Group Company Project Part IV: Final Written.Paper Topic :Carnival corporation is our company

Introduction

The tabulation in the appendix shows the various financial ratios of Carnival Corporation as well as the respective ratios of the industry average ratios. It must be noted that the strength of the Carnival Corporation depends on how its financial ratios relate with those of the competitors as well as those of the industry averages (Hosaka, 2019). The industry averages are the most important ratios to be used in comparison since they clearly depict the position of the company financially in the industry. The financial ratios comparisons are undertaken as below;

Carnival Corporation has a primary SIC code of 4724 with an industry title of “Hospitality, Travel, and Tourism” There are three main common ratio that are used alongside the SIC code 4724 or generally in the Hospitality, Travel, and Tourism. These ratios include Liquidity ratios which specifically do provide the shareholders with data concerning the company’s ability to meet its short-term financial needs. An example is the current ratio. Secondly the Financial Leverage ratios which tends to give the company’s shareholders an insight of long-term solvency of a firm in the Hospitality, Travel, and Tourism industry. An example is debt ratio. Finally, the profitability ratios which tends to measure the company’s profitability level at the gross profit, operating profit, as well as net profit levels. an example is the gross profit margin ratio.

Current ratio

According to the research conducted on the relevant materials like yahoo finance, the current ratio of Carnival Corporation as per the current period is 0.23 while that of the industry average is 0.41. Although both the company and the industry average current ratios aren’t favorable, the Carnival Corporation current ratio is much low. For instance, according to the ratio, for every $1.0 of liabilities in Carnival Corporation, there is $0.23 dollars of assets. This implies that the company cannot use its current assets in settling its short-term debts. The same situation applies to the industry average ratio. This is because, there is only $0.41 dollars of assets for every $1.0 dollar of liabilities (Liang, et al. 2016).

Debt Ratio

This ratio does measure the quantity of the Carnival Corporation assets which are specifically provided from debt. From research, it was found that 45.35% of the company’s total assets are provided from debt as compared to 60.67% of the average industry assets which comes from debt. Therefore, in relation to the industry debt, Carnival Corporation is better than its competitors.

Gross Profit Margin

This is another very important ratio which actually compares the company’s gross profit in relation to its net sales for the purpose of indicating the amount of profit a company do make after paying its cost of goods sold. In the current period, Carnival Corporation had a gross profit margin of 48.81% as compared to the industry average of 53.97%. Therefore, this indicates that the company makes less profit upon the payment of its cost of goods sold as compared to its competitors (Liang, et al. 2016).

Times Interest Earned

This refers to a ratio which acts like an indicator of the number of times that a company can comfortably pay its debts with its earnings before tax (Liang et al., 2016). In the current period, Carnival Corporation has a times interest earned of 16.48 as compared to the 15.67 of the industry average. This implies that the company is better off in payment date as compared to its competitors, however it needs to raise its efficiency to its operating income (Liang, et al. 2016).

Accounts Receivable Turnover

This ratio shows the effective ability of the company to give credit to its clients as well as its ability to collect its due from the same clients. The financial data indicates that the Carnival Corporation has the ability to collect 51.94 times of debt from its clients as compared to 112.3 times of its competitors. This indicates that the effectiveness of the company to collect debt from the clients is more than half less as compared to its competitors (Morales-Díaz, & Zamora-Ramírez, 2018).

Inventory Turnover

The sale of inventory of Carnival Corporation as at the present period is 24.31 times a year while that of the industry average is 35.89 times a year. This particularly indicates that the company’s competitors are at a position of selling their inventories as compared to Carnival Corporation (Linares-Mustarós, et al. 2018).

Return on Sales

The ability of Carnival Corporation to turn its sales into profits is determined by return on sales ratio. From the data presented in the spreadsheet, it’s clear that Carnival Corporation has got a higher ability of turning its sales into profits with 8.64% as compared to 5.81% of its competitors. However the company is also supposed to increase its efficiency in operation so that it can be in a position of getting more profits from sales (Linares-Mustarós, et al. 2018).

Asset Turnover

The efficiency of Carnival Corporation in using assets to generate income is measured by the assets turnover ratio. For instance, in relation to its competitors, Carnival Corporation is 0.48 efficient in income generation from assets as compared to its competitors who are 0.53 efficient.

Return on Assets

The return on asset of Carnival Corporation is 6.83% as compared to 4.74% of its competitors. This indicates that the profitability of Carnival Corporation in relation to its assets is much higher as compared to its competitors in the industry. Therefore the Carnival Corporation is more efficiently utilizing its assets in relation to its competitors (Morales-Díaz, & Zamora-Ramírez, 2018).

Financial Leverage

This ratio do measure the debt amount that is used by Carnival Corporation in financing its activities. According to financial ratios of the company, its financial leverage is 0.31 as compared to that of the industry average of 0.42. Therefore, this indicates that the Carnival Corporation is using less debt to finance its assets as compared to its competitors (Morales-Díaz, & Zamora-Ramírez, 2018).

Return on Equity

The profitability of Carnival Corporation in relation to its equity is much higher when it’s compared with its competitors. For instance, Carnival Corporation has a 12.01% return on equity as compared to its competitors in the industry who has an average of 8.77%. This shows that the company’s management is effective in profit generation from its assets (Hosaka, 2019).

The Company’s Profitability

From the ratio analysis, the three main ratios measuring the profitability of the company include return on equity which shows that Carnival Corporation is much profitable as compared to its peers in the industry. However on the gross profit margin ration, there is an indication that the compare is making lesser profits upon making its payments on the cost of goods sold. But it’s important to realize that the margin is not such wide. Its better profitability as compared to other peers can also be proved by the return on assets ratio (Liang, et al. 2016).

Company’s Efficiency

The company’s efficiency can be determined by two main ratios which are assets turnover ratio and inventory turnover ratio. From the two ratios indication, it shows that Carnival’s efficiency is worse that the peers in the same industry.

Liquidity of the Company

The company’s liquidity can be measured using the current ratio. And from the analysis, it’s clear that Carnival Corporation’s liquidity is poor as compared to that of the competitors.

Solvency of the Company

From the debt ratio, it’s clear that Carnival Corporation is much better in solvency as compared to its peers in the industry.

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