1) The four components of Marriott’s financial strategy are to manage rather than own hotel assets, to invest in projects that increase shareholder value, to optimize the use of debt in the capital structure, and to repurchase undervalued shares when necessary.
Marriott’s growth objective is to become the preferred employer and provider in lodging, contract services (such as catering), and restaurants, and to be the most profitable company in their industry.
By choosing to manage hotel properties instead of owning them Marriott lowers their accounting assets on the books, therefore increasing their return on assets as compared to owning the properties outright. This strategy also effectively shares the risk that comes from the properties, and lets Marriott operate with more liquidity, offering them the opportunity to relocate their hotel or restaurant operations without the need to sell properties, for instance.
Marriott can analyze potential projects and discount the future cash flows to determine which projects will have a higher net present value, and ultimately which will be most profitable to Marriott at the present time, therefore increasing shareholder wealth.
Balance sheets reflect all company debt, so by reducing debt Marriott can decrease their Debt to Equity ratio, becoming more attractive to new and existing shareholders. Marriott’s plan to repurchase shares when they are undervalued can positively affect share price and therefore shareholder value, but it is not directly in line with their project-based growth objective.
By repurchasing shares, they are removing shares from the market. As they continue to make a profit, the profit per share is now higher due to the buyback, theoretically causing the demand for shares to increase and the price to increase accordingly.
This process does not guarantee increasing shareholder wealth in the long-run,