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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 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.

EAST CAST YACHTS

2010 Income statement

Sales

 $        617,760,000

Cost of goods sold

 $        435,360,000

Selling, general, and administrative

 $          73,824,000

Depreciation

 $          20,160,000

EBIT

 $          88,416,000

Interest expense

 $          11,112,000

EBT

 $          77,304,000

Tax

 $          30,921,600

Net income

 $          46,382,400

   Dividend

 $          17,550,960

   Retained earning

 $          27,831,440

 

 

EAST CAST YACHTS

2010 Balance Sheet

Current Asset:

 

Current Liabilities:

 

  Cash and equivalent

 $          11,232,000

  Accounts payable

 $          24,546,000

  Accounts receivable

 $          20,208,000

  Notes payable

 $          18,725,000

  Inventory

 $          22,656,000

  Accrued expense

 $             6,185,000

  Other

 $             1,184,000

   Total current liabilities

 $          49,456,000

     Total Current assets

 $          55,280,000

   

Fixed Assets:

 

Long Term Debt:

 

  Property, plant, and equipment

 $        462,030,000

  Long term liabilities

 $        146,560,000

  Less: Accumulated depreciation

 $      (114,996,000)

Total long term liabilities

 $        146,560,000

  Net Property, plant, and equipment

 $        347,034,000

   

Intangible assets and others

 $             6,840,000

Stockholder's Equity:

 

    Total fixed assets

 $        353,874,000

    Preferred stock

 $             3,000,000

   

    Common stock

 $          40,800,000

   

    Capital surplus

 $          31,200,000

   

    Accumulated retained earning

 $        186,138,000

   

    less: Treasury stock

 $        (48,000,000)

   

     Total equity

 $        213,138,000

Total assets

 $        409,154,000

Total liabilities and stockholder's equity

 $        409,154,000

 

 

Yacht Industries Ratio

 

LOWER  QUARTILE

MEDIAN

UPPER QUARTILE

Current ratio

               0.86

          1.51

           1.97

Quick ratio

               0.43

          0.75

           1.01

Total assets turnover

               1.10

          1.27

           1.46

inventory turnover

             12.18

        14.38

         16.43

Receivable turnover

             10.25

        17.65

         22.43

Debt ratio

               0.32

          0.49

           0.61

Debt equity ratio

               0.51

          0.83

           1.03

Equity multiplier

               1.51

          1.83

           2.03

Interest coverage

               8.72

          8.21

         10.83

Profit margin

5.20%

7.48%

9.05%

Return on asset

7.05%

10.67%

14.16%

Return on equity

9.06%

14.32%

22.41%

 

 

 

 

1. East Coast Yachts uses a small percentage of preferred stock as a source of financing. In calculating the ratios for the company, should preferred stock be included as part of the company a total equity?

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

3. 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 would you interpret this ratio? How does East Coast Yachts compare to the industry average for this ratio?

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