This report is purposely prepared to examine the financial condition of Carnival Corporation & PLC through ratio analysis which has enabled to note the trends in different solvency, profitability and liquidity ratios. Furthermore, suggestions are provided for the corporation that might be of help to the ratios that have problems.
Financial ratio analysis of Carnival PLC
Financial ratio analysis uses all the data provided from calculation of the ratios to come up with decisions and suggestions about improving a company’s profitability, solvency and liquidity. The above ratios points out the financial risks of the business and their working efficiency (Wang et al, 2019). They are also evaluated for Carnival PLC in order to study and explore the behavior of the business and help to come up with recommendations to help fix the problems that may arise.
Profitability ratios
Gross profit margin
In the year 2019, Carnival’s Gross Profit margin reduced from 41.27% to 38% as indicated in the appendix. This means that there was a higher costs of goods sold. Over time, the suppliers of goods naturally wanted to increase their own income, and this led to supply of goods at a higher price. The fact that Carnival always intends to satisfy their customers, they had to purchase the goods at a higher price. This led to reduction in gross profits in the business. Another cause was that Carnival despite the fact of buying goods at a higher price; they lowered their prices to favor their esteemed customers. It is self-explainable that buying goods at a higher price and selling at a lower price will reduce the profits in general at the end of the period. Furthermore, Carnival has faced intense competition over time. New competitors’ emerging up strongly was a threat to the superiority of the company. This led to esteemed customers of Carnival to try new places of exposure hence leading to loss of profits. Lastly, there was also rivalry among competitors which led to slow performance of the company. All these factors led to reduction in Gross Profit of the company.
Efficiency Ratios
Inventory turnover
The inventory turnover of Carnival PLC increased from 26 to 29.44 in the year 2019. This means that the company had sold out its inventory frequently in the year 2019 and this represents strong sales.
Account receivable turnover
In the year 2019, Carnival’s PLC’s account receivables turnover ratios rose up from 52 to 56.4. This means that the company was quickly receiving the collections from the customers. Another reason is that there was deterioration of the buyers’ payment discipline. The buyers were not discipline in their payment terms which led to an increase in account receivable. They enjoy services given, but they don’t pay in time. Furthermore, Carnival activated provision of customer loans for goods and services (Syriopolous et al, 2020).Lastly, there were mistakes during definition of credit policies. When mistakes are made in credit accounting, the company is deeply affected. Currently, the business operations are running efficiently due to collections that are utilized by the corporation for payment to creditors and other expenditures.
Liquidity ratios
Debt ratio
In the year 2019, Carnival’s debt ratio rose from 0.42 to 0.44. This means that the company’s assets were 0.44 times sponsored by debt. This means that the company is efficiently doing its business.
Times interest earned
In the year 2019, appendix 1 shows that the Times Interest Earned ratio of the Carnival PLC declined. This means that there was a decrease in profits as explained earlier in the Gross Profit Margin. Decrease in profits leads to a fall in income. Moreover the company has high debts to pay. These reasons incapacitated the company to pay its interests (Nguyen et al, 2020).
Analysis of ROE
Return on sales
In the year 2019, Carnival’s return on sales decreased. The sales of the company increased but the profits declined. This decrease in return on sales ratio happened because of the decline in the operating profits which negatively affected the amount of operating income.
Total assets turnover
The total assets turnover of the Carnival cooperation slightly increased from 0.45 to 0.46. This is due to maximum and efficient usage of the assets. The company tried to be efficient in generating revenue from its assets.
Return on assets
Later, Carnival’s return on assets declined from 7.6 to 6.8 in the year 2019. This simply means that the corporation at some point didn’t utilize its assets effectively to create more income. Furthermore, reduced Return on Assets shows that the assets of the company are not efficient as compared to other years in the past.
Financial leverage
Carnival Corporation’s financial leverage shows that the company mostly relies on equity financing to meet its financial expenditures and to operate its business. This simply implies that it has sufficient funds and resources which is a good indicator.
Return on equity
Return On Equity of Carnival Corporation declined. This is due to decrease in net income of the corporation because of non-operating expenses that happened before.
Conclusion and suggestions
Carnival Corporation is a good company aiming at customer satisfaction. However, it also undergoes challenges affecting its efficiency in operation. Carnival must aim at maximizing output and minimizing inputs. This will be achieved by buying goods at a fair price through negotiations with their suppliers. Carnival should also improve its efficiency in asset utilization and in credit policies. These factors have affected it negatively which is not good. If these factors are fixed, the company will be able to generate more revenue and the business will move to higher heights.
References
Babii, A., Ball, R. T., Ghysels, E., & Striaukas, J. (2020). Machine Learning Panel Data Regressions with an Application to Nowcasting Price Earnings Ratios. arXiv preprint arXiv:2008.03600.
Nguyen, M. A. T., & Yu, M. M. (2020). Decomposing the operational efficiency of major cruise lines: A network data envelopment analysis approach in the presence of shared input and quasi‐fixed input. Managerial and Decision Economics.
Syriopoulos, T., Tsatsaronis, M., & Gorila, M. (2020). The global cruise industry: Financial performance evaluation. Research in Transportation Business & Management, 100558.
Wang, G., Li, K. X., & Xiao, Y. (2019). Measuring marine environmental efficiency of a cruise shipping company considering corporate social responsibility. Marine Policy, 99, 140-147.
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