Hilton's 2001 segment reporting note showed that Hotel Ownership has revenue of $1,886 million, operating income of $474 million, and assets of $4,925 million. Managing and Franchising had revenues of $120 million, operating income of $113 million, and assets of $680 million. This indicates that: a. Managing & Franchising s asset turnover ratio at 17.6% suggests inefficiency when compared to Hotel Ownership b. Managing & Franchising probably should be sold since the return operating return on sales is extremely low c. Hotel Ownership had an operating return on sales ratio below 2%, a possible red flag d. Hotel Ownership has a higher operating return on sales than Managing & Franchising

Question

Arely Meadows

Business

4 December, 00:18

Hilton's 2001 segment reporting note showed that Hotel Ownership has revenue of $1,886 million, operating income of $474 million, and assets of $4,925 million. Managing and Franchising had revenues of $120 million, operating income of $113 million, and assets of $680 million. This indicates that: a. Managing & Franchising s asset turnover ratio at 17.6% suggests inefficiency when compared to Hotel Ownership b. Managing & Franchising probably should be sold since the return operating return on sales is extremely low c. Hotel Ownership had an operating return on sales ratio below 2%, a possible red flag d. Hotel Ownership has a higher operating return on sales than Managing & Franchising

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Answers (1)

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Heidy Bates · Answer 1

Option A is correct one.

Managing & Franchising s asset turnover ratio at 17.6% suggests inefficiency when compared to Hotel Ownership

Explanation:

The ratio of the operating return on sales for hotel ownership is:

474/1886 = 0.25

The asset turn-over for hotel ownership is:

1886/492.5 = 0.38 = 38%

Now, for managing and franchising:

The ratios are:

Operating return to sales = 113 / 120 = 0.94

Asset Turnover = 120/680 = 0.1765 = 17.65%.