East coast yachts case study

Topics: Balance sheet, Generally Accepted Accounting Principles, Financial ratios Pages: 8 (793 words) Published: November 24, 2013
ASSIGNMENT FOR MANAGERIAL ACCOUNTING AND FINANCE
RATIOS AND FINANCIAL PLANNING AT EAST COAST YACTHS

1. Calculated all of the ratios listed in the industry table for East Coast Yachts.

Current Ratio = Current Asset / Current Liabilities
= $14,651,000.00 / $ 19,539,000
= 0.749 @ 0.75 ( Lower Quartile)

Quick Ratio = (Current Asset – Inventory) / Current Liability
= ($14,651,000 - $6,136,000) / $19,539,000
= $8,515,000 / $19,539,000
= 0.436 @ 0.44 (Median)

Total Asset Turnover = Sales / Total Assets
= $167,310,000 / $108,615,000
= 1.540 @ 1.54 (Upper Quartile)

Inventory Turnover = Cost of Goods Sold / Inventory
= $117,910,000 / $6,136,000
= 19.216 @ 19.22 (Upper Quartile)

Receivables Turnover = Sales / Accounts Receivable
= $167,310,000 / $5,473,000
= 30.570 @ 30.57 (Upper Quartile)

Debt Ratio @ Total Debt Ratio = (Total Asset – Total Equity) / Total Asset
= ($108,615,000 - $55,341,000) / $108,615,000
= $53,274,000 / $108,615,000
= 0.490 @ 0.49 (Lower Quartile)

Debt-equity Ratio = Total Debt / Total Equity
= $33,735,000 / $55,341,000
= 0.609 / 0.61 (Lower Quartile?)

Equity Multiplier = Total Asset / Total Equity
= $108,615,000 / $55,341,000
= 1.962 @ 1.96 (Lower Quartile)

Interest Coverage = Earnings Before Interest and Taxes (EBIT) / Interest Expense
= (Revenue – Operating Expenses) / Interest Expense
= $23,946,000 / $3,009,000
= 7.958 @ 7.96 (Lower Quartile)

Profit Margin = Net Income / Sales
= $12,562,200 / $167,310,000
= 0.075 @ 0.08 x 100
=7.51% (Median)
Return of Assets = Net Income / Total Assets
= $12,562,200 / $108,615,000
= 0.116 @ 0.12 x 100
= 11.57% (Median)

Return on Equity = Net Income / Total Equity
= $12,562,200 / $55,341,000
= 0.227 @ 0.23 x 100
= 22.7% (Median, 3.45% below upper quartile)

2. 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 do you interpret this ratio? How does East Coast Yachts compare to the industry average?

Inventory Ratio = Inventory / Current Liabilities
= 6,136,000 / $19,539,000
= 0.314 @ 0.31

3. Calculate the sustainable growth rate of East Coast Yachts. Calculate external funds needed (EFN) 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?

Sustainable growth rate =ROE x (1- dividend payout ratio)
ROE = (Net Income / Total Equity)

Sustainable growth rate = (Net Income / Total equity) x (1 – (dividends / net income))
= ($12,562,200 / $55,341,000) x (1 – ($7,537,320 / $12,562,200))
= 0.227 x (1 – 0.6)
= 0.227 x 0.4
= 0.0908 @ 9.08%

External Funds Needed (EFN) = Total Assets – (Total Liabilities + Equity)
= $108,615,000 – ($33, 735,000 + $55,341,000)
= $108,615,000 - $89,076,000
= $19,539,000

Pro Forma Income Statement

Cost of goods sold = $117,910,000 = 70.47%
Sales $167,310,000

Other Expenses = $19,994,000 = 11.95%
Sales $167,310,000

Depreciation = $5,460,000 = 3.23%
Sales $167,310,000

Interest = $3,009,000 = 1.79%
Sales $167,310,000

EBIT = $23,946,000 = 14.31%
Sales $167,310,000

Taxable Income = $20,937,000 =12.51%
Sales...
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