Financial Report for Norwegian Cruise Line Holdings Ltd

Paper Type:  Research paper
Pages:  6
Wordcount:  1466 Words
Date:  2022-07-29

Introduction

Norwegian Cruise Line Holdings Ltd is an American-Bermudian tourism company that operates cruise ships in all major world seas. The company was formed in 1966 as the Norwegian Caribbean Line and has since grown to become a multi-billion dollar company and become a component of the Nasdaq 100 Index in 2015 (NCLH, 2015). Moreover, the company cumulatively controls about 9.5% of the global cruise market as of 2018 (Cruise Market Watch, 2018). While Norwegian Cruise Line Holdings Ltd is not the largest cruise company in the world, its financial position has remained steady and profitable through the years, and it has a stronger market capitalization than its competitors in the cruise travel industry.

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According to analysis by ChartMasterPro (2018), the momentum growth quotient for Norwegian Cruise Line Holdings Ltd is 11.98, significantly higher than the average S&P 100 index. NCLH also has a better margin of profits than its main competitors and boasts a superior cash flow compared to Carnival Corporation, its major competitor (Zanoni, 2017). Investing in NCLH stock also presents the best return on capital invested as the company has consistently posted positive results in the stock market. As a Nasdaq 100 constituent company, the company has been recognized as one of the world's most successful and dynamic companies (Globe Newswire, 2015).

Finally, NCLH is a suitable stock to invest in because the Norwegian Cruise Line, its main cruise operator, is one of the most innovative cruise companies. Its innovations in freestyle cruising, widened onboard entertainment, and Wi-Fi accessibility has greatly revolutionized the industry (Globe Newswire, 2015). As an investor, it is wiser to invest in companies that are likely to disrupt the market and make capital gains than be the victim is a disrupted market and the reduced profitability that comes along with it. As a leader in cruise travel innovation, NCLH presents the best chance of remaining ahead of and benefiting from technological and operational disruptions in the cruise industry (Norwegian Cruise Line Holdings Ltd, 2016).

Company Profile

Norwegian Cruise Line Holdings Ltd. (NCLH) was formed as Norwegian Caribbean Line in 1966 by Knut Kloster and Ted Arison. The first Norwegian Caribbean Line ship was called Sunward and ferried cars between Southampton and Gibraltar in the year 1966 before being repurposed for passenger transit. Soon after starting Norwegian Caribbean, Ted Arison moved off to start a competing cruise line named Carnival Cruise Lines.

Over the years, Norwegian has grown through innovation, setting standards for the whole industry. NCLH has also build up its fleet of cruise ships and acquired the fleets of cruise companies like Orient Lines that was acquired in 1991. The company was also acquired by Star Cruises without changing its name afterwards. After a number of acquisitions and mergers, NCLH was incorporated in February 2011. Two years later, in January 2013, NCLH made its Initial Public Offer (IPO) at $19 a share, a price that has gradually risen to $53 in 2018 (Krantz & Sloan, 2013); Nasdaq, 2018). As of now, NCLH operates Oceania Cruises, Regent Seven Seas Cruises (acquired from Prestige Cruise Holdings), and the Norwegian Cruise Line, and Regent Seven Seas Cruises for a cumulative total of 26 ships as of August 2018 (NCLH, 2018).

The main competitors of NCLH are Carnival Corporation & Carnival plc, both formed by NCLH co-founder Ted Arison. The Carnival brand is the biggest world cruise company. Other competitors include Silversea Cruises, Viking Ocean Cruises, Crystal Cruises, and Royal Caribbean Cruises Ltd. NCLH plans to upgrade its cruise capacity by procuring eight additional ships into its fleet (NCLH, 2018).

According to Ponzio (2007), it is important to conduct due diligence on a company's financial health before making the decision to purchase. Financial ratios are the best tools for the assessment as they allow an investor to gain a clearer understanding of a prospective investment before making the decision to buy. A financial analysis of Norwegian Cruise Line Holdings Ltd show a strong company that consistently posts good figures in gross profit rates, liquidity, efficiency, leveraging, and market ratios. In the next section, we will conduct a more detailed analysis of these ratios to show the financial health of NCLH and its suitability as a choice for investment.

Profitability Ratios

Profitability ratios measure the company's use of its assets and control of its expenses to generate an acceptable rate of return. According to Halici and Erhan (2013), profitability ratios allow investors to determine the financial strength of a company based on past and present performance. Profitability ratios are measured as a factor of Gross Profits divided by Net Sales. They indicate the gross margin of the company, being an easy mathematical indication of a company's utilization of its assets.

The Gross profit for NLCH in the years 2015, 2016, and 2017 were $1.70, $2.02, and $2.33 billion respectively. The net sales were $4.3, $3.87, and $5.4 billion respectively (NCLH, 2017). Therefore, the profitability ratio of NCLH has been 2.53, 1.92, and 2.31 respectively. According to Penthany (2009), the lower profitability ratios indicate a highly productive business model as it indicates a higher rate of profit turnover per dollar spent. It is advisable to invest in companies that give high yields on investment, and NCLH has an acceptably high rate of return.

Liquidity Ratios

A company is required to maintain sufficient cash flows and assets to be able to pay its debts. The liquidity ratio measures the availability of cash to pay debt and measures operating cash flows against total debts. According to Halici and Erhan (2013), liquidity ratios calculate a company's ability to repay short term debts. It also helps to establish the sufficiency of working capital. Liquidity ratios are calculated by dividing a company's operating cash flow by its total debts.

Activity Ratios

Also known as Efficiency Ratios, activity ratios are used as a measure of a company's effectiveness in using its resources to generate income. The ratio determines the amount of money made throughout the year by dividing the money owed to the business for products and services with the total annual sales divided by 365 (days of the year).

Debt Ratios (leveraging ratios)

The debt ratios, otherwise known as leveraging rations, measure the ability of the firm to repay its long-term debt. The ratio measures the financial leverage of a company. According to Halici and Erhan (2013), a smaller debt ratio indicates a company with lower risk levels of insolvency because it can comfortably repay its debts from its capital reserves. The debt ratio is measured by dividing the sum of long-term debt and leaseholds with the average shareholders' equity.

Market Ratios

The market ratio evaluates the investor response to owning a company's stock and also the cost of issuing stock. The market ratio measures the return on investment for investors and the connection between return and the value of an investment in company's shares. The ratio is calculated by dividing the market price per share of a company's stock with the balance sheet price per share. NCLH Risk Level

References

NCLH (2018). Norwegian Cruise Line Holdings Ltd. Retrieved from http://www.nclhltd.com/our-company on 5 September 2018

Krantz, M. & Sloan, G. (2013). Norwegian Cruise Line IPO soars 31%. USA Today. Retrieved from https://www.usatoday.com/story/travel/cruises/2013/01/17/norwegian-cruise-ipo-prices/1843051/ on 4 September 2018

Nasdaq (2018). Norwegian Cruise Line Holdings Ltd. ordinary shares (NCLH) quote & summary data. Nasdaq.com. Retrieved from https://www.nasdaq.com/symbol/nclh on 5 September 2018

Zanoni, D. (2017). Carnival and the cruise industry: Expecting strong stock gains in 2018. Seeking Alpha. Retrieved from https://seekingalpha.com/article/4133754-carnival-cruise-industry-expecting-strong-stock-gains-2018 on 4 August 2018

Globe Newswire (2015). Norwegian Cruise Line Holdings joins the NASDAQ-100 Index. CNBC News. Retrieved from https://www.cnbc.com/2015/12/14/globe-newswire-norwegian-cruise-line-holdings-joins-the-nasdaq-100-index.html on 4 August 2018.

Cruise Market Watch (2018). Market Share: 2018 Worldwide Cruise Line Market Share. Cruise Market Watch. Retrieved from https://www.cruisemarketwatch.com/market-share/ on 4 August 2018

Ponzio, J. (2007). The Graham and Dodd method for valuing stocks. Seeking Alpha. Retrieved from http://seekingalpha.com/article/44626-the-graham-and-dodd-method-for-valuing-stocks on 3 August 2018

Halici, A., & Erhan, D.U. (2013). Structuring strategic management with ratio analysis method: A case study in the transition to SME TFRS process. Procedia Social and Behavioral Sciences, 99(1), 947 - 955, DOI: 10.1016/j.sbspro.2013.10.568

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Wiesbaden (2017). Norwegian Cruise Line Holdings Reports Financial Results for the Third Quarter 2017 - EU-EN. Nasdaq

Norwegian Cruise Line Holdings Ltd (2016). Annual report 2016.Norwegian Cruise Line Holdings Ltd (2015). Annual report 2015.

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Financial Report for Norwegian Cruise Line Holdings Ltd. (2022, Jul 29). Retrieved from https://proessays.net/essays/financial-report-for-norwegian-cruise-line-holdings-ltd

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