1. Carnival Corporation & Royal Caribbean:
Financial Statement Analysis of Two Cruise Industry Giants

2. The Cruise Industry
 Fastest growing travel sector in the world
 Only 20% of the US population has ever cruised
 7.2% annual passenger growth rate since 1990
 15 million passengers cruised in 2010
 Generated more than $26 billion in revenue worldwide
in 2010
 Carnival Corporation (98 ships) controls 51.6% of
worldwide share of revenue
 Royal Caribbean (40 ships) controls 25.6% of
worldwide share of revenue

3. Carnival Business Strategies
 Largest cruise company with 98 ships
 10 more ships to be put into service by 2014
 Comprises 9 different brands
 Each brand is separately managed
 Keep costs down by selling cruises mostly through
wholesalers
 Aim to be the most well-known cruise line serving the
greatest number of guests at an unrivalled price
 Low cost leader

4. Royal Caribbean Business Strategies
 Second largest cruise company with 40 ships
 2 more ships scheduled to be delivered by 2012
 6 cruise brands including one in French market, one in
Spanish market, and one in German market
 Upscale ships with innovative onboard activities, fine
dining, spa services, and personalized service
 400 destinations
 Differentiation strategy

5. Financial Ratios - Liquidity
(in millions) 2010 2009 2008 2007 2006
Carnival Cruises Liquidity Ratios
Current Ratio 0.216 0.306 0.285 0.272 0.368
Quick Ratio 0.118 0.181 0.185 0.190 0.266
Net Working Capital Ratio (0.120) (0.094) (0.124) (0.155) (0.112)
Operating Cash Flow 0.663 0.673 0.587 0.560 0.671
Cash from Operations to
Total Debt 0.264 0.226 0.237 0.286 0.294
Free Operating Cash Flow
to Total Debt 0.017 (0.003) 0.003 0.053 0.093
2010 2009 2008 2007 2006
Royal Caribbean Liquidity Ratios
Current Ratio 0.295 0.373 0.365 0.424 0.268
Quick Ratio 0.199 0.227 0.252 0.233 0.155
Net Working Capital Ratio 0.295 0.373 0.365 0.424 0.268
Operating Cash Flow 0.483 0.307 0.401 0.542 0.507
Cash from Operations to
Total Debt 0.142 0.079 0.111 0.154 0.130
Free Operating Cash Flow
to Total Debt (0.045) (0.152) (0.119) (0.006) (0.032)

6. Financial Ratios – Profitability
Carnival Cruises Profitability Analysis Ratios 2010 2009 2008 2007 2006
ROA 5.323% 5.097% 6.895% 7.440% 7.738%
RNOA 6.835% 6.412% 8.599% 9.446% 18.874%
NOAT 44.881% 42.133% 49.490% 47.503% 90.870%
NOPM 15.229% 15.218% 17.375% 19.885% 20.770%
ROE 8.777% 8.703% 11.930% 12.616% 12.988%
Profit Margin 13.671% 13.605% 15.909% 18.476% 19.250%
Royal Caribbean Profitability Analysis Ratios 2010 2009 2008 2007 2006
ROA 2.887% 0.936% 3.649% 4.253% 5.144%
RNOA 3.303% 0.985% 3.882% 5.023% 11.020%
NOAT 40.739% 35.710% 44.207% 51.187% 90.907%
NOPM 8.108% 2.758% 8.783% 9.813% 12.122%
ROE 7.091% 2.271% 8.462% 9.392% 10.886%
Profit Margin 8.108% 2.758% 8.783% 9.813% 12.122%

7. Financial Ratios – Activity & Leverage
Activity Analysis Ratios 2010 2009 2008 2007 2006
Assets Turnover 0.389 0.375 0.433 0.403 0.402
Carnival Cruises
Leverage Ratios 2010 2009 2008 2007 2006
Debt to Equity 0.628 0.672 0.749 0.712 0.678
Long Term Debt to Equity 0.348 0.413 0.405 0.316 0.349
Debt Ratio 0.386 0.402 0.428 0.416 0.404
Times Interest Earned 6.209 5.668 6.592 7.425 8.375
Activity Analysis Ratios 2010 2009 2008 2007 2006
Asset Turnover 0.343 0.323 0.397 0.410 0.390
Leverage Ratios 2010 2009 2008 2007 2006
Royal Caribbean
Debt to Equity 1.480 1.431 1.420 1.217 1.199
LT Debt to Equity 1.046 1.065 1.027 0.871 0.891
Debt Ratio 0.597 0.589 0.587 0.549 0.545
Times Interest Earned 2.613 1.541 2.753 2.808 3.367

8. Carnival Forecasting and Equity Value
(millions) 2010 2011 2012
Net Sales Growth 5.30% 4.70%
Net Sales (Unrounded) 14,469.00 15,235.86 15,951.94
Net Sales (Rounded) 14,469.00 15,236.00 15,952.00
NOPAT 2,203.48 2,082.85 2,180.74
NOA 32,395.00 33,947.46 35,542.78
Book Value Multiple Forecasting:
Equity Instrinsic Value $20,829,114,240.39
Equity Intrinsic Value per Share: $34.72
Residual Operating Income Model:
Firm Equity Value: $17,271,800,744.12
Equity Value per Share: $28.79
Current Share Price: $30.65

9. Royal Caribbean Forecasting and Equity Value
(millions) 2010 2011 2012
Net Sales Growth 5.00% 5.00%
Net Sales (Unrounded) 6,752.50 7,090.13 7,444.64
Net Sales (Rounded) 6,752.00 7,090.00 7,445.00
NOPAT 547.47 574.29 603.05
NOA 17,197.03 17,420.15 18,292.38
Book Value Multiple Forecasting:
Equity Instrinsic Value $8,693,409,826.43
Equity Intrinsic Value per Share: $38.43
Residual Operating Income Model:
Firm Equity Value: $3,507,062,994.13
Equity Value per Share: $15.50
Current Share Price: $24.03

10. Recommendations
 For creditors, Carnival is less risky
 For investors,
 Carnival is more likely for stable returns and continued growth
- larger customer base
- already dominates cruise market
- strategically positioned as low-cost leader
 Royal Caribbean is more risky but has potential for excellent returns
in the future if economy improves
- aggressive global expansion
- innovations & investment in technology to improve fuel efficiency
- differentiation of cruise options
- luxury market is more affected by economic instability

11. Interesting Facts
 Carnival: Carnival’s ships are among the biggest in the world in order
to accommodate the greatest number of passengers per voyage. For
example, the Liberty is taller than the Statue of Liberty and longer than
3 football fields.
 Royal Caribbean: Royal Caribbean is incorporated in Liberia so, under
Section 883 of IRS Code, it is not subject to US federal income tax on
US source income derived from the international operation of ships. It
is subject to certain miscellaneous income taxes, such as gambling
income in Alaska, but they are immaterial and not included on
financial statements.