A managerial accounting report for Hilton.

to 7.05% in 2001, since the income generated from the operating activities dropped by approximately $200 million . Hilton also experienced a dramatic decrease in ROE, falling from 30.88% in 2000 to only 14.19% in 2001, because the interest and dividend income decreased $22 million in 2001 compared with the prior year, primarily due to repayments on notes receivable which were outstanding for most of 2000 . The reduction both in the operating profit and total revenue leads to the decrease in the ROS from 24.05% in 2000 to 20.72% in 2001, because many people lost their confidence in travelling after the September 11th event, lots of meetings and conferences were cancelled, which lead to a great decrease in the high-margin food and beverage revenue . The quality of profit rose from 70.96% in 2000 to 92.56% in 2001, because Hilton obtained a net loss on asset dispositions of $44 million in 2001, primarily due to the sale of the Red Lion hotel chain, compared to a net gain of $32 million in 2000 from the sale of marketable securities . It is noticed from above that the profitability performance of Hilton Group is declining. This is mainly because that the economic downturn in the United States resulted in weaker demand (primarily from business travellers and group meetings) in their major markets prior to the September 11th terrorist attacks. The attacks resulted in severe decline in occupancy and room rates at most of owned hotels.The aftermath of the September 11th events spread all over the hotel industry, Queens Moat hotel also experienced the “like for like” decrease in ROCE, ROTA, ROE, ROS and quality of profit, from 13.24% to 9.06%,7.45% to 5.96%, 35.81% to 3.89%, 18.99% to 15.47% and 148.51% to 144.06% in year 2000 and 2001 respectively . What is important to notice is that the quality of profit ratio of Hilton is below 100% while that of Queens Moat hotel is in excess of 100%. The main factor contributes to this situation might be that Hilton Group is a truly international cooperation which makes it much more vulnerable to the severe impact of September 11th events than the Queens Moat hotel who only operates its business in United Kingdom, Germany and Netherlands.2.2 Analysis of GrowthYear 2000 was a good year to Hilton who enjoyed an enormous growth rate of 60.51%. Total revenue for 2000 was $3.45 billion, an increase of 1.3 billion over 1999. The 2000 results benefited from the Promus acquisition, which was completed on November 30, 1999, and from other 1999 acquisition and development activity. Continued high demand for hotel rooms in many major US cities and little competition in the same markets where Hilton operates also contributed to huge increase in revenue. However, because of the September 11th terrorist attacks in 2001, Hilton suffered from a negative growth rate of -11.62% due to the lower attendance of rooms and business meetings. During the same period, Queens Moat Hotel also experienced negative growth rate of -5.74% and -5.07% in year 2000 and 2001 respectively . The revenue in 2001 was £334.9 million, after taking account of portfolio changes and foreign exchange rate movements, reflected an underlying fall of 3.1% or £10.7million.2.3 Analysis of Liquidity and stabilityIn this part, five major indicators will be used to measure the liquidity and stability of the companies: Current ratio, Quick ratio, Cash interest cover, Cash dividend cover, Cash debt coverage.The major difference between current ratio and quick ratio is that whether the “stock” is included in the numerator, but from the results of the calculations of current ratio and quick ratio for both companies in two years, we found out that the ratios are all slightly above or below 1, which means that both companies were able to meet short-term creditors. In addition, as for the case of Hilton, because they currently have two revolving credit facilities, the total revolving debt capacity of approximately $730 million was available to them at December 31, 2001, which further enhanced their ability to pay the short-term creditors. However, the disadvantage of these two ratios is that they only measure the liquidity at a single point in time, so cash flow analysis which includes the calculations of the ratios such as cash interest cover, cash dividend cover and cash debt coverage should be added in order to capture the extremely important relationship between cash inflows and outflows over a period of time. Hilton obtained increases in the cash interest cover and cash dividend cover ratios, from 1.47 times to 1.81 times and from 6.45 times and 8.73 times in year 2000 and 2001 respectively. The net cash provided by operating activities totalled $589 million and $584 million for the years ended December 31 2000 and 2001 . Although there was a decrease in the net cash provided by the operating activities in year 2001, the increases in these two ratios could still be obtained because of the less interest paid which totalled $324 million in 2001 compared to that of $420 million in 2000. However, the cash interest cover of Queens Moat Hotel dropped from 1.94 times in year 2000 to 1.53 times because the net cash inflow generated from the operating activities fell dramatically from £99.5 million in 2000 to £71.6 million in 2001. As for the cash dividend cover, the company had a deficit on distributable reserves, hence no ordinary share dividend was proposed by the directors in respect of the year 2000 and 2001. In year 2000, Hilton had done well in the cash debt coverage, the cash from the operation could pay the maturing debt 6.87 times, however, due to the steep increase in the maturing debt because of the uncertain and pessimistic view of the economic outlook after the September 11th attack in year 2001, although the cash from operating activities retained stable, the cash debt coverage dropped suddenly to 0.63 times . In these two years. Queens Moat Hotel was also in an insufficient position to repay the maturing debt by the decreasing net cash flow from operation.Looking at the longer-term trend of three years for Hilton (See Table 1), in the case of the current and quick ratio, the company seems to be able to maintain a relatively low pair of ratios with a current ratio hovering around 1.21 times and a quick ratio rising and closing at 1.0 times. The company maintains a strong impetus in the quality of operating, growing from 56.36% to 92.56%. The cash dividend cover also enjoyed the same growth. Although the cash interest cover fell lightly from 1.65 in 1999 to 1.47 in 2000, it rose to 1.81 in 2001. The cash debt coverage dropped dramatically from 7.67 times to 0.63 times . Table 11999 2000 2001Current ratio (times) 1.21 1.30 1.10Quick ratio (times) 1.07 0.98 0.94Quality of operating profit (%) 56.36% 70.96% 92.56%Cash interest cover (times) 1.65 1.47 1.81Cash dividend cover (times) 5.26 6.45 8.73Cash debt coverage (times) 7.67 6.87 0.63Sources: Appendix A and Appendix B2.4 Analysis of Management of Financial RiskCompanies are becoming more and more multinational in their operations and the financial market place is becoming larger, wider and more sophisticated in its products and operations. Thus the need to assess a company’s management of, and ongoing position in, its financial risks increases in importance. The fixed assets to total assets ratio and the total debt to total assets ratio will be analyzed in this aspect. Because in year 2000, Hilton only had to pay $23 million for the debt maturing with twelve months, and the cash debt coverage was 6.87 times, although the fixed assets to total assets ratio was high, totalled 90.81%, in this year, Hilton was still able to pay its short-term debt. However, in year 2001, Hilton had to pay $365 million for maturing debt, and the cash debt coverage dropped to 0.63 times, still with the high fixed assets to total assets ratio, Hilton might have difficulty in generating sufficient cash to pay its short-term debt. And the situation in Queens Moat Hotel was even worse, because its cash debt coverage were 0.60 times and 0.34 times in year 2000 and 2001 respectively, but the fixed assets to total assets rose from 89.27% in 2000 to 90.59% in 2001, which means Queens Moat Hotel was in a tougher situation to gather the money to pay the maturing debts .3. Conclusion From the analysis of the performance of Hilton and Queens Moat Hotel in this report, we recognize that the tremendous impact of the September 11th terrorist attack on the hospitality industry. The decrease in the ratios of ROTA, ROE and ROS and the negative growth in year 2001 after the attack signal the decline in the profitability performance of Hilton hotel, but backed up by its comprehensive revolving programs, Hilton is still in a strong position to generate cash to pay its short-term debt and being able to overcome financial risks.In spite of the extremely difficult operating environment Hilton faced in year 2001, with the on-going business recovery, there is much work to be done. Controlling cost and reducing debt should be their primary focus. They should continue their cost-saving program beginning early in 2001 and try to enter more new franchise agreements where their money generates from. Brand development is also important to them, because this can help the company to increase their market share. It is necessary for Hilton to restore the public’s confidence in travel. They should continue to boost travel and tourism by participating in industry advertising and marketing campaigns, working with the state tourism agencies to increase promotional budgets and support the airline industry. The company should focus on its straightforward strategies which is stated in the executive review, first is to maximize return on assets for their own properties, second is to show strong fee income on revenue increases at hotels in their franchised and managed system and by adding hotels to that system, and last is to maintain a focus on day-to-day operations . With a strong management team and enthusiastic employees, Hilton will be able to manage the recovery and move onto a prosperous future.