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By: Allie Leon

By: Allie Leon. Valuation Using Cash Flows. Operations. 3900 lodging properties in 72 countries Controls about 10 % of US hotel market and 1% worldwide Made up of 19 brands Adds hotels to system through franchising Minimizes financial leverage and risk Marriott credit card revenue

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By: Allie Leon

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  1. By: Allie Leon Valuation Using Cash Flows

  2. Operations • 3900 lodging properties in 72 countries • Controls about 10 % of US hotel market and 1% worldwide • Made up of 19 brands • Adds hotels to system through franchising • Minimizes financial leverage and risk • Marriott credit card revenue • Recent scandal

  3. Why the FCF method? • Investors and debtors care about cash • Free cash flows are the funds available to pay these two parties • The present value of all future cash flows are relevant • Using the accounting method of FCF, it is important to note that there is no FCF effect until money is transferred into/out of the company to the two parties • FCF = EPAT - NEA

  4. Assumptions for Marriott Based on financial statement analysis, I’ve arrived at the following assumptions: • Sales growth rate: 6% • Enterprise profit margin (EPM): 3.79% • Enterprise asset turnover (EATO): 7.13 Sales and EPM in line with industry *EATO is significantly higher than three competitors - their averages range from .92 – 1.67 - Marriott has consistently been significantly above the industry and there is no reason to believe any different going forward

  5. Valuation using free cash flows • PV of cash flows = FCF / discount factor • Continuing value cash flows = FCF / (r-g) • PV of continuing value = cash flow/discount factor • Enterprise value = estimated cash flows + continuing value

  6. Questions??

  7. Sources • Marriott International, Inc. 2012 Annual Report • Yahoo Finance • NASDQ

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