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Managerial Analysis of Financial Statements

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The two companies chosen for the analysis are Carnival and Royal Caribbean Cruises. These companies work in the industry that is called Resorts & Casinos. In order to study and compare solvency for both firms, their solvency ratios will be analyzed from 2013 to 2015 and compared. In addition, ratios will be compared to the industry average ratios. For the Resorts & Casinos industry, only debt-to-equity ratios is available among all solvency ratios that are required (“Industry: Resorts & Casinos,” 2016). Calculated solvency ratios are shown in Table 1.

Ratios

2013

2014

2015

Industry

Carnival working capital

 $    (4,783.00)

 $  (5,418.00)

 $        (4,505.00)

 

Royal Caribbean working capital

 $    (3,311.00)

 $  (3,048.00)

 $        (3,456.00)

 

Carnival current ratio

                  0.29

                0.22

                      0.35

 

Royal Caribbean current ratio

                  0.22

                0.21

                      0.20

 

Carnival acid test ratio

0.19

0.11

0.26

 

Royal Caribbean acid test ratio

0.11

0.12

0.08

 

Carnival accounts receivable turnover

20.39

24.97

35.00

 

Royal C. accounts receivable turnover

29.42

30.99

33.17

 

Carnival inventory turnover

27.81

28.19

27.22

 

Royal C. inventory turnover

35.66

38.63

41.66

 

Carnival days sales in receivables

17.9

14.61

10.43

 

Royal C. days sales in receivables

12.41

11.78

11.00

 

Carnival days sales in inventory

13.12

12.95

13.41

 

Royal C. days sales in inventory

              10.24

                9.44

                      8.76

 

Carnival debt-to-equity ratio

0.33

0.30

0.31

 

Royal C. debt-to-equity ratio

0.74

0.92

0.96

0.89

Carnival times-interest-earned

4.36

5.32

9.29

 

Royal C. times-interest=earned

2.42

3.96

3.4

 

Table 1. Solvency Ratios.

Solvency ratios are various, and they are used to show how sure the company can be in its ability to repay its debts. In general, solvency ratios compare assets and debts to show how debts are covered. To analyze the ratios, they will be compared in the dynamics for both companies and to the industry averages, where they are available. For both companies, working capital is quite stable for three periods, both both firms had negative figures. However, Royal Caribbean’s working capital decreased a bit, and it is negative for the firm’s solvency. During the same period, Carnival’s working capital grew a bit. However, figures of working capital are negative, and it is negative for the solvency of firms, meaning that they may have problems with repaying debts.

Carnival’s current ratio and acid test ratio grew from 2013 to 2015 from 0.29 to 0.35 and from 0.19 to 0.26, respectively. Controversially, Royal Caribbean’s current ratio and acid test ratio declined from 0.22 to 0.20 and from 0.11 to 0.08, respectively, and it shows that the firm had more and more problematic situation with ability to repay its debts. Carnival’s accounts receivable turnover increased from 2013 to 2015 from 20.39 to 35, and similar situation is with Royal Caribbean’s accounts receivable turnover (growth from 29.42 to 33.17). Thus, both firm improved their ability to collect their accounts receivable faster, and this is good to them. For Carnival, inventory turnover is stable, and for Royal Caribbean, it improved from 2013 to 2015 from 35.66 to 41.66, meaning that the company used its inventories more efficiently.

For both companies, days sales in receivables improved from 2013 to 2015 by decreasing, and it is positive, because they can collect their receivables faster. For Carnival, days sales in inventory is almost stable, and it fell for Royal Caribbean, and it means that the firm can receive revenue from its revenues faster. Carnival’s debt-to-equity ratio decreased from 2013 to 2015 from 0.33 to 0.31, meaning that this company has lower indebtedness, and this ratio increased for Royal Caribbean from 0.74 to 0.96 and is higher compared to industry average 0.89. It is negative, because the firm had higher indebtedness in dynamics. For both companies, times-interest earned improved, and it is positive, because they earn repay interest faster. In general, situation with solvency is controversial for both companies, because some ratios improved and some worsened. In addition, both companies had negative working capital, that is negative for solvency in general.

The same comparison will be made for performance ratios. Figures for firms and industry are shown in the Table 2. For industry, only ROE is available.

Ratios

2013

2014

2015

Industry

Asset Turnover- Carnival

0.30

0.40

0.40

 

Asset Turnover- Royal Caribbean

0.40

0.40

0.40

 

Return on Assets- Carnival

2.72%

3.10%

4.46%

 

Return on Assets- Royal Caribbean

2.37%

3.75%

3.20%

 

Return on Equity- Carnival

4.45%

5.06%

7.31%

35.60%

Return on Equity- Royal Caribbean

5.53%

8.94%

8.15%

 

Earnings per Share- Carnival, $

1.36

1.56

2.26

 

Earnings per Share- Royal Caribbean, $

2.14

3.43

3.02

 

Gross Margin- Carnival

31.10%

34.40%

39.90%

 

Gross Margin- Royal Caribbean

33.30%

34.30%

38.60%

 

Book Value per Share- Carnival, $

31.26

32.38

31.55

 

Book Value per Share- Royal Caribbean, $

30.74

41.14

37.87

 

Table 2. Performance Ratios.

For both companies, asset turnover is equal in 2015 ad is 0.4. For Carnival, it improved from 2013 to 2015, and this ratio is stable for Royal Caribbean for all years. In general, the situation with asset turnover is good for both firms.

For return on assets, situation is positive for both firms. For Carnival, this ratio grew from 2.72% in 2013 to 4.46% in 2015. For Royal Caribbean, ROA increased from 2.37% in 2013 to 3.2% in 2015. Such trends are positive, because on each dollar of their assets, firms received growing returns, meaning that they worked more efficiently. For return on equity, situation is similar. For Carnival, this ratio grew from 4.45% in 2013 to 7.31% in 2015. For Royal Caribbean, ROE increased from 5.53% in 2013 to 8.15% in 2015. Such trends are positive, because on each dollar of their equity, firms received growing returns, meaning that they worked more efficiently. Royal Caribbean had higher performance in terms of ROE and lower performance in terms of ROA. However, in the industry in average, ROE is much higher and equal to 35.6%. Thus, it shows that for the firms under consideration, performance is much lower compared to most competitors.

From 2013 to 2015, earnings per share improved for both firms. For Carnival, EPS increased from $1.36 to $2.26. For Royal Caribbean, EPS increased from $2.14 to $3.02. Thus, this company earned more per one share in comparison to Carnival.

For both firms, gross margins are similar. For Carnival, gross margin increased from 31.1% to $39.9%. For Royal Caribbean, gross margin increased from 33.3% to 38.6%. Growing gross margins show positive tendencies in the performance of both companies.

Book value per share for Carnival was stable from 2013 to 2015, and the change was slight – from $31.26 to $31.55. During the same period, book value per share improved significantly for Royal Caribbean – from $30.74 to $37.87 that indicates better performance of Royal Caribbean in comparison to Carnival.

In conclusion, analysis of financial ratios for carnival and Royal Caribbean shows both positive and negative tendencies in their solvency. Some ratios improved and some worsened for both firms, but negative working capital and indebtedness were significant for them both. Performance ratios were similar for two companies and their improved from 2013 to 2015, but ROE was very low compared to the industry.

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