Carnival corporation & plc swot analysis

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Introduction

Carnival PLC is one of the largest leisure travel companies that provide amazing vacations to all main destinations of the cruise throughout the world (Marketresearch.com, 2020). The corporation headquarter is located in Florida, United States and it has earned more than 20 billion dollars in revenue in the year 2019. Carnival operates its business through Asia, Australia, North America, and Europe (Investing.com, 2020). The services are provided by the company through a national, global, and regional cruise bands’ portfolio, which is specialized in selling the services, as well as the products of the cruise, and the experiences of vacation. The portfolio related to the cruise band involves Seabourn, AIDA Cruises, P&O Cruises (the UK and Australia), Carnival Cruise Line, Holland America Line, Cunard, Princess Cruises, and Costa Cruises (Carnival Corporation & plc, 2020).

This report is prepared to evaluate the financial health of Carnival Corporation & plc through ratio analysis, which has helped to identify the trends in different efficiency, solvency, profitability, and liquidity ratios. Also, the suggestions are provided for the company that can be helpful in improving those ratios that shows problems.

Ratio Analysis of Carnival PLC

Financial ratios are one of the accounting tools that indicate the companies’ financial performance and they are classified into various types including efficiency, profitability, liquidity, and solvency, which point out the financial risks and results of the corporations and their working efficiency (Henry, 2020). The above ratios are also evaluated for Carnival PLC in order to explore the trend in the business operations and the financial performance of the company in the years 2018 and 2019.

Profitability Ratios

Gross Profit Margin

Carnival GP margin declined in the year 2019 from 41.27% to 38.01% as shown in Appendix 1. It means the labor and raw materials are not efficiently utilized by the organization in the current year during the procedure of production. Moreover, the company didn’t earn enough income after paying its cost of revenue (that increased significantly in 2019) that’s why the margin of gross profit declined in 2019.

Efficiency Ratios

Inventory Turnover

Inventory turnover of Carnival as shown in Appendix 1 increased from 26.50 to 29.44 in 2019, which means the company has sold its inventory rapidly in the years 2019 that represents strong sales.

Accounts Receivables Turnover

Carnival PLC’s accounts receivables turnover ratio also increased in the year 2019 from 51.93 to 56.36, which shows the company is quickly receiving the collections from the customers (as shown in Appendix 1). Moreover, its business operations are running efficiently due to the collections that are used by the corporation for the payments to creditors and meet other expenditures.

Liquidity/Solvency Ratios

Debt Ratio

As presented in Appendix 1, Carnival’s debt ratio increased in the year 2019 from 0.42 to 0.44 that represents that the company’s assets are 0.44 times financed by debt, which means the company is efficiently operating its business and earning enough profit that meets the financial obligations and other expenses.

Times Interest Earned

Appendix 1 depicts that the TIE ratio declined in 2019 due to the decrease in the net operating profit which minimized the capability of the company to pay off its interest.

DuPont Analysis of ROE

Return on Sales

Carnival’s ROS decreased in the year 2019, the company’s sales increased but the operating profit decreased (shown in Appendix 1). This decrease in the ratio occurred due to the decrease in the operating profit in 2019 as compared to 2018 that showed a great upsurge in the amount of operating income.

Total Assets Turnover

The total assets turnover of the corporation slightly increased in 2019 from 0.45 to 0.46 (represented in Appendix 1) due to the efficient utilization of the assets. As the company’s sales increased in a similar year, which shows that the company has utilized its resources proficiently in its business operations.

Return on Assets

As shown in Appendix 1, Carnival’s ROA also declined in 2019 from 7.58 to 6.84, which means the company didn’t efficiently use its assets to generate income. Moreover, lower ROA indicates that the assets of the corporation are now not proficient as compared to the previous year.

Financial Leverage

The financial leverage of Carnival PLC shows that the company is more dependent on equity financing (as depicted in Appendix 1) to operate its business and meet its financial obligations, which is a good indicator that shows it has enough resources and doesn’t require debt to finance its business. On the other hand, it might be difficult to manage in the future as equity financing increases the control of the stakeholders within the business.

Return on Equity

Appendix 1 represents that ROE of the company also decreased in 2019 as the net income of the company declined in a similar year due to other non-operating expense that occurred in the same year.

Suggestions

Carnival Corporation & plc must focus upon its policies to meet its expenditures efficiently, which can help the company to increase its operating and net income in the coming years. Moreover, the company must improve its production processes that would help in minimizing the cost of revenue and thus will increase the company’s profitability. It is also suggested that the company should focus upon effective utilization of its assets to generate revenues, it will help the company to become self-sustainable in the long run.

Appendix

Appendix 1: Ratio Analysis

References

Carnival Corporation & plc. (2020). Corporate Information | Carnival Corporation & plc. Retrieved 16 October 2020, from https://www.carnivalcorp.com/corporate-information.

Henry, E. (2011). Financial Analysis Techniques. Cfainstitute.org. Retrieved 16 October 2020, from https://www.cfainstitute.org/-/media/documents/support/programs/cfa/2019-L1V3R26-footnotes.pdf.

Investing.com. (2020). About Carnival PLC (CCL) - Investing.com. Retrieved 16 October 2020, from https://www.investing.com/equities/carnival-corporation-company-profile.

Marketreseach.com. (2020). Carnival Corporation & Plc (CCL) - Financial and Strategic SWOT Analysis Review. Marketresearch.com. Retrieved 16 October 2020, from https://www.marketresearch.com/GlobalData-v3648/Carnival-Corporation-Plc-CCL-Financial-13317583/.