Hyatt Hotels Corporation: Annual Report, Cash Flow Statement, and Risk Analysis

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Analysis of Annual Report

Reviewing the Profit and Loss Account (2017-18)

In 2017-18, Hyatt Hotels Corporation experienced a sharp growth of the gross profit margin by 2.5% in comparison with the preceding year. The corporations profitability that is accessed by ROCE increased by 1.2%. The net income after taxes in 2017-18 was 1.7% higher than in 2016-17. In other words, in 2018, the company generated more profits using its capital. At the same time, in 2017-18, in comparison with 2016-17, the operating expenses decreased. However, this decline was insignificant since it was less than 1%. The same minor decrease could be observed in changes in the sales revenue to the capital employed ratio between 2017-18 and 2017-17. 2017-18 is also marked with a decrease of depreciation by 0.9%.

Reviewing the Profit and Loss Account (2018-19)

The year 2018-19 was less successful for Hyatt Hotels Corporation than the year 2017-18. First of all, the gross profit margin declined by 1.1%, and the companys total liabilities increased by 1.2%. Secondly, in contrast to the preceding year, in 2018-19, depreciation increased by 1.006%, leading to the consequential growth of expenses and the net income decline. Indeed, the financial report shows the increase of operating expenses by 1.15%, and the net income after taxes fell by almost 1%. The sales revenue to capital employed ratio raised from 0.84 in 2017-18 to 0.9 in 2018-19.

Reviewing the Profit and Loss Account (2019-20)

The operation of the Hyatt Hotels Corporation had been heavily affected by the outbreak of the COVID-19 pandemic. The borders of numerous countries were closed, meaning that tourists and business people were unable to travel and live in Hyatt hotels. During the first year of the pandemic, the gross profit margin fell by 1.5%, and the revenue became more than two times smaller. The net income after taxes declined by more than 200% and became negative. The sales revenue to capital employed ratio declined by 2.7%, and the total liabilities increased by 1.3%. More precisely, the amount of the corporations long-term debt became 1.9% higher. The depreciation decreased by 0.9%. The companys total equity decreased by 0.8% in 2019-20.

Review of Cash Flow Statement

As for the year 2019-20, the cash from operating and investing activities fell dramatically and became negative in spite of the growth in the preceding years. The worldwide lockdowns and tourism restrictions explain the decline in cash from operating activities by 200%. The reduction in cash from investing activities reveals that the corporation was investing in companies that were also heavily affected by the pandemic. At the same time, the positive sign is the increase of cash from the corotations financial activities from -541 to 1525 USD thousands. This includes growth in financing cash flow items, total cash dividends paid, issuance of stock and debt. Therefore, the company could increase its profit margin through loans from financial institutions and equity and debts issuance.

Risk Analysis

There are several risk factors that should be considered by the Hyatt Hotels Corporation.

Demand risk

The first reason for the risk is the ongoing pandemic of COVID-19 and the consequential limitations on the movement of tourists. The second reason that threatens demand is cyber attacks and customers data theft. In 2017, the credit card data of visitors was stolen from 249 Hyatt hotels (Panai, 2018). The corporation should take the issue of clients data protection seriously.

Credit risk

Profits of Hyatt Hotels Corporation depend on the season and, more importantly, on the travel restrictions provoked by the pandemic of COVID-19. Hence, the company is at risk of not repaying the loans due to the low profits.

Interest rate risk

A significant share of Hyatt Hotels Corporations debts is funded by its property. Hence, the increase of interest rate could bring the Hyatt Hotels Corporation to the risk of defaulting on its loans payments.

Reference

Panai, E. (2018). A cyber security framework for independent hotels. Challenges of Tourism Development, 145-152.

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