At the petition of the bulk stockholders of Royal Caribbean Cruises Limited ( RCL ) a study was commissioned to analyze the fiscal place and the company ‘s public presentation in visible radiation of the recent planetary economic downswing during 2008 and 2009. To carry through this authorization, this study will show relevant fiscal ratios from 2006 to 2009, showing public presentation profiles on profitableness, solvency, rating, liquidness and efficiency. The analysis will besides foreground the likely effects of recent developments in the fiscal markets as they pertain to the company ‘s predicted public presentation pre economic prostration. In add-on, a What-If Analysis Model will be presented to demo what the possible results sans the planetary economic recession were. The study will reason with a drumhead and decisions on the findings.
Background of Royal Caribbean Cruises ( RCL )
As the universe ‘s 2nd largest sail holiday company, RCL operates a sum of 38 ships, supplying about 84,050 positions, as of 2009. The company owns and run five trade names[ 1 ]and holds a 50 per centum investing in joint venture with the TUI A.G. – Germany.
RCL offers a broad assortment of paths and cruise lengths with legion advanced options for onboard dining, amusement and offshore activities. The company has late introduced merchandise inventions for onboard amusement such as ice skating rinks and stone mounting. In add-on, RCL has, as portion of its packaging, contracted specialist resources at their assorted ports of call. These resources provide shopping and eco-focused ventures as a portion of the sail holiday experience.
RCL ‘s entire gross is made up of two constituents, Passenger ticket gross revenues and onboard grosss, mean one-year ticket gross revenues account for about 73 per centum of gross income ( 2006-2009 ) . Passenger ticket gross revenues increased by 4 per centum in 2008 but fell by 1 per centum in 2009.
Passenger ticket grosss which make up about 73 per centum of entire gross decreased from US $ 4,427.3 million in 2007 to $ 1,270.6 million in 2009. Harmonizing to RCL ‘s 2008 Annual Report and its SEC Filings for 2009, the company attributed this result to a combination of the factors: –
addition in the figure of cruise vas operations which in the face of
undertaking demand has created a excess
impact of the planetary economic crises which has resulted in higher
unemployment and less disposable income
At the stopping point of 2008, RCL reported that its cost of gross revenues increased by $ 316 million in its 2008 Annual Report. RCL in an attempt to increase its trade name consciousness and in response to the spread outing industry embarked on a selling blitz run which focused on the cultivation of the European markets. At the stopping point of 2009, RCL sail operating disbursals declined from $ 2,715.3 million in 2008 to $ 2,432 million in 2009, in response to the followers: –
High volatility in the cost of fuel
Increased supply of sail ships and
The oncoming of the planetary economic downswing
Royal Caribbean Cruises Ltd. has official understandings with two shipyards for the building of four new sail ships. These vass are scheduled for bringing in the 2nd one-fourth of 2010 and the 4th one-fourth of 2012. These vass will increase RCL ‘s position capacity by 16.6 per centum or an extra 13,950 positions.
With the launch of the universe ‘s largest sail vas Oasis of the Seas[ 2 ]. RCL has signalled its purpose to stay in an expansionary manner in malice of the recent economic downswing. This presents a critical point for rating and analysis with respects to RCL ‘s ability to run into the funding and operational cost during the current economic downswing.
The analysis and rating of RCL public presentation will be presented through the application of public presentation direction ratios.
These ratios provide information on how good the company has utilised its resources to bring forth net income and increase stockholders ‘ value.
Tax return on Capital Employed Ratio
This ratio measures the profitableness of the company as a per centum of the resources from stockholders ‘ equity and adoptions.
RCL ‘s Return on Capital Employed Ratio declined from 4.7 per centum in 2006 to 0.9 per centum in 2009.
The ensuing funding activities associated with the acquisition of the Spanish sail company Pullmantur in November 2007 at a cost of US $ 558.9 million, was the major cause of the decrease in net income to capital employed ratio. By 2009 the combination of increased debt liabilities and falling net income further deteriorated the result.
It should be noted that stockholders ‘ equity remained comparatively stable for the corresponding period and increased by $ 696.7 million in 2009. The determination of RCL ‘s Board of Directors to suspend the issue of dividends resulted in an mean addition of 9.4 per centum in maintained net incomes 2006 to 2009.
Tax return on Equity Ratio
Index used to find how profitable a company is by comparing its net income to its stockholders equity. It in consequence measures how much the
stockholders ‘have earned from their investing in the company.
Stockholders ‘ equity was comparatively unchanged during the mention period, the ROE ratio declined from 8.9 per centum in 2007 to 2.2 per centum in 2009, after a comparatively high ratio of 10.4 per centum for 2006.
The attendant diminution of net income was the chief cause of the sustained diminution in ROE, farther analysis of the state of affairs points to the decrease in demand from $ 603.4 million in 2006 to an all clip low of $ 162.4 million in 2009. At the stopping point of 2009, Operating Income had fallen by 14 per centum. This in malice of RCL ‘s cost economy tactics.
Gross Profit Margin Ratio
This ratio is used to find how much gross net income ( gross revenues – cost of gross revenues ) has been generated from gross revenues.
As is the instance with RCL, runing disbursals will be those disbursals that are straight related to the proviso of grosss from positions and other onboard services merely available in the sail holiday offerings.
RCL ‘s gross net income border has been in a diminution manner over the coverage period, from a gross net income rate of 61.6 per centum for 2007 to 58.7 in 2009. The diminution in RCL ‘s gross has been caused by the volatility in the monetary value of fuel and the negative impact from the planetary economic downswing circa mid 2007.
These ratios are used to find a company ‘s stableness by comparing its long term debt with its equity and available assets. It measures a company ‘s ability to run into long term debt duties with its available resources from investings and hard currency flows.
Debt to Equity Ratio
Measures how good the company is using its stockholders ‘ equity to bring forth screen for the involvement and long term debt refund.
RCL ‘s debt to equity ratio increased from 119.9 per centum in 2006 to 143.1 per centum in 2009 or by a leaden norm of 6.3 per centum. Stockholders ‘ equity besides increased to $ 7,499.7 million in 2009 from $ 6,091.6million in 2006 or by a leaden norm of 7.8 per centum.
RCL increased debt to equity ratio was attributed to its acquisition of the Pullmantur sail line in 2008 and the one new province of the art sail ship in 2009. It has been noted that RCL financess its enlargement by: –
Use of hard currency from operations and
Long term adoptions
RCl ‘s long term liability increased from $ 5,040.3 in 2006 to $ 7.663.5 in 2009.has had to make so in order to incur increased degrees of long-run liabilities from US $ 6,539.51 in 2008 to US $ 10,733.78 in 2009 to cover its contractual duties for the acquisition of new sail vass in 2009.
This ratio determines the degree of debt required to enable the company to go on its operations and originate expansionary programs.
The leaden mean pitching ratio presented for the period 2006 through 2009 bases at 46.39 per centum. In conformity with best patterns RCL ‘s geartrain is high, but taking into consideration the company ‘s expansionary profile[ 3 ]RCL has relied on a combination of hard currency flows provided by operations and the sale of equity[ 4 ]to cut down its degree of adoptions.
This ratio is used to measure a company ‘s ability to run into involvement payments on outstanding debt from the net incomes.
For the period 2006 to 2009 RCL ‘s involvement coverage ratio was over the basal degree of 1 to 1. The overall coverage has since been in a cut downing value place from 1 to 2.9 per centum in 2006 to 1 to 1.4 in 2009.
RCL ‘s net incomes before involvement and revenue enhancements ( EBIT ) have decreased by US $ 343.4 million or 41.2 per centum in 2009 over its 2008 place. In 2007 RCL ‘s EBIT was at its extremum for the mention period recorded at $ 901.3.
The attendant diminution in normalised net incomes before involvement and revenue enhancements during 2009 is declarative of the contraction in demand.
Net incomes per Share ( EPS ) calculates the sum of income earned by one portion of common stock during a specified clip frame.
The EPS computation is a tool used to find the value of a portion of common stock of a company, it fundamentally establishes the market value of a individual portion of the
company ‘s common stock as calculated from the amount of net incomes made available to pay dividends divided by the amount of outstanding portions of a company.
It is besides the denominator for the Price to Earning Ratio expression, which is considered one of the most used investing rating indexs in usage.
RCL ‘s basic net incomes per portion declined from 3.0 per centum in 2006 to 0.76 per centum in 2009. With no new stock issue the primary cause for the diminution in net incomes per portion is brooding of the economic state of affairs circa 2008 and increased cost of adoptions from shrinking of the resources available through the fiscal markets.
Monetary value to Net incomes Ratio
This ratio was designed to help investors in gauging the returns of a company ‘s stock offerings as indicated by its place in the fiscal markets. It reflects the relationship between the mean monetary values per portion of common stock to its possible net incomes per portion.
At the stopping point of 2008 RCL was merchandising at its highest degree between 2007 and 2009 at 19.6 times. In 2007 RCL stock trade frequence was 6.7 times, by 2009 RCL trade frequence stood at 3 times. The attendant degree of frequence in 2008 was attributed to the crisp diminution in net incomes per portion or rating of stock at market from a high in 2007 of US $ 42.44 to a depression of US $ 13.75 in 2008.
Leaden norm per portion of common stock experienced a fringy mass meeting to US $ 25.28 for 2009 but the EPS remained at 0.76 per dollar value, once more demoing the effects of the planetary economic diminution on the fiscal markets.
Liquidity ratios provide information on a company ‘s ability to run into its short-run debt duties based on its assorted degrees of liquidness or hard currency exchangeable assets.
This version of mensurating liquidness is used to find whether specific points of the company ‘s short term assets can run into the payment for short-run liabilities. The benchmark of current assets = current liabilities is considered the minimum acceptable scenario. Based on best pattern, RCL has non achieved that place within the period of 2006 through 2009.
RCL ‘s current liabilities exceed current assets by an mean rate of 3.9 per centum ( 2006-2009 ) . The primary contributing factors for the instability are contained in the company ‘s current liabilities: –
Current part of long term debt and
These points have increased by 62 per centum and 91.4 per centum ( 2008-2009 ) , severally.
Acid Test/Quick Ratio
This ratio besides determines the ability of an administration to neutralize its current liabilities by encashing certain points of current assets. The current assets identified for the minutess are those for which transition to hard currency or hard currency is at its easiest.
RCL ‘s speedy ratio place reflects the current ratio tendency of less than 1 to 1 current assets to current liabilities for the period 2007 to 2009. RCL speedy ratio studies current liabilities exceed current assets by a 3 to 1 factor ( 2006 to 2009 ) .
These ratios step how good a company manages its assets in order to bring forth gross.
Fixed Asset Ratio
This ratio calculates how efficient the company has been at bring forthing gross from its long term investings.
RCL ‘s fixed plus ratio has recorded below the recognized benchmark of 1 to 1 ; the ratio has declined from 1: 0.39 in 2007 to 1: 0.30 in 2009. RCL ‘s acquisition of two vass between 2007 and 2009 has non translated into sufficient gross to consequence an immediate alteration in this ratios mentality.
Entire Asset Ratio
Like the predating ratio the TAO presents the position of RCL ability to bring forth
gross through the application of its entire plus base at all degrees.
RCL ‘s entire plus turnover fell by 7 points in 2009. The TOA ‘s public presentation was declarative of the diminution in gross which stood at $ 5,889.8 in 2009 from $ 6,532.5 in 2008. That remains the primary cause of the eroding in RCL ‘s ability to cover its long term investings with the sum sum of assets on manus.
Restrictions of Ratio Analysis
Ratio analysis is used to measure the public presentation of an administration against: –
Previous old ages public presentation
Industry to company ‘s public presentation
Company ‘s within the same industry
But there are restrictions: –
There is a dearth of objectivism in finding what is the acceptable degree in
ratios calculated to find the success or failure of lending variables.
Comparative surveies applied for administrations within the
same industry and or sector may non be efficient ; most administrations are non homogeneous entities
Ratios are constructed from historical fiscal informations and would necessitate an unchanged environment imperviable to external forces to be considered effectual tools for foretelling future results.
Developments in the Financial Markets
The prostration of the United States sub-prime mortgage market and the reversal of the place building sector in the industrialized states have had a ripple consequence globally.
The fiscal markets were considered the provokers and were most badly affected by planetary economic crises. This sector experienced the decomposition of several good established fiscal establishments and forced authoritiess to implement bailout mechanisms to cut down the impact of a fall ining fiscal markets sector. Restrictive tactics to enable the endurance of some big and little economic systems, companies and industries were implemented.
RCL like most companies felt the impact of the economic downswing. Heavily dependant on the available discretional income of their prospective riders RCL could termed a supplier of indispensable goods or services, hence RCL degree of exposure to the system was important.
The attendant impact on RCL included: –
sail booking lags – Occupancy rates
decreased sail monetary values – Passenger ticket grosss
lower onboard grosss – Onboard and Other Grosss
break in secondary services – supply of specialist goods and services
reduced net incomes per portion
At the stopping point of 2007, RCL ‘s common stock was valued at $ 81.29, in 2008 that value was down by 67.1 per centum. At the stopping point of 2009, the fiscal markets reported a modest recovery of 31.0 per centum ( DJI ) , RCL reflected the upswing with a value addition of 22.4 per centum.
Royal Caribbean Cruises Ltd.
S & A ; P
Dow Jones United States Travel & A ; Leisure
Beginning: U.S. SEC Filings for Royal Caribbean Cruises Ltd. 2009
RCL is to a great extent dependent on its ability to pull sail riders, with about 73 per centum of its one-year income coming from that base in the signifier of rider ticket gross revenues.
Any bead off in tenancy rates triggers a reappraisal of
Current monetary value construction
Cost economy tactics
Selling schemes and
By the stopping point of 2008, RCL ‘s mean tenancy rate declined by 1.2 per centum, in 2009 that downward tendency continued with a decrease of 2 per centum. This translated as a bead in entire grosss of $ 384 million in 2008 and $ 684 million by the terminal of 2009.
Entire gross for 2009 decreased 9.8 per centum or $ 642.7 million to $ 5.9 million from $ 6.5 billion in 2008. This lessening was attributed to higher price reductions on tickets monetary values and to a lesser extent decreased onboard disbursement. In attempts to pull riders RCL elected to further section their offering and monetary value them across a broader scope. This enables RCL to pull a wider cross subdivision of income earners.
For 2009 RCL ‘s sail operating disbursals decreased by 7.6 per centum or $ 332.6 million to $ 4.1 billion from $ 4.4 billion for 2008. This was due chiefly to RCL ‘s cost salvaging enterprises pre economic recession and station recessionary steps which included:
fuel barter understandings
Job decreases in its land based employees
Outsourcing certain non indispensable services
RCL is committed to go on its pre recessive profile of spread outing its operations by the acquisition of five new sail ships. In that respect, RCL has $ 3.2 billion in contractual duties due in 2010 of which about $ 2.0 billion relates to the acquisition of two sail ships. In add-on, RCL has $ 11.3 billion in contractual duties due 2010.
The province of the fiscal markets remains a major concern to RCL as it seeks financess to run into its long term outgo. RCL long term investing scheme has been to use a combination of resources for investing capital, they are: –
Stockholders ‘ equity
Cash flows from operations
Unsecured go arounding recognition installations and
Long term adoptions
Stockholders equity has remained comparatively unchanged with no major sell off by shareholders, the sail industry is still considered to be a turning sector which will retrieve. The combination of discounted ticket sale and decreased sail disbursement as a consequence of the current economic environment has had a negative impact on RCL ‘s gross from operations. The break in the recognition market has reduced liquidness worldwide. The prostration of several international fiscal establishments has reduced the handiness of long term debt instruments and inflated the rate of adoptions.
RCL ‘s response to the state of affairs has been to: –
Implement more aggressive market schemes ; cultivate new market sections
Offer discounted pricing
cut down on shore occupations
restructure long term debt funding
re-negotiate long term -term contract with sellers
emphasise cost control features on and off shore
suspend dividend payouts
RCL has predicted that these schemes will increase the company ‘s ability to last the current economic lag.
Harmonizing to the RCL Annual Report 2009 the planetary sail industry carried an estimated 17.3 million sail riders in 2009 compared to 17.2 million riders carried in 2008. It is besides estimated that the planetary sail fleet has 267 ships with an estimated position count of 373,000 positions at the terminal of 2009. The industry has maintained this expansionary tendency since 2005.
The sail holiday industry has experienced a compounded mean growing rate of 8.3 per centum since 2005 and this was expected to go on to spread out as the industry ‘s major participants launch bigger and more epicurean vass from 2008.
RCL, as the 2nd largest company worldwide has continued its pre recessive enlargement through several cardinal factors:
The acquisition of four new ships between 2010 and 2012. Financing demands were accomplishable if RCL had maintained its jutting rate of concern growing and resources were available through the fiscal system.
Execution of expansionary cost salvaging steps that will enable RCL to airt hard currency derived resources for offset a per centum of long term debt service demands for the fleet enlargement and
At pre recessive degrees of operations, mean room tenancy at 105 per centum and competitory monetary value offerings, RCL should hold been able to keep if non excel its 2007 additions.
Based on the aforementioned, the undermentioned indexs will be used to find what could hold happened at RCL as opposed to what did go on as a consequence of the planetary economic meltdown.
RCL ‘s gross net income border responsed to the prostration of the fiscal markets via its lower than projected degrees of gross. By the terminal of 2009, rider ticket gross revenues had declined by $ 524.5 million or 11 per centum after a addition of $ 302.9 million or 6.8 per centum in 2008. Net Income was adversley affected by the autumn in gross as demand contracted from the last one-fourth of 2007 to day of the month.
The fluctuation between the 2008 existent and predicted gross net income was a loss by 2.6 per centum. RCL posted a 0.5 per centum recovery for 2009 which brought the catula 2009 public presentation near to the predicted by 0.2 per centum. The fringy addition was attributed to the enlargement of RCL ‘s cost economy tactics by cut downing the degree of employemnt of inshore staff.
RCL ‘s return on capital employed for 2008 existent was 1.1 per centum higher than predicted. This was attributed to the increased degree of long term debt, caused by the funding agreements implemented with the acquisition of the ace line drive, Oasis on the Seas.
Debt service for the $ 5 billion dollars acquisition cost were started in 2008.
RCL ‘s current ratio has ne’er reflected full screen or the one to one ratio for the settlemnt of short term liabilities b available hard currency and hard currency equivalents.
It is RCL ‘s policy to use most of the gross from operations to partly fund long term debt.
An rating of RCL ‘s fixed plus turnover ratio indicates an increasing degree of inefficiency in application of fixed assets in the coevals of income.
For the period 2006 and 2007, the mean rate was 0.38 earned on every dollar of fixed assets. The tendency persists with the predicted ratio for 2009 at 0.9 per centum lower than the 2009 existent.
The two contributings factors:
Acquisition of new vass at significant cost and
Lower than projected gross as a consequence of the planetary economic downswing
The entire assets turnover ratio reinforces the rating of RCL ‘s inefficiencies sing the use of available assets. In add-on, the comparing of the existent and predicted 2008 turnover ratios show a 0.16 points fluctuation which increased to 0.18 points by the stopping point of 2009.The primary variable remained the increased long term assets, for RCL that would be the acquisition of sail ships but the decrease in demand as a consequence of the economic downswing has affected RCL ‘s turnover ratios.
Summary and Conclusion
In 2008, RCL ‘ s figure of rider carried increased by 2.9 to 4,017.6 from
3,905.3 in 2007, nevertheless occupany rates declined by 1.1 per centum. The increased degree of riders carried was in regard of the launch of the Pullmanur line in 2008.
By 2009 tenancy had declined by a farther 2.0 per centum and gross from rider ticket gross revenues decreased by $ 524.5 or 13 per centum. Operating costs increased from $ 2.398.7 or in 2007 to $ 2,715.3 in 2008 or by 13.1 per centum. in 2009 operating costs had declined by 10.4 per centum. RCL reported the autumn was as the consequence of cost salvaging mechanisms. The primary cause for the decrese in operating costs in 2009 were: –
Part of RCL ‘s cost economy schemes were implemented pre-economic downswing. It involved the execution of fuel fudging mechanism to cut down the impact from the volatility in the fuel markets. In add-on, RCL besides reduced engagements agreements with travel bureaus and related companies, choosing to trust more on direct rider reserves through the cyberspace.
RCL ‘s acquisitions in 2008 and 2009 increased its Property, Plant and Equipment from $ 13,879.0 in 2008 to $ 15,268.0 in 2009 and its long term debt rose by $ 1,124.1 or 17.2 per centum. With falling degrees of net income, RCL has to aggressivey seek extra long term funding and expand cost economy schemes if it to run into its awaited debt service demands, pending bringing of four new vass by 2010.
With the prostration of the planetary fiscal markets, RCL can anticipate to hold to vie and pay higher than projected costs for long term adoption. In add-on, RCL may be advised to restrict its pattern of retreating gross from operations to partly countervail long term debt. In the short term, the contraction in the fiscal sector and its impact on all economic degrees would see a contiuation of decreased occupany rates and riders carried. This will go on to hold an advers consequence on RCL ‘s underside line.