Business Investment Opportunity Question Property, plant, and equipment, net… increased from $10,116 million in Year 2 to $21,312 million in Year 5, an increase of 111%, indicating purchases of additional cruise ships for expansion. The greatest increase was in Year 3, when PPE increased by more than 50%. Goodwill and other intangibles… Increased from $681 million in year 2 to a peak of $4,627 million an increase of 579% in year 4.it indicates purchase of business or subsidiary above its value. In year 5, it decreases to $4,488 million at 3%.
This is impairment of goodwill as an asset. IFRS allows for provision on impairment of goodwill. Long-term debt… increased from $3,014 million in year 2 to $6,918 million in year 3 an increase of 129% indicates the company undertook a long-term financing loan. The decrease from $6,918 million year 3 to $5,727 million in year 5 a decrease of long term debt by $1,191 million signify the principal amount of paid long-term debt. Contributed capital totals $7,740 million at the end of Year 5… there is increase due to payment of full share price of subscribed share capital of $6,082 million in year 3, $148 million in year 4 and $70 million in year 5.
The common stock par as well increased from $6 million in year 2 to $ 359 million in year 5 this indicates additional issue of shares. Retained earnings. .. increased from $6,323 million in year 2 to $10,376 million in year 5. This represents the profits that ploughed back to the company after payment of dividends. The decrease of other stockholders equity from $525 million in year 4 to $143 million in year 5 indicates offset of incurred losses in stock. Question 2 Carnival Corporation Industry Norm* Year 5 Year 3 Current ratio 0.50 0.42 Debt ratio 63% 0.40 0.43 Times Interest Earned 8.00 8.0 Current ratio: current ratio of 0.64 in year 3 is more favorable than 0.42 in year 5 indicating the strong liquidity thus it is able to pay its debts.
The company is struggling to pay its debts in year 5 and it should consider increase of its current assets. Debt ratio: the debt ratio of 0.40 in year 5 is favorable as it shows the business is more stable compared to ratio of 0.43 in year 3.
Overall, the business is stable as both ratios are far below 5.0, which is the industry-accepted norm, which warns on the level of bankruptcy. Times interest earned ration: the ratio of 11.14 in year 3 is more favorable than 8.0 in years 5. The company was making enough income to pay its interest in both years as both ratios supersedes industry norm ratio of 8.0 Question 3 Weakening financial positions as only one of the three ratios is favorable in the current year 5 as opposed to year 3 that has two favorable ratios.
In year 5 the company has adverse debt ratio implying struggling indication in paying its debts. It as well using large portion paying interest in year 5 and it is at par with industry-accepted norms. Question 4 Revenues were$4,244 million for the earliest year reported and $10,735 million for the most recent year reported. Since the earliest year reported, this account has changed by $6,131 million, which is a(n)144% increase. During the same period, COGS increased by $ 173%, operating expenses (other than COGS) increased by $127%, and net income increased by 122%. Question 5 Carnival Corporation Industry Norm* Year 5 Year 3 Gross profit margin 50.8% 55.08% ROS 16.8% 24.58% ROA 6.7% 4.87% ROE 12.2% 8.65% Asset turnover 0.40 35.07% Gross profit margin of 55.41% in year 3 is favorable than 55.08% in year 5.
It indicates decline in margin over the two years. Both are above recommended ratio of 50.8% making the company going concern positive. Return on sales for year 3 is 33.64% which is favorable than 24.58% ROS of year 5. Both ratios are far above the industry recommended ratio of 16.8% asserting the business stronger income statement position. Return on Assets for year 5 is 7.39%, which is favorable compared to year 3 ROA of 4.87%.
It shows great improvement from year three when ROA was adverse. This is a position asserts the going concern confidence as this is higher than norm of 6.7%. Return on Equity is favorable in year 5 at 13.29% than adverse ratio of 8.65% in year 3. The business is in the right direction as it has surpassed industry norm of 12.2%. Asset Turnover is in adverse position as in both years its below industry level of 40%.
The management needs to retire the non-performing asset to reduce this variance. Question 6 Strengthening of ratios concerning income statement is due to- Higher gross profit margin Improvement of asset turnover from yea 3 to year 5 Increase in return of assets Increase in return on equity Question 7 The primary source of cash was operating, which is a favorable sign. For property, plant, and equipment a net cash outflow was reported in the investing activity section so PPE purchased, which is a favorable sign indicating… better use of retained earnings rather than borrowing.
Purchase of assets increase business productivity as well as increase in return to stakeholders. A net cash inflow for debt occurred during Year 3 indicating more debt was borrowed these amounts appear to have primarily financed the purchase of PPE A net cash inflow for capital stock occurred during Year 4 indicating more capital stock was issued. This is a favorable sign indicating… raising capital from cost effective ways. It as well puts the company balance sheet statements good for investors. Question 8 Net cash from operating activitie sincreased by $1,941 million or 132%. During the same period, dividends paid increased by 130%. Question 9 Carnival Corporation Industry Norm Year 5 Year 3 Free cash flow ($ in millions) NA $ $ Cash flow adequacy ratio NA 0.43 Cash flow liquidity ratio NA 0.54 Quality of income ratio NA 1.51 The business risk in cash flow statement is decreasing.
The adequacy ratio doubled from year 3 to year 5 indicating the strong going concern position. The quality of time has staggered off although it is recommendable. Question 10 Carnival Corporation STATEMENT OF CASH FLOWS Common-Size ($ in millions) For the years ended November 30, Year 5 Year 5 Year 3 Year 3 Net cash from operating activities $3,410 100% $ 1,933 100.00% Purchase of PPE ($1,977) -57.98% (2,516) -130.16% Issuance of debt 910 26.68% 1,751 90.58% Issuance of capital stock 50 14.66% 42 2.17% Repayment of debt (912) -26.74% (898) -46.46% Repurchase of capital stock 305 -8.9% 0 0.00% Cash dividends paid (566) -16.59% (292) -15.11% Net change in cash $ 535 15.69% $ (57) -2.95% In Year 3, the primary use of cash was purchasing PPE using 100% of NCOA, whereas in Year 5, the primary use of cash was purchasing PPE using 57.98% of NCOA. Question 11 Strengthening cash position: the cash from operating assets in year 5 is relatively increasing.
There were negative cash and cash equivalents in year 3 as opposed to year 5 where there are cash reserves. Question 12 Carnival Corporation STATEMENT OF RETAINED EARNINGS ($ in millions) For the years ended November 30, Year 5 Year 4 Year 3 Year 2 Retained earnings, beginning $ 8,623 $ 7,191 $ 6,326 $5,556 Net income 2,257 1,854 1,194 1,016 Dividends 566 400 292 (246) Other adjustments (81) (22) (37) (0) Retained earnings, ending $ 10,233 $8,623 $ 7,191 $6,326 Net income is initially reported on the income statement and dividends paid are initially reported on the statement of cash flows Question 13 Yes, below are the various reasons that affirm my investment in Carnival Corporation. Low financial risk Payment of dividends Constant increase in revenues and net income Positive and promising Going concern High returns on capital To: Friends of Carnival Corporation From: Manager, Carnival Corporation Date: 18th April 2015 Subject: Business Investment Opportunity Welcome, to Carnival Corporation Company.
I am writing this memo in reference to Carnival Corporation investment opportunity. The company has decided to offload part of its shareholding to its friends and partners. We the board of directors through resolution has voted to offer shares to new investors.
The finance through debt capital, so no need to increase liability Morse, & Wayne, (2015). Carnival Corporation wants its friend to realize exciting opportunities and become part of the company. Below are the company financial statements evaluation for your analysis and query. 1. Sales and profits: the company sales and profit have increased for the past four-Years. It has registered a phenomenal growth of 21.25% in net income for the past one year. Over the four years period, Carnival Corporation Company, the growth rate was 122% in profits.
This gives you an overview of a stable company that is poised to continue profit-making trend. 2. Balance sheet: Carnival Company has a strong balance sheet having invested its funds in plants and equipment at 90%. This gives a view of the management of funds through assets rather than inventory. Furthermore, the company has a continuous increasing goodwill of $4,488,000,000 showing the confidence level of the customers. The accepted ratio of shareholders capital to debt is more than 2:1ratio. 3. Dividends: The companies paid up, and issued shares are $7,883,000,000 over the last year it paid a dividend of $566,000,000.
This represents a 7.18% return on capital invested in equity. This is far much more than 4.5% interest paid to debt capital. . CCL gives higher dividends than interests signify that creditor’s great confidence with company operations. 4. Liquidity: Carnivore Corporation has a cash and cash equivalents of $1,178,000,000. The cash liquidity ratio is 2:1 representing a strong liquidity higher than expected of 1:1ratio. Cash and cash equivalent double both inventory and accounts receivable. This figure in the financial statements, increase both investors and creditors confidence Bishop, Fienberg, & Holland, (1975). 5.
Retained earnings: Overall, the company has retained earnings of $10,233,000,000. These funds belong to shareholders. The company policy of maintaining vast reserves higher than debt shows this company is not operating using debt capital. CCL cushions itself against abnormal happenings by maintaining substantial reserves. In conclusion, the overall performance of Carnival Corporation is beyond reproach. A business shows sustainable growth and expansion. Its balance sheet and income statement is a view of a well-managed company Caplan, (2010). All the company active and tested policies influence and drove Carnival Corporation to success.
It is my wish you will find financial evaluation satisfactory, convincing and consider acquiring shareholding of Carnival Corporation. References Morse, L., & Wayne, J.H. (2015). Managerial accounting. Cambridge business publishers, 7(1), 31-60. Bishop, Y.M. , Fienberg, S.E. , and Holland, P. W. (1975). Discrete Multivariate Analysis. Cam-bridge, MA: MIT Press Dennis, C. (2010). Management accounting concepts and techniques. Oregon state university publishers 3(1) 320 - 400