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what direction is this ship headed? Forecasting for the Love Boat

what direction is this ship headed? Forecasting for the Love Boat. Jackson 5 - The love you save. past future. macroeconomic series. predictable series based on past data. estimate relation. forecast industry sales. industry sales.

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what direction is this ship headed? Forecasting for the Love Boat

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  1. what direction is this ship headed?Forecasting for the Love Boat Jackson 5 - The love you save

  2. past future macroeconomic series predictable series based on past data estimaterelation forecast industry sales industry sales estimate relation taking competitive analysis into account forecast firm sales firm sales unpredictable series based on past data Figure 8.1 Estimating Industry and Firm Sales from Macroeconomic Data Sales Forecast: economy to industry to firm

  3. Sales Forecast: the sales-generating units • sales come from asset investments (generally) • asset base can grow (e.g. open new retail outlets) • sales from existing assets can grow (e.g. comparable store sales growth) • sales growth =(1+asset growth)(1+comp growth) • assumes all units, new and old, enjoy comp growth • assumes all units, new and old, have same sales rate for a really fancy retail sales forecasting model, see Lundholm/McVay at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=486162

  4. Sales assumption determines growth • Salest-1 x (1+sales growtht) = Salest growth • Salest x (Assetst/Salest)= Assetst turnover • Assetst x (Liabilitiest/Assetst) = Liabilitiest leverage • Assetst – Liabilitiest = CEt • Salest x NIt/Salest = NIt, margin • CEt-1+ NIt - DIVt = CEt … and DIVt is determined!

  5. RCL: Sunny Skies and Clear Sailing?

  6. Industry Capacity Growth Or, assuming 5000 berths retired each year, industry growth in berths is 8.2%,6.1% and 7.1% over next three years,. Can demand increase at least this much?

  7. demand for cruising: who cruises?

  8. demand for cruising: demographics 1999 2000 2001 entire US population growth is about .91% for these years.

  9. demand for cruising: more vacations?

  10. building an industry growth model

  11. estimating industry growth % Rec growth = 3.23+1.14%GDP growth

  12. the trouble is… no relation!

  13. Building a Sales-Unit Model • assume that % sales growth = (1+growth in berths)(1+growth in rev/berth) – 1 berth forecasts from RCL

  14. growth in berths In 1999 ¼ of 3100 new berths arrive. In 2000 get other ¾ of 3100 plus ½ of a new 3100 plus ¾ of a new 2000.

  15. Occupancy – How full is the boat? Forecast Occupancy for RCL 1999 2000 2001 105.2 106 106

  16. Margins and Pricing Forecast for RCL 1999 2000 2001 236 242 248 bad news forecast 220 215 210 good news forecast CCL price of 231 + CPI of 2.3% increase by CPI of 2.5% increase of CPI of 2.4%

  17. my sales forecast sales % growth forecast bad news forecasts good news forecasts

  18. Forecasting Costs: economies of scale? slope of less than one implies economies of scale. estimated slope of line: %DSGA = .90(%DSales). implies that SGA/Sales ratio changes by the factor (1+.9g)/(1+g), where g is the %DSales.

  19. My Income Statement Forecast Assumptions bad news forecast price decreases of 3%, 2%, 2%, so CGS99 = .605/(1-.03) = 62.37% etc. SGA% declines in 2000 and 2001 due to economies of scale, computed as 2000 ratio times (1+.9*(.158))/(1.158). X’ord item for $47.7M for 9/11/2001 as given in case, = 1.2% of sales.

  20. My Balance Sheet Forecasts kept operating cash high because left interest revenue on income statement. Other current liabilities are the Customer Deposits – set at 23.7% as the average of past 5 years. Set Ending PPE so as to hit the capX amounts of 996M, 1196M and 1368M given in MD&A, as shown in SCF. Amortized Intangibles balance down by (1-.037). Held Preferred Stock a constant at $172500 (use Goal Seek in Excel).

  21. So What Happened? • ships (berths) occurred almost exactly as forecast; occupancy and prices fell. forecast actual

  22. But profitability held up

  23. “The reason for the discounting: A glut of luxury ships were ordered during the booming ’90s.”

  24. Estimating the amount of cash collected from customers in 1999, assuming ending balance of customer deposits was $515,308 (and sales forecast is 2,710,151): Beginning balance $ 402,926 + Cash collected + $????? - Sales - $2,710,151 = Ending balance $515,308  Cash collected=2,822,533

  25. Estimating the ending balance of PP&E for 1999, assuming capX=$810,261 (and depr rate is 3.7%): Beginning balance of PP&E $5,073,008 + capX +$810,261 - Depreciation (3.7%x5,073,008+3.7%x 810,261/2)- $202,691 = Ending balance $5,680,578

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