You were recently hired by Central Texas Boats to assist the company with its short-term financial planning and also evaluate the companys financial performance. You graduated from college five years ago with a finance degree, and have been employed in the treasury department of a Fortune 500 company since then.

Central Texas Boats was founded 10 years ago by Larisa Warren. The companys operations are located in Austin, Texas, and the company is structured as an LLC. The company has manufactured custom midsize, high performance boats for clients over this period, and its products have received high reviews for safety and reliability. The companys boats have also recently received the highest award for customer satisfaction. The boats are primarily purchased by wealthy individuals for pleasure use. Occasionally, a boat is manufactured for purchase by a company for business purposes.

The custom boat 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 instance, Central Texas Boats will spend 80-100 hours on hand-buffing the steel-stem-iron, which is the metal cap on the yachts bow that conceivably could collide with a dock or another boat.

To get started with your analyses, Larisa has provided the financial statements shown in the appendix. You have gathered the industry ratios for the boat manufacturing industry (see Appendix).

Calculate all of the ratios listed in the industry table for Central Texas Boats.

Compare the performance of Central Texas Boats 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 Central Texas Boats compare to the industry average?

Calculate the sustainable growth rate of Central Texas Boats. Calculate external/additional funds needed (AFN) 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?

As a practical matter, Central Texas Boats is unlikely to be willing to raise external equity capital, in part because the owners dont want to dilute their existing ownership and control positions. However, Central Texas Boats is planning for a growth rate of 20 percent next year. What are you conclusions and recommendations about the feasibility of Central Texas Boats expansion plans?

Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts because it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a staircase or lumpy fixed cost structure. Assume that Central Texas Boats is currently producing at 100% capacity. As a result, to expand production, the company must set up an entirely new line at a cost of $25,000,000. Calculate the new additional financing needed with this assumption. What does this imply about capacity utilization for Central Texas Boats next year?

2012 Income Statement Centrai Texas Boats Sales $128,700,000 90,700,000 Cost of goods sold 15,380,000 Other expenses Depreciation 4,200,000 EBIT 18,420,000 Interest 2,315,000 16,105,000 Taxable income $5,797,800 6,442,000 Dividends Taxes (40%) 9,663,000 Addition to retained earnings $3,865,200 Net income Central Texas Boats Balance Sheet as of December 31, 2012 Current assets Current liabilities Cash 2,340,000 Accounts payable 4,970,000 Accounts receivable 4,210,000 Notes payable 10,060,000 Inventory 4,720,000 Total 11,270,000 Total 15,030,000 Long-term debt 25,950,000 Fixed assets Net fixed assets 72,280,000 Shareholders' equity Common stock 4,000,000 Retained earnings 38,570,000 Total equity 42,570,000 Total Liabilities and Equity 83,550,000 83,550,000 Total assets Boat Industry Ratios Lower Quartile Median Upper Quartile 0.5 1.43 1.69 Current ratio Quick ratio 0.21 0.38 o.62 0.68 0.85 1.38 Total asset turnover 4.89 6.15 10.89 Inventory turnover 6.27 9.82 14.11 Receivables turnover Debt ratio 0.44 o 52 0.61 Debt-equity ratio 0.79 1.08 1.56 1.79 2.08 2.56 quity multiplier 5.18 8.06 9.83 Interest coverage Profit margin 4.05% 698% 9.87% 6.05% Return on assets 10.53% 13.21% 9.93% 16.54% 26.15% Return on equity