To: Professor Clark Hansen, CEO, AMDP
From: Frederick Tye
Date: July 18th 2015
Subject: Starwood Hotels & Resorts Worldwide – good
investment choice
You
have given me the opportunity to recommend a company that is committed to doing
business in a socially responsibly, environmentally sustainable, and profitable
manner. I recommend you invest in Starwood Hotels & Resorts Worldwide
because they have demonstrated great financial skills while maintaining the
strict standards that are in line with our company, AMDP.
AMDP Standards
Triple Bottom Line:
The Triple Bottom Line (TBL) is an accounting framework that
incorporates three dimensions of performance: social, environmental and
financial. This differs from traditional reporting frameworks as it includes
environmental and social measures that can be difficult to assign appropriate
means of measurement. The TBL dimensions are also commonly called the three Ps:
people, planet and profits. (Indiana Business Review)
Corporate Social
Responsibility:
Corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare. The term generally applies to company efforts that go beyond what may be required by regulators or environmental protection groups. (Investopedia)
Corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare. The term generally applies to company efforts that go beyond what may be required by regulators or environmental protection groups. (Investopedia)
Social Enterprise:
Social enterprises are businesses whose primary purpose is
the common good. They use the methods and disciplines of business and the power
of the marketplace to advance their social, environmental and human justice
agendas. (Social Enterprise Alliance)
Carbon
Footprint:
What
is it?
The total amount of greenhouse gases produced to directly and
indirectly support human activities, usually expressed in equivalent tons of
carbon dioxide (C02).
How
do we measure it?
Your carbon footprint is the sum of all emissions of CO2,
which were induced by your activities in a given time frame (usually for the
time period of a year). This includes activities such as driving your car or
heating your house as these activities release CO2 into the atmosphere.
Why
is it important to reduce it?
Carbon dioxide is a greenhouse gas that causes global warming.
Stop global warming and its negative impacts, like climate change, by reducing
your carbon footprint. (Time For Change)
Starwood
Hotels and Resorts Worldwide
Founded in 1969 as a Real Estate Investment Trust (REIT), and
later on in 1980 as a corporation, Starwood Hotels and Resorts Worldwide is one
of the world’s largest hotel and leisure companies. The Company’s
hotel business is focused on the global operation of hotels and resorts
primarily in the luxury and upper upscale segments of the lodging industry. The
Company owns Starwood Vacation Ownership, Inc., a provider of world-class
vacation experiences through villa-style resorts and privileged access to
Starwood brands.
It
manages and operates its hotel business in three hotel segments: the Americas,
Europe, Africa and the Middle East, and Asia Pacific. Its vacation ownership
and residential business is a separate segment. As of December 31, 2014, the
Company’s hotel business included 1,207 owned, managed or franchised hotels
with approximately 346,600 rooms, comprising 36 hotels that it owns or leases
or in which the Company has a majority equity interest, 583 hotels managed by
the Company on behalf of third-party owners and 588 hotels for which it
receives franchise fees. (Reuters)
Starwood’s values are:
·
Go
the extra step by taking actions that build lasting connections and loyalty
·
Play
as a team by working globally and across all teams in the company
·
Do
the right thing by using good judgement, respecting our communities,
associates, owners, partners and the environment (Starwood Hotels & Resorts)
Financial
track record
Is
the company earning a sustainable profit?
To get a good estimate on how the company would do in the
future, I believe that the most important factors are its: financial strength,
profitability and management effectiveness.
How do we measure these factors?
By using the current ratio, gross margin, and return on
assets.
Financial
strength: Current Ratio (Good)
The current ratio compares the next year’s liabilities to the
current cash on hand. It is calculated by taking the total current assets divided by the total current liabilities.
Since 2012, Starwood’s current ratio was at an average of 0.98.
This is good as it shows that Starwood has always kept its debt in
check. The company has also ensured that it has enough assets to pay off its
liabilities within the next year.
Profitability:
Gross Margin (Very Good)
The gross margin shows the amount of revenue left after
deducting direct costs of producing the goods or services. It is calculated by
taking the gross profit divided by
the revenue. The figure is then
multiplied by 100 to get percentage terms.
Since 2012, Starwood has shown a constant increase in its
gross margin percentage, with a 3-year-average of 67.59% (almost double the
industry average). In terms of profitability outlook, the company is doing very
well. The high gross margin indicates that Starwood is efficient in
controlling cost.
Management
effectiveness: Return on assets (Excellent)
The return on assets ratio measures how well a company’s
management uses its assets to generate profit. It is calculated by taking the income after taxes divided by the total average assets. The figure is
then multiplied by 100 to get percentage terms.
Since 2012, Starwood has shown a continuous increase in its
return on assets percentage, with a 3-year-average of 6.30. In terms of
management effectiveness, this is excellent as the company has increased
its return on assets by an average of 20% each year. This shows that management
is making very wise investment decisions to turn an even greater profit.
(Reuters)
Environmental
Track Record
Starwood Hotels & Resorts Worldwide is committed to
integrating leading environmental practices and sustainability principles aimed
at:
·
Conserving natural resources
·
Protecting ecosystem biodiversity
·
Driving sustainable development
·
Minimize waste and pollution
·
Establishing and reporting on key environmental performance indicators
·
Raising environmental awareness among our associates, guests
and communities (Starwood Hotels and Resorts)
What
others say:
Environmental
Leader:
Starwood has set out with a clear goal: reduce energy consumption by 30% and reduce water consumption by 20% by the year 2020.
Starwood has set out with a clear goal: reduce energy consumption by 30% and reduce water consumption by 20% by the year 2020.
With a clear goal in mind, Starwood has reduced its carbon
emissions by 16%, water usage by 17% and energy use by 12% across all owned,
managed and franchised properties from 2008 through 2014. While Starwood has
not achieved its target, it has shown good promise. (Environmental Leader)
Green
Hotelier:
Starwood has demonstrated clear intentions about helping the
community around them. In 2012, they donated $4.8million to charity, and
employees volunteered a total of 129,000 hours of their time in their local
communities.
They have also been a long-time supporter of youth programs
aimed at providing disadvantaged youth with real life training and employment
opportunities.
Recommendations
I believe we should capitalize on the excellent financial
track record that Starwood has shown. Management has shown a good history of
astute decisions. They have demonstrated that past performances are not based
on luck, but instead, well-calculated decisions couple with good fundamentals. Without
much luck, I believe this company will continue its great performance in the
future.
Furthermore, Starwood has achieved many of its goals towards
a greener future. Even while expanding its business to serve more clients, the
company has successfully reduced their carbon footprints and energy
consumption. Starwood has shown that it cares for their surrounding community,
and has given back in numerous ways.
Starwood is definitely a “Buy” because of its great financial,
social, environmental, and sustainable achievements.
http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html
http://www.investopedia.com/terms/c/corp-social-responsibility.asp
http://www.greenhotelier.org/our-news/industry-news/starwood-hotels-resorts-reveals-global-citizenship-report/
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