East Cost Yachts			East Cost Yachts
2017 Income Statement			2017 Balance Sheet
Sales	$ 611,582,000		Current Assets			Current liabilities
Cost of Goods Sold	431,006,000		Cash and equivalents	$ 11,119,700		Accounts payable	$ 44,461,550
Selling, general & admin expenses	73,085,700		Accounts receivable	18,681,500		Accrued expenses	6,123,200
Depreciation	19,958,400		Inventory	20,149,650		Total current liabilities	$ 50,584,750
EBIT	$ 87,531,900		Other	1,172,200
Interest expense	11,000,900		Total current assets	$ 51,123,050
EBT	$ 76,531,000		Fixed assets			Long-term debt	$ 169,260,000
Taxes	30,612,400		Property, plant and equipment	$ 457,509,600		Total long-term liabilities	$ 169,260,000
Net Income	$ 45,918,600		Less accumulated depreciation	(113,845,900)
Dividends	$ 17,374,500		Net property, plant and equipment	$ 343,663,700
Retained Earnings	$ 28,544,100		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

4. Calculate the sustainable growth rate for East Coast Yachts. Calculate the EFN and prepare pro forma income statements and balance sheets assuming growth at precisely this rate. Recalculate the ratios in the previous question. What do you observe?

Sustainable Growth Rate =

The sustainable growth rate is the growth rate the company can achieve with no external financing while maintaining a constant debt-equity ratio.

At the sustainable growth rate, the pro forma statements next year will be:

Income statement

East Cost Yachts

Sales

2017 Balance Sheet

COGS

Current Assets

Other expenses

Cash and equivalents

Depreciation

Accounts receivable

EBIT

Inventory

Interest

Other

Taxable income

Total current assets

Taxes (40%)

Net income

Fixed assets

Dividends

Add to RE

Total assets

EFN =

New Ratio calculation:

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%

Return on assets

7.05%

10.67%

14.16%

Return on equity

14.06%

19.32%

26.41%

Observations: