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Case :

Ratios and Financial Planning at East Cost Yachts

East Coast Yachts


Income Statement
For Period of 2009
Presented in USD

DESCRIPTION Sales Cost of Good Sold Other Expenses Depreciation EBIT Interest Total Income Taxes (40%) Net Income Dividends Addition to RE East Coast Yachts Balance Sheet For Period Ended on December 31, 2009

AMOUNT 167,310,000 117,910,000 19,994,000 5,460,000 23,946,000 3,009,000 20,937,000 8,374,800 12,562,200 7,537,320 5,024,880

Presented in USD ASSETS Current Asset Cash Account Receivables Investory Total Current Asset Fixed Assets Net Plant & Equipment LIABILITIES & EQUITY Current Liability Account Payable Notes Payable Total Current Liability Long Term Debt 93,964,000 SHAREHOLDER'S EQUITY Common Stock Retained Earnings Total Equity Total Liabilities & Equity

3,042,000 5,473,000 6,136,000 14,651,000

6,461,000 13,078,000 19,539,000 33,735,000

5,200,000 50,141,000 55,341,000 108,615,000

Total Assets

108,615,000

1. All the ratios for East Cost Yachts: 1. Current Ratio = 2. Quick Ratio = 3. Total Assets Turnover = 4. Inventory Turnover = 5. Receivables Turnover = 6. Debt Ratio = 7. Debt-Equity Ratio = 8. Equity Multiplier = 9. Interest Coverage = 10. Profit Margin= 11. ROA= 12. ROE = 11.57% 22.7% = = = = = = = 0,75 times = 0,43 times = 1,54 times = 19,22 times = 30,77 times = 0,49 times

Comparison the East Coast Yachts Ratio to Yachts Industry Ratio Yachts Industry Ratio FINANCIAL RATIO VALUE Lower Quartile 0.50 0.21 Median 1.43 0.38 Upper Quartile 1.89 0.62 1.38

Current Ratio Quick Ratio Total Asset Turnover

0.75 0.44

1.54 Inventory Turnover Receivables Turnover Debt Ratio Debt-Equity-Ratio Equity Multiplier Interest Coverage Profit Margin ROA ROE 19.22 30.57 0.49 0.96 1.96 7.96 7.51% 11.57% 22.70%

0.68 4.89 6.27 0.44 0.79 1.79 5.18 4.05% 6.05% 9.93%

0.85 6.15 9.82 0.52 1.08 2.08 8.06 6.98% 10.53% 16.54% 10.89 14.11 0.61 1.56 2.56 9.83 9.87% 13.21% 26.15%

2. Performance of ECY to the industry as a whole: 1. Current Ratio = = = 0,75 times

Current Ratio 0,75 times means that East Cost Yachts (ECY) has its current liabilities covered 0,75 times or it has $0,75 in current assets for every $1 in current liabilities. This situation is not good for East Cost Yachts because current assets cannot be used to repay the current liabilities when these liabilities are due. It is negative compared to the Yacht Industry average which the current ratio is 1,43 (higher than ECYs current ratio) means that ECY has relatively lower liquidity positions than the average of its competitors. If it needs quick cash to fulfill the liabilities payment, the company will be in trouble.

2. Quick Ratio =

= 0,43 times

Quick Ratio 0,43 times means that East Cost Yachts (ECY) has its current liabilities covered 0,43 times by its current assets that can quickly be liquidated as cash (excluding inventory) not more than half. It is positive compared to the Yacht Industry average which the quick ratio is 0,38times (surprisingly lower than ECYs quick ratio there are big differences compared to average current ratio) means that ECY has relatively higher liquidity positions than the average of its competitors, because in average the competitors current assets are dependent on inventory. If we only see the current ratio, it seems that ECY liquidity position is worse than the average of

yacht industry, but after we analyze the quick ratio, we can see the fact that the average of yacht industrys current assets are bigger in amount because of the inventory value. 3. Total Assets Turnover = = = 1,54 times

Total Assets Turnover 1,54 times means that for every dollar in assets, ECY generated $1,54 in sales. This is positive compared to Yacht Industry average which the assets turnover is 0,85 even the upper quartile is 1,38, this means that ECY is better in generating profit from its assets investment compared to most of its competitor. 4. Inventory Turnover = = = 19,22 times

Inventory Turnover 19,22 times means that ECY sold off the inventory 19,22 times during the year. The average days sales in inventory is 365/19,22 = 19 days, which means that the inventory sits 19 days before it is sold. It ispositive compared to Yacht Industry average which the inventory turnover is 6,15(average days sales in inventory = 59,3 days)and even the upper quartile is 10,89(average days sales in inventory = 33,5 days). This is an indicator of strong sales performance and liquidity level of ECY. 5. Receivables Turnover = = = 30,77 times

Receivables Turnover 30,77 times means that ECY collect the outstanding credit accounts and lent the money again 30,77 times during the year.The days sales in receivables = 365/30,77 = 11,86 days. This can be either negativeor positive compared to Yacht Industry average which the receivables turnover is 9,82 (Days sales in receivables = 37,16 days), even better than the upper quartile which is 14,11(Days sales in receivables = 25,87)because ECYs receivables turnover are too high. This can be an indicator that ECYs credit collection policies are tighter, so there are risks of losing customers to the competitors. But it also means that ECY do well collecting cash quickly from customers and be able to generate cash flow to keep up with current liabilities. 6. Debt Ratio = = = 0,49 times

Debt Ratio 0,49 times means that ECY use 49% debt. The company has more assets than debts. It is positive compared to Yacht Industry average which the debt ratio is 0,52 times higher portion of debs compared to the assets. ECY is favorable because it doesnt bear risks more than average industry. 7. Debt-Equity Ratio =

Debt-Equity-Ratio 0.96 times means that financial ratio indicating the relative proportion of shareholders' equity and debt used to finance ECYs assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. Compared to the Yacht Industy ratio, ECY in between lower quartile and median, which is generally considered good, because the company has a low amount of debt, and is therefore exposed to less risk in terms of interest rate increases or credit rating. 8. Equity Multiplier = Equity Multiplier is known as Debt Management Ratio. This ratio is used to calculate debt of EYC uses to finance its assets. So, It is Positive compared to Yacht Industry average which the Equity Multiplier is 2.08 - The higher the equity multiplier, the higher is the financial leverage, which indicates that the company relies more on debt to finance its assets. 9. Interest Coverage = Interest Coverage states that EYC is capable of bearing its interest expense obligation out of the operating profits earned during a period. When the interest coverage ratio is smaller than 1, the company is not generating enough cash from its operations EBIT to meet its interest obligations. So, compared to Yacht Industry average which the ratio is 8.06, It is a good sign because EYC can cover 7.96% from its earning to cover the interest expense obligation. 10. Profit Margin = Profit Margin of ECY 7.51% means that EYC has a net income of $0.075 for each dollar of sales. Compared to Yacht Industy which the profit margin ratio of ECY between the median and upper quartile, so it is positive because Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. 11.ROA = 11.57%

ROA measures the amount of profit made by a company per dollar of its assets. It means that ECY has net income $0.1157 for each dollar of assets. The higher the ROA number, the better, because the company is earning more money on less investment. Compared to the Yacht Industry which ECYs ROA still in a good position but ECY should be more effective to manage their assets to get higher profit. 12. ROE = 22.7%

ROE shows whether management is growing the company's value at an acceptable rate. This ratio tells us ECY generated a 22,7% profit on every dollar invested by shareholders or for each dollar in equity, ECY generated 22,7 cents in profit. For stable economics, ROEs more than 12-

15% are considered desirable. But the ratio strongly depends on many factors such as industry, economic environment (inflation, macroeconomic risks, etc.). From the table of Yacht Industry Ratio, position of ECY in between median and upper quartile of the ratio so it can be conclude that ECY is quite appropriate for using shareholders funds to generate a profit.