Company Overview
East Coast Yachts was founded in 1969 by Tom Warren as a sole proprietorship which later became a publicly traded corporation after operations were assumed by his daughter (Ross, 2011). Located in South Carolina, the company manufactured custom midsize, high-performance yachts and has been praised for safety and reliability (Ross, 2011). The company enjoyed new business and growth within its industry due to its customer satisfaction. However, an evaluation of cash flows later revealed two key issues: poor planning and limited facilities made it difficult to finance a growth plan and handle customer demands (Ross, 2011). The issues were determined after the financial analyst studied the consolidated income statements and balance sheets for the last two years, along with other short-term management decisions. In an effort overcome the obstacles and make preparations for to fund an expansion, East Coast Yachts completed an industry comparison along with pro forma income statements and balance sheets. East Coast Yachts Ratios and Financial Statements

When compared to its industry, East Coast Yachts ratios faired very well. There were twelve ratios compared and only four ratios impacted the company negatively. Those four ratios included the following: A current ratio of 1.12 compared to the industry ratio of 1.51 could be viewed as a potential risk due to an inability to pay current liabilities. A quick ratio of 0.66 for ECY compared to 0.75 could also be viewed as potential weakness. An inventory ratio of 0.46 may show investors that ECY relies heavily on future sales to pay current assets. Lastly, the return on equity for ECY was 22% compared to 14.32% for the industry. This interpretation could pose yet another threat as investors may assume that East Coast Yachts borrow too much money. From another perspective, the positive impact of the remaining ratios place East coast Yachts in a good position to move forward with its...

...1-Compute all industry ratios presented for EastCoastYachts and COMPARE and comment on each ratio as compared to the Industry Median. (60pts)
Industry ratios presented for EastCoastYachts
Current ratio = $11,270,000 / $15,030,000
Current ratio = 0.75 times
Quick ratio = ($11,270,000 – 4,720,000) / $15,030,000
Quick ratio = 0.44 times
Total asset turnover = $128,700,000 / $83,550,000
Total asset turnover = 1.54 times
Inventory turnover = $90,700,000 / $4,720,000
Inventory turnover = 19.22 times
Receivables turnover = $128,700,000 / $4,210,000
Receivables turnover = 30.57 times
Total debt ratio = ($83,550,000 – 42,570,000) / $83,550,000
Total debt ratio = 0.49 times
Debt-equity ratio = ($15,030,000 + 25,950,000) / $42,570,000
Debt-equity ratio = 0.96 times
Equity multiplier = $83,550,000 / $42,570,000
Equity multiplier = 1.96 times
Interest coverage = $18,420,000 / $2,315,000
Interest coverage = 7.96 times
Profit margin = $9,663,000 / $128,700,000
Profit margin = 7.51%
Return on assets = $9,663,000 / $83,550,000
Return on assets = 11.57%
Return on equity = $9,663,000 / $42,570,000
Return on equity = 22.70%
Liquidity or Short-Term Solvency Ratios
Calculate and compare to industry ratios:
| EastCoastYachts | Lower Quartile | Median | Upper Quartile | Positive, Negative, or Neutral...

... EastCoastYachts has a strong operating cash flow highlighted by strong earnings before interest and taxes of $88,416,000. With the addition of $20,160,000 in depreciation and subtraction of $30,921,000 in taxes, they managed an operating cash flow of $77,654,400. EastCoastYachts appears to be in or approaching a growth mode with their capital spending on fixed assets increasing by $60,000,000 during the fiscal year. However, they made the wise move of reducing the effect of this expenditure with the sale of $6,786,000 of fixed assets already on the books. Further growth is evidenced by the positive net working capital cash flow of $4,670,560, a sign of a growing company. EastCoastYachts is making effective use of their assets; this is demonstrated by their total cash flow generated by assets coming to $19,769,840 during the fiscal year. A positive sign in their cash flow to creditors is their $33,912,000 in debt service, which included the retirement of $22,800,000 in debt. It appears that they covered the cost of their debt service with the proceeds from the sale of long-term debt producing $40,000,000. EastCoastYachts had a large cash flow to stockholders at $53,550,960. They minimized the amount of cash paid to stockholders by issuing new stock producing $30,000,000 in proceeds. The wise cash...

...1. Calculate all of the ratios listed in the industry table for EastCoastYachts
Current ratio=CA/CL= 14,651,000/19,539,000=0.75
Quick Ratio=(CA-Inventory)/CL=(14651000-6136000)/19539000=0.44
Total assert turnover=Sales / Total Assets=167310000/108615000=1.54
Inventory turnover=Cost of Goods Sold / Inventory=117910000/6136000=19.22
Receivable turnover=Sales / Accounts Receivable=167310000/5473000=30.57
Debt ratio(TA-TE)/TA=(108615000-55341000)/108615000=0.49
Debt-equity ratio=TD/TE=33735000/55341000=0.61
Equity multiplier=TA/TE=108615000/55341000=1.96
Interest coverage=23496000/300900=7.96
Profit margin=Net Income / Sales=12562200/167310000=0.07
Return on asserts=Net Income / Total Assets=12562200/108615000=0.12
Return on equity=Net Income / Total Equity=12562200/55341000=0.23
2. Compare the performance of EastCoastYachts 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 EastCoastYachts compare to the industry average?
Current ratio is negative because CA smaller than CL
Quick Ratio is positive because the ratio is bigger than the industry upper quartile ratio.
Total assert turnover is positive the ratio because...

...EastCoastYachts
Ratios Formula Income Statement Figures FY 2009
Nominator Denominator Ratio
Current Ratio Current Assests / Current Liabilities $ 14,651,000.00 $ 19,539,000.00 0.750
Quick Ratio Cash+Mrkt Securities+Net AR / Current Liabilities $ 8,515,000.00 $ 19,539,000.00 0.436
Total Asset Turnover Net Sales Revenue / Average Total Assets $ 167,310,000.00 $ 108,615,000.00 1.540
Inventory Turnover Cost of Goods Sold / Average Inventory $ 117,910,000.00 $ 6,136,000.00 19.216
Receivables Turnover Net Sales /
Average Accounts Receivable $ 167,310,000.00 $ 5,473,000.00 30.570
Debt Ratio Total Liabilities / Total Assets $ 53,274,000.00 $ 108,615,000.00 0.490
Debt - equity Ratio Total Liabilities /
Total Stockholders' Equity $ 53,274,000.00 $ 55,341,000.00 0.963
Equity Multiplier Total Assests /
Total Stockholders' Equity $ 108,615,000.00 $ 55,341,000.00 1.963
Interest Coverage Net Income+Int. Exp.+Income tax exp. / Interest Expense $ 23,945,000.00 $ 3,009,000.00 7.958
Profit Margin Net Income / Net Sales $ 12,562,200.00 $ 167,310,000.00 7.508%
Return on Assets Net Income / Average Total Assets $ 12,562,200.00 $ 108,615,000.00 11.566%
Return on Equity Net Income / Average Stockholders' Equity $ 12,562,200.00 $ 55,341,000.00 22.700%
ECY Yacht...