Carnival Corporation

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As a potential supplier to Carnival Corporation, our main consideration is the short-term financial situation of the cruise company. The sufficiency of Carnival’s short-term funds to meet obligations and the flow of funds need to be analysed in order to avoid delays in payment and collection of interests and, in the worst case scenario, avoid losses in case Carnival Corporation falls into bankruptcy. Thus, the short-term liquidity ratios are used to determine if our company should become a supplier to Carnival Corporation.
The following table shows the short-term liquidity ratios calculated from the Income Statement and Balance Sheets provided and shown in Appendices 1 and 2.
Ratio 2011 2010 2009 Trend
Working Capital / million $ -3665 -3174 -2357 Negative
Current Ratio 0.166 0.186 0.320 Negative
Quick Ratio 0.131 0.151 0.281 Negative
Average Accounts Receivable Turnover 41.032 24.801 n/a Positive
Average Accounts Receivable / days 8.9 14.7 n/a Positive …show more content…
The values in the above tables for both the current and quick ratios indicate that the company may have difficulty paying their current liabilities. In fact, Carnival’s current ratio means that for every $1 in liabilities, they have only 0.166$ in assets. Part of this low ratio is due to the fact that Carnival is holding a lot of cash from customer deposits ($1.28 billion at the end of the financial year 2011) and these are listed as current liabilities since they may need to return these deposits in the case of cruise cancellations. These deposits would potentially become revenues so these are eventually assets that do not need to be covered. If the company shows good future potential, it may also be able to borrow from banks to pay the current liabilities. So the decision on whether to become a supplier of Carnival Corporation or not will not be based on the current and quick

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