etc.

d) Threats: External factors that pose potential threat to the strategic objectives of the

company i.e. inflation, competition etc.

2.4.4. Limitations of SWOT

Svejnar (2000) has highlighted following few limitations of SWOT analysis:

a) The analyst needs to be in complete picture of all the elements of SWOT tool in order to

make the analysis meaningful.

b) SWOT is a time consuming process and requires continuous scanning of the internal

and external business environment.

c) SWOT helps diagnose existence of problems in the internal or external business

environment but does not point the researcher to a possible solution.

2.4.5. PESTEL analysis

PESTEL analysis is a strategic analysis tool used to examine the macro factors prevalent in the

external business environment of an organization (Svetlicic, 2003). PESTEL is an abbreviation

used for political, economic, social, technological, environmental and legal factors. Quick MBA

(2007) grants a brief detail on all of this:

a) Political factors: These are the factors arising due to political decisions, political

stability/instability etc.

b) Economic factors: Factors affecting consumers‟ spending behavior and thus positively

or negatively affecting the business operations i.e. inflation or currency fluctuations etc.

c) Social factors: Factors including the demographic features of the target market i.e.

culture and lifestyle etc.

d) Technological factors: Technological inventions, innovations and breakthroughs fall in

the realm of technological factors.

e) Legal factors: Policies and law of the land favorably or unfavorably affecting the

business operations i.e. trade and employment laws etc.

f) Environmental factors: Policies and laws governing the environmental

degradation/safety etc.

2.4.6. Limitations of the PESTEL analysis

A few limitations associated with the use of PESTEL analysis are as follows (Tsui, 2004):

a) PESTEL demands an undivided attention and time of the researchers as the external

business environment needs to be regularly monitored.

b) External business environment is dynamic and fast changing and thus can render the

complete analysis void even if there is a slight change in the dynamics of the macro

environment (VanLaar and Neubourg, 2005).

c) Findings of PESTEL analysis carried out by two different researchers/analysts may not

be in harmony or agreement with each other as perception vary from person to person.

Part-3 Analysis of Financial Performance and Business Environment

Analysis of Business Environment

3.1. SWOT Analysis

3.1.1. Strengths:

a) Wide customers’ base belonging to all economic segments: Accor is Europe‟s

largest chain of hotels and 3rd largest worldwide (Colliers, 2012). Accor targets a wide

base/range of potential customers by catering for the needs of target customers

belonging to every economic segment from budget to luxury. Accor offers hotel brands

of Sofitel, Pullman, Adagio and Novotel etc for the upscale and midscale segments

whereas ibis, formule1 and hotel F1 etc. are targeted towards economy segments

(Darson, 2009).

b) Diverse portfolio: Accor‟s portfolio is diverse including the corporate departments,

transport and casino businesses (Internetworldstats, 2013). This helps Accor generate

additional revenues besides reducing and diversifying its business risks all across its

portfolio.

c) Innovation: Accor introduced „TARS‟ i.e. Travel Accor Reservation System which

proved to be an innovative and customers‟ friendly online application used for checking

the availability and further booking/reservation of Accor rooms (Marketline, 2012). Its „Le

Club Accorhotels‟ which is customers‟ loyalty program is unique in a sense that loyal

customers, unlike other loyalty programs, can redeem points without any time

restrictions (Michel, 2014).

3.1.2. Weaknesses:

a) Online payment solutions: Accor does not offer the convenience of online payment

solutions to its customers which if incorporated can add great value to them (CNN,

2014). Though its „digital transformation‟ program does plan to offer online payment

solutions to its customers in a phased process, yet it is still in its embryonic stages and

the complete program is to be implemented over the next five years (Accor, 2013).

b) Brand recognition: As Accor offers a wide range of hotel brands from budget to luxury

suiting the needs of all economic segments thus customers are reluctant to relate to it

as a brand (Euromonitor, 2013). One of its biggest strengths is thus also perceived as

one of its weaknesses as well.

3.1.3. Opportunities:

a) Further Diversification: Accor has well established brand name trusted by millions of

its customers all over. Accor thus continues to inspire a large number of students

studying the subjects of hospitality and hotel management. Accor can exploit the

opportunity by going for this unrelated diversification feature and introducing its academy

for hotel management (BNET, 2007). Accor can even expand in the related

diversification field of restaurants under its own brand name. This will help further

reducing its business risks by virtue of maintaining a portfolio consisting of related as

well as unrelated diversification businesses.

b) Market expansion: There are vast potential markets that are still untapped by Accor i.e.

Southeast Asia. Accor can further expand its business by going for those untapped

markets which will help Accor generate greater revenues besides increasing its market

share as well as customers base.

3.1.4. Threats:

a) Competition: Fierce competition exists among many hotel giants to grab as much

market share as possible. Accor needs to proactively pursue its policy of increasing its

customers‟ base besides ensuring retention of existing customers in order to fully

capitalize on its growth potentials and beat the competition it faces from its competitors

like Hilton group and Marriot Inc (Research and Markets, 2013).

b) Currency fluctuations: As Accor operates its business across 92 countries, therefore it

faces severe threats from negative effects of any fluctuation in the foreign currency as

well as interest rates (Data Monitor, 2013). Accor‟s revenues were substantially reduced

in 2013 when it had to face the adverse effects of currency fluctuation worth €138 million

due to fall in exchange rates for AUD, GBP and BRL (Brazilian real) against Euro and

thus adversely impacting its growth by 2.4% (CNN, 2014).

3.2. PESTEL Analysis:

3.2.1. Political factors:

a) The principal rate of VAT applied in France has been 19.6% since 2000 which has now

been increased to 20%. However, the intermediate VAT rate affecting Accor has been

7% for the last 5 years which was increased by 3% and made effective @ 10% from 1st

January 2013. This has adversely affected sales as well as profit margins for Accor in

2013 (Tradingeconomies, 2014).

b) Political governments in Southern Europe implemented austerity measures to combat

the economic downturn and thus adversely affected Accor as well.

3.2.2. Economic factors:

a) The economic recession in southern Europe left many European countries struggling with

their economy. Businesses all across southern Europe were affected and Accor was one

among many whose business operations suffered due to this economic downturn. The

effects were visible on the income statements of Accor and its profit margins were

adversely affected in 2012 as the economic recession greatly reduced consumers‟

spending and their tourism activities (Spiegel, 2014).

b) One of the many fallouts of economic recession in Southern Europe were increase in the

tax expenses for businesses and wage cuts besides substantially reducing state

spending (Datamonitor, 2013). Accor was also affected by these measures yet Accor‟s

economy and midscale hotel brands proved instrumental in helping Accor to survive this

economic onslaught (Accor, 2013).

c) With presence in 92 countries (Euromonitor, 2013), Accor is exposed to fluctuations in

currency conversion rates/risks. Negative currency movements notably in Brazil against

Euro adversely impacted its profits by €138 million in 2013 (Financial times, 2013).

d) Rising oil prices all over the world increases inflation rate besides reducing consumers‟

spending and thus negatively affecting Accor‟s business operations (BBC, 2013).

3.2.3. Social factors:

Latin America has witnessed record high increase in the numbers of middle class citizens over

the last few years owing to economic growth and increase in employment rate (CNN, 2013).

The number of middle class families in Latin America has risen to being one-third of the total

population thus equaling the share of middle class to upper class (Worldbank, 2013). This offers

a great opportunity for Accor to further benefit its operations with its wide range of hotel brands.

3.2.4. Technological factors:

a) Online payment solutions: Accor has embarked upon the program of its „digital

transformation‟ in order to consolidate its leadership throughout its value chain (Accor,

2012). The transformation plan includes four customer centric programs and four

programs focused around employees and partners.

b) With 28% growth in its online booking revenues and acknowledging its potentials, Accor

has planned to further improve upon its online booking system as well as customers‟

access services on mobile devices by purchasing French app-maker „Wiplo‟ at the cost

of 225 million euros (Marketline, 2012). The plan will be implemented in a phased

program spanning over next five years.

c) Accor‟s initiative to introduce the reliable and efficient reservation system of TARS

(Travel Accor Reservation System) and upgrading its hotel property management

systems i.e. FOLS and OPERA has yielded positive and favorable results for Accor in

2013‟s revenue generation (Euromonitor, 2013).

3.2.5. Environmental factors: Accor is renowned for its environment friendly initiatives. Accor

has recently launched its „Green key eco rating‟ program of Motel-6 and Studio-6 following the

stringent environmental friendly measures (Accor, 2013).

3.2.6. Legal factors:

a) As Accor‟s business is spread across almost around the entire globe, therefore Accor

needs to be very careful as far as local laws/regulations are concerned as any conflict

with the local laws can seriously hamper the business operations. Accor had to payback

€184.7 million to the French state in compliance to the ruling passed by the French

Supreme Court of Appeal.

b) Saudi Arabian labor regulations restrict all private companies to hire maximum number

of Saudi employees increasing this number by 5% annually in order to meet the long

term Saudi employment objective of 75% Saudis in every local and foreign company

(Reuters, 2013). For Accor, it means additional employees‟ training and expenses. Saudi

government has also decided to impose a monetary fine of 2,400 Riyals per excess

foreigner employee starting from 01 December 2012 (Reuters, 2013).

Analysis of Financial Performance

3.3. Description of Business:

Accor mainly operates in the hotel industry though its other businesses include the corporate

departments and the marginal casinos business as well. The group operates in six geographical

regions i.e. Europe, Asia pacific, Middle East, Latin America/Caribbean and North America

(Accor, 2013). Accor is termed as being the largest hotel network operating in Europe with

2,603 hotels consisting 282,255 rooms which accounts for 61% of its room base

(Businessrecorder, 2013). Accor hotels are found in 92 countries consisting a count of 3,500

hotels and 450,000 rooms (Datamonitor, 2013). The group‟s employees are around 160,000

individuals. Accor‟s Sofitel, Pullman, Adagio and Novotel etc caters for the needs of upscale and

midscale segments whereas ibis, formule1 and hotel F1 etc. caters for the economy segments

(Accor, 2013).

3.4. Revenue Analysis:

Accor‟s total revenue has been €5,568 million in 2011 with a 2.7% increase to being €5,649

million in 2012 whereas the revenues fell by 2% in 2013 to €5,536 million (Accor, 2012 and

2013). Accor underwent a huge expansion program in 2012 wherein it added 38,000 new rooms

which helped generate €154 million to its revenue in 2012 (Market and Research, 2013).

Moreover, positive currency effects as a result of gains in the British sterling and Australian

dollar against the euro in 2012, sustained demand over the year, increased room rates,

renovation programs, opening of upscale hotels especially in Middle East, addition of innovative

hotel reservation system TARS i.e. Travel Accor Reservation System and a complete shift of its

strategy positively contributed in generating revenues for Accor in 2012 (Datamonitor, 2013). On

the other hand, Accor‟s revenue were adversely impacted by the effects of its asset disposal

strategy and negative effects of exchange rates in 2013 whereas revenue from other

businesses saw a decline of 16% due to the disposal of Orbis Transport in Poland (Research

and Markets, 2013).

Marriot earns its revenues from management, franchise and incentive management fees

(Marriot, 2013). Revenues for Marriot were $12,317 million in 2011 falling by 4% to $11,814

million in 2012 and then rising by 8% to $12,784 million in 2013 (Datamonitor, 2013). Spin-off of

timeshare operations and development business and the sale of the ExecuStay® corporate

housing business caused the decline in revenues for 2012 (Marketline, 2013). On the other

hand, innovative approach of doing business operations, higher cost reimbursements, franchise,

management and incentive based fees resulted an increase in revenues for Marriot in 2013

(BBC, 2013).

3.5. Short Term Solvency Ratios:

3.5.1. Current Ratio:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Current Assets 2,576

2,925 2,911 1,324 1,475 1,903

Current Liabilities 2,293 2,736 2,333 2,558 2,773 2,675

Current Ratio 1.12 1.07 1.24 0.52 0.53 0.71

The current ratio for Accor in the three years in consideration falls slightly by 5% in 2012 but

then rises by 15.8% in 2013 due to 14.7% decrease in its current liabilities. Accor can thus

amply meet its current liabilities out of its current assets in all the three years under

consideration. The current assets of Accor raised by 15.3% whereas its current liabilities

increased by 19.2% in 2012. On the other hand, its current assets fell by just 0.5% against a

sharp decline of approx. 15% in its current liabilities in 2013. Current liabilities declined in 2013

as €184.7 million, previously held as “précompte” dividend withholding tax, was paid back by

Accor to the French state in compliance to the ruling passed by the French Supreme Court of

Appeal as well as decline in the short term debt by €415 million from €829 million to €514 million

(Reuters, 2014). The current ratio for Marriot has been 0.52 in 2011 increasing slightly by 2% in

2012 and then by 34% in 2013. This points to the fact that the current assets of Marriot are not

even sufficient to meet its current liabilities in all the three years. This puts Marriot in a low state

0

2000

4000

6000

8000

10000

12000

14000

2011 2012 2013

12317 11814

12784

5568 5649 5536

Revenue Generation

Marriot

Accor

of liquidity even though Marriot pursues to improving its liquidity by following stringent cash

management, strict credit-granting policies, and aggressive collection efforts (Marriot, 2013).

3.5.2. Quick Ratio:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Current Assets 2,576

2,925 2,911 1,324 1,475 1,903

Prepaid

Expenses/Others 411 473 497

347

359

697

Current Liabilities 2,293 2,736 2,333 2,558 2,773 2,675

Quick Ratio 0.94 0.89 1.03 0.38 0.41 0.45

Quick ratio is the ability of the firm to meet its current liabilities out of its most liquid assets i.e.

cash and market securities etc (Investopedia, 2013). Quick ratio for Accor points to the fact that

Accor is still able to meet 94% and 89% of its current liabilities in 2011 and 2012 respectively

even without taking into account its inventories and prepaid expenses. The ratio even improves

further in 2013 when Accor is able to meet 100% of its current liabilities from its most liquid

assets only. The numerator increases by 13.2% in 2012 against 19.3% increase in denominator

thus pulling the quick ratio down by 5% for 2012. The numerator, on the other hand, when

reduces by 1.5% in 2013 against a decline in current liabilities by 14.7% improves the quick

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2011 2012 2013

0.52 0.53

0.71

1.12 1.07

1.24 Current Ratio

Marriot

Accor

ratio by 15.7%. Quick ratio, when compared against the current ratio, can help point to the share

of inventories in its current assets (Investopedia, 2013). The share of inventories in the current

assets of Accor has been 18% in 2011 and 2012 whereas it has been 21% of the current assets

in 2013. The quick ratio for Marriot, though not better than Accor, can be seen gradually

improving in all the three years under consideration. The increase in quick ratio for 2013

increases due to increase in its current assets by $350 million held on account of „assets held

for sale‟, attributed to sale of rights to acquire the landlord‟s interest in a leased real estate

property (Research and Markets, 2013).

3.6. Profitability Ratios:

3.6.1. Gross Profit Margin:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Gross Profit 856 850 865 3,474 2,409 2,493

Net Sales 5,568 5,649 5,536 12,317 11,814 12,784

GP Margin (%) 15.4 15 15.6 28.2 20.4 19.5

The GP margin for Accor averages at 15.3% in the three years in consideration. The gross profit

decreases by 0.7% in 2012 against 1.5% increase in net sales and thus slightly pulling down the

GP margin by 2.6%. However, as the gross profit increases by 1.8% in 2013 against 2%

declining net sales, the GP margin improves by 4%. Revenue increased by 2.7% in 2012 due to

0

0.2

0.4

0.6

0.8

1

1.2

2011 2012 2013

0.38 0.41 0.45

0.94 0.89

1.03 Quick Ratio

Marriot

Accor

its expansion program generating €154 million and increase in management and franchise fees

whereas €87 million increase in the operating and rental expenses in Europe and the recession

in Southern Europe, resulted in lowering down the gross profit for 2012 (Datamonitor, 2013). On

the other hand, opening of 38,000 new rooms, expansion in the owned and leased business by

€19 million as well as 28% growth in online bookings, efficient TARS (Travel Accor Reservation

System) and upgrade of the hotel property management systems i.e. FOLS and OPERA

favorably resulted in revenue generation in 2013 offset by negative currency fluctuations notably

in Brazil, recession in southern Europe, increase in VAT in France by 3% from previous 7%, and

last but not the least the poor weather conditions which deterred leisure guests (Reuters, 2014).

Gross profit margin for Marriot, on the other hand, is consistently declining with a significant

drop of 27.6% in 2012 due to the spin-off of timeshare operations and the sale of the

ExecuStay® corporate housing business, though favorably impacted by an increase in its

lodging revenues especially in the North American regional segment (BBC, 2012). Marriot‟s

revenue increased in 2013 due to its business expansion program and higher management as

well as franchise fees offset by unfavorable fluctuation of $3 million in the exchange rates

(Research and Markets, 2013).

3.6.2. Net Profit Margin:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

0

5

10

15

20

25

30

2011 2012 2013

28.2

20.4 19.5

15.4 15 15.6

Gross Profit Margin

Marriot

Accor

Net Profit 50 (584) 139 198 571 626

Net Sales 5,568 5,649 5,536 12,317 11,814 12,784

NPM (%) 0.9 (10.33) 2.51 1.61 4.83 4.9

Net profit margin tells about the percentage left out from the net sales and thus shareholders

keep a close watch in this ratio for potential returns on their investment (Investopedia, 2013).

Net profit margin for Accor started with a low 0.9% in 2011, got worse in 2012 when it dropped

significantly to (10.33)%, improving by 124.2% in 2013. Though the net sales increased by 1.5%

in 2012 yet the net income dropped enormously due to €679 million loss recognized on account

of the sale of 1,106 US Economy Hotels comprising Motel 6, Studio 6 and iconic North

American brand, €89 million loss incurred due to the project initiated to overhaul its entire

Economy ibis brand, €1 million loss on the sale of its French based Pullman Paris Rive-Gauche,

€3 million increase in deferred income tax owing to adoption of the IAS-19 amendment for

“Employee Benefits”, as well as €47 million loss on the closure/cessation of its hotel leases in

Germany and Netherlands (Financial Times, 2012). Net profit improved in 2013 due to decline

in the impairment losses by €30 million, a net gain of €68 million on disposal of hotel assets,

and net gain of €56 million on account of sale of Sofitel Paris Le Faubourg offset by €33 million

loss on account of overhaul of its ibis brand as well as loss due to its discontinued operations of

the Italian Onboard day Train Services (Business Recorder, 2013). Marriot started off with

1.61% in 2011 rising significantly to 4.83% in 2012 further increasing by 1.4% in 2013. The

increase in the net profit in 2012, despite the declining GP margin, is attributed to the „spin-off‟

of shares mentioned above as well as increase in the lodging business‟ revenues partially offset

by higher income tax expenses by an amount of €120 million (Euromonitor, 2012).

-12

-10

-8

-6

-4

-2

0

2

4

6

2011 2012 2013

1.61

4.83 4.9

0.9

-10.33

2.51

Net Profit Margin

Marriot

Accor

3.6.3. Return on Equity (ROE):

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Net Income 50 (584) 139 198 571 626

Average Equity 3,593 3,148 1,891 402 (1033) (1350)

ROE (%) 1.4 (18.5) 7.35 49.25 (55) (46.3)

Return on equity (ROE) helps measure the return per dollar of equity (Investopedia, 2013).

Accor‟s ROE, though better in comparison to Marriot, is still not very encouraging being (18.5)%

in 2012 rising by 140% in 2013. Decline in ROE for 2012 is attributed to the net loss of (€584)

million due to the reasons mentioned above. However, ROE significantly improves in 2013 as

the net income increases compared to its declining equity. Though Accor is rigorously following

its „asset light‟ strategy by shifting to 80% franchised business model in order to enhance its

shareholders‟ value and increase its operating margins yet it was only able to turn 42% of its

ownership into franchises (Reuters, 2013). Accor‟s new equity strategy is inclined toward private

equity financing and seeking more reliance on short as well as long term debts (Accor, 2013).

Private equity firms colony capital and Eurazeo hold 24.1% of Accor‟s equity share

(Datamonitor, 2013). Accor‟s short and long term debts were approx. €824 million and €727

million respectively (Accor, 2013). The ROE for Marriot declines significantly by 111% in 2012

and improves negligibly by 11% in 2013 primarily attributed to the state of equity deficit due to

purchase of treasury stock worth $1,162 million in 2012 and worth $834 million in 2013 (Marriot,

2013).

-60

-40

-20

0

20

40

60

2011 2012 2013

49.25

-55 -46.3

1.4

-18.5

7.35

ROE

Marriot

Accor

3.7. Investor‟ Ratios:

3.7.1. P/E:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Market value 21.08 26.8 34.98 28.26 36.59 49.19

EPS 0.23 (2.57) 0.61 0.56 1.77 2.05

P/E ratio 91.6 (10.43) 57.3 50.5 20.7 24

Price to Earning (P/E) ratio compares the market price per share and the EPS (Research and

Markets, 2013). As the EPS significantly declines for Accor in 2012 against 27% increase in its

market value, the P/E ratio declines by 102%. On the other hand, the ratio improves by 67.8%

when the market price increases by 31% in 2013 against % increase in the EPS. One of the

major reasons leading to an increase in the market price of Accor‟s share in 2012 has been

Accor‟s bid to buy 59% controlling stakes in the fifth largest budget hotel chain in China i.e.

Motel 168, being sold out by US investment bank Morgan Stanley (Financial Times, 2013).

Accor‟s share price went up in 2013 due to Accor‟s plan to buyback its 86 hotels located in

Germany, Netherlands and Switzerland at the cost of €900 million (Chinadaily, 2013). P/E ratio

for Marriot increased by 15.9% in 2013 due to 16% increase in the EPS against 34% in the

market value. Bidnessetc, (2013) reports that one of the major reasons leading to a sharp

increase in its market share value has been the positive sentiments of its investors that Marriot

is likely to cross $14 billion revenue barrier in 2014 with an increase of 10% growth owing to

stabilizing economies resulting in higher demand/occupancy rate. This will also kick its EPS to

$2.47 growing at 23% (Bidnessetc, 2013).

3.7.2. EPS:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Net Income 50 (584) 139 198 571 626

Number of Shares

(Million)

227.107 227.266 228.053

350.1 322.6 305

EPS 0.23 (2.57) 0.61 0.56 1.77 2.05

EPS helps attract potential investors as it points to the earning investors can expect per share

on their investment (Mindtools, 2013). EPS for Accor decreased significantly in 2012 as the net

income decreases by around 11 times whereas the EPS increases by 218% when the net

income improves significantly in 2013. EPS for Accor points to the fact that investors would get

a return of 23% and 61% in 2011 and 2013 respectively however the net loss in 2012 adversely

affects the EPS by 2.5 times of the per share value (Accor, 2013). EPS for Marriot is better than

Accor in all the three years under consideration with a return of 56%, 177% and 205% in 2011,

2012 and 2013 respectively due to a consistent increase in net income from 2011 through 2013

(Marriot, 2013).

-20

0

20

40

60

80

100

2011 2012 2013

50.5

20.7 24

91.6

-10.43

57.3

P/E Ratio

Marriot

Accor

3.8. Long Term Solvency Ratios:

3.8.1. Debt to Equity Ratio:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Debt 1487 1,552 1,718 2,171 2,528 3,147

Equity 3,537 2,765 2,539 (781) (1285) (1415)

Debt-Equity 0.42 0.56 0.68 4.78 3.97 4.22

Debt to equity ratio points to the relationship between the debt and equity financing of the firm

(QuickMba, 2007). The ratio for Accor is consistently increasing over all the three years under

consideration starting with long term debt being 0.42 times the equity in 2011 deteriorating by

33% to 0.56 times the equity in 2012. This is because though the long term debt increased by

4% in 2012 yet the equity falls by 21.8%. Disciplined management of the working capital,

payment of debts through proceeds from assets‟ disposal i.e. sale of Sofitel Paris La Défense

and US Economy Hotels business‟s helped significantly reduce the debt by €662 million offset

by new long term debts of €727 million (Financial Times, 2013). Equity reduced in 2012 due to

the net loss coupled with a dividend payout of €173 million (Accor, 2013). Long term debt further

increased by 10.6% in 2013 against a fall of 8.2% in its equity which resulted in further

deterioration of the debt-equity ratio by 21.4% to being 68%. Increase in the long term debt is

mainly attributed to new long term loans of €610 million offset by decline in the net debt by €89

million due to proceeds from the sale of Sofitel Paris Le Faubourg bought by Mount Kellett

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

2011 2012 2013

0.56

1.77 2.05

0.23

-2.57

0.61

EPS

Marriot

Accor

Capital Management LP and repayment of loan on account of the sale of Accor‟s stake in TAHL

(Research and Markets, 2013). The debt-equity ratio of Marriot, on the other hand, is alarming

as the company faces an equity deficit in all the three years. The long term debt for Marriot

averages at 4.3 times its equity. Financial leverage „trading on the equity‟, in this case, may not

work well for Marriot as financing expense seem to be greater than the earnings from the

borrowings it has had acquired (Datamonitor, 2013). Spin-off of Marriot vacations worldwide

corporations (MVW) was the major contributing factor resulting in decline of its equity (Business

Recorder, 2013).

3.8.2. Interest coverage ratio:

(Amount in Million)

Accor (€) Marriot ($)

2011 2012 2013 2011 2012 2013

Operating Profit 515 526 536 526 940 988

Interest Expenses 92 75 92 164 137 120

Interest Coverage 5.6 7 5.8 3.2 6.8 8.2

„Interest coverage‟ tells about the times the firm is able to pay its interest liabilities out of the

operating profit (Investopedia, 2013). Interest coverage increased by 1.4 times for Accor in 2012

as the operating profit increased by 2% against decline in the interest expense by 18.5%. The

interest expense decreased due to repayment of €662 million debts through proceeds from

assets‟ disposal (Accor, 2012). The interest coverage deteriorated by 1.2 times in 2013 because

the operating profit though again increased by 2% yet the interest expense increased by a

greater figure of 23%. Acquiring new long term loans of €610 million mainly contributed to an

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2011 2012 2013

4.78

3.97 422

0.42 0.56 0.68

Debt-Equity Ratio

Marriot

Accor

increase in interest expense for 2013 (Accor, 2013). Consistent increase in the operating profit

is attributed to deployment of ibis program, the cost saving plan and 4.7% decline in the rental

expense as a result of lease restructuring offset by €118.1 million increase in the operating

expenses attributed to increase in overheads in Europe, additional distribution costs,

restructuring costs (Marketline, 2013). The interest coverage is consistently improving for

Marriot as its operating profit consistently increases against a declining interest expense.

Declining interest expense is attributed to issuance of net Senior Note retirements at lower

interest rates (Marriot, 2013) whereas the operating profit increased due to increase in the

lodging business as well as increase in franchise, base management and incentive

management fees (Financial Times, 2013).

3.9. Conclusions and Recommendations

Accor decided to revamp its business strategy by changing its business model from being

„owner‟ of maximum hotel brands in its portfolio to being „franchiser‟. Its recently introduced

asset disposal strategy is in line with this business strategy. Though this strategy initially has

resulted in decline of its revenue in 2013 due to loss on its hotels‟ sale yet investors have

positive sentiments on the success of this strategy. Accor has also been rigorously pursuing its

„cost-saving‟ policy which has already resulted in increasing the operating income for Accor over

the years. Together with its asset disposal strategy and rising operating income, Accor is likely

to succeed in enhancing its returns and shareholders‟ value. Following is therefore

recommended for improving Accor‟s performance:

0

1

2

3

4

5

6

7

8

9

2011 2012 2013

3.2

6.8

8.2

5.6

7

5.8

Interest Coverage

Marriot

Accor

a) Further Expansion: Accor can further diversify its geographical reach by expanding into

untapped markets of South Asia which comprise a few emerging economies like India.

This will not just increase its market share but will also fetch additional revenues for

Accor.

b) Online Payment Solutions: Accor though rapidly adapts its business operations to the

changing technological developments/advancements. Though planned in its „digital

transformation‟ program, it has not yet incorporated online payment solutions in its online

booking system and thus needs to be incorporated at priority to avoid losing market

share to its competitors.

c) Increase in Debt: Accor‟s debt has been increasing over the three years in review i.e.

by 4.4% and 10.7% in 2012 and 2013 respectively (Accor, 2013). Its asset disposal

strategy has not being implemented in true letter and spirit as proceeds from its

sale/assets‟ disposal has instead been utilized to reduce the debt burden. Therefore,

Accor needs to rigorously pursue its „asset light‟ strategy in true spirits so as to ensure

that the gains are transferred to its shareholders.