RCL — Royal Caribbean Cruises

Will it survive?

• Can it pay its interest? 4.9×
  Adequate
  Operating income $4.9B ÷ interest expense $992M

  Comfortable in a normal year, but below the margin of safety Graham looked for. Worth checking how stable the coverage has been across a full cycle.

• How heavy is the debt? 2.2×
  Moderate
  Total debt $11.0B ÷ operating income $4.9B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? —
  Not enough data

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 24%
  High
  NOPAT $4.8B ÷ invested capital $20.2B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 7%
  Solid
  Owner Earnings $1.2B = operating cash $6.5B − capex $5.2B

  What an owner could take out without starving the business. That's 7% of revenue. Treating stock comp as the real expense it is (less $175M of SBC) leaves $1.1B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 1.51×
  Cash-backed
  Cash from ops $6.5B ÷ net income $4.3B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 160%
  Returns most of it
  Dividends + buybacks $2.0B ÷ Owner Earnings $1.2B

  Of $1.2B Owner Earnings, $2.0B (160%) went back to shareholders — $824M dividends, $1.2B buybacks. Net of $175M stock comp, the real buyback was about $984M. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 3.04×
  Expanding
  Capex $5.2B ÷ depreciation $1.7B

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2016–2025

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 7 of 10

  Lost money in 3 year(s) — look at what happened there before trusting the average.

• Return on capital ≥ 15% 3 of 9 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 19% → 26%

  Margins are widening — pricing power intact or improving.

• Reinvestment — incremental ROIC returns capital

  The capital base barely grew: this business returns cash through dividends and buybacks rather than reinvesting. Judge it on the cash returned, not on compounding.

• Owner earnings growth +4%/yr

  Free cash to owners grew about 4% a year over the record.

• Worst year 2021 · −252.6% op. margin

  Operations went underwater in 2021 — understand why before trusting the good years.

• Share count +2.7%/yr

  The share count is rising — dilution works against you on a per-share basis.

• Dividend record rising

  Paid and raised the dividend across the record — the continuity Graham prized.