Question
After Dans analysis of East Coast Yachts cash flow (at the end of our previous chapter), Larissa approached Dan about the companys performance and future
After Dans analysis of East Coast Yachts cash flow (at the end of our previous chapter), Larissa approached Dan about the companys performance and future growth plans. First, Larissa wants to find out how East Coast Yachts is performing relative to its peers. Additionally, she wants to find out the future financing necessary to fund the companys growth. In the past, East Coast Yachts experienced difficulty in financing its growth plan, in large part because of poor planning. In fact, the company had to turn down several large jobs because its facilities were unable to handle the additional demand. Larissa hoped that Dan would be able to estimate the amount of capital the company would have to raise next year so that East Coast Yachts would be better prepared to fund its expansion plans.
To get Dan started with his analyses, Larissa provided the following financial statements. Dan then gathered the industry ratios for the yacht manufacturing industry
EAST COAST YACHTS 2017 Income Statement | |||||
---|---|---|---|---|---|
Sales | $611,582,000 | ||||
Cost of goods sold | 431,006,000 | ||||
Selling, general, and administrative | 73,085,700 | ||||
Depreciation | 19,958,400 | ||||
EBIT | $ 87,531,900 | ||||
Interest expense | 11,000,900 | ||||
EBT | $ 76,531,000 | ||||
Taxes | 30,612,400 | ||||
Net income | $ 45,918,600 | ||||
Dividends | $ 17,374,500 | ||||
Retained earnings | $ 28,544,100 |
EAST COAST YACHTS 2017 Balance Sheet | |||||
---|---|---|---|---|---|
Current assets | Current liabilities | ||||
Cash and equivalents | $ 11,119,700 | Accounts payable | $ 44,461,550 | ||
Accounts receivable | 18,681,500 | Accrued expenses | 6,123,200 | ||
Inventory | 20,149,650 | Total current liabilities | $ 50,584,750 | ||
Other | 1,172,200 | ||||
Total current assets | $ 51,123,050 | ||||
Fixed assets | Long-term debt | $169,260,000 | |||
Property, plant, and equipment | $457,509,600 | Total long-term liabilities | $169,260,000 | ||
Less accumulated depreciation | (113,845,900) | ||||
Net property, plant, and equipment | $343,663,700 | ||||
Intangible assets and others | 6,772,000 | Stockholders equity | |||
Total fixed assets | $350,435,700 | Preferred stock | $ 1,970,000 | ||
Common stock | 37,583,700 | ||||
Capital surplus | 28,116,300 | ||||
Accumulated retained earnings | 161,564,000 | ||||
Less treasury stock | (47,520,000) | ||||
Total equity | $181,714,000 | ||||
Total assets | $401,558,750 | Total liabilities and shareholders equity | $401,558,750 |
LOWER QUARTILE MEDIAN UPPER QUARTILE
Current ratio .86 1.51 1.97
Quick ratio .43 .75 1.01
Total asset turnover 1.10 1.27 1.46
Inventory turnover 12.18 14.38 16.43
Receivables turnover 10.25 17.65 22.43
Debt ratio .32 .56 .61
Debtequity ratio .83 1.13 1.44
Equity multiplier 1.83 2.13 2.44
Interest coverage 5.72 8.21 10.83
Profit margin 5.02% 7.48% 9.05%
Return on assets 7.05% 10.67% 14.16%
Return on equity 14.06% 19.32% 26.41%
Yacht Industry Ratios | ||||
Ratio | Lower Quartile | Median | Upper Quartile | East Coast Yachts |
Current ratio | 0.86 | 1.51 | 1.97 | - |
Quick ratio | 0.43 | 0.75 | 1.01 | - |
Total asset turnover | 1.10 | 1.27 | 1.46 | - |
Inventory turnover | 12.18 | 14.38 | 16.43 | - |
Receivables turnover | 10.25 | 17.65 | 22.43 | - |
Debt ratio | 0.32 | 0.56 | 0.61 | - |
Debt-equity ratio | 0.83 | 1.13 | 1.44 | - |
Equity multiplier | 1.83 | 2.13 | 2.44 | - |
Interest coverage | 5.72 | 8.21 | 10.83 | - |
Profit margin | 5.02% | 7.48% | 9.05% | 0.00% |
Return on assets | 7.05% | 10.67% | 14.16% | 0.00% |
Return on equity | 14.06% | 19.32% | 26.41% | 0.00% |
3a. Compare the performance of East Coast Yachts to the Industry as a whole. | ||||
The ratios are included to the right for your reference. | ||||
3b. For each ratio, comment on how it compares to the industry and whether is is positive or negative. Explain why it is considered negative or positive. | ||||
Ratio | ||||
Current ratio | ||||
Quick ratio |
Total asset turnover |
Inventory turnover |
Receivables turnover |
Total debt ratio |
Debt-equity ratio |
Equity multiplier |
Interest coverage |
Profit margin |
ROA |
ROE |
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