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 slight increase observed between 2016 and 2017. Invested capital experienced a dramatic increase in 2016, followed by declines in subsequent years. These movements collectively impacted economic profit, resulting in a shift from positive economic profit to negative economic profit and subsequent variations.

NOPAT Trend

NOPAT decreased from US$1,097 million in 2015 to US$1,039 million in 2016, representing a decline of approximately 5.3%. A significant increase was then observed, with NOPAT reaching US$2,260 million in 2018. However, NOPAT decreased again in 2019 to US$1,577 million, a reduction of approximately 30.1% from the prior year.

Cost of Capital

The cost of capital showed relative stability throughout the period. It increased from 16.78% in 2015 to 16.89% in 2016, peaked at 18.02% in 2017, decreased to 17.43% in 2018, and then declined further to 16.76% in 2019. These fluctuations were relatively minor compared to the changes observed in NOPAT and invested capital.

Invested Capital

Invested capital experienced a substantial increase 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, US$14,627 million in 2018, and US$13,992 million in 2019. The large increase in 2016 significantly altered the relationship between NOPAT and invested capital.

Economic Profit

Economic profit was positive in 2015 at US$970 million. However, it became negative in 2016, reaching -US$1,754 million, and remained negative through 2019. The negative economic profit in 2016 was likely driven by the significant increase in invested capital, while the subsequent years’ negative values were influenced by both NOPAT fluctuations and the continued high level of invested capital. The least negative economic profit occurred in 2018 at -US$289 million, coinciding with the peak in NOPAT.

The observed trends suggest that while the company demonstrated an ability to generate substantial NOPAT in certain periods, the level of invested capital and the cost of that capital frequently resulted in negative economic profit. The substantial increase in invested capital in 2016 appears to have had a lasting impact on economic profit, requiring significantly higher NOPAT to achieve positive economic returns.

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 corresponding decline over the observed timeframe.

Economic Profit

Economic profit begins at US$970 million in 2015, indicating value creation. However, it becomes negative in 2016 at -US$1,754 million, and remains negative through 2019, ending at -US$768 million. This suggests a consistent failure to generate returns exceeding the cost of capital during these later years.

Invested Capital

Invested capital experiences a substantial increase from US$758 million in 2015 to US$16,537 million in 2016. Following this peak, it decreases to US$14,229 million in 2017, then slightly increases to US$14,627 million in 2018, before concluding at US$13,992 million in 2019. The initial surge in invested capital does not correlate with continued positive economic profit.

Economic Spread Ratio

The economic spread ratio starts at a high of 128.03% in 2015, signifying a substantial spread between return on invested capital and the cost of capital. A sharp decline is then observed, with the ratio becoming negative in 2016 at -10.61%. This negative trend continues, reaching -5.49% in 2019. The consistently decreasing and ultimately negative economic spread ratio indicates a diminishing ability to generate returns above the cost of capital.

The combined trends suggest that while capital investment increased significantly in 2016, the returns generated from that investment were insufficient to cover the cost of capital. The subsequent years demonstrate a continued inability to achieve positive economic profit, as reflected in the declining economic spread ratio. The substantial initial investment appears to have not translated into sustained value creation.

The economic profit margin exhibited significant fluctuations between 2015 and 2019. Initial profitability, as measured by economic profit, transitioned to negative values and remained negative throughout the majority of the analyzed period. This shift is reflected in the economic profit margin, which demonstrates a clear downward trend followed by limited recovery.

Economic Profit Margin Trend

In 2015, the economic profit margin stood at 6.70%. This represents a positive return on revenues exceeding the cost of capital. However, the margin experienced a substantial decline in 2016, falling to -10.27%. This indicates that the company’s revenues were insufficient to cover its cost of capital. The margin remained negative in 2017 and 2018, at -4.81% and -1.38% respectively, suggesting continued underperformance relative to its cost of capital. A slight improvement was observed in 2019, with the margin increasing to -3.64%, though it remained in negative territory.

Relationship between Adjusted Revenues and Economic Profit Margin

Adjusted revenues increased from US$14,486 million in 2015 to US$17,072 million in 2016, and further to US$22,894 million in 2017. Despite this revenue growth, the economic profit margin deteriorated significantly in 2016. While revenues decreased slightly in 2018 to US$20,904 million, the margin showed a modest improvement. Revenues remained relatively stable in 2019 at US$21,101 million, with a further, albeit small, improvement in the economic profit margin. This suggests that revenue growth alone did not drive profitability, and other factors, such as cost of capital or operational expenses, played a significant role in the observed margin fluctuations.

The consistent negative economic profit margin from 2016 through 2019 indicates a persistent inability to generate returns exceeding the cost of capital. While the margin showed some signs of stabilization towards the end of the period, substantial improvement would be required to achieve positive economic profit.