The organization is one of the largest and most popular British-American cruise line companies. It was established in 1972 and since then the organization has just grown over the years. Today, it stands as a huge name in the corporate world having revenue of over 10 billion USD (“Carnival Corporation and Royal Caribbean--nd”). It has around 40,000 employees on ships and ports working for tourists and corporate clients. In this particular paper, we shall take account of various aspects of financial analysis of the company (“Carnival Corporation--nd”). The whole paper is divided into different parts which shall be taken separately. Let us start the analysis with stockholders:
1) Stockholders’ Analysis and Conflict of Interest: The company uses both debt and equity capital for financing its projects. However, the company has more equity earnings divided into equity shares and retained earnings. The debt capital is taken on specified percentage. Total interest paid to long term debt was 336 million USD and net income was much higher than that figure. Therefore the power of decision making is vested in hands of shareholders without any conflict of interest.
2) Risk and Return: For risk ascertainment, the best way is to calculate beta of the company. It measures the company’s earnings with market rate of return and adjudges its volatility. In this case, beta is calculated at 1.40 which shows that the organizational returns are 40% more risky (up or down) as compared to the market.
3) Investments of the organization: Investment income for the organization during the past four years was between 10 million USD to 15 million USD. However, for an organization having such large revenues, such returns are meager. Thus, investment of idle funds could be improvised (“Carnival Corp (CCL:New York)--nd”).
4) Capital Structure Choices: The debt equity ratio of the organization is 40.0 times. Having such huge amount of debt in the capital structure is never advisable. In the current cause of things, the debt equity ratio could be improved.
5) Optimal Financing: The debt for highly liquid business like tourism and cruises should not go up than 5 times. Right now, their financing is more leveraged which could be reduced.
6) Financial changes: The organization should rather try to raise debt from short term financing methods rather than long term debt. This will improvise their long term perspectives of earnings and stabilize current capital structure as well.
7) Dividend policy: The Company had recently paid 779 million USD as common dividend. They are very liberal in paying out the dividends. They must continue their approach of paying off the dividend to the shareholders in order to assure their long term sustainable growth as well as their interest in investing in the company must be extended (“DIVIDEND/SPLIT HISTORY--nd”).
8) Dividend Assessment: Their current payout ratio to the shareholders appears fine in the current situations. They have been declaring 0.25 or 0.50 per share dividend in the past few years, which is fine given the current business conditions. They must payout good amount to the shareholders to maximize their value (“DIVIDEND/SPLIT HISTORY--nd”).
9) Valuation of the company: Going by the market growth rate and constant dividend payout ratio of the company, the fair market value of the company should be around $35-40. It is slightly underpriced but its performance and value traded on the stock market is fine (“Carnival Corporation CCL--nd”).
In this particular part, we shall take account of the CAPM analysis of the company. The first step shall be to compute Beta of the company by taking account of following assumptions:
a) We have