An Overview of Cedar Fair - Term Paper Example

Financial Analysis report: Cedar Fair An overview of Cedar Fair, L.P. The formation of CedarFair, L.P. took place in Sandusky, Ohio. As a publicly traded Delaware limited partnership, Cedar Fair, L.P. is managed by the Cedar Fair Management, Inc. The Cedar Fair Management, Inc. is the general partner and has its shares held by an Ohio trust. Cedar Fair, L.P. is among the largest amusement park operators in the world and has its operations in Canada and United States. It has eleven amusement parks, five hotels, one indoor water park, and three outdoor water parks. All of its parks are family-oriented, and their recreational facilities have been designed such that people of all ages are catered for (Thomson Reuters, 2015). Besides, through its parks, Cedar Fair, L.P. offers clean and attractive environs with exciting rides and entertainment. According to Cedar Fair, L.P. (2014, p. 3), the amusement parks include: Kings Island situated near Cincinnati, Ohio; Cedar Point, near Lake Erie between Cleveland and Toledo; Canadas Wonderland near Toronto, Canada; Valleyfair, situated near Minneapolis, Minnesota; Dorney Park & Wildwater Kingdom situated around Allentown in South Whitehall Township, Pennsylvania; Michigans Adventure located near Muskegon, Michigan; Carowinds in Charlotte, North Carolina; Kings Dominion near Richmond, Virginia; Worlds of Fun situated in Kansas City, Missouri; Californias Great America located in Santa Clara, California, and Knotts Berry Farm, situated near Los Angeles, Buena Park, California. Also, to the parks discussed above, Cedar Fair, L.P. manages and operates Gilroy Gardens Family Theme Park in California on a contract term. It also owns and runs the Castaway Bay Indoor Waterpark Resort as well as three separately gated outdoor water parks. The two of its outdoor water parks are situated adjacent to the Cedar Point and Knotts Berry Farm while the third one is located near Cleveland in Aurora, Ohio. The Bios of the Board of Directors of Cedar Fair, L.P. The president and the chief executive officer is 57 years old and is called Matthew and has been working for the Cedar Fair, L.P. since June 2011as its president and since January 2012 as its chief executive officer (Cedar Fair Entertainment Company, 2015). The Cedar Fair, L.P.s chief operating officer, is called Richard and is 54 years old and has held this position since October 2011. Prior to this position, Richard was the Cedar Fair, L.P.’s Executive Vice President since November, 2010 and its Regional Vice President since June 2007. Before joining the Cedar Fair, L.P., Richard had served as the general manager and the vice president of Kings Dominion. His experience in the amusement park industry is of over 20 years. Brian is the chief financial officer and is 48 years old. Brian has held this position since the beginning of 2012. Before this, Brian was the vice president and corporate controller from July 2005. From May 2004 to June 2005, Brian served as the Corporate Treasurer. He also served as the Corporate Director of Investor Relations from 1995 to 2004. The chief marketing officer is called Kelley and is 50 years old, a position he has held since February 2012. She has more than 25 years of experience in consumer marketing and management experience, customer relations management, advertising, brand management and strategic planning. Prior to joining Cedar Fair, L.P., Kelley was the TD Bank’s senior vice president, marketing planning director from June 2010 to February 2012. Before joining TD Bank, Kelley worked as the Bank of America’s senior vice president of brand strategy. Kelley has also held other management roles and marketing functions in the financial and leisure industry, among them Walt Disney Parks and Resorts. The general counsel of Cedar Fair, L.P. is called Duffield and is 49 years old. Duffield has held this position from February 2008 and in 2012 he was promoted to executive vice president in 2015 January. Before joining the Cedar Fair, L.P. Duffield was engaged in the private law practice. The executive vice president of operations of Cedar Fair, L.P. is called Philip and is 59 years old and has occupied this position since November 2010. Before this, he was the regional vice president of Worlds of Fun since June 2006 and the general manager of Oceans of Funs since 2000. The chief accounting officer of Cedar Fair, L.P. is called David and is 46 years old. He has occupied this position since the beginning of 2012. Before this, David was the vice president of Corporate Tax from 2006. Prior to joining Cedar Fair, L.P., he was the Ernst & Young business advisor. Robert is the Cedar Fair, L.P.’s planning and design and is 54 years old. He has held this position from the end of 2002. Initially, he was the Corporate Director of Planning and design from 1999. Cedar Fair, L.P.s senior vice president of administration, is called Craig and is 61 years old. Craig has held this position since September 2005. Before this, Craig was the Camp Snoopy’s Vice president and general manager from August 1996 through 2005. Events in which Cedar Fair, L.P. has Engaged into In the year 2011, Cedar Fair, L.P. engaged accesso Technology Group, plc., a chief provider of commerce solutions to use their eCommerce as well as mobile technology across its portfolio of parks (accesso Technology Group, plc., 2011). The Cedar Fair, L.P. replaced its then in-house eCommerce solution with that of accesso and that is fully hosted. Cedar Fair, L.P. also adopted the integrated mobile platform of accesso Technology Group, plc. because it had updated mobile websites. Financial Performance Liquidity ratios These ratios help in establishing an entitys ability to meet its short-term maturing obligations as and when they fall due (Babalola & Abiola, 2013). Lower liquidity ratios translate to higher liquidity risk as compared to when these ratios are high. Inadequate liquidity makes it difficult for a firm to meet its short-term liabilities, resulting to litigations instituted by the creditors, poor credit worthiness or even insolvency. The ratios analyzed under this category were the current ratio and the quick ratio. Table 1 Liquidity ratios Liquidity ratios 2010 2011 2012 2013 2014 Current ratio = Current Asset Current liabilities = 70/169 =0.41 = 99/203 = 0.49 = 141/138 = 1.02 = 186/159 = 1.17 = 204/ 198 = 1.03 Acid test ratios = Current Asset - Inventories Current liabilities = (70-32)/169 = 0.22 = (99-33)/203 = 0.33 = (141-28) /138 = 0.82 = (186-26) /159 =1.01 = (204-26)/ 198 = 0.90 Figure 1 Graphical presentation of liquidity ratios The current ratio shows how many times current liabilities can be settled from current assets before these assets are exhausted. As shown in Table 1 above, this paper established that the current ratios of Cedar Fair, L.P. were 0.41, 0.49, 1.02, 1.17 and 1.03 in 2010, 2011, 2012, 2013 and 2014 respectively. However, in the year 2010 and 2011 Cedar Fair, L.P. faced difficulties settling its current assets using current assets. This implies that Cedar Fair, L.P. could have been facing difficulties that would have prompted it to dispose of some of its non-current assets or borrow extra money to pay the maturing obligation. This move would have adversely affected its operating efficiency or increase its leverage. Further results from the analysis of its acid test ratio, which is a more refined current ratio that excludes inventory amounts as the inventory is valued on the historical cost basis and it may not be quickly converted into cash, established that this ratio followed the trend exhibited by the current ratio and was 0.22, 0.33, 0.82, 1.01 and 0.90 in 2010, 2011, 2012, 2013 and 2014 respectively. From this analysis, it is clear that other than in the year 2013, Cedar Fair, L.P. could not pay its current liabilities without selling inventories in the other periods. This paper, therefore, advises the management of Cedar Fair, L.P. to review its working capital management policies to avoid unnecessary interruptions to its operations. During worst situations, as has been stated above, Cedar Fair, L.P. can be forced to dispose of some of its non-current assets to pay the maturing obligations. This move would put it in a very risky situation that might force it into liquation. Leverage ratios These ratios are used to measure the entitys capital structure. They show the extent to which the business has borrowed fixed charge capital to finance assets and other resource acquisitions for the business to enable it efficiently carry out its normal operations (Bull, 2007). The following gearing ratios were established for the past fiscal years. Table 2 Leverage ratios Leverage ratio 2010 2011 2012 2013 2014 Debt to total equity ratio = Long-term debt x 100 Equity capital =1,776/306 =5.80 = 1,712/363 = 4.71 = 1,730/298 = 5.80 = 1,717/298 = 5.76 = 1,744/294 = 5.93 Debt ratio = Total debt Total assets =1,945/2,082 = 0.93 = 1,916/2,075 = 0.92 = 1,868/2,028 = 0.92 = 1,875/2,015 = 0.93 = 1,942/2,038 = 0.95 Interest coverage ratio = EBIT/Interest expense = 154/150 = 1.03 times = 239/157 = 1.52 times = 233/111 = 2.10 times = 302/103 = 2.93 times = 278/96 = 2.90 times Figure 2 Graphical presentation of gearing ratios From Table 2 and figure 2, this paper analyzed the Cedar Fair, L.P.’s debt to total equity ratio, so as to establish the relationship between its debt and equity financing. The results indicated that the Cedar Fair, L.P. was greatly debt financed. The debt to total equity ratio was 5.80, 4.71, 5.80, 5.76 and 5.93 in 2010, 2011, 2012, 2013 and 2014 respectively. This implies that for every $1 of equity financing there was $5.80, $4.71, $5.80, $5.76 and $5.93 in 2010, 2011, 2012, 2013 and 2014 respectively. This shows that Cedar Fair, L.P. borrows heavily, and this may negatively affect its financial healthiness and increase its risk. The excessive use of debt to finance its operations was also manifested from the analysis of its debt ratio. As indicated in Table 2 above, Cedar Fair, L.P.s Debt ratio ranged between 0.92 and 0.95. This implies that in the years 2010, 2011, 2012, 2013 and 2014, Cedar Fair, L.P. used $0.93, $0.92, $0.92, $0.93 and $0.95 respectively of debt to finance its $1 of assets. This further shows that only $0.07, $0.08, $0.08, $0.07 and $0.05 of the shareholders’ equity was used to finance £1 of its assets over these periods respectively. This situation shows that Cedar Fair, L.P. is highly leveraged, and it would be technically challenging in case it wanted to acquire extra borrowings because, the bank would view it as an already highly leveraged entity, and an additional loan would entail possibilities of experiencing financial distress while resurfacing the principal amount. Another leverage ratio analyzed by this paper was the interest coverage ratio. This ratio shows the debt interest portion that is covered using companys cash flows. Where the ratio is below 1, it indicates that the company is experiencing difficulties in generating enough cash flows to pay its interest expenses. The results of this analysis as shown in Table 2 above and figure 3 below, it is clear that Cedar Fair, L.P. was able to generate enough operating incomes to cover its interest charge in all the studied five years and the situation generally continued to improve. Cedar Fair, L.P. was able to cover its interest expense 1.03 times, 1.52 times, 2.10 times, 2.93 times and 2.90 times in the years 2010, 2011, 2012, 2013 and 2014 respectively. Figure 3 Graphical presentations of interest coverage ratios Profitability ratios These ratios are used to evaluate entity’s earnings in relation to a given level of assets, a given level of sales, owners’ investment (Bull, 2007). This paper conducted profitability analysis since it found it necessary to evaluate Cedar Fair, L.P.’s future profitability potential since it is crucial that it must operate profitably to survive in the long-run. However, only a few profitability ratios were analyzed among the many as shown in the table 3 below. Table 3 Profitability Profitability ratio 2010 2011 2012 2013 2014 Gross profit margin = gross profit /sales*100 = 480/978 = 49% = 506/1,028 = 49% = 522/1,068 = 49% = 570/1,135 = 50% = 568/1,160 = 49% Net profit margin = net profit/sales *100 = (32)/978 = (3%) = 72/1,028 = 7% = 101/1,068 = 9% = 108/1,135 = 10% = 104/1,160 = 9% Return on equity (ROE) = net profit/ common shareholders equity*100 = (32)/306 = (10%) = 72/363 = 20% = 101/298 = 34% = 108/298 = 36% = 104/294 = 35% Return on total assets = net income/ total assets*100 = (32)/2,082 = (1.5%) = 72/2,075 = 3.5% = 101/2,028 = 5.0% = 108/2,015 = 5.4% = 104/2,038 = 5.1% Figure 4 Graphical presentation of profitability ratios As indicated in table 3 and figure 4 above, this paper analyzed the gross profit margin of Cedar Fair, L.P. with a view to establishing its ability to control its cost of sales and managements efficiency in producing each unit of a product. This papers findings confirmed that Cedar Fair, L.P.’s gross profit margin remained at 49% of sales, which implies that the cost of sales and consequently the management’s efficient in controlling it remained at around 51% all through. Further results from the analysis of its net profit margin found that this ratio was (3%), 7%, 9%, 10% and 9% in the year 2010, 2011, 2012, 2013 and 2014 respectively. This indicated an improving trend from the loss-making situation in 2010 to profit making periods. This was attributed to improved sales and its ability to control the operating costs and financial costs. This paper also analyzed the return on equity of this company since it was found necessary because it would show the return of profitability on $1 of equity capital that its shareholders contributed. As illustrated in figure 3 above, Cedar Fair, L.P.’s return on equity also continued to increase over the studied periods and was (10%), 20%, 34%, 36%, and 35% in year 2010, 2011, 2012, 2013 and 2014 respectively. The results on the return on total assets analysis found that this ratio followed the same trend as the return on equity where it continued to increase but slightly dropped in the year 2014. This ratio was (1.5%), 3.5%, 5%, 5.4% and 5.1% in the year 2010, 2011, 2012, 2013 and 2014 respectively. This implies that Cedar Fair, L.P.’s $1 use of assets towards the generation of profit continued to earn more profits. Market Performance of Cedar Fair, L.P. Figure 5 Performance of Cedar Fair, L.P. relative to a competitor and the S&P 500 (Source: Morning Star, 2015). From figure 5 above, the Cedar Fair, L.P. has been performing relatively better compared to one of its competitors, Leisure, and the benchmark, S&P 500. Further improved returns of Cedar Fair, L.P. are as indicated in figure 6 below and it has been performing well relative to its competitors and the S&P 500. Figure 6 Trailing total returns (Source: Morning Star, 2015) This paper analyzed the trend in the stock of Cedar Fair, L.P., and as shown in figure 7 and 8 below, its stock has been appreciating even though it slightly dipped in 2014. Figure 7 Cedar Fair, L.P.’s price trend (Source: Morning Star, 2015) Figure 8 Share trend for the last five years and five months Recommendation Regarding this Stock From the trend being exhibited by figure 7 and 8 above, this paper advises investors to continue holding their shares as they stand to gain from the continuous capital gains as this stock is appreciating. In case of potential investors, they should invest in this company as they also stand to benefit from its appreciating stock’s price. References accesso Technology Group, plc. (2011, October 25). Cedar Fair Chooses accesso® to Drive eCommerce Platform. Retrieved June 2, 2015, from accesso Technology Group, plc.: http://accesso.com/2011/10/cedar-fair-chooses-accesso-to-drive-ecommerce-platform/ Babalola, Y., & Abiola, F. (2013). Financial Ratio Analysis of Firms: A Tool for Decision Making. International Journal of Management Sciences, 1 (4), 132-137. Bull, R. (2007). Financial Ratios: How to use financial ratios to maximize value and success for your business. Waltham, Massachusetts: Elsevier. Cedar Fair Entertainment Company. (2015). Executive Team. Retrieved May 2, 2015, from CFEC - Cedar Fair Entertainment Company: http://ir.cedarfair.com/corporate-governance/executive-team/default.aspx Cedar Fair, L.P. (2014). Annual report for the fiscal year ended: December 31, 2014. Sandusky, Ohio: Cedar Fair, L.P. Morning Star. (2015, May 31). Cedar Fair LP FUN. Retrieved June 2, 2015, from Morning Star: http://performance.morningstar.com/stock/performance-return.action?t=FUN®ion=usa&culture=en-US Thomson Reuters. (2015). Profile: Cedar Fair LP (FUN.N). Retrieved June 2, 2015, from Thomson Reuters: http://www.reuters.com/finance/stocks/companyProfile?symbol=FUN.N Read More