RATIOS AND FINANCIAL PLANNING AT EAST COAST YACHTS

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.

page 81

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

page 82

Yacht Industry Ratios
	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%

Please refer to the East Coast Yachts Case at the end of chapter 3.

1) Please calculate the ratios for East Coast Yachts for the industry ratios listed.

2) Compare East Coast liquidity, financial leverage and turnover ratios to the industry standards. Please analyze if East Coast is doing better or worse than the industry standard and what that means for the company.