Question

CONSOLIDATED STATEMENTS OF INCOME 2018 Years Ended December 31, 2017 2016 (in thousands, except per share amounts) $ $ 376,676 26,072 52,088 543,677 42,791 1,041,304 341,745 23,038 40,451 499,625 36,438 941,297 317,699 19,720 35,844 409,120 25,526 807,909 170,027 14,330 534,266 718,623 (4,289) 82 318,474 165,821 6,680 479,400 651,901 REVENUES: Royalty fees Initial franchise and relicensing fees Procurement services Marketing and reservation system Other Total revenues OPERATING EXPENSES: Selling, general and administrative Depreciation and amortization Marketing and reservation system Total operating expenses Impairment of goodwill Gain on sale of assets, net Operating income OTHER INCOME AND EXPENSES, NET: Interest expense Interest income Other (gain) loss Equity in net (income) loss of affiliates Total other income and expenses, net Income before income taxes Income taxes Net income 154,720 6,996 459,765 621,481 257 6 27 289,653 187,055 45,908 (7,452) 1,437 5,323 45,216 273,258 56,903 216,355 45,039 (5,920) (3,229) 4,546 40,436 249,217 126.890 122,327 44,446 (3,535) (1,504) (492) 38,915 148,140 41,428 106,712 $ $ S Basic earnings per share: Diluted earnings per share: 3.83 3.80 $ $ 2.16 2.15 $ $ 1.90 1.89 The accompanying notes are an integral part of these consolidated financial statements. 63
. Analyze at least 3 (three) items on the income statement for your base company that would
be important to an investor, and discuss whether your company’s performance related to
these items appeared to be improving, deteriorating, or remaining stable. Justify your answer

Answer 1

The 3 items on the income statement that are generally the most important for investors to look at and which I would analyze are as follows :

1. Revenue : Revenue is an item which defines the success or failure of the company. If a company's revenue is not increasing over the years, no investor would be interested in investing as there is no future prospect for such company.

2. Comprehensive Income : Ultimately, at the end of the day, what is crucial for an organization to be successful and what is also important for the investors to analyze and estimate their returns from the investment is the profits earned by the company. Investors usually analyze the past trend of whether the company has been in profit or not, whether it is increasing or declining and also the future projections of such profit.

3. EPS : Earning per share indicates the profit earned per share. It is one of the most important financial measures which investors use to judge the profitability of the company. An increasing EPS generally attracts a lot of investors.

In order to understand whether the above mentioned 3 items have an increasing, stable or declining trend we have prepared the following tables with the variance % :

S. No.	Item	2018	2017	Variance	2017	2016	Variance
1	Revenue	10,41,304	9,41,297	11%	9,41,297	8,07,909	17%
2	Comprehensive Income	2,15,608	1,26,150	71%	1,26,150	1,06,968	18%
3	EPS	3.83	2.15	78%	2.15	1.89	14%

From the above table, we can draw the following conclusions :

1. Revenue : Though the increase of revenue from 2017 to 2018 (11%) is not as high as increase in revenue from 2016 to 2017 (17%), it is still showing an increasing trend which is a good indicator for any investor and also shows that the company is in a good position in the market.

2. Comprehensive Income : Comprehensive income has increased by 71% from 2017 to 2018 which shows tremendous improvement and considering the fact that revenue has only increased by 11%, we can conclude that the company has done some major cost savings during the year. Though one point of caution for the investor here may be that the variance in growth in revenue (only 11%) to the growth in comprehensive income (71%) is a little too much and hence there can be chances of fraud or manipulation in the expenses to achieve that. For this the investor should stay up to date with any fishy news regarding the organization.

3. EPS : With the growth of comprehensive income, EPS has also improved a lot (78% rise from 2017 to 2018). It seems like the company has not issued any equity in the year 2018 and due to improved earnings, EPS has improved automatically.

Overall Analysis : From the above data and from looking at the income statement it is clear that though the growth of company from 2016 to 2017 might not have been that much and might have been consistent with the industry growth, however, the company has shown tremendous improvement from 2017 to 2018 which is very positive for the company's future prospects. Hence I would advice any investor to invest in the company as it will be a profitable venture.