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Laura M. Sayers
Strategic Analysis #1- Carnival Corp vs. Royal Caribbean Cruises LTD.
Accounting Measures & Economic Measures
A firm’s profit and loss statements are created using widely accepted accounting standards,
and therefore it is fair to compare one statement to another and get an accurate portrayal of the
differences in each firm’s financial performance. If the statements of two companies were
prepared in different countries, then there may be inaccuracies and inconsistencies with the way
that the reports are compiled; therefore, they may be inaccurate when compared side by side. By
calculating the Return on Assets or ROA, one can measure the return on total investment of a
firm. By calculating Royal Caribbean Cruises and Carnival Corporation’s ROA, one can
determine a close range of return on assets for both companies.
Regarding accounting measures, Royal Caribbean Cruises LTD., is slightly above average,
with Carnival Corporation being slightly below average. The difference is about .6%. There is
one significant limitation with using accounting measures of competitive advantage, and that is
regarding the cost of capital that a firm employs to produce and sell its products. Cost of capital
is the rate of return that a firm promises to pay its suppliers and lenders to entice them to invest
in the company. Accounting measures does not consider cost of capital, as economic measure of
competitive advantage does take this into account. Economic measures compare a firm’s level of
return to its cost of capital instead of comparing it with the average level of return in each
industry; therefore, it is a more accurate depiction of how a company is doing, and how a
company will do in the future. When comparing the economic measure of weighted cost of
capital, we see that Royal Caribbean Cruises is slightly below economic performance with a
weighted cost of capital being 11.25% verses Carnival’s 9.95%, this signifies that Royal
Laura M. Sayers
Caribbean Cruises may be at greater risk than Carnival; however both are below the cost of
equity, so both companies seem to be above normal or normal economic performance.
1. Accounting Measure: ROA
a. Carnival Corporation: Income after taxes: $1,757,000/Total Assets $39,237,000 =
.044779 or 4.5%
b. Royal Caribbean Cruises LTD.: Income after taxes: $1,065,066/Total Assets
$20,921,855 = .0509 or 5.1%
2. Economic Measure: Weighted Cost of Capital
a. Carnival Corporation: 9.95% Based on the following data:
i. Debt: 8,510,000
