Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Royal Caribbean Cruises Ltd., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2021 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= -3,961,280 – 19.62% × 26,323,667 = -9,126,900
The financial performance from 2017 to 2021 is characterized by a persistent failure to generate positive economic profit, with the deficit intensifying significantly during the latter portion of the period.
- Net Operating Profit After Taxes (NOPAT)
- A positive growth trend was evident between 2017 and 2019, with NOPAT increasing from 1,898,873 thousand US$ to 2,326,210 thousand US$. However, a severe reversal occurred in 2020, with NOPAT falling to negative 4,923,029 thousand US$, followed by a partial recovery to negative 3,961,280 thousand US$ in 2021.
- Cost of Capital
- The cost of capital exhibited a continuous downward trajectory over the five-year period, declining from 29.69% in 2017 to 19.62% by the end of 2021. This steady reduction indicates a lowering of the required rate of return on invested capital over time.
- Invested Capital
- Invested capital grew steadily from 18,110,618 thousand US$ in 2017 to a peak of 28,435,034 thousand US$ in 2020. A slight contraction was observed in 2021, with the total decreasing to 26,323,667 thousand US$.
- Economic Profit
- Economic profit remained negative throughout the entire analyzed period. While losses were relatively stable between 2017 and 2019, ranging from approximately 3.48 billion to 3.97 billion US$, the deficit expanded drastically in 2020 to reach 11,064,630 thousand US$. By 2021, the economic profit improved slightly to negative 9,126,900 thousand US$, though it remained substantially below the break-even point.
The interaction between expanding invested capital and the collapse of NOPAT in 2020 created a compounded negative effect on economic value. Despite the consistent reduction in the cost of capital, the magnitude of the operational losses in 2020 and 2021 far outweighed the benefits of a lower capital charge, resulting in significant value destruction during those years.
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Net Operating Profit after Taxes (NOPAT)
Royal Caribbean Cruises Ltd., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in credit loss allowance.
3 Addition of increase (decrease) in restructuring.
4 Addition of increase (decrease) in equity equivalents to net income (loss) attributable to Royal Caribbean Cruises Ltd..
5 2021 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 603,648 × 6.52% = 39,358
6 2021 Calculation
Tax benefit of interest expense, net of interest capitalized = Adjusted interest expense, net of interest capitalized × Statutory income tax rate
= 1,331,111 × 0.85% = 11,314
7 Addition of after taxes interest expense to net income (loss) attributable to Royal Caribbean Cruises Ltd..
8 2021 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 16,773 × 0.85% = 143
9 Elimination of after taxes investment income.
The financial trajectory from 2017 to 2021 is characterized by an initial phase of steady growth followed by a period of severe contraction and gradual recovery. This volatility is evident in both net income and net operating profit after taxes (NOPAT), reflecting a significant disruption in operational viability during the latter part of the period.
- Operational Growth Phase (2017-2019)
- A consistent upward trend is observed in both net income and NOPAT between 2017 and 2019. NOPAT increased from US$ 1,898,873 thousand to US$ 2,326,210 thousand, representing a steady improvement in operational profitability. During this period, NOPAT consistently remained higher than net income, indicating that core operating activities were generating strong positive returns before the impact of financing costs.
- Operational Contraction and Loss (2020-2021)
- A dramatic reversal occurred in 2020, where NOPAT shifted from a positive US$ 2,326,210 thousand to a loss of US$ 4,923,029 thousand. This sharp decline mirrors the collapse in net income, which fell to a loss of US$ 5,797,462 thousand. While a slight recovery is noted by December 31, 2021, with NOPAT improving to a loss of US$ 3,961,280 thousand, the figures remain deeply negative, indicating that the company had not yet returned to operational profitability.
- Comparative Analysis of NOPAT and Net Income
- The divergence between NOPAT and net income provides insight into the company's financial structure. In the growth years, the higher NOPAT relative to net income suggests significant interest expenses or non-operating costs. In the loss-making years of 2020 and 2021, net income losses were more severe than NOPAT losses, further indicating that financing costs and non-operating burdens compounded the operational deficits.
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Cash Operating Taxes
Royal Caribbean Cruises Ltd., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
A significant shift in the tax profile is observed between 2017 and 2021, transitioning from a period of increasing cash outflows to a period of substantial tax benefits. The trajectory of cash operating taxes closely mirrors the reported income tax expense and benefit trends, reflecting a volatile operational environment.
- Growth Phase (2017–2019)
- A consistent upward trend in cash operating taxes is evident during this period, increasing from 21,373 thousand US$ in 2017 to 39,556 thousand US$ in 2019. This growth represents a cumulative increase of approximately 85% over two years, aligning with the rise in income tax expenses during the same timeframe.
- Reversal and Benefit Phase (2020–2021)
- A sharp reversal occurred in 2020, with cash operating taxes shifting to a negative value of -12,780 thousand US$. This trend deepened in 2021, reaching -34,028 thousand US$. The negative values indicate that the entity shifted from paying cash taxes to receiving tax benefits or refunds, likely stemming from substantial operating losses.
- Comparative Variance
- While both income tax benefits and cash operating taxes moved in the same direction, a divergence in magnitude is observed in 2021. The income tax benefit of -45,200 thousand US$ exceeded the cash operating tax benefit of -34,028 thousand US$, suggesting a variance between the accounting tax benefit and the actual cash impact.
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Invested Capital
Royal Caribbean Cruises Ltd., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of restructuring.
5 Addition of equity equivalents to shareholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of ships under construction.
The analysis of invested capital from 2017 to 2021 reveals a period of significant expansion followed by a shift in the underlying funding structure. Invested capital grew consistently from 18.11 billion US dollars in 2017 to a peak of 28.44 billion US dollars in 2020, before experiencing a moderate contraction to 26.32 billion US dollars in 2021.
- Total Reported Debt and Leases
- A continuous upward trajectory is observed in total debt and leases throughout the five-year period. The most substantial increase occurred between 2019 and 2020, where debt rose from 11.73 billion US dollars to 20.00 billion US dollars. This represents a sharp acceleration in leverage, with the total debt figure reaching 21.69 billion US dollars by the end of 2021.
- Shareholders' Equity
- Equity exhibited a diverging trend compared to debt. Shareholders' equity increased steadily from 2017 to 2019, peaking at 12.16 billion US dollars. However, a severe decline followed, with equity dropping to 8.76 billion US dollars in 2020 and further eroding to 5.09 billion US dollars in 2021. This downward trend indicates a significant reduction in the equity cushion over the latter part of the period.
- Composition of Invested Capital
- The balance of funding for invested capital shifted fundamentally over the analyzed timeframe. In 2017, the capital base was relatively balanced between debt and equity. By 2021, the structure became heavily skewed toward debt, which accounted for the vast majority of the total invested capital. The increase in total invested capital up to 2020 was driven primarily by debt accumulation rather than equity growth, particularly during the 2020 fiscal year when debt surged while equity began its steep decline.
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Cost of Capital
Royal Caribbean Cruises Ltd., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 18,786,054) | 18,786,054) | ÷ | 42,238,457) | = | 0.44 | 0.44 | × | 37.32% | = | 16.60% | ||
| Debt3 | 22,848,755) | 22,848,755) | ÷ | 42,238,457) | = | 0.54 | 0.54 | × | 5.47% × (1 – 0.85%) | = | 2.93% | ||
| Operating lease liability4 | 603,648) | 603,648) | ÷ | 42,238,457) | = | 0.01 | 0.01 | × | 6.52% × (1 – 0.85%) | = | 0.09% | ||
| Total: | 42,238,457) | 1.00 | 19.62% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,154,902) | 22,154,902) | ÷ | 44,425,179) | = | 0.50 | 0.50 | × | 37.32% | = | 18.61% | ||
| Debt3 | 21,603,724) | 21,603,724) | ÷ | 44,425,179) | = | 0.49 | 0.49 | × | 6.02% × (1 – 0.26%) | = | 2.92% | ||
| Operating lease liability4 | 666,553) | 666,553) | ÷ | 44,425,179) | = | 0.02 | 0.02 | × | 4.59% × (1 – 0.26%) | = | 0.07% | ||
| Total: | 44,425,179) | 1.00 | 21.60% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 18,715,951) | 18,715,951) | ÷ | 31,138,061) | = | 0.60 | 0.60 | × | 37.32% | = | 22.43% | ||
| Debt3 | 11,723,493) | 11,723,493) | ÷ | 31,138,061) | = | 0.38 | 0.38 | × | 3.99% × (1 – 1.68%) | = | 1.48% | ||
| Operating lease liability4 | 698,617) | 698,617) | ÷ | 31,138,061) | = | 0.02 | 0.02 | × | 4.65% × (1 – 1.68%) | = | 0.10% | ||
| Total: | 31,138,061) | 1.00 | 24.01% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 25,296,935) | 25,296,935) | ÷ | 36,974,922) | = | 0.68 | 0.68 | × | 37.32% | = | 25.53% | ||
| Debt3 | 11,150,646) | 11,150,646) | ÷ | 36,974,922) | = | 0.30 | 0.30 | × | 4.14% × (1 – 1.14%) | = | 1.23% | ||
| Operating lease liability4 | 527,340) | 527,340) | ÷ | 36,974,922) | = | 0.01 | 0.01 | × | 4.14% × (1 – 1.14%) | = | 0.06% | ||
| Total: | 36,974,922) | 1.00 | 26.82% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 27,904,933) | 27,904,933) | ÷ | 36,152,998) | = | 0.77 | 0.77 | × | 37.32% | = | 28.80% | ||
| Debt3 | 8,071,231) | 8,071,231) | ÷ | 36,152,998) | = | 0.22 | 0.22 | × | 3.92% × (1 – 1.11%) | = | 0.87% | ||
| Operating lease liability4 | 176,834) | 176,834) | ÷ | 36,152,998) | = | 0.00 | 0.00 | × | 3.92% × (1 – 1.11%) | = | 0.02% | ||
| Total: | 36,152,998) | 1.00 | 29.69% | ||||||||||
Based on: 10-K (reporting date: 2017-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Royal Caribbean Cruises Ltd., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (9,126,900) | (11,064,630) | (3,475,845) | (3,970,929) | (3,477,793) | |
| Invested capital2 | 26,323,667) | 28,435,034) | 24,165,583) | 22,762,454) | 18,110,618) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | -34.67% | -38.91% | -14.38% | -17.45% | -19.20% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Airbnb Inc. | -11.09% | — | — | — | — | |
| Booking Holdings Inc. | -13.64% | — | — | — | — | |
| Chipotle Mexican Grill Inc. | -1.67% | — | — | — | — | |
| DoorDash, Inc. | -39.71% | — | — | — | — | |
| McDonald’s Corp. | 8.26% | — | — | — | — | |
| Starbucks Corp. | 4.06% | -8.49% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2021 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × -9,126,900 ÷ 26,323,667 = -34.67%
4 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a consistent failure to generate positive economic profit, indicating that the return on invested capital remained below the cost of capital throughout the entire period. A period of relative stabilization occurred between 2017 and 2019, followed by a severe deterioration in financial health in 2020 and a partial, though incomplete, recovery in 2021.
- Economic Profit Analysis
- Economic profit remained negative for all five years, ranging from approximately -3.48 billion USD in 2017 to a peak loss of -11.06 billion USD in 2020. The period between 2017 and 2019 showed relatively stable losses, but 2020 experienced a precipitous decline, with economic profit dropping by over 216% compared to the previous year. By 2021, economic profit improved slightly to -9.13 billion USD, though it remained significantly lower than pre-2020 levels.
- Invested Capital Trends
- Invested capital demonstrated a steady upward trajectory from 2017 to 2020, increasing from 18.11 billion USD to 28.44 billion USD. This growth suggests an increase in the capital base during a period of widening economic losses. In 2021, a contraction was observed, with invested capital decreasing to 26.32 billion USD, representing a reduction of approximately 7.4% from the 2020 peak.
- Economic Spread Ratio Performance
- The economic spread ratio exhibited significant volatility, reflecting the relationship between economic profit and the capital employed. From 2017 to 2019, the ratio improved from -19.20% to -14.38%, indicating a trend toward reducing the gap between actual returns and the required cost of capital. However, this trend reversed sharply in 2020, as the ratio plummeted to -38.91%. In 2021, a marginal improvement to -34.67% was recorded, yet the ratio remained deeply negative, signaling a substantial erosion of economic value.
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Economic Profit Margin
Royal Caribbean Cruises Ltd., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | (9,126,900) | (11,064,630) | (3,475,845) | (3,970,929) | (3,477,793) | |
| Revenues | 1,532,133) | 2,208,805) | 10,950,661) | 9,493,849) | 8,777,845) | |
| Performance Ratio | ||||||
| Economic profit margin2 | -595.70% | -500.93% | -31.74% | -41.83% | -39.62% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Airbnb Inc. | -10.03% | — | — | — | — | |
| Booking Holdings Inc. | -18.68% | — | — | — | — | |
| Chipotle Mexican Grill Inc. | -1.21% | — | — | — | — | |
| DoorDash, Inc. | -25.83% | — | — | — | — | |
| McDonald’s Corp. | 16.97% | — | — | — | — | |
| Starbucks Corp. | 3.31% | -8.28% | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
1 Economic profit. See details »
2 2021 Calculation
Economic profit margin = 100 × Economic profit ÷ Revenues
= 100 × -9,126,900 ÷ 1,532,133 = -595.70%
3 Click competitor name to see calculations.
The financial performance from 2017 to 2021 is characterized by a severe deterioration in economic value creation, transitioning from moderate losses to extreme negative margins. While the initial period showed relative stability in economic losses despite revenue growth, the latter two years reflect a catastrophic collapse in both top-line revenue and economic efficiency.
- Economic Profit Trends
- Economic profit remained consistently negative throughout the five-year period. Between 2017 and 2019, losses were relatively contained, fluctuating between -3.48 billion USD and -3.97 billion USD. However, a sharp decline occurred in 2020, with economic profit plummeting to -11.06 billion USD. Although a slight recovery was observed in 2021, the figure remained deeply negative at -9.13 billion USD, indicating a failure to generate returns above the cost of capital.
- Revenue Performance
- A distinct reversal in revenue trajectory is evident. From 2017 to 2019, revenues grew steadily from 8.78 billion USD to a peak of 10.95 billion USD. This growth trend was abruptly severed in 2020, when revenues fell to 2.21 billion USD. This downward trajectory continued into 2021, with revenues further decreasing to 1.53 billion USD, representing a substantial contraction in operational scale.
- Economic Profit Margin Analysis
- The economic profit margin exhibits extreme volatility and decline. From 2017 to 2019, the margin ranged from -31.74% to -41.83%, suggesting a persistent but stable gap between operational returns and capital costs. The collapse in revenue starting in 2020 caused the margin to expand exponentially in a negative direction, reaching -500.93% in 2020 and further deteriorating to -595.70% in 2021. This indicates that the fixed costs and cost of capital became disproportionately large relative to the diminished revenue stream.
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