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Industry: Lodging Company: Starwood Hotels and Resorts Module 4: Simple Analysis & Parsimonious Forecasting

Industry: Lodging Company: Starwood Hotels and Resorts Module 4: Simple Analysis & Parsimonious Forecasting. Sarah Weatherburn. Forecasting Process. Isolate Historical Enterprise results Forecast Future Results Should we be conservative?. Comparable Companies .

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Industry: Lodging Company: Starwood Hotels and Resorts Module 4: Simple Analysis & Parsimonious Forecasting

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  1. Industry: Lodging Company: Starwood Hotels and Resorts Module 4: Simple Analysis & Parsimonious Forecasting Sarah Weatherburn

  2. Forecasting Process • Isolate Historical Enterprise results • Forecast Future Results • Should we be conservative?

  3. Comparable Companies

  4. Starting Point – Return on NEA (RNEA) RNEA = EPAT avg(NEA) • Why use average NEA? • The amount of resources employed varies throughout the year. • What is average NEA? • Beginning NEA & Ending NEA

  5. Disaggregating Return on NEA • Disaggregate RNEA into its two components: Profit Margin & Asset Turnover

  6. Enterprise Profit Margin Reveals how much operating profit the firm earns from each sales dollar. • Higher EPM is preferable • Affected by: • Level of gross profit the firm earns on its products • Level of enterprise expenses the firm requires to support its products or services • Level of competition • Firm’s willingness and ability to control costs

  7. Industry EPM Assume: 7%

  8. Enterprise Asset Turnover Reveals the level of sales the firm realizes from each dollar invested in enterprise assets. • Measures the productivity of the firm’s enterprise assets. • Higher EATO is preferable. • EATO can be increased by either increasing sales for a given level of investment in enterprise assets, or by reducing the amount of enterprise assets necessary to generate a dollar of sales, or both.

  9. Industry EATO Assume: 1.25

  10. Parsimonious Forecasting – Sales Growth Assume: 8%

  11. Starwood Multiyear Forecasts Sales Growth Rate - 8% Enterprise Profit Margin - 7% Enterprise Asset Turnover – 1.25

  12. Questions?

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