Which revenue category is the most important to forecast accurately

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 2018 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 2019-02-26. This is the latest available at the time this project was developed. 7. Repeat 1 through 6 for Marriott International (MAR) for year 2018 on the SEC website. You should see a 10-K with a filing date of 2019-03-01. 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.

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

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 34.82% $ 376,676,000 36.17% $ 341,745,000 36.31% Base management fees $ 1,180 5.63% $ 1,140 5.49% $ 1,102 5.39%

Initial franchise and relicensing fees $27,489,000 2.47% $ 26,072,000 2.50% $ 23,038,000 2.45% Franchise fees $ 2,006 9.57% $ 1,849 8.91% $ 1,586 7.75%

Procurement services $61,429,000 5.51% $ 52,088,000 5.00% $ 40,451,000 4.30% Incentive management fees $ 637 3.04% $ 649 3.13% $ 607 2.97%

Marketing and reservation system $577,426,000 51.80% $ 543,677,000 52.21% $ 499,625,000 53.08% Gross fee revenues $ 3,823 18.23% $ 3,638 17.53% $ 3,295 16.11%

Owned Hotels $20,282,000 1.82% $ - 0 0.00% $ - 0 0.00% Contract investment amortization $ (62) -0.30% $ (58) -0.28% $ (50) -0.24%

Other $40,043,000 3.59% $ 42,791,000 4.11% $ 36,438,000 3.87% Net fee revenues $ 3,761 17.93% $ 3,580 17.25% $ 3,245 15.87%

Total revenues $1,114,820,000 100.00% $ 1,041,304,000 100.00% $ 941,297,000 100.00% Owned, leased, and other revenue $ 1,612 7.69% $ 1,635 7.88% $ 1,752 8.57%

OPERATING EXPENSES: Cost reimbursement revenue $ 15,599 74.38% $ 15,543 74.88% $ 15,455 75.57%

Selling, general and administrative $168,833,000 15.14% $ 170,027,000 16.33% $ 165,821,000 17.62% Total revenues $ 20,972 100.00% $ 20,758 100.00% $ 20,452 100.00%

Depreciation and amortization $18,828,000 1.69% $ 14,330,000 1.38% $ 6,680,000 0.71% OPERATING COSTS AND EXPENSES

Marketing and reservation system $579,139,000 51.95% $ 534,266,000 51.31% $ 479,400,000 50.93% Owned, leased, and other-direct $ - 0 0.00% $ 1,306 6.29% $ 1,411 6.90%

Owned Hotels $14,448,000 1.30% $ - 0 0.00% $ - 0 0.00% Depreciation, amortization, and other $ 341 1.63% $ 226 1.09% $ 229 1.12%

Total operating expenses $781,248,000 70.08% $ 718,623,000 69.01% $ 651,901,000 69.26% General, administrative, and other $ 938 4.47% $ 927 4.47% $ 921 4.50%

Impairment of goodwill -$3,097,000 -0.28% $ (4,289,000) -0.41% $ - 0 0.00% Merger-related costs and charges $ 138 0.66% $ 155 0.75% $ 159 4.50%

Gain on sale of assets, net $100,000 0.01% $ 82,000 0.01% $ 257,000 0.03% Reimbursed expenses $ - 0 0.00% $ 15,778 76.01% $ 15,228 74.46%

Operating income $318,642,000 28.58% $ 318,474,000 30.58% $ 289,653,000 30.77% Total operating expenses $ 19,172 91.42% $ 18,392 88.60% $ 17,948 87.76%

OTHER INCOME AND EXPENSES, NET: OPERATING INCOME $ 1,800 8.58% $ 2,366 11.40% $ 2,504 12.24%

Interest expense $46,807,000 4.20% $ 45,908,000 4.41% $ 45,039,000 4.78% Gains and other income, net $ 154 0.73% $ 194 0.93% $ 688 3.36%

Interest income -$9,996,000 -0.90% $ (7,452,000) -0.72% $ (5,920,000) -0.63% Interest expense $ (394) -1.88% $ (340) -1.64% $ (288) -1.41%

Loss on extinguishment of debt $7,188,000 0.64% $ - 0 0.00% $ - 0 0.00% Interest income $ 26 0.12% $ 22 0.11% $ 38 0.19%

Other (gain) loss -$4,862,000 -0.44% $ 1,437,000 0.14% $ (3,229,000) -0.34% Equity in earnings $ 13 0.06% $ 103 0.50% $ 40 0.20%

Equity in net (income) loss of affiliates $9,576,000 0.86% $ 5,323,000 0.51% $ 4,546,000 0.48% INCOME BEFORE INCOME TAXES $ 1,599 7.62% $ 2,345 11.30% $ 2,982 14.58%

Total other income and expenses, net $48,713,000 4.37% $ 45,216,000 4.34% $ 40,436,000 4.30% Provision for income taxes $ (326) -1.55% $ (438) -2.11% $ (1,523) -7.45%

Income before income taxes $269,929,000 24.21% $ 273,258,000 26.24% $ 249,217,000 26.48% NET INCOME $ 1,273 6.07% $ 1,907 9.19% $ 1,459 7.13%

Income taxes $47,051,000 4.22% $ 56,903,000 5.46% $ 126,890,000 13.48% EARNINGS PER SHARE

Net income $222,878,000 19.99% $ 216,355,000 20.78% $ 122,327,000 13.00% Earnings per share - basic $ 3.83 0.02% $ 5.45 0.03% $ 3.89 0.02%

Basic earnings per share: Earnings per share - diluted $ 3.80 0.02% $ 5.38 0.03% $ 3.84 0.02%

Basic earnings per share (in dollars per share) $4.00 0.00000035880% $ 3.83 0.00000036781% $ 2.16 0.00000022947%

Diluted earnings per share (in dollars per share) $3.98 0.00000035701% $ 3.80 0.00000036493% $ 2.15 0.00000022841%

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.