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 before decreasing again. 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 began at US$1,097 million in 2015, decreased to US$1,039 million in 2016, then increased significantly to US$1,463 million in 2017 and peaked at US$2,260 million in 2018. A subsequent decline to US$1,577 million was observed in 2019. This indicates periods of strong operational performance interspersed with periods of reduced profitability.

Cost of Capital Stability

The cost of capital remained within a narrow range throughout the period. It was 16.73% in 2015, increased to 16.85% in 2016, peaked at 17.97% in 2017, decreased to 17.38% in 2018, and then decreased further to 16.72% in 2019. This relative stability suggests consistent financing conditions over the observed timeframe.

Invested Capital Volatility

Invested capital showed considerable volatility. It was US$758 million in 2015, increased substantially to US$16,537 million in 2016, and then decreased 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 warrants further investigation to understand the underlying drivers of this capital deployment.

Economic Profit Performance

Economic profit began at a positive US$970 million in 2015. It then turned negative, reaching -US$1,747 million in 2016, and remained negative through 2019, with values of -US$1,095 million in 2017, -US$282 million in 2018, and -US$762 million in 2019. The negative economic profit in the latter years suggests that the returns generated from invested capital were insufficient to cover the cost of that capital.

The shift to negative economic profit, particularly following the substantial increase in invested capital in 2016, is a key observation. While NOPAT increased in 2017 and 2018, it was not sufficient to offset the cost of the higher invested capital base. The decline in NOPAT in 2019 further exacerbated the negative economic profit position.

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 declines sharply to a loss of US$1,747 million in 2016. While showing some improvement in 2017 with a loss of US$1,095 million, it remains negative. A smaller loss of US$282 million is recorded in 2018, but economic profit again worsens to a loss of US$762 million by 2019. This suggests increasing difficulty in generating 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. Following this peak, it decreases to US$14,229 million in 2017 and then slightly increases to US$14,627 million in 2018. By 2019, invested capital settles at US$13,992 million. The initial surge, followed by stabilization and a modest decline, suggests a period of significant investment followed by a potential recalibration of capital allocation.

Economic Spread Ratio

The economic spread ratio begins at a high of 128.07% in 2015, indicating a substantial spread between return on invested capital and the cost of capital. This ratio then declines dramatically to -10.56% in 2016, mirroring the negative economic profit. The ratio remains negative for the subsequent years, moving from -7.69% in 2017 to -1.93% in 2018 and finally to -5.45% in 2019. This consistent negativity suggests that the company’s returns on invested capital are consistently below its cost of capital, eroding shareholder value.

Overall, the trend indicates a deterioration in the company’s ability to generate economic profit. While invested capital remains substantial, the declining economic spread ratio highlights a growing gap between returns and the cost of funding those investments. The shift from positive to negative economic profit is a key indicator of this performance decline.

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 adjusted revenues. However, the margin declined sharply to -10.23% in 2016, indicating a substantial shift to economic loss. A partial recovery was observed in 2017, with the margin improving to -4.78%, though remaining negative. Further decline occurred in 2018, reaching -1.35%, before settling at -3.61% in 2019.

The movement in economic profit directly correlates with the economic profit margin. The initial positive economic profit of US$970 million in 2015 contributed to the 6.70% margin. The subsequent negative economic profits in 2016 (-US$1,747 million), 2017 (-US$1,095 million), 2018 (-US$282 million), and 2019 (-US$762 million) drove the margin into negative territory and maintained it for the majority of the analyzed period.

Revenue and Margin Relationship

Adjusted revenues increased from US$14,486 million in 2015 to US$17,072 million in 2016, and peaked at US$22,894 million in 2017. While revenues continued to fluctuate, reaching US$21,101 million in 2019, the increase in revenue was not sufficient to offset the declining economic profit and stabilize or improve the economic profit margin. The largest revenue increase occurred between 2016 and 2017, but this was accompanied by a significant negative economic profit, demonstrating that revenue growth alone does not guarantee profitability from an economic value perspective.

The trend suggests a growing disconnect between revenue generation and the ability to generate economic profit. Despite revenue increases in certain years, the company consistently failed to achieve a positive economic profit margin after 2015, indicating potential issues with cost management, capital allocation, or the cost of capital relative to returns generated.