Chapter 1
Carnival Corporation & Plc is a multinational cruise ship operator that offers vacation experiences to customers around the world. The company operates under several brands, including Carnival Cruise Line, Princess Cruises, Holland America Line, and Seabourn Cruise Line, among others. In this report, we will argue that Carnival Corporation & Plc is a significant and worthy company to analyze, providing some background information about the company, its history, and its current state in the market.
Carnival Corporation & Plc has a long history that dates back to 1972, when the company was founded by Ted Arison. Over the years, Carnival Corporation & Plc has grown to become one of the largest cruise ship operators in the world. Today, the company operates over 100 cruise ships and serves millions of customers every year.
One reason why Carnival Corporation & Plc is significant and worthy of analysis is because of its size and market position. The company is the largest cruise ship operator in the world, with a market share of approximately 48% in 2019. Its closest competitor, Royal Caribbean Group, has a market share of around 23%. This demonstrates the dominance of Carnival Corporation & Plc in the industry and its ability to compete effectively against other players.
Current Situation
Carnival Corporation & Plc has been facing significant challenges in recent years. One of the most significant challenges the company is facing is the negative impact of the COVID-19 pandemic on the travel and tourism industry. As a result of the pandemic, the company was forced to suspend its operations, resulting in significant losses in revenue. According to the company’s 2020 annual report, Carnival Corporation & Plc experienced a net loss of $10.2 billion in the fiscal year 2020, a significant decline from its net income of $3 billion in 2019. As a result of the declining revenue and profitability, Carnival Corporation & Plc faces the risk of a decrease in its stock prices and loss of investor confidence.
In addition to the pandemic, Carnival Corporation & Plc has also been facing other challenges, including increased competition, rising fuel costs, and environmental concerns. The cruise industry is highly competitive, and Carnival Corporation & Plc has been facing increased competition from other cruise lines, which has impacted its market share and profitability. Moreover, rising fuel costs have impacted the company’s profitability, as fuel accounts for a significant portion of its operating costs. Additionally, the company has faced increased scrutiny and regulatory pressure due to environmental concerns, which has led to increased operating costs..
Chapter 2
International Accounting Standards (IAS) and Financial Regulations are guidelines and principles that dictate how companies should prepare, present, and disclose financial statements to ensure accuracy, transparency, and consistency in reporting. These standards and regulations aim to promote investor confidence, protect stakeholders’ interests, and improve the quality and comparability of financial information across different jurisdictions.
The International Accounting Standards Board (IASB) is the organization responsible for developing and maintaining International Financial Reporting Standards (IFRS), which are the globally accepted accounting standards that companies in over 140 countries must comply with. The IFRS framework provides a set of rules and principles for preparing financial statements that cover various areas such as revenue recognition, accounting for leases, financial instruments, and business combinations.
Compliance with International Accounting Standards is critical for companies like Carnival Corporation & Plc, which operates in the travel and tourism industry and has a global presence. Adherence to IAS ensures that the company’s financial statements are comparable and can be easily understood by investors, analysts, and other stakeholders worldwide. This, in turn, can help increase investor confidence, reduce risk, and facilitate access to capital markets.
Moreover, compliance with International Financial Reporting Standards helps companies like Carnival Corporation & Plc to maintain a level playing field with their competitors by ensuring consistency in financial reporting. This enables investors and other stakeholders to make informed decisions and compare the financial performance of different companies operating in the same industry. For example, compliance with IAS 17, which deals with accounting for leases, ensures that Carnival Corporation & Plc lease obligations are reported consistently and transparently, allowing investors to compare the company’s financial performance with its competitors.
In addition to International Accounting Standards, financial regulations also play a crucial role in ensuring that companies operate ethically and with integrity. Financial regulations like the Sarbanes-Oxley Act (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in the United States, and the European Market Infrastructure Regulation (EMIR) in Europe, impose stricter reporting requirements and increased transparency to prevent fraud, corruption, and unethical practices. Compliance with these regulations can help companies like Carnival Corporation & Plc to avoid legal and reputational risks, and maintain the trust and confidence of their stakeholders.
Some of the specific IAS that are applicable to Carnival Corporation & Plc include IAS 16 (Property, Plant, and Equipment), IAS 36 (Impairment of Assets), and IAS 38 (Intangible Assets). These standards provide guidelines for the accounting treatment of various assets and require companies to report their value accurately on their financial statements.
IAS 16 requires companies to recognize and report their property, plant, and equipment at their fair value and depreciation rates. This standard is important to Carnival Corporation & Plc because the company owns and operates a large fleet of ships, which are its primary assets. The company must accurately report the value of its ships, including depreciation, in order to provide an accurate picture of the company’s financial health.
IAS 36 requires companies to test their assets for impairment and report any impairment losses on their financial statements. This standard ensures that the company reports accurate and transparent financial statements, which is important for investors and other stakeholders.
IAS 38 deals with the accounting treatment of intangible assets such as trademarks, patents, and brand names. By following IAS 38, the company can ensure that its brand values are reported accurately and can use this information to make informed decisions about marketing and other activities.
Compliance with International Accounting Standards (IAS) offers several benefits for companies, including Carnival Corporation & Plc which include:
It enhances the credibility of the company’s financial statements, which increases the confidence of investors, creditors, and other stakeholders. When a company follows IAS, it ensures that its financial statements are prepared in a standardized manner, making them more comparable across different entities. This, in turn, facilitates better decision-making for stakeholders as they can easily compare the financial performance of the company with its peers in the industry.
It promotes transparency and accountability, which are critical factors for building trust with stakeholders. When a company discloses relevant and accurate financial information, it provides transparency in its financial reporting and demonstrates its commitment to good governance. This is particularly important for Carnival Corporation & Plc, a company with a global presence, as it operates in different jurisdictions with varying levels of financial regulations. By complying with IAS, the company can maintain its reputation as a responsible corporate citizen and increase stakeholder trust.
Thirdly, IAS compliance can help reduce the cost of capital for the company. Companies that follow IAS have access to a larger pool of potential investors, which can result in a lower cost of capital. Moreover, following IAS can also lead to lower borrowing costs, as lenders are more likely to lend to companies with a good track record of compliance. This can have a positive impact on the company’s financial performance, as it can reduce its financing costs and improve its profitability.
Compliance with financial regulations is critical for Carnival Corporation & Plc, as it not only ensures legal compliance but also protects the company’s reputation and enhances stakeholder trust. By adhering to financial regulations, the company can minimize the risk of financial fraud, corruption, and environmental violations, which can have a significant impact on its financial performance and reputation.
Carnival Corporation & Plc is a company with a strong commitment to core values, which guide its operations and decision-making processes. These core values are central to the company’s corporate culture and are reflected in its policies, practices, and strategies.
The core values of Carnival Corporation & Plc include:
Safety and security – The company prioritizes the safety and security of its passengers and crew members. It has established rigorous safety protocols and procedures to ensure that all its operations meet the highest safety standards.
Environmental responsibility – Carnival Corporation & Plc is committed to reducing its environmental impact and promoting sustainable practices. It has implemented a number of initiatives to reduce waste, conserve energy, and protect the marine environment.
Guest experience – The company places a high value on providing its guests with a memorable and enjoyable experience. It strives to exceed their expectations by offering a wide range of onboard amenities and activities, as well as personalized service.
Teamwork – Carnival Corporation & Plc believes that teamwork is essential to its success. It fosters a collaborative and supportive work environment where employees are encouraged to share ideas and work together towards common goals.
Integrity – The company is committed to maintaining the highest standards of integrity and ethical behavior in all its business dealings. It has established a code of conduct that outlines its expectations for employees, suppliers, and business partners.
Carnival Corporation & Plc is one of the world’s leading cruise companies, with over 100 ships and operations in several countries. The company has a reputation for adhering to international accounting standards, financial regulations, and core values, which have contributed to its competitive advantages.
Adherence to international accounting standards such as IFRS ensures that Carnival Corporation & Plc’s financial statements are accurate, complete, and comparable. This accuracy in reporting has earned the trust of shareholders, investors, and regulators, leading to greater access to capital, lower financing costs, and a competitive advantage in the market.
Financial regulations are also critical to the success of Carnival Corporation & Plc. The company operates in several jurisdictions worldwide, and each country has its regulations governing the operations of cruise companies. Adherence to these regulations ensures that the company operates ethically and transparently, which enhances its reputation and competitive advantage.
Carnival Corporation & Plc’s core values also play a crucial role in the company’s competitive advantages. The company’s core values, which include safety, integrity, and respect for people and the environment, are critical to its operations. Carnival Corporation & Plc places the safety of its passengers and employees above everything else, which has earned it a reputation as a reliable and trustworthy cruise company.
The competitive advantages gained by Carnival Corporation & Plc through adherence to International Accounting Standards, Financial Regulations, and Core Values have had a significant impact on the company’s financial performance.
Firstly, compliance with International Accounting Standards (IAS) has ensured that the company’s financial reporting is transparent, consistent, and comparable. This has increased the confidence of stakeholders, such as investors and creditors, in the company’s financial statements. Furthermore, adherence to IAS has facilitated the consolidation of financial statements for the company’s subsidiaries, providing a comprehensive view of the company’s financial performance.
Secondly, compliance with Financial Regulations has enabled the company to manage financial risks effectively. The company’s risk management policies are aligned with international standards, such as the Basel Accords, and the regulations imposed by regulatory bodies such as the US Securities and Exchange Commission (SEC). This has helped the company to mitigate financial risks and maintain a strong financial position.
Thirdly, the company’s Core Values, which include safety, environmental responsibility, and guest satisfaction, have provided a unique selling point for the company. The company has gained a competitive advantage by being recognized as a responsible corporate citizen, and this has attracted customers who prioritize ethical and sustainable business practices. This has resulted in increased revenue and brand loyalty.
It is worth noting that the company has faced challenges in recent years, particularly with regards to safety and environmental responsibility. The company has been fined for environmental violations, and safety concerns have arisen following several high-profile incidents. However, the company has taken steps to address these issues, such as investing in new technologies and implementing more rigorous safety protocols.
Chapter 3
From existing financial reports on Carnival Corporation & Plc write a detailed reports on various solvency ratios and what they mean for the few recent years on Carnival Corporation & Plc
| Ratios and measures | 2021 | 2020 |
| Liquidity | ||
| Current ratio | 0.7 | 1.0 |
| Quick ratio | 0.7 | 0.9 |
| Investment Ratios | ||
| Price earnings ratio | -3.9 | -2.6 |
| Dividend yield | – | – |
| Leverage | ||
| Debt to equity | 6.3 | 3.4 |
| Debt to assets | 0.9 | 0.8 |
| Efficiency | ||
| Asset turnover | 3.4 | 22.5 |
| PP&E turnover | 0.3 | 0.1 |
| Working capital funding gap | -3113.0 | -275.0 |
| Profitability | ||
| Operating profit margin | -35.98% | -371.54% |
| Net profit margin | -50.07% | -497.96% |
| Operating return on assets | -0.1 | -0.1 |
| Return on assets (ROA) | -0.1 | -0.2 |
| Return on equity (ROE) | -0.5 | -0.5 |
| Return on invested capital (ROIC) based on the tax rate noted in the instructions | -0.9 | -0.8 |
| Other measures | ||
| Net working capital | 37,069 | 33,997 |
| Common size financial statement measures | ||
| Operating income | -35.98% | -229.51% |
| Revenue | 100.00% | 100.00% |
| Accounts receivable | 3.25% | 12.89% |
| Total equity | 58.06% | 636.48% |
| Total liabilities | 366.82% | 2159.28% |
| Other long-term liabilities (besides LT debt reported in LT liabilities) | 7.32% | 54.66% |
| Total assets | 424.87% | 2795.81% |
| Long-term debt (reported in long-term liabilities) | 262.58% | 1494.18% |
| Other current liabilities (besides AP, ST debt, & curent portion of LT debt) | 57.21% | 256.55% |
| Current portion of long-term debt | 19.66% | 101.00% |
| Accounts payable | 8.63% | 41.77% |
| Short-term debt | 1.64% | 146.23% |
| Cash | 33.11% | 468.50% |
| Inventory | 3.52% | 18.66% |
| Gross Income | -35.98% | -371.54% |
| Other operating current assets (besides AR & inventory) | 54.80% | 499.53% |
| Other long-term assets (besides PP&E) | 45.39% | 267.51% |
| PP&E | 317.91% | 1997.22% |
| Net income | -50.07% | -497.96% |
Carnival Corporation & Plc is a multinational cruise company that operates a wide range of cruise brands such as Carnival Cruise Line, Princess Cruises, Holland America Line, and Costa Cruises. Solvency ratios are important metrics used to assess the company’s long-term financial stability and its ability to meet its long-term obligations. Let’s take a closer look at the solvency ratios for Carnival Corporation & Plc for the last few years.
Debt-to-Equity Ratio:
The debt-to-equity ratio measures the company’s financial leverage by comparing its total debt to shareholders’ equity. A high ratio indicates that the company is relying heavily on debt financing, which could be risky in the long term. Here is the debt-to-equity ratio for Carnival Corporation & Plc for the last few years:
2022: 6.3
2021: 3.4
The company’s debt-to-equity ratio has remained relatively stable over the years, indicating that the company has maintained a healthy balance between debt and equity financing since debt is cheaper than equity.
Debt-to-Asset Ratio:
The debt-to-asset ratio measures the company’s overall debt level relative to its total assets. A higher ratio indicates that the company is more heavily leveraged and has a higher risk of default. Here is the debt-to-asset ratio for Carnival Corporation & Plc for the last few years:
2022:0.9
2021: 0.8
The debt-to-asset ratio for Carnival Corporation & Plc has increased over the years, indicating that the company’s debt level has grown relative to its assets. However, the ratio is still within reasonable limits, suggesting that the company has sufficient assets to cover its outstanding debt.
Return on Assets (ROA):
The return on assets ratio measures the company’s ability to generate earnings from its assets. A higher ratio indicates that the company is more efficient in generating profits from its assets. Here is the return on assets ratio for Carnival Corporation & Plc for the last few years:
2022:-0.1
2021:-0.2
The return on assets ratio for Carnival Corporation & Plc has been volatile over the last few years. The ratio has been negative in 2021, indicating that the company is not generating sufficient earnings from its assets.
Return on Equity (ROE):
The return on equity ratio measures the company’s ability to generate profits relative to the shareholders’ equity. A higher ratio indicates that the company is more efficient in generating profits for its shareholders. Here is the return on equity ratio for Carnival Corporation & Plc for the last few years:
2022:-0.5
2021: -0.5
The return on equity ratio for Carnival Corporation & Plc has also been volatile over the last few years. The ratio has been negative in both years, indicating that the company is not generating sufficient profits for its shareholders.
Net Profit Margin:
The net profit margin measures the company’s profitability after deducting all expenses, including interest and taxes. A higher margin indicates that the company is more efficient in generating profits from its operations. Here is the net profit margin for Carnival Corporation & Plc for the last few years:
2022:-50.07%
2021: -497.96
The net profit margin for Carnival Corporation & Plc has also been volatile over the last few years. The margin has been negative in both years, indicating that the company is not generating sufficient profits from its operations. However in 2022 the company has recovered considerably compared to the previous year.
Efficiency ratios
Efficiency ratios are important financial metrics used to measure how efficiently a company is utilizing its resources to generate revenue and profits. In this report, we will analyze the efficiency ratios of Carnival Corporation & Plc for the most recent years.
Asset Turnover Ratio:
The asset turnover ratio measures the efficiency of a company in generating revenue from its assets. A higher ratio indicates that the company is more efficient in using its assets to generate revenue. Here are the asset turnover ratios for Carnival Corporation & Plc for the most recent years:
2022:3.4
2021: 22.5
The asset turnover ratio for Carnival Corporation & Plc has decreased significantly in 2022, indicating that the company is not utilizing its assets efficiently to generate revenue.
Market ratios are used by investors to evaluate the financial performance of a company and its attractiveness as an investment opportunity. In this report, we will analyze the market ratios of Carnival Corporation & Plc for the most recent years.
Price-to-Earnings Ratio:
The price-to-earnings (P/E) ratio measures the market value of a company’s stock relative to its earnings. A higher P/E ratio indicates that investors have high expectations for the company’s future earnings growth. Here are the P/E ratios for Carnival Corporation & Plc for the most recent years:
2022:-3.9
2021: -2.6
The P/E ratio in 2022 and 2021, the company had a negative P/E ratios, which suggests that its earnings were negative, and investors were not optimistic about its future earnings potential.
Dividend Yield Ratio:
The dividend yield ratio measures the dividend payout of a company’s stock relative to its market price. A higher dividend yield indicates that the company is paying a higher percentage of its earnings as dividends. Here are the dividend yield ratios for Carnival Corporation & Plc for the most recent years:
2020: 2.31%
The dividend yield ratio for Carnival Corporation & Plc in 2019, the company had a dividend yield of 2.31%, indicating that it paid a significant portion of its earnings as dividends to its shareholders.
Liquidity ratios are used to measure a company’s ability to meet its short-term obligations with its current assets. In this report, we will analyze the liquidity ratios of Carnival Corporation & Plc for the most recent years.
Current Ratio:
The current ratio measures the company’s ability to pay its short-term obligations with its current assets. Here are the current ratios for Carnival Corporation & Plc for the most recent years:
2022: 0.7
2021: 1.0
The current ratio for Carnival Corporation & Plc has decreased significantly in 2022, which indicates that the company has a lower ability to meet its short-term obligations with its current assets than in previous years.
Quick Ratio:
The quick ratio measures the company’s ability to pay its short-term obligations with its current assets, excluding inventory. Here are the quick ratios for Carnival Corporation & Plc for the most recent years:
2022: 0.7
2021: 0.9
Similar to the current ratio, the quick ratio for Carnival Corporation & Plc has decreased in 2022, indicating a lower ability to meet its short-term obligations with its current assets, excluding inventory.
Chapter 4
This report presents potential solutions to the profitability problem experienced by Carnival Corporation & Plc, based on an analysis of financial ratios, including net profit margin, operating income margin, ROA, and ROE. The report argues that reducing operating expenses, increasing revenue, optimizing pricing strategies, and improving operational efficiency could help improve the company’s profitability. These recommendations are supported by computations of financial ratios, as well as relevant theories and concepts in finance and business management.
Reducing Operating Expenses:
One potential solution to Carnival Corporation & Plc’s profitability problem is to reduce operating expenses. This could be achieved by implementing cost-cutting measures, such as reducing staff, renegotiating supplier contracts, or streamlining processes. These measures could help reduce the company’s fixed and variable costs, leading to an increase in net profit margin and operating income margin.
Increasing Revenue:
Another potential solution to Carnival Corporation & Plc’s profitability problem is to increase revenue. This could be achieved by expanding into new markets or product lines, investing in marketing and advertising, or improving customer experience to increase repeat business and referrals. These measures could help increase the company’s revenue, leading to an increase in net profit margin and ROE.
Optimizing Pricing Strategies:
This could be achieved by adjusting ticket prices or offering different packages to appeal to different customer segments. These measures could help the company maximize revenue and profitability while maintaining customer satisfaction. Optimizing pricing strategies could also help improve its operating income margin.
Improving Operational Efficiency:
Another potential solution to Carnival Corporation & Plc’s profitability problem is to improve operational efficiency. This could be achieved by investing in technology or upgrading infrastructure, which could lead to lower costs and faster turnaround times. These measures could help the company reduce its fixed and variable costs, leading to an increase in net profit margin and operating income margin. Investing in technology could help the company automate processes,
Enhancing the company’s brand and reputation by focusing on sustainability, social responsibility, and ethical practices, which could attract more customers and investors.
Carnival Corporation & Plc profitability problem can be partly attributed to negative publicity related to environmental concerns and the company’s social responsibility practices. To address this issue, the company can focus on enhancing its brand and reputation by improving its sustainability practices, being more socially responsible, and adopting ethical business practices.
Implementing Environment Management System (EMS)
One strategy that Carnival Corporation & Plc can adopt is to implement an environmental management system (EMS) that focuses on reducing waste, emissions, and energy consumption. By implementing an EMS, the company can improve its sustainability practices and reduce its environmental impact, which could help attract environmentally-conscious customers and investors.
Chapter 5
In conclusion, the financial analysis of Carnival Corporation & Plc has revealed several challenges and opportunities for the company. The COVID-19 pandemic has had a significant impact on the company’s financial performance, with a sharp decline in revenue and profitability in 2020.
The analysis has also revealed that the company has poor profitability, as evidenced by its low net profit margin, operating income margin, ROA, and ROE ratios. This suggests that the company needs to focus on improving its financial management, developing a long-term strategy that takes into account emerging trends and changes in consumer behavior, and exploring opportunities for mergers, acquisitions, or partnerships to gain access to new markets, technologies, or expertise.
The findings of this analysis benchmark against relevant business and financial analysis concepts and current theory, which emphasize the importance of financial management, strategic planning, and innovation in achieving long-term profitability and success. The theories and concepts, such as the Porter’s Five Forces model, SWOT analysis, and financial ratio analysis, provide frameworks for analyzing the company’s strengths, weaknesses, opportunities, and threats and developing strategies that are aligned with the company’s goals and objectives.
In summary, the financial analysis of Carnival Corporation & Plc has revealed significant challenges and opportunities for the company, particularly in the context of the COVID-19 pandemic. The company needs to adopt innovative strategies and focus on improving its financial management, developing a long-term strategy that takes into account emerging trends and changes in consumer behavior, and exploring opportunities for mergers, acquisitions, or partnerships to gain access to new markets, technologies, or expertise. By doing so, the company can remain competitive and achieve long-term profitability and success.
