Financial Statement Analysis

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Financial Statement Analysis

  1. 1. Carnival Corporation & Royal Caribbean:Financial Statement Analysis of Two Cruise Industry Giants
  2. 2. The Cruise Industry Fastest growing travel sector in the world Only 20% of the US population has ever cruised 7.2% annual passenger growth rate since 1990 15 million passengers cruised in 2010 Generated more than $26 billion in revenue worldwide in 2010 Carnival Corporation (98 ships) controls 51.6% of worldwide share of revenue Royal Caribbean (40 ships) controls 25.6% of worldwide share of revenue
  3. 3. Carnival Business Strategies Largest cruise company with 98 ships 10 more ships to be put into service by 2014 Comprises 9 different brands Each brand is separately managed Keep costs down by selling cruises mostly through wholesalers Aim to be the most well-known cruise line serving the greatest number of guests at an unrivalled price Low cost leader
  4. 4. Royal Caribbean Business Strategies Second largest cruise company with 40 ships 2 more ships scheduled to be delivered by 2012 6 cruise brands including one in French market, one in Spanish market, and one in German market Upscale ships with innovative onboard activities, fine dining, spa services, and personalized service 400 destinations Differentiation strategy
  5. 5. Financial Ratios - Liquidity (in millions) 2010 2009 2008 2007 2006Carnival Cruises Liquidity Ratios Current Ratio 0.216 0.306 0.285 0.272 0.368 Quick Ratio 0.118 0.181 0.185 0.190 0.266 Net Working Capital Ratio (0.120) (0.094) (0.124) (0.155) (0.112) Operating Cash Flow 0.663 0.673 0.587 0.560 0.671 Cash from Operations to Total Debt 0.264 0.226 0.237 0.286 0.294 Free Operating Cash Flow to Total Debt 0.017 (0.003) 0.003 0.053 0.093 2010 2009 2008 2007 2006Royal Caribbean Liquidity Ratios Current Ratio 0.295 0.373 0.365 0.424 0.268 Quick Ratio 0.199 0.227 0.252 0.233 0.155 Net Working Capital Ratio 0.295 0.373 0.365 0.424 0.268 Operating Cash Flow 0.483 0.307 0.401 0.542 0.507 Cash from Operations to Total Debt 0.142 0.079 0.111 0.154 0.130 Free Operating Cash Flow to Total Debt (0.045) (0.152) (0.119) (0.006) (0.032)
  6. 6. Financial Ratios – ProfitabilityCarnival Cruises Profitability Analysis Ratios 2010 2009 2008 2007 2006 ROA 5.323% 5.097% 6.895% 7.440% 7.738% RNOA 6.835% 6.412% 8.599% 9.446% 18.874% NOAT 44.881% 42.133% 49.490% 47.503% 90.870% NOPM 15.229% 15.218% 17.375% 19.885% 20.770% ROE 8.777% 8.703% 11.930% 12.616% 12.988% Profit Margin 13.671% 13.605% 15.909% 18.476% 19.250%Royal Caribbean Profitability Analysis Ratios 2010 2009 2008 2007 2006 ROA 2.887% 0.936% 3.649% 4.253% 5.144% RNOA 3.303% 0.985% 3.882% 5.023% 11.020% NOAT 40.739% 35.710% 44.207% 51.187% 90.907% NOPM 8.108% 2.758% 8.783% 9.813% 12.122% ROE 7.091% 2.271% 8.462% 9.392% 10.886% Profit Margin 8.108% 2.758% 8.783% 9.813% 12.122%
  7. 7. Financial Ratios – Activity & Leverage Activity Analysis Ratios 2010 2009 2008 2007 2006 Assets Turnover 0.389 0.375 0.433 0.403 0.402Carnival Cruises Leverage Ratios 2010 2009 2008 2007 2006 Debt to Equity 0.628 0.672 0.749 0.712 0.678 Long Term Debt to Equity 0.348 0.413 0.405 0.316 0.349 Debt Ratio 0.386 0.402 0.428 0.416 0.404 Times Interest Earned 6.209 5.668 6.592 7.425 8.375 Activity Analysis Ratios 2010 2009 2008 2007 2006 Asset Turnover 0.343 0.323 0.397 0.410 0.390 Leverage Ratios 2010 2009 2008 2007 2006Royal Caribbean Debt to Equity 1.480 1.431 1.420 1.217 1.199 LT Debt to Equity 1.046 1.065 1.027 0.871 0.891 Debt Ratio 0.597 0.589 0.587 0.549 0.545 Times Interest Earned 2.613 1.541 2.753 2.808 3.367
  8. 8. Carnival Forecasting and Equity Value(millions) 2010 2011 2012Net Sales Growth 5.30% 4.70%Net Sales (Unrounded) 14,469.00 15,235.86 15,951.94Net Sales (Rounded) 14,469.00 15,236.00 15,952.00NOPAT 2,203.48 2,082.85 2,180.74NOA 32,395.00 33,947.46 35,542.78Book Value Multiple Forecasting: Equity Instrinsic Value $20,829,114,240.39 Equity Intrinsic Value per Share: $34.72Residual Operating Income Model: Firm Equity Value: $17,271,800,744.12 Equity Value per Share: $28.79Current Share Price: $30.65
  9. 9. Royal Caribbean Forecasting and Equity Value (millions) 2010 2011 2012 Net Sales Growth 5.00% 5.00% Net Sales (Unrounded) 6,752.50 7,090.13 7,444.64 Net Sales (Rounded) 6,752.00 7,090.00 7,445.00 NOPAT 547.47 574.29 603.05 NOA 17,197.03 17,420.15 18,292.38 Book Value Multiple Forecasting: Equity Instrinsic Value $8,693,409,826.43 Equity Intrinsic Value per Share: $38.43 Residual Operating Income Model: Firm Equity Value: $3,507,062,994.13 Equity Value per Share: $15.50 Current Share Price: $24.03
  10. 10. Recommendations For creditors, Carnival is less risky For investors,  Carnival is more likely for stable returns and continued growth - larger customer base - already dominates cruise market - strategically positioned as low-cost leader  Royal Caribbean is more risky but has potential for excellent returns in the future if economy improves - aggressive global expansion - innovations & investment in technology to improve fuel efficiency - differentiation of cruise options - luxury market is more affected by economic instability
  11. 11. Interesting Facts Carnival: Carnival’s ships are among the biggest in the world in order to accommodate the greatest number of passengers per voyage. For example, the Liberty is taller than the Statue of Liberty and longer than 3 football fields. Royal Caribbean: Royal Caribbean is incorporated in Liberia so, under Section 883 of IRS Code, it is not subject to US federal income tax on US source income derived from the international operation of ships. It is subject to certain miscellaneous income taxes, such as gambling income in Alaska, but they are immaterial and not included on financial statements.

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