Dire financial predictions from Carnival Corp. Is RCI next?

[MakingUpForLostTime]

3 minutes ago, notmyrealnameoremail said:

This is the first definition of solvent when I googled it:

 

sol·vent

/ˈsälvənt/

Learn to pronounce

 

adjective

 

1. 1.

   having assets in excess of liabilities; able to pay one's debts.

    

    

   Royal Caribbean has assets in excess of liabilities (the stockholders have $8.9B in equity) and can pay its debts for at least a year without income.  They are  solvent.

Solvency

From Wikipedia, the free encyclopedia

 

This article is about financial solvency.

Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity

 

Royal Caribbean’s current assets are less than its current liabilities.

[notmyrealnameoremail]

11 minutes ago, MakingUpForLostTime said:

Solvency

From Wikipedia, the free encyclopedia

 

This article is about financial solvency.

Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity

 

Royal Caribbean’s current assets are less than its current liabilities.

How about the next two sentences from the definition you choose?

 

Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth.^[2] This is best measured using the net liquid balance (NLB) formula. In this formula solvency is calculated by adding cash and cash equivalents to short-term investments, then subtracting notes payable.^[3]

[MakingUpForLostTime]

Just now, notmyrealnameoremail said:

How about the next two sentences from the definition you choose?

 

Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth.^[2] This is best measured using the net liquid balance (NLB) formula. In this formula solvency is calculated by adding cash and cash equivalents to short-term investments, then subtracting notes payable.^[3]

So we are both right. They are solvent and insolvent.

[drsel]

Hahaha, you two are so funny and entertaining

[Seville2Cabo]

If shareholder equity is positive (which it is) doesn’t that mean assets are greater than liabilities.    I don’t think they are insolvent per either definition .  

 

I see assets are greater than liabilities on the balance sheet.   Am I missing something?

[RD64]

6 minutes ago, Seville2Cabo said:

If shareholder equity is positive (which it is) doesn’t that mean assets are greater than liabilities.    I don’t think they are insolvent per either definition .  

 

I see assets are greater than liabilities on the balance sheet.   Am I missing something?

Assets are always listed at their historical purchase cost - less accumulated depreciation. Their balance sheet valuation in no way reflects their current market value.

 

if you bought a car ten years ago for $40 000, that is the amount the car would be listed for on your personal balance sheet. Is it worth more or less currently? You won’t know until you actually sell it.

 

On this discussion of solvent / insolvent further analysis of the current, quick, and debt to equity ratios will provide much more information than a quick glance at the balance sheet figures.

 

[Seville2Cabo]

1 hour ago, RD64 said:

Assets are always listed at their historical purchase cost - less accumulated depreciation. Their balance sheet valuation in no way reflects their current market value.

 

if you bought a car ten years ago for $40 000, that is the amount the car would be listed for on your personal balance sheet. Is it worth more or less currently? You won’t know until you actually sell it.

 

On this discussion of solvent / insolvent further analysis of the current, quick, and debt to equity ratios will provide much more information than a quick glance at the balance sheet figures.

 

I agree with your last sentence, but the question is the definition of insolvency and that is based on short term being able to pay debt/bill and long term balance sheet assets versus liabilities. 

 

On your second point,  who would value a 10 year old car at orginal value.  In fact, say you are a small business owner and buy a truck for the business.  Depreciate it in year one (allowed).  the truck now has zero book value,  but has real market value.  So if you sell the truck for market value, you have to pay taxes on the gain (book versus sale value)

 

Which brings me to your first point.  Without an extensive appraisal of all assets, we don’t know the market value. (Right now there are probably no buyers)  I don’t know what term (Years) is used for ship depreciation and capital maintenance depreciation, but some of those older ships going to scrap yard may have no book value

 

So in reality they are probably balance sheet insolvent, (no buyers), but my the definition, they are solvent

[yogimax]

Just to note that RCL has about $809 million in goodwill, an intangible asset.

[grandgeezer]

1 minute ago, yogimax said:

Just to note that RCL has about $809 million in goodwill, an intangible asset.

How do they turn that in to cash to stay afloat??

[grandgeezer]

2 hours ago, notmyrealnameoremail said:

This is the first definition of solvent when I googled it:

 

sol·vent

/ˈsälvənt/

Learn to pronounce

 

adjective

 

1. 1.

   having assets in excess of liabilities; able to pay one's debts.

    

    

   Royal Caribbean has assets in excess of liabilities (the stockholders have $8.9B in equity) and can pay its debts for at least a year without income.  They are  solvent.

 

Most of their assets are in ships. In this situation, where can they turn them into cash at the value they are carried on the books for? No place, at least in the near future. Why did they borrow another $700,000,000 last week? That sounds like insolvency.

[taglovestocruise]

Royal Caribbean Group's long-term debt to total assets ratio increased from Jun. 2019 (0.32) to Jun. 2020 (0.55). It may suggest that Royal Caribbean Group is progressively becoming more dependent on debt to grow their business.

They are solvent as of last quarter,  They have 55 cents of long term debt for every dollar of asset.  Total liability at 19 billion, total assets at 32 billion, total equity at 13 billion. ...... Net goodwill asset now listed at 1.3 billion.  Several analysts have a $68 upside short term target.

From motley fool.

Wall Street forecasts will fluctuate, and they could get worse. Even when the sailings start again, we still don't know the legal liabilities of botched sailings and the reputational hit the industry will take given some of the horror stories of some quarantined journeys. Consumers won't be as anxious to book cruises next year as they were just a few months ago, and that's before even considering the strong likelihood of a global recession that will haunt the travel industry.

It will probably take several years for Carnival, Royal Caribbean, and NCL to revisit their highs, but that's not necessarily a bad thing. These stocks would now have to more than triple to get back their peaks, and under kinder climates they may be able to beat the market in the next couple of years on the way there. The risks have never been higher for these stocks that are not as cheap as they seem, but the bar has also never been lower to come through with market-thumping returns.  

 

 

 

 

[chipmaster]

Let's all see where AAPL, AMD,  FB, MSFT, TSLA or TSM  are compared to a bet on CCL or RCCL, LOL

[Seville2Cabo]

55 minutes ago, grandgeezer said:

 

Most of their assets are in ships. In this situation, where can they turn them into cash at the value they are carried on the books for? No place, at least in the near future. Why did they borrow another $700,000,000 last week? That sounds like insolvency.

It’s really a line of credit they can exercise in the next 12 months. They are currently solvent  

[yogimax]

1 hour ago, grandgeezer said:

How do they turn that in to cash to stay afloat??

They can't turn it into cash.

[RD64]

In Canada according to the Generally Accepted Accounting Principles - assets - especially fixed / long term assets - are always shown on the balance sheet at their historical cost less accymulated depreciation to show their book value.

1 hour ago, Seville2Cabo said:

I agree with your last sentence, but the question is the definition of insolvency and that is based on short term being able to pay debt/bill and long term balance sheet assets versus liabilities. 

 

On your second point,  who would value a 10 year old car at orginal value.  In fact, say you are a small business owner and buy a truck for the business.  Depreciate it in year one (allowed).  the truck now has zero book value,  but has real market value.  So if you sell the truck for market value, you have to pay taxes on the gain (book versus sale value)

 

Which brings me to your first point.  Without an extensive appraisal of all assets, we don’t know the market value. (Right now there are probably no buyers)  I don’t know what term (Years) is used for ship depreciation and capital maintenance depreciation, but some of those older ships going to scrap yard may have no book value

 

So in reality they are probably balance sheet insolvent, (no buyers), but my the definition, they are solvent

In Canada - according to Generally Accepted Accounting Principles (GAAPs), fixed assets are always recorded at their historical cost - this is the Historical Cost Principle - less any accumulated depreciation to show their book value. We are not allowed to depreciate the whole amount in one year. Capital cost allowance for different assets allows for depreciation of various fixed assets at different rates. Automotive equipment is depreciated at a rate of 30% per year, furniture and equipment is 20 or 25%, buildings - depending on the type of structure are generally 5%. The only thing that can be depreciated at 100% is computer software.

 

so in summary - that vehicle that you spent $40 O00 on ten years ago is still showing up on your balance sheet at $40 000 less your A/D. It is not optional as to ehat an individual believes - that is the law of the land.

 

The only thing that doesn’t depreciate is land. If you have a parcel of land that you paid $5000 for fifty years ago, it is still showing up at $5000.

[Seville2Cabo]

In he US there are opportunities for accelerated depreciation.  Qualifying Trucks, cars and small capital.  So they can have little to no value after a year or two.

 

Regardless, the $40K vehicle will be at zero or very small amount on the books after 10 years.  

 

Assume a ship has a 30 year life and 10% of original cost scrap value after 30 years.  After 10 or 15 years it will have a book value way less then the original cost.   (Although capital maintenance and enhancements would raise the book value as they would have to be capitalized and depreciated.  

17 hours ago, RD64 said:

In Canada according to the Generally Accepted Accounting Principles - assets - especially fixed / long term assets - are always shown on the balance sheet at their historical cost less accymulated depreciation to show their book value.

In Canada - according to Generally Accepted Accounting Principles (GAAPs), fixed assets are always recorded at their historical cost - this is the Historical Cost Principle - less any accumulated depreciation to show their book value. We are not allowed to depreciate the whole amount in one year. Capital cost allowance for different assets allows for depreciation of various fixed assets at different rates. Automotive equipment is depreciated at a rate of 30% per year, furniture and equipment is 20 or 25%, buildings - depending on the type of structure are generally 5%. The only thing that can be depreciated at 100% is computer software.

 

so in summary - that vehicle that you spent $40 O00 on ten years ago is still showing up on your balance sheet at $40 000 less your A/D. It is not optional as to ehat an individual believes - that is the law of the land.

 

The only thing that doesn’t depreciate is land. If you have a parcel of land that you paid $5000 for fifty years ago, it is still showing up at $5000.

 

[Baron Barracuda]

15 minutes ago, Seville2Cabo said:

In he US there are opportunities for accelerated depreciation.  Qualifying Trucks, cars and small capital.  So they can have little to no value after a year or two.

 

Regardless, the $40K vehicle will be at zero or very small amount on the books after 10 years.  

 

Assume a ship has a 30 year life and 10% of original cost scrap value after 30 years.  After 10 or 15 years it will have a book value way less then the original cost.   (Although capital maintenance and enhancements would raise the book value as they would have to be capitalized and depreciated.  

 

Corporations keep multiple sets of books.  For income tax purposes the IRS allows accelerated depreciation.  Published financial statements however use GAAP straight line depreciation.

[NthernLgts]

I listened to an interview with Gene Sloan (Travel Channel/The Points Guy) about 2 weeks ago, talking about cruising & cruise lines.  He felt that RCI probably had enough resources on hand to get them through at least another 15 months or so.

[St.Pete]

I have a hard time understanding why ANYONE is booking a cruise.   But they have every right to do what they want to do.  None of my money is tied up with ANY vacation destination.  If anyone or thing goes under, YOUR money will be going to creditors.

[bouhunter]

Now it's gotten to discussing the "solvency" of a cruise line???  Too funny, and pointless. 

[Esprit]

On 8/15/2020 at 9:07 PM, MakingUpForLostTime said:

So we are both right. They are solvent and insolvent.

Under GAAP a company must be able to meet its debts as they fall due. 

A company is technically insolvent when it has a negative Balance Sheet, but can continue as a "going concern" so long as it can demonstrate it has the support of its creditors for the next 12 months.

Edited August 19, 2020 by Esprit

[Esprit]

On 8/16/2020 at 6:53 PM, Baron Barracuda said:

Corporations keep multiple sets of books.  For income tax purposes the IRS allows accelerated depreciation.  Published financial statements however use GAAP straight line depreciation.

Which is why company Balance Sheets have to show "Deferred taxation" provisions 

[MakingUpForLostTime]

14 minutes ago, Esprit said:

Under GAAP a company must be able to meet its debts as they fall due. 

A company is technically insolvent when it has a negative Balance Sheet, but can continue as a "going concern" so long as it can demonstrate it has the support of its creditors for the next 12 months.

So, with 4.684B in current assets to cover 4.736 in current liabilities they are insolvent. With 1.805B in customer deposits that mostly will not be paid back and turned into revenue once sailing have started, they could be seen as solvent. For each month delay, over 250M cash will be burned and most likely more deposits will have to be refunded (as customers realize the risk of losing the deposit becomes greater), the threshold to insolvency lowers. The only saving grace is new debt. This will dry up and become more expensive hindering any future recovery. I wonder when all these points intersect?

A good point was made regarding the value of assets. I would think that all ships have scrap value if there are no buyers and they cost money to store. Like owning an elephant if there are no paying customers to see that elephant. Still has to be feed and someone to clean up its poop.

[Esprit]

If a company is no longer a "going concern" and the directors conclude that the company can not continue whilst knowingly insolvent then it must cease trading. It's at that point that the company's assets are sold at their realizable value irrespective of their written down value in the company's Balance Sheet. Secured creditors then form an orderly queue for payout (once the thieving liquidators take their extortionate fees). Back of the queue are unsecured creditors and the shareholders (inc' me!)

[bouhunter]

2 hours ago, Esprit said:

Under GAAP a company must be able to meet its debts as they fall due. 

A company is technically insolvent when it has a negative Balance Sheet, but can continue as a "going concern" so long as it can demonstrate it has the support of its creditors for the next 12 months.

There is so much wrong with that I don't know where to start.