Royal Caribbean Cruises Ltd. (NYSE:RCL)

Debt to Equity and Capital Structure

The debt to equity ratio shows a notable increasing trend from early 2018 through mid-2022, rising from approximately 0.83 in the first quarter of 2018 to 6.83 by the second quarter of 2022. When including operating lease liabilities, this ratio follows a similar upward trajectory, increasing from 0.83 to 7.02 over the same period. This indicates a substantial increase in leverage over time.

The debt to capital ratio also rises steadily, moving from around 0.45 in early 2018 to 0.87 by mid-2022. Including operating lease liabilities results in a slightly higher but consistent pattern, increasing from 0.45 to 0.88. This suggests a growing proportion of debt within the overall capital structure.

Similarly, the debt to assets ratio escalates from about 0.37 in the first quarter of 2018 to 0.68 by mid-2022, with the inclusion of operating lease liabilities slightly increasing the ratio to 0.70. This trend reflects a rising level of debt relative to total assets.

Financial Leverage

Financial leverage has increased dramatically over the analyzed period, starting at approximately 2.25 in early 2018 and reaching 9.99 by mid-2022. This significant rise in financial leverage indicates that the company’s assets have increasingly been financed by debt, intensifying the financial risk profile.

Interest Coverage Ratio

The interest coverage ratio demonstrates a decline from healthy levels above 6 in 2018 to negative values beginning in 2020. Specifically, it starts at around 6.67 in March 2018 and plunges to -2.45 by June 2022. The negative figures from 2020 onwards indicate that earnings before interest and taxes (EBIT) are insufficient to cover interest expenses, signaling financial distress or substantial operating challenges.

Overall Insights

The data reveals a clear shift towards higher leverage over the examined timeframe, with increasing debt levels in relation to equity, capital, and assets. This heightened leverage coincides with deteriorating interest coverage, especially pronounced starting in early 2020, suggesting increasing difficulty in servicing debt obligations. The trends may reflect operational impacts or strategic financial decisions that have significantly altered the company’s risk profile.

Total Debt

The total debt exhibited a generally increasing trend over the analyzed periods. From March 2018 to June 2022, total debt rose from approximately $8.8 billion to over $23.2 billion. Notably, the increase was gradual up to the end of 2019, fluctuating slightly around $10.8 to $11 billion. Starting in March 2020, there was a sharp rise coinciding with the onset of the COVID-19 pandemic, with debt nearly doubling from about $11 billion to over $19 billion by December 2020. This upward trajectory continued through to mid-2022, with debt levels reaching above $23 billion, suggesting significant borrowing activity during this period.

Shareholders’ Equity

Shareholders’ equity demonstrated a declining pattern throughout the timeframe. Initially, from March 2018 to December 2019, equity modestly increased from about $10.6 billion to approximately $12.2 billion. However, starting in March 2020, a marked decrease became evident, with equity dropping below $10.3 billion and continuing to decline steadily. By June 2022, shareholders’ equity diminished significantly to around $3.4 billion, indicating erosion of net asset value. This decline likely reflects the financial impact of external or operational challenges during this period.

Debt to Equity Ratio

The debt to equity ratio showed a substantial increase, reflecting the combined dynamics of growing debt and diminishing equity. From a range below 1.0 in early periods (0.79 to 0.97), the ratio more than doubled in early 2020 and escalated rapidly thereafter. By June 2022, the ratio had surged to approximately 6.83, indicating a high leverage level. The sharp rise starting in 2020 corresponds with the increased borrowing and decreased equity, highlighting heightened financial risk and lower equity cushion.

Overall Analysis

The financial data reveals a period of growing leverage and weakening equity base. The steep increase in debt beginning in early 2020 aligns with the global crisis affecting the industry, suggesting increased reliance on external financing to maintain operations. Concurrently, the decline in shareholders’ equity raises concerns regarding profitability, retained earnings, or asset impairments. The escalating debt to equity ratio underscores a material shift toward higher financial risk and leverage exposure, which may impact the company’s financial flexibility and creditworthiness moving forward.

The financial data reveals significant developments in the company's capital structure and leverage over the examined periods.

Total Debt (including operating lease liability)

There is a general upward trend in total debt from the end of March 2018 through June 2022. Starting at approximately $8.8 billion, total debt exhibited gradual growth reaching around $11.7 billion by the end of 2019. From March 2020 onwards, a marked acceleration is observed, with total debt increasing sharply to over $23.8 billion by June 2022. This indicates substantial borrowing or reclassification of liabilities during that timeframe.

Shareholders’ Equity

Shareholders’ equity demonstrated relative stability with minor increases from about $10.6 billion in March 2018 to a peak exceeding $12.1 billion at the end of 2019. However, there was a significant and continuous decline starting in early 2020, amid the same period that total debt surged. Equity decreased from over $10 billion in early 2020 to below $3.4 billion by mid-2022, reflecting either negative retained earnings, asset impairments, or other equity-reducing events.

Debt to Equity Ratio (including operating lease liability)

The debt to equity ratio remained below 1.0 for most of the 2018-2019 period, indicating moderate leverage. This ratio began to climb notably starting in early 2020, coinciding with sharp changes in debt and equity. It rose from 1.63 in March 2020 to 7.02 in June 2022, confirming a significant increase in financial leverage and a corresponding risk profile escalation. This level of indebtedness in relation to shareholders’ equity suggests heightened vulnerability and financial stress during these recent periods.

Overall, the patterns illustrate a company that has taken on substantially more debt while its shareholders’ equity contracted considerably. The resulting strained capital structure, as evidenced by the steep increase in the debt to equity ratio, points to elevated financial risk and potential challenges in meeting obligations without either equity reinforcements or debt restructuring in the near term.

Total Debt

The total debt exhibited moderate fluctuations from March 2018 through December 2019, ranging approximately between $8.5 billion and $11 billion. Starting in March 2020, a marked and sustained increase occurred, with total debt rising sharply to over $23 billion by June 2022. This notable escalation likely reflects financial strategies or responses to adverse conditions during this timeframe.

Total Capital

Total capital showed a gradual upward trend from around $19.5 billion in early 2018 to just under $23.2 billion by the end of 2019. However, from March 2020 onward, total capital increased more significantly, peaking near $30.1 billion in March 2021 before decreasing slightly but remaining around $26.6 billion mid-2022. This overall growth and subsequent stabilization suggest changes in the capital structure and financing mix in the recent years.

Debt to Capital Ratio

The debt to capital ratio was relatively stable between 0.44 and 0.49 through 2018 and 2019, indicating a balanced capital structure during those years. Beginning in the first quarter of 2020, the ratio increased substantially, rising from approximately 0.61 in March 2020 to 0.87 by June 2022. This signifies a heavier reliance on debt financing relative to overall capital, coinciding with the observed increase in total debt. The trend suggests an increased financial leverage over this period.

Overall Analysis

The data reflect a clear pattern of increased debt levels starting in early 2020, accompanied by a rise in total capital but at a slower pace than debt, resulting in a higher debt to capital ratio. This pattern indicates a strategic shift towards leveraging debt more heavily within the capital structure. The sharp rise in debt and leverage beginning in 2020 may be attributed to external factors necessitating additional financing. While capital expanded, it did not keep pace proportionally with the debt increase, resulting in elevated financial risk metrics by mid-2022.

The analysis of the financial leverage over the periods under review indicates a clear upward trend in debt levels relative to total capital. The total debt, inclusive of operating lease liabilities, demonstrates a steady increase from approximately $8.8 billion at the end of March 2018 to over $23.8 billion by June 2022. This rise in debt shows particular acceleration starting in early 2020 and continuing through mid-2022.

In parallel, the total capital, which also includes operating lease liabilities, grew from around $19.5 billion at the start of 2018 to approximately $27.2 billion by mid-2022. Despite this increase in total capital, the growth rate of debt has outpaced that of total capital, reflecting a heavier reliance on debt financing over time.

The debt-to-capital ratio corroborates these observations, moving from 0.45 at the end of March 2018 to 0.88 by June 2022. This metric indicates a shift towards increased financial leverage, with debt comprising a larger portion of the company’s capital structure. Notably, the ratio remained relatively stable, around 0.45 to 0.50 from 2018 through the end of 2019 but increased sharply starting in the first quarter of 2020 and continued to rise consistently thereafter.

Total Debt Trend

Consistent increase from $8.8 billion to $23.8 billion over four years, with a pronounced surge beginning in early 2020.

Total Capital Trend

Steady growth from $19.5 billion to $27.2 billion, though outpaced by the rate of debt accumulation, reflecting moderate capital base expansion.

Debt-to-Capital Ratio

Initial stability near 0.45–0.50 until end of 2019, followed by a marked rise to 0.88 by mid-2022, indicating increased financial leverage and reliance on debt.

The data suggests that the company has significantly increased its leverage, possibly to address funding needs or strategic objectives in a challenging economic environment. The rising debt-to-capital ratio may also imply heightened financial risk, as greater proportions of operational funding derive from debt obligations. This upward trend in leverage warrants careful monitoring going forward, especially in the context of interest rates and liquidity considerations.

Over the examined quarterly periods, the company’s total debt exhibited an overall increasing trend. Beginning at approximately $8.81 billion in the first quarter of 2018, total debt gradually rose through 2019 before experiencing a sharp increase starting in early 2020. By mid-2022, total debt reached over $23.2 billion, reflecting more than a doubling compared to the early 2018 levels.

Total assets also showed an upward movement throughout the analyzed timeframe. Starting from around $23.97 billion in early 2018, assets increased steadily with some fluctuations, peaking near $33.9 billion by mid-2022. Despite some quarterly decreases, the general pattern indicates growth in asset base over the period.

The ratio of debt to assets reveals a more pronounced change in financial leverage. Initially stable between 0.35 and 0.39 through 2018 and 2019, the ratio surged markedly from 0.48 at the first quarter of 2020 to a range consistently above 0.60 from 2021 onward. By mid-2022, the debt-to-assets ratio approached approximately 0.68, indicating that the company’s liabilities have grown proportionally faster than its assets, implying higher leverage and potentially increased financial risk.

Total Debt

Gradual increase from $8.8 billion to over $11 billion until 2019, followed by a rapid escalation surpassing $23 billion by mid-2022.

Total Assets

Progressive growth from $24 billion to nearly $34 billion over the period, with minor fluctuations but an overall upward trajectory.

Debt to Assets Ratio

Stable around 0.35-0.39 in initial years, sharply rising to around 0.68 by mid-2022, signaling increased leverage and possible constraints on financial flexibility.

The analysis of the quarterly financial data reveals notable trends in key financial metrics over the observed periods.

Total debt (including operating lease liability)

The total debt exhibited a gradual upward trajectory from the first quarter of 2018 through the end of 2019, increasing from approximately 8.8 billion to around 11.7 billion USD. A significant surge occurred starting in the first quarter of 2020, with debt levels sharply rising to over 19.5 billion USD by mid-2020 and continuing to climb modestly thereafter. By mid-2022, total debt reached nearly 23.8 billion USD, indicating an increased leverage posture.

Total assets

Total assets showed a consistent increase from early 2018, growing from roughly 24 billion USD to a peak near 33.4 billion USD by the end of 2019. Although there was some fluctuation throughout 2020 and 2021, asset levels generally remained stable within a range of 31.8 to 34.3 billion USD. By mid-2022, assets again demonstrated an upward movement, reaching approximately 33.9 billion USD, signaling maintained asset base size despite economic challenges.

Debt to assets ratio (including operating lease liability)

The debt-to-assets ratio was relatively stable from 2018 through 2019, fluctuating around 0.35 to 0.39. However, from the first quarter of 2020 onwards, there was a pronounced increase, with this ratio rising sharply from 0.50 to about 0.70 by mid-2022. This marked increase indicates a significant change in capital structure, reflecting greater reliance on debt as compared to total asset coverage during the recent years.

Overall, the financial data illustrates a clear shift toward higher leverage starting in early 2020, coinciding with maintained asset levels but elevated debt burdens. The rise in the debt-to-assets ratio emphasizes the increased financial risk and potential interest obligations faced. These patterns may reflect strategic financing decisions or responses to external challenges impacting operating and financial activities.

Total assets

The total assets demonstrated a generally increasing trend over the periods analyzed. Starting from approximately 23.97 billion USD at the end of Q1 2018, the total assets gradually rose to about 29.83 billion USD by mid-2022. While there was a consistent growth from 2018 through early 2020, a slight dip is observable during 2020, likely influenced by external factors affecting asset valuation or operations. However, the total assets recovered and continued to increase in 2021 and the first half of 2022, indicating asset base expansion.

Shareholders’ equity

Shareholders’ equity showed a notable decline over the analyzed period. Initially, equity was around 10.65 billion USD in Q1 2018, with moderate fluctuations through 2019. A significant decrease began in 2020, with the equity dropping sharply from over 10 billion USD to approximately 8.3 billion USD by Q3 2020. This declining trend persisted through 2021 and into mid-2022, reaching levels below 3.4 billion USD. This substantial reduction suggests increased losses, dividend distributions, share buybacks exceeding net income, or other equity reductions.

Financial leverage

Financial leverage exhibited a clear upward trajectory throughout the periods. Initially, leverage ratios were around 2.25 to 2.58 from 2018 through 2019, indicating moderate debt relative to equity. Starting in 2020, leverage increased sharply, moving from 3.27 at the end of Q1 2020, to nearly 10 by mid-2022. This dramatic rise reflects a substantial increase in debt relative to declining equity, suggesting heightened financial risk and dependence on external financing through the period, likely as a response to operational challenges or strategic financing decisions.

Earnings before Interest and Tax (EBIT)

The EBIT exhibited a generally strong performance from early 2018 through the end of 2019, peaking in the third quarter of 2019. However, starting in the first quarter of 2020, there was a sharp and pronounced decline, with EBIT turning negative and reaching substantial losses throughout 2020 and into mid-2022. Although there was some variability, the negative trend persisted without signs of recovery to positive earnings during this period.

Interest Expense, Net of Interest Capitalized

Interest expense showed a steady increase from early 2018 through the fourth quarter of 2019. Beginning in 2020, interest expense rose significantly, particularly in the first three quarters, and remained elevated relative to prior years, indicating increased borrowing costs or higher debt levels during the period of operating losses. While fluctuating somewhat quarterly between 2020 and mid-2022, interest expense stayed at a high level compared to the pre-2020 periods.

Interest Coverage Ratio

The interest coverage ratio was robust and stable from 2018 through 2019, consistently above 5, indicating a comfortable ability to meet interest obligations from operating earnings. This trend reversed dramatically starting in early 2020, coinciding with the downturn in EBIT. The ratio dropped below 2 in the first quarter of 2020 and subsequently turned negative for multiple quarters, reflecting negative EBIT and an inability to cover interest expenses from operating profits. The interest coverage ratio remained negative and declining in magnitude through mid-2022, highlighting sustained financial stress.

Summary of Observations

Overall, the data reveals a stable and profitable operating environment up to the end of 2019, followed by a severe and persistent decline starting in early 2020. This decline resulted in sustained negative EBIT, elevated interest expenses, and a critical deterioration in interest coverage. These trends suggest significant challenges in operational profitability and financial structure beginning in 2020, with continued pressure observed through the first half of 2022.