RATIOS AND FINANCIAL PLANNING AT EAST COAST YACHTS

Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning and also to evaluate the companys financial performance. Dan graduated from college five years ago with a finance degree, and he has been employed in the treasury department of a Fortune 500 company since then. East Coast Yachts was founded 10 years ago by Larissa Warren.The companys operations are located near Hilton Head Island, South Carolina, and the company is structured as an LLC. The company has manufactured custom midsize, high-performance yachts for clients over this period, and its products have received high reviews for safety and reliability. The companys yachts also have recently received the highest award for customer satisfaction. The yachts are primarily purchased by wealthy individuals for pleasure use. Occasionally, a yacht is manufactured for purchase by a company for business purposes.The custom yacht industry is fragmented with a number of manufacturers. As with any industry, there are market leaders, but the diverse nature of the industry ensures that no manufacturer dominates the market. The competition in the market, as well as the product cost ensures that attention to detail is a necessity. For example, East Coast Yachts will spend 80 to 100 hours on hand-buffing the stainless steel stem-iron, which is the metal cap on the yachts bow that conceivably could collide with a dock or another boat. To get Dan started with his analyses, Larissa has provided the financial statements. Dan has gathered the industry ratios for the yacht manufacturing industry.

question:

1. Calculate all of the ratios listed in the industry table for East Coast Yachts.

2. Compare the performance of East Coast Yachts to the industry as a whole. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How do you interpret this ratio? How does East Coast Yachts compare to the industry average?

EAST COAST YACHTS 2019 Income Statement Sales Cost of goods sold Other expenses Depreciation Earnings before interest and taxes (EBIT) Interest Taxable income Taxes (21%) Net income $231,900,000 170,157,000 27,711,200 7.566.900 $26,464,900 4.170,100 $22,294,800 4,681,908 $17,612,892 Dividends Additions to retained earnings $7,925,000 $9,687,892 EAST COAST YACHTS Balance Sheet as of December 31, 2019 Assets Liabilities & Equity Current assets Current liabilities Accounts Cash $ 3,614,200 payable $6,977,700 Accounts receivable Inventory Total Notes 6,501,900 payable 7.290.100 tal 15,776,900 Long-term Fixed assets debt Net plant and equipment $111,629 300 Shareholders equity Common stock $ 6,140,000 Retained earnings Total 60,040.900 equity Total liabilities Total assets $129,035,500 and eguity $129,035,500 Yacht Industry Ratios Lower Upper Median Quartile Quartile 1.43 38 1.89 62 Current ratio Quick ratio Total asset turnover Inventory turnover Receivables turnover Debt ratio Debt-equity ratio Equity multiplier Interest coverage 50 21 68 6.85 85 9.15 1.38 16.13 6.27 11.81 52 1.08 2.08 8.06 79 1.79 5.18 21.45 61 1.56 2.56 9.83 Profit margin Return on assets Return on equity 4.05% 6.05% 9.93% 6.98% 10.53% 16.54% 9.87% 15.83% 28.14%