Larry and Mary are two hotel managers who operate franchised select‐service hotels in neighboring cities. While attending their franchisor’s annual general managers’ meeting, they struck up a conversation over lunch.

“Well,” said Larry, “we had a really great year at our hotel. We had sales of $1,000,000 and we achieved a net income of $50,000!” “We had a great year too,” said Mary, 

“we had $1,000,000 in revenue but we made $100,000 in net income.”

“Well, we didn’t make that much,” said Larry, “but our owners have $400,000 in equity funds invested in our property, so I think they are pretty happy!”

“I was told our owners have $800,000 in equity funds invested in our property, so I think they must be pretty happy as well,” replied Mary.

As they finished their lunch, Larry and Mary were wondering the same thing; “How well were they managing their hotels, and should their owner’s truly be pleased with their efforts?”

1. Based on the information provided, what was the profit margin achieved at Larry’s Hotel? What was the profit margin achieved at Mary’s hotel?

2. Based on the information provided, what was the return on owners’ equity (ROE) achieved at Larry’s Hotel? What was the ROE at Mary’s hotel?

3. What is your opinion about how these two hotel managers are performing for their property owners?