Company Analysis of Royal Caribbean Cruise Ltd

Fall Trimester Project: Company Analysis of Royal Caribbean Cruise Ltd
Name
Hodges University
MNA4325
Professor Harbour
Due
Submitted

Abstract
This paper analyzes the financial and non financial information of Royal Caribbean Cruise Ltd with a view of giving a recommendation on the significance of investing in the company’s stock. The paper begins by looking at the external environment surrounding the cruise ship business environment and leisure industry as it pertains to the company. To further get more information on the company, it is necessary to highlight on financial information about company obtained from msn.com and other related literature. Financial information and ratios provide a framework through which to analyze the company through comparing with industry average and that of Carnival Corporation, the leading cruise ship company in the leisure industry. The company’s non financial information also provided ways through which to assess the company’s performance. Based on the company’s financial performance and corporate social responsibility, investing in the company’s stock is worthwhile.
External Environment
The Royal Caribbean Cruise Ltd is a Norwegian American company operating cruise ships, and has been in operations since 1968. The Royal Caribbean Cruise operates 40 ships, and is second behind Carnival (CCL) in the cruise operator industry (wiki invest, 2013). Other than Carnival Corporation & PLC being the main competitor, cruise ships also compete with vacation alternatives in the leisure industry. These include: resort hotels on land and companies offering sightseeing services. However, the demand for leisure activities is dependent on the political and economic situations prevailing and consumer spending habits. Despite the opportunities the industry has uncertainties even with the launch of bigger ships (Esterl, 2009).The Royal Caribbean Cruise Ltd was formally incorporated on July 1985 and operates ships under diverse names including: Azamara Club Cruises, Celebrity X Cruises, CDF Croisières de France, Pullmantur and Royal Caribbean International (RCL, 2010), but there is a joint venture through TUI cruises (MarketLine, 2012).
Cruise ships have long been considered as luxurious and targeted the elite, but the industry has grown more diverse over the years as more diverse groups take cruise vacations. North America is the traditional market for the cruise industry and Europe to an extent, but Asia is increasingly becoming an important market for the industry (PR NewsWire, 2013). Many of the passengers in cruise ships are first time travelers, and this provides opportunity for continued growth in the industry (RCL, 2010). According top the RCL (2010), there were estimated 17.3 million passengers in 2009, which rose to 18.7 million in the year 2010. Similarly, the industry trends indicate tat a big chunk of the passengers are sourced from North America, and to some extent Europe. At the same time, the Norwegian Cruise Line Holdings Ltd is projected to be the third biggest ship cruise company in 2013(Dieterich, 2013).
The ageing of the baby boomers is projected to increase demand for cruise vacations, but there is growing diversity of passengers. Increased competition in the industry has meant that more people can afford to go on cruise vacations because the price is affordable. The targeted clients identify with different brands with more affluent clients identifying with Azamara Club Cruises, while the French people are familiar with CDF Croisières de France, while Pullmantur mainly targets Latin America, Spain and Portugal (Yahoo Finance, 2013). To ensure safety and security for customers, the group liaises with regulators, but there is still need for more information on tax payments among different jurisdictions.
General Environment
The general environment is characterized with a growing diversity among passengers, as the family make up of today is different with people marrying later and double income families being the norm. At the same time, there are more young families taking cruise vacations with their children, enabling the cruise ship industry to broaden their appeal to customers. In North America, the large number of baby boomers is likely to increase traffic for the cruise sip industry, as they retire and spend more time on vacations. Nonetheless, their consumer spending goes together with the general economic conditions, and since the 2008 global financial crisis, there have been fears that rising consumer dent may put a dent on the industry’s growth. Furthermore, increased fuel costs have at times led to slashing of cruise vacation prices to lure back customers (Neil, 2006).
Expansion to Europe provides an opportunity for the company and industry as a whole in which to expand operations (Entertainment Newsweekly, 2008).. In particular, the expansion of the European Union would provide an opportunity for the industry when the Euro stabilizes. Similarly, the emerging markers are providing an opportunity for the industry as an emerging middle class seeks to enjoy cruise vacations. The targeted customers in these countries typically live in peaceful countries, but there is a need to take into consideration e legal issues surrounding taxation. At the same time, increased reliance on technology has necessitated the integration of technology in the industry to enable faster communication, with cruise ships increasingly being wired to enable internet access.
Information on independent Accounting Firm
The Independent accounting firm for Royal Caribbean Cruises Ltd is PricewaterhouseCoopers LLP as appointed during the 2012 Annual General Meeting of the Company. Consequently, PwC carried out auditing for the firm, but PwC also carries out tax advisory, risk assurance, forensic services and consulting services (PwC, 2013). PwC has a global reach and provides professional services to firms and companies and is one of the firms christened as the Big Four auditors in the world. PwC came into being following the merger of Coopers & Lybrand and Price Waterhouse in the year 1998. Nonetheless, the firm has an audit committee appointed by the Board of Directors to ensure that there is integrity in the financial statements of the firm. Equally, the audit committee looks into the competence and independence of independent auditors, while also performing the internal audit function of the company together with ensuring that the Company adheres to the legal regulatory framework.
Review of Financial statements and Trend Analysis
The trend analysis and review of financial of financial statements takes into account financial information relating to the 2010 financial year. According to the RC 2010 Annual Report, the Total revenues in 2010 were $ 6, 752, 504, an increase from $5, 889, 826 (RCL, 2010). Nonetheless, in the year 2009 there was a drop in total revenues from 2008; this could be as a result of the effects of the global financial crisis of 2008. Equally, the operating revenues of the firm increased from 488, 511 in 2009 to 802,633 in 2010(RCL, 2010). Since the turn of the decade revenues have consistently been on an upward trend except in the year 2009, meaning that the industry is not immune to economic shocks and consumer spending habits.
In 2010, the net income increased by 237% from 162, 421 to 547, 467 in 2010, while the diluted earnings per share increased by 234% from 0.75 in 2009 to 2.51 in the financial year 2010. This was not the general trend as both the net income and diluted earnings per share had decreased in the year 2009 in comparison to 2008. Nonetheless, the estimated global cruise passengers increased from 2006 to 2010, whereby there were 17, 340, 000 passengers in 2009 and 18, 740, 000 passengers in 2010 representing an 8% increase in the number of passengers (RCL, 2010). The Royal Caribbean Cruise Ltd firm saw an increase in the number of carried passengers from 3,970,278 in 2009 to 4, 585, 920 in 2010 representing a 15. 5% increase more than the global average of 8 % (RCL, 2010).
The company is cross listed in both the US and Norway, with Oslo Stock Exchange and the New York Stock Exchange indicating that the stock increased from the First to Last Quarters for both 2009 and 2010. In the First Quarter of 2010 the stock had a high value of $15.50 in New York, $ 27.39 in the Last Quarter of the same year and a high of $ 33.93 in the First Quarter of 2010 (RCL, 2010). Nonetheless, comparison of the returns of the company in various indices indicated that the company performed below the industry average in the Dow Jones Index in the Travel and Leisure category. Similarly, the company performed below the industry average in the S & P 500 measure particularly in the years 2008 and 2009. With the Royals Caribbean Cruises Ltd averaging $109.07 in December 2010, while the S& P 500 was $111.99 and the Dow Jones United States Travel and Leisure had an average of $ 145.02.
The balance sheet information shows that the total assets of the firm increased from $ 18, 233, 494 to $ 19, 694, 904 in 2010. However, there was also an increase in the total debt of the firm from $ 8, 419,770 to 9, 150, 116 in 2010. This indicates that the total assets of the firm increased by 8 %, but the total debt also increased by 8.7%. Thus, increased total debt of the firm may be a cause ...