Marriott International Inc. (NASDAQ:MAR)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) exhibited an initial decline from 2015 to 2016, followed by substantial growth through 2018, and then a decrease in 2019. The cost of capital remained relatively stable, with a gradual increase peaking in 2017 before declining slightly. Invested capital experienced a dramatic increase between 2015 and 2016, followed by a decrease and relative stability through 2019. These movements collectively impacted economic profit, resulting in a shift from positive economic profit to negative economic profit and subsequent fluctuations.

Net Operating Profit After Taxes (NOPAT)

NOPAT began at US$1,097 million in 2015, decreased to US$1,039 million in 2016, and then increased significantly to US$1,463 million in 2017. The largest increase occurred between 2017 and 2018, reaching US$2,260 million. However, NOPAT decreased to US$1,577 million in 2019, indicating a potential reversal of the prior growth trend.

Cost of Capital

The cost of capital showed a modest increase from 16.71% in 2015 to 16.82% in 2016. It peaked at 17.95% in 2017, then decreased to 17.36% in 2018, and finally to 16.69% in 2019. The fluctuations suggest sensitivity to broader economic conditions or changes in the company’s risk profile.

Invested Capital

Invested capital increased substantially from US$758 million in 2015 to US$16,537 million in 2016. This was followed by a decrease to US$14,229 million in 2017, and then relative stability at US$14,627 million in 2018 and US$13,992 million in 2019. The large increase in 2016 warrants further investigation to understand the underlying drivers.

Economic Profit

Economic profit was positive at US$971 million in 2015. However, it became negative in 2016 at -US$1,743 million and remained negative through 2019, reaching -US$1,091 million in 2017, -US$278 million in 2018, and -US$758 million in 2019. The negative economic profit indicates that the company’s returns are not exceeding its cost of capital. While the magnitude of the loss decreased in 2018 and 2019, it remained a concern.

The shift to negative economic profit in 2016, despite a rise in NOPAT, is attributable to the significant increase in invested capital. The subsequent fluctuations in economic profit are influenced by the interplay between NOPAT, cost of capital, and invested capital. The decrease in NOPAT in 2019, coupled with a relatively stable invested capital base, contributed to the continued negative economic profit.

The financial data reflects the company's net income and net operating profit after taxes (NOPAT) over the five-year period from 2015 to 2019.

Net Income

Net income displayed fluctuations during the analyzed period. It began at 859 million US dollars in 2015, experienced a slight decrease to 780 million in 2016, then increased significantly to 1,372 million in 2017. The upward trend continued with a peak at 1,907 million in 2018 before declining to 1,273 million in 2019. This pattern suggests variability in profitability, with a notable peak in 2018 followed by a reduction in the subsequent year.

Net Operating Profit After Taxes (NOPAT)

The NOPAT figures followed a somewhat similar pattern, starting at 1,097 million US dollars in 2015 and slightly decreasing to 1,039 million in 2016. In 2017, NOPAT increased sharply to 1,463 million and continued its upward trajectory to reach the highest value of 2,260 million in 2018. However, in 2019, NOPAT saw a decrease to 1,577 million. The larger magnitude of changes in NOPAT compared to net income indicates that operating profitability experienced more pronounced fluctuations, with a strong peak in 2018.

Overall, the data reveals a pattern of growth in both net income and NOPAT leading up to 2018, followed by a decline in 2019. The significant increase in 2018 suggests a particularly strong operational and financial performance that year, which was not sustained in 2019. This trend may prompt further examination of underlying factors affecting profitability, including operating efficiency, market conditions, or extraordinary items impacting net income.

Provision for Income Taxes

The provision for income taxes exhibits significant fluctuation over the five-year period. It started at 396 million USD in 2015, increased slightly to 404 million USD in 2016, then surged sharply to 1,464 million USD in 2017. Following this peak, it decreased substantially to 438 million USD in 2018 and further to 326 million USD in 2019. This volatility suggests irregularities potentially related to changes in taxable income, tax strategies, or one-time tax events within the observed period.

Cash Operating Taxes

Cash operating taxes show an upward trend from 315 million USD in 2015 to a peak of 1,691 million USD in 2017. After this peak, cash taxes declined considerably to 626 million USD in 2018 and then decreased slightly to 577 million USD in 2019. The large increase in 2017 followed by a sharp reduction indicates a potential timing difference between accrued tax provisions and actual cash taxes paid, or a resolution of prior period tax liabilities.

Overall Insights

Both provision for income taxes and cash operating taxes demonstrate pronounced variability, especially in 2017, where both metrics reached their highest values within the period. The 2017 spike may reflect extraordinary tax circumstances, such as adjustments for deferred tax liabilities, changes in tax legislation, or significant shifts in pre-tax income figures. The subsequent decreases in 2018 and 2019 suggest normalization or rectification following the exceptional activity in 2017.

Total Reported Debt & Leases

The total reported debt and leases shows a consistent upward trend throughout the period from 2015 to 2019. The amount more than doubled from approximately $4.9 billion in 2015 to roughly $12 billion in 2019. This indicates a significant increase in the company’s leverage and financial obligations over these years.

Shareholders’ Equity (Deficit)

Shareholders’ equity exhibits notable volatility over the period. It started with a deficit of about $3.6 billion in 2015, turned positive to reach a peak of approximately $5.4 billion in 2016, and then gradually declined in subsequent years to a much smaller positive value of around $0.7 billion by the end of 2019. The sharp swing from deficit to surplus and the subsequent erosion suggests fluctuations in net assets, possibly driven by operational performance, capital changes, or valuation adjustments.

Invested Capital

Invested capital experienced substantial growth from 2015 to 2016, jumping from $758 million to over $16.5 billion, reflecting a major change in asset base or capital structure. After this significant increase, the invested capital decreases slightly over the following years, stabilizing near $14 billion by 2019. This pattern indicates a period of considerable investment or acquisition activity followed by a phase of relative stabilization or modest divestment.

Overall Insights

The data suggests an overall increase in leverage with rising debt levels and fluctuating equity, which may point to increased financial risk or strategic financing decisions. The large increase in invested capital followed by a moderate decline could reflect business expansion efforts followed by optimization or consolidation. The reduction in shareholders’ equity after peaking might warrant further investigation into profitability, asset impairments, or dividend policies affecting retained earnings.

The period under review demonstrates a significant shift in financial performance as measured by economic value added metrics. Initially positive, economic profit transitions to negative values, while invested capital fluctuates considerably. The economic spread ratio, reflecting the efficiency of capital deployment, exhibits a consistent downward trend.

Economic Profit

Economic profit begins at US$971 million in 2015, indicating value creation. However, it declines sharply to a loss of US$1,743 million in 2016. Subsequent years show continued negative economic profit, though with diminishing magnitude (-US$1,091 million in 2017, -US$278 million in 2018, and -US$758 million in 2019). This suggests a growing inability to generate returns exceeding the cost of capital.

Invested Capital

Invested capital experiences a substantial increase from US$758 million in 2015 to US$16,537 million in 2016. This is followed by a decrease to US$14,229 million in 2017, and a slight increase to US$14,627 million in 2018. The final year, 2019, shows a further reduction to US$13,992 million. The volatility in invested capital may be linked to acquisitions, divestitures, or changes in capital expenditure policies.

Economic Spread Ratio

The economic spread ratio begins at a high of 128.10% in 2015, signifying a substantial spread between return on invested capital and the cost of capital. However, the ratio declines dramatically to -10.54% in 2016, indicating that returns are no longer covering the cost of capital. This negative trend persists through 2019, with the ratio reaching -5.42%. The consistent decline suggests a deterioration in the efficiency with which capital is employed to generate profits.

The combined trends suggest that while significant capital was deployed, particularly in 2016, the returns generated were insufficient to cover the cost of that capital. The decreasing economic spread ratio confirms this, highlighting a growing gap between the profitability of investments and their associated costs. The later years show some moderation in the economic profit losses, but the economic spread ratio continues to indicate underperformance.

The economic profit margin exhibited significant fluctuations between 2015 and 2019. Initial profitability, as measured by economic profit, transitioned to negative values over the period, impacting the economic profit margin accordingly.

Economic Profit Margin Trend

In 2015, the economic profit margin stood at 6.70%. This represents a positive return on revenues from an economic perspective. However, the margin declined sharply to -10.21% in 2016, indicating a substantial economic loss relative to revenues. A partial recovery was observed in 2017, with the margin improving to -4.76%, though remaining negative. Further improvement occurred in 2018, reaching -1.33%, suggesting a narrowing of the economic loss. The margin then deteriorated again in 2019, ending the period at -3.59%.

Relationship to Adjusted Revenues

Adjusted revenues generally increased from 2015 to 2017, rising from US$14,486 million to US$22,894 million. While revenues decreased slightly in 2018 to US$20,904 million, they remained relatively stable in 2019 at US$21,101 million. Despite the revenue growth, the negative economic profit consistently resulted in a negative economic profit margin for most of the analyzed period. The decline in the margin in 2016 coincided with a significant drop in economic profit despite a substantial increase in adjusted revenues.

The consistent negative economic profit from 2016 through 2019 suggests that the company’s cost of capital was not adequately covered by its operating profits. While revenue growth was present during parts of the period, it was insufficient to offset the economic losses and improve the economic profit margin.