Executive Summary
Purpose of Report
Choice Hotels has requested Maryland Creative Solutions, LLC provides an overall evaluation of the health of their business by applying techniques such as financial ratio analysis and balance sheet ratios to their financial reports (10-Q and 10-K). For the purposes of this report, the health of the business includes but is not limited to:
- solvency and leverage
- asset management
- working capital
Methods
In order to analyze the financial health and stability of Choice Hotels, MCS utilized the following ratios:
- the quick and current ratio
- debt-to-asset ratio
- times interest earned ratio
- working capital ratio
- total asset turnover ratio
Findings and Conclusions
After analyzing the financial reports; Income statement, balance sheet, and cash flow statement, MCS has concluded that although the drastic change in working capital, quick and current ratio. The financial stability of the company is highlighted in the time’s interest earned ratio as well as the debt to asset ratio. These ratios highlight the company s ability to pay its debt obligations which improved from 6.6404 to 7.6738 and 1.2599 to 1.1448 respectively. Working capital has been affected due to the use of cash and cash equivalents to acquire WoodSpring Hotels Franchise Services.
Recommendations
The analysis coupled with the findings and conclusions, the overall financial stability of Choice Hotels is strong but does have a low working capital due to recent acquisitions last fiscal year. In order to improve working capital the company can issue common and treasury stock, but, with the new acquisition, increase in yearly net income, and the issuance in previous fiscal years, it does not behoove the company to issue any such stock at this time
