I NEED NUMBER 2 PLEASE

Case 4 - Chicago Powerboat 1

Chicago Powerboat, Inc.

An exercise in financial statement analysis.

Olivia Petrov was just hired by Chicago Powerboat, Inc. (Powerboat) to help out with the company's financial planning and to evaluate the company's performance. Olivia graduated from NEIU about five years ago with a major in finance and has worked for a large Fortune 100 company since graduation.

Powerboat was founded five years ago by two former NEIU friends, Joslyn Pollard and Raven Putnam. They've manufactured and sold their powerboats over the past five years and their product had gotten high grades for quality and reliability. They sell into a niche market, directly to individuals rather than to maritime stores or distributors. They have two product offerings - the mid-market Alpha which sells for about $53,000 and the up-market Omega which sells for about $78,000.

Powerboat differs from their larger competitors not only because they sell their product directly to individuals, but also because they build their craft to order. Using prefab parts, they are able to shorten the manufacturing cycle to only five weeks without any compromise in quality. In addition, the company gets a down payment on each order and another payment before the boat is completed. This business model compares favorably to their competition who might take as long as 18 to 24 months to manufacture a craft from the time that the order is placed.

Joslyn and Raven provided the following statements. Industry ratios are available from public sources.

Chicago Powerboat, Inc.

2018 Income Statement

Revenues

$24,092,400

COGS

17,982,000

Other expenses

2,878,800

Depreciation

786,000

EBIT

2,445,600

Interest Expense

434,400

NIBT

2,011,200

Taxes (40%)

804,480

NIAT

1,206,720

Dividends

$246,000

Chicago Powerboat, Inc.

2018 Balance Sheet

Current Assets

Current Liabilities

Cash

$438,048

Accounts Payable

$858,816

Accounts Receivable

1,841,616

Notes Payable

1,735,680

Inventory

1,486,200

Total Current Liab

2,594,496

Total Current Assets

3,765,864

Long Term Debt

4,590,000

Fixed Assets

Net PP&E

14,778,816

Stockholders' Equity

Common Stock

180,000

Retained Earnings

11,180,184

Total Equity

11,360,184

Total Assets

18,544,680

Total Liab and Equity

18,544,680

Industry Ratios

Lower

Median

Upper

Current Ratio

.50

1.43

1.89

Quick Ratio

.64

.84

1.05

Cash Ratio

.08

.21

.39

Total Asset Turnover

.68

.85

1.28

Inventory Turnover

4.89

6.15

10.89

Receivables Turnover

6.27

9.82

11.51

Total Debt Ratio

.31

.52

.61

Debt/Equity Ratio

.58

1.08

1.56

Equity Multiplier

1.58

2.08

2.56

Times Interest Earned

5.18

8.06

9.83

Cash Coverage Ratio

5.84

8.43

10.27

Profit Margin

4.05%

5.15%

6.47%

Return on Assets

6.05%

10.53%

13.21%

Return on Equity

9.93%

16.54%

26.15%

1. Calculate the ratios for Chicago Powerboat and compare each to the Industry ratios.
2. Comment on Powerboat's position compared to the industry norms, explaining the circumstances, and explain why each variance might be considered a positive or a negative.
3. Calculate the internal growth rate and the sustainable growth rate for Chicago Powerboat.