Ratios and Financial planning at EST coast yachts

jagguarpaw January 17, 2017 0 Comments

Question: Ratios and Financial planning at EST coast yachts…

R A T I O S A N D F I N A N C I A L P L A N N I N G A T E A S T C O A S T Y A C H T S After Dan’s analysis of East Coast Yachts’ cash flow (at the end of our previous chapter), Larissa approached Dan about the company’s 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 company’s 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 pre- pared 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.

(Calculate the ratios listed in the table) and compare the performance of the company to the MEDIAN industry Ratios. Calculate all of the ratios listed in the industry table for East Coast Yachts.

East Coast Yachts

2014 Income Statement

Sales                                                             $555,984,000

Cost of goods sold                                        $391,824,000

Selling, general, and administrative                $66,441,600

Depreciation                                                     18,144,000

EBIT                                                                 $79,574,400

Interest expense                                               $10,000,800

EBT                                                                   $69,573,600

Taxes                                                                   27,829,440

Net income                                                        $41,744,160

Dividends                                                      $15,795,000

Retained earnings                                         $25,949,160

East Coast Yachts

2014 Balance Sheet

Current assets                                                                        Current liabilities

Cash and equivalents                   $10,108,800                        Account payable                              $23,814,400

Accounts receivable                        16,983,200                       Notes payable                                    16,852,500

Inventory                                          18,317,860                     Accrued expenses                                 5,566,500

Other                                                   1,065,600                       Total current liabilities                      $46,233,400

Total current assets                       $46,475,460

Fixed assets                                                                              Long-term debt                                  $131,904,000

Property, plant, and equipment     $415,827,000                    Total long-term liabilities                   $131,904,000

Less accumulated depreciation $(103,496,300)

Net property, plant, and equipment    $312,330,700

Intangible assets and others                    6,156,000                Stockholders’ equity

Total fixed assets                               $318,486,700                   Preferred stock                                  $2,700,000

Common stock                                 34,167,000

Capital surplus                                 25,633,000

Accumulated retained earnings        167,524,760

Less treasury stock                      (43,200,000)

Total equity                                       $186,824,760

Total assets                                        $386,962,160                  Total liabilities and shareholders’ equity $364,962,160

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                              .49                     .61

Debt-equity ratio             .51                              .83                  1.03

Equity multiplier             1.51                           1.83                   2.03

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             9.06%                     14.32%                22.41%