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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 Analysts 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)

Investors 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.
3.8.

3.9.

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

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

3.8.1.

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

3.8.2.

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

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 Analysts 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 E n g s t r o m , 2 0 1 0 ) . 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 9 9 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 organizations 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 (L a o n t
and Tirole, 2000). Leverage ratios calculated for Accor and Marriot comprise of Debtequity ratio and interest coverage.

d) Investors 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 Europes
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: Accors 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). Accors 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 1 st

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 Accors
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 Accors 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) Accors 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
2013s 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 Accors 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 groups employees are around 160,000
individuals. Accors 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:

Accors 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, Accors 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).

14000

Revenue
Generation
12784

12317

11814

12000
10000
Marriot

8000
5649

5568

5536

Accor

6000
4000
2000
0
2011

3.5.

2012

2013

Short Term Solvency Ratios:

3.5.1. Current Ratio:

(Amount in Million)
2011
Current Assets

2,576

Accor ()
2012
2,925

2013
2,911

2011
1,324

Marriot ($)
2012
1,475

2013
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 prcompte 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

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).

Current Ratio

1.4

1.24
1.12

1.2

1.07

1
0.71

0.8
0.6

Marriot

0.53

0.52

Accor

0.4
0.2
0
2011

2012

2013

3.5.2. Quick Ratio:

(Amount in Million)
2011
Current Assets

2,576

Accor ()
2012
2,925

2013
2,911

2011
1,324

Marriot ($)
2012
1,475

2013
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

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 landlords interest in a leased real estate
property (Research and Markets, 2013).

Quick Ratio

1.2

1.03
0.94

0.89

0.8
Marriot
0.6

0.45

0.41

0.38

Accor

0.4
0.2
0
2011

3.6.

2012

2013

Profitability Ratios:

3.6.1. Gross Profit Margin:

(Amount in Million)
Accor ()
2012
850

2013
865

2011
3,474

Marriot ($)
2012
2,409

Gross Profit

2011
856

2013
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

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). Marriots
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).

30

Gross Profit Margin

28.2

25

20.4

20

15.4

19.5
15.6

15

Marriot

15

Accor

10
5
0
2011

2012

2013

3.6.2. Net Profit Margin:

(Amount in Million)
2011

Accor ()
2012

2013

2011

Marriot ($)
2012

2013

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).

4.9

4.83

6
1.61

2.51
0.9

0
-2

2011

2012

-6
-8

-12

2013

Marriot
Accor

-4

-10

Net Profit Margin

-10.33

3.6.3. Return on Equity (ROE):

(Amount in Million)

Net Income

2011
50

Accor ()
2012
(584)

2013
139

Average Equity

3,593

3,148

1.4

(18.5)

ROE (%)

2011
198

Marriot ($)
2012
571

2013
626

1,891

402

(1033)

(1350)

7.35

49.25

(55)

(46.3)

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

ROE

49.25

40
20

7.35

1.4

Accor

0
2011

2012

-20

2013

-18.5

-40
-46.3
-60

Marriot

-55

3.7.

Investor Ratios:

3.7.1. P/E:
(Amount in Million)

Market value

2011
21.08

Accor ()
2012
26.8

2011
28.26

Marriot ($)
2012
36.59

2013
34.98

2013
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 Accors share in 2012 has been
Accors 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).
Accors share price went up in 2013 due to Accors 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).

P/E Ratio

91.6

100
80
60

57.3

50.5

Marriot
40

Accor

24

20.7
20
0
2011

2012
-10.43

-20

2013

3.7.2. EPS:
(Amount in Million)

Net Income

2011
50

Accor ()
2012
(584)

2013
139

Number of Shares

227.107

227.266

228.053

(Million)
EPS

0.23

(2.57)

0.61

2011
198

Marriot ($)
2012
571

2013
626

350.1

322.6

305

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).

2.5
2

EPS

2.05

1.77

1.5
1

0.61

0.56
0.23

0.5

Marriot

0
-0.5

2011

2012

Accor

2013

-1
-1.5
-2
-2.5

-2.57

-3

3.8.

Long Term Solvency Ratios:

3.8.1. Debt to Equity Ratio:

(Amount in Million)

Debt

2011
1487

Accor ()
2012
1,552

2011
2,171

Marriot ($)
2012
2,528

2013
1,718

2013
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 Dfense
and US Economy Hotels businesss 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

Capital Management LP and repayment of loan on account of the sale of Accors 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).

Debt-Equity Ratio

4.78

4.5

422

3.97

4
3.5
3

Marriot

2.5

Accor

2
1.5
1

0.68

0.56

0.42

0.5
0
2011

2012

2013

3.8.2. Interest coverage ratio:

(Amount in Million)

Operating Profit

2011
515

Accor ()
2012
526

2011
526

Marriot ($)
2012
940

2013
536

2013
988

Interest Expenses

92

75

92

164

137

120

Interest Coverage

5.6

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

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).

8.2

9
8

6.8

7
5.8

5.6

Marriot

5
4

Interest Coverage

Accor

3.2

3
2
1
0
2011

3.9.

2012

2013

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 Accors performance:

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: Accors 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.