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Does Carnival Corporation (CCL)’s Current Ratio Present a Problem?

Carnival Corporation (NYSE:CCL) is the biggest cruising company in the world. Carnival owns six separate cruise lines and travels to thousands of destinations around the world.

However, over the past five years Carnival has been in trouble. Due to falling consumer income, Carnival’s earnings have come under pressure, and a series of very high profile disasters have given the company a lot of negative press.

Carnival Corporation (NYSE:CCL)With falling revenues and increasing media hostility, one thing that stands out about Carnival is its balance sheet. Carnival has a poor current ratio of less than 0.5, which signifies that the company will not be able to pay off all of its liabilities falling due within one year.

That said, Carnival Corporation (NYSE:CCL) does have more than enough assets to cover its total liabilities.

Carnival’s Current Ratio

$US Million 2008 2009 2010 2011 2012
Total current assets $1,650 $1,518 $1,244 $1,312 $1,821
Inventory $315 $320 $320 $374 $390
Total current liabilities $5,781 $4,967 $5,755 $6,105 $7,340
Current Ratio 0.29 0.31 0.22 0.21 0.25
Quick Ratio 0.23 0.24 0.16 0.15 0.19

As the table shows, Carnival Corporation (NYSE:CCL) has not had a current ratio or quick ratio of more than 0.5 at any point over the last five year. Does this present a problem?

Well, when compared to its major competitors, it appears that a current ratio of 0.5 is the industry average.  The following two tables show the working capital of Carnival’s two main competitors, Royal Caribbean (NYSE:RCL) and Norwegian. Both Royal Caribbean and Norwegian do not have enough current assets to cover current liabilities – just like Carnival.

Royal Caribbean

$US Million 2007 2008 2009 2010 2011
Total current assets $993 $977 $1,026 $1,015 $969
Inventory $97 $96 $108 $127 $145
Total current liabilities $2,339 $2,674 $2,749 $3,444 $3,068
Current Ratio 0.42 0.37 0.37 0.29 0.32
Quick Ratio 0.38 0.33 0.33 0.26 0.27

Norwegian Cruise Line Holdings

$US Million 2010 2011 2012
Total current assets $138 $152 $164
Inventory $33 $36 $39
Total current liabilities $653 $817 $945
Current Ratio 0.21 0.19 0.17
Quick Ratio 0.16 0.14 0.13

The problem is that with more liabilities than assets, these companies could face financial difficultly if there was a sudden cash call from their creditors.

The current ratio of all three companies has never exceeded more than 0.3.  But what about the longer term? Do these companies have enough assets to cover total liabilities?

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