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%
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