Shipping firms' fixed assets : the case of vessels
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Keywords
Shipping ; Vessels ; IFRS ; GAAP ; Financial ratiosAbstract
This paper studies the effects of ship capitalization on the shipping industry, through the case study of Capital Clean Energy (CCE). As shipping represents over 70% of global trade, it is a significant economic factor. For this reason, their accounting treatment now co-vers distance, leasing, docking, depreciation and impairment - directly shaping profitability, leverage and efficiency ratios. The methodology of the work includes both the use and anal-ysis of IFRS and US GAAP standards, which it combines with empirical calculations of rati-os (ROA, ROIC, debt to equity, asset turnover) with published financial data from 2019-2024.
The findings reveal that capitalization policies significantly distort financial ratios and stakeholder interpretation. Under IFRS 16, capitalization of leases increased reported lever-age without affecting cash flows, complicating compliance with contracts. Ship acquisitions initially reduced ROA and ROIC due to higher capital employed, but ratios improved as the assets were brought into service. Impairment control added volatility, with IFRS allowing reversals that are prohibited by US GAAP.
Capitalization policies are not simply technical requirements but strategic tools. They influence perceptions of risk, growth, and stability, influencing managers, investors, credi-tors, and regulators. For managers, capitalization aligns expenses with long-term use, but lim-its borrowing capacity. For investors, the distortions in the ratios highlight the need to focus on the underlying cash flows. For regulators, the divergence between IFRS and GAAP high-lights the need for harmonisation. Overall, vessel capitalization emerges as both an account-ing necessity and a strategic mechanism shaping transparency, comparability, and financial resilience in shipping.