Question

The following information was taken from Royal Caribbean’s Year 2 balance sheet. Royal Caribbean is one of the largest cruise lines in the world.
($ in thousands) ................ December 31, Year 2
Accounts payable ............. $ 264,554
Accrued expenses and other liabilities ....... 487,764
Accrued interest .............. 147,547
Accumulated other comprehensive income (loss) . 182,733
Cash and cash equivalents ........... 284,619
Common stock ................. 2,243
Current portion of long-term debt ....... 756,215
Customer deposits ................ ?
Derivative financial instruments .......... 114,094
Goodwill ................... ?
Hedged firm commitments .......... 33,426
Inventories ................ 107,877
Long-term debt .............. 7,663,555
Other assets ............... 1,146,677
Other long-term liabilities .......... 321,192
Paid-in capital .................. ?
Preferred stock .................. —
Prepaid expenses and other assets ........... ?
Property and equipment, net ........ 15,268,053
Retained earnings .............. 4,754,950
Total assets ................... ?
Total current assets ............ 1,026,391
Total current liabilities .......... 2,749,030
Total liabilities and shareholders’ equity ... 18,233,494
Total shareholders’ equity ............ ?
Trade and other receivables, net ....... 338,804
Treasury stock ............. (413,704)

The following is Royal Caribbean’s Year 1 balance sheet.
Consolidated Balance Sheets
December 31, Year 1
($ in thousands)
Assets
Current assets
Cash and cash equivalents ........ $ 402,878
Trade and other receivables, net ........ 271,287
Inventories ................ 96,077
Prepaid expenses and other assets ........ 125,160
Derivative financial instruments ........ 81,935
Total current assets ............. 977,337
Property and equipment, net ........ 13,878,998
Goodwill ................ 779,246
Other assets ............... 827,729
Total assets .............. $16,463,310
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt ..... $ 471,893
Accounts payable ............. 245,225
Accrued interest ............... 128,879
Accrued expenses and other liabilities ..... 687,369
Customer deposits ............. 968,520
Hedged firm commitments ........... 172,339
Total current liabilities ............ 2,674,225
Long-term debt .............. 6,539,510
Other long-term liabilities ........... 446,563
Shareholders’ equity
Preferred stock .................. —
Common stock ................. 2,239
Paid-in capital .............. 2,952,540
Retained earnings .............. 4,592,529
Accumulated other comprehensive income (loss) . (319,936)
Treasury stock ............... (424,360)
Total shareholders’ equity .......... 6,803,012
Total liabilities and shareholders’ equity .... $16,463,310

Required:
1. Solve for the missing values and present Royal Caribbean’s Year 2 balance sheet in good form.
2. Royal Caribbean has recently become a customer of your firm. In fact, its accounts receivable is one of your firm’s largest current assets. The amount is so large that the chief executive officer (CEO) of your firm is concerned because if Royal Caribbean doesn’t pay in a timely fashion, your firm could experience severe cash flow problems. Use Royal Caribbean’s balance sheet to assess Royal Caribbean’s ability to make timely payments of its current liabilities.
3. Using your Year 2 and the Year 1 balance sheets provided, compare and contrast the firm’s financial position at the end of these two years. For example, were there any changes in Royal Caribbean’s financial position from the end of Year 1 to the end of Year 2? In what ways did the firm’s financial position improve or deteriorate over this time period?
4. Assume you are a financial analyst. Based on the financial position of Royal Caribbean as portrayed in the Year 1 and Year 2 balance sheets, would you advise your clients to invest in the firm’s common stock? Why or why not?
5. Before advising your clients about whether or not to purchase the common stock of Royal Caribbean, what information beyond the Year 1 and Year 2 balance sheets would you seek?



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  • CreatedSeptember 10, 2014
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