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East Coast Yacht Company- Ratio and Financial Analysis

Anushuya Anbu, Manjinder Kaur, Rafana Samreen and

Sakeerebibi Abdulrakib Vazifdar, Serra Jerristan Rodrigues

MBA Winter 2004, International Business University

Financial Management, Group 6

Instructor: Asiye Tatli

March 19, 2024

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Abstract

In this report we are going to assist the company with its short-term financial planning and

also to evaluate the company’s financial performance. East Coast Yacht Company is a well-

known player in the luxury boating industry, having established a strong track record of

quality, creativity, and customer satisfaction. Although North America is their primary

market, they also provide services to customers in Europe, Asia, and other regions. Serving

affluent customers worldwide, East Coast Yacht Company is a top supplier of luxury yachts

and marine services. As a result, they have developed a reputation for superior customer

service, inventiveness, and workmanship. By emphasizing quality, customization, and

customer care, they have taken a sizable chunk of the worldwide luxury boat market, and

they still outperform rivals in terms of customer loyalty and brand recognition

With our analysis, we also gathered the industry ratios for the company, calculated all the

ratios listed in the industry table for East Coast Yachts, Compared the performance,

interpreted the ratios also calculated the sustainable growth rate, Calculated EFN and

prepared pro forma Income statements and balance sheets assuming growth at precise rate

and recalculated the ratios calculated above; We arrived at the conclusions and

recommendations about the feasibility of East Coast’s expansion plans. Finally, we calculated

the new EFN with the assumption that East Coast Yachts set up at a cost of $25 million to

expand the production with the 100% production capacity currently.

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Contents

Introduction................................................................................................................................4

Company Overview...............................................................................................................4

Vision and Mission.................................................................................................................4

Products/Services:..................................................................................................................4

Overview of strategic initiatives for the company.................................................................5

Ratio and Financial Performance Analysis................................................................................5

1. Ratios for East Coast Yacht’s..........................................................................................5

2. The Performance of East Coast Yachts to the Industry as a Whole................................6

3. The Sustainable Growth Rate of East Coast Yachts, ENF, Pro Forma Statements,

Recalculation the Ratios.........................................................................................................8

4. Sustainable Growth Rate is 20% pro forma Balance Sheet and Income Statement......11

5. East Coast Yacht’s producing at 100 percent of capacity. To expand production,

entirely new line at a cost of $30 million.............................................................................12

Conclusion & Recommendation..............................................................................................14

Career Inspiration:................................................................................................................14

References................................................................................................................................15
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Introduction

Company Overview:

East Coast Yachts was founded 10 years ago by Larissa Warren. The company’s operation is

located near Hilton Head Island, South Carolina, and the company is structured as an LLC.

The company has manufactured yachts that are primarily purchased by High-Net-Worth

Individuals.

Vision and Mission:

Their vision is to to create unforgettable memories by providing our customers with the

opportunity to traverse the world's oceans in the finest comfort and style. Their mission is to

consistently exceed clients' expectations by providing exceptional ships and services that

spark a lifetime of memories.

Products/Services:

Custom Yacht Building: They specialize in designing and building custom luxury boats,

collaborating closely with clients to bring their vision to life.

Yacht Revenue and Consulting: They provide a range of pre-owned yachts for sale, some of

the best boats available, in addition to new construction.

Yacht Charter Operations: They provide luxury boat charters in world-class locations for

individuals looking for a once-in-a-lifetime vacation experience.

Yacht Monitoring and Maintenance: Their all-inclusive services guarantee that every boat

runs as efficiently as possible, increasing owner satisfaction and resale value.

Market Sections: East Coast Yacht Company caters to wealthy people and families looking

for upscale maritime experiences. Celebrities, corporate executives, and high net worth

individuals are among their clientele; they expect the finest in terms of both performance and

luxury.
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Overview of strategic initiatives for the company: East Coast Yacht Company is pursuing a

number of strategic initiatives to keep up their position as a leader in the luxury yachting

sector:

Innovation in Technology and Design, Increased Worldwide Visibility, Improved Client

Experience, Eco-friendliness and Environmental Conservation

Ratio and Financial Performance Analysis

1. Ratios for East Coast Yacht’s

Ratio’s Formula’s Calculation’s Answers

Current Current Assets 13925000
0.76 Times
Ratio Current Liabilities 18203700
Current Assets−Inventory 13925000−5832100
Quick Ratio 0.44 Times
Current Liabilities 18203700
Total Asset Sales 185250000
Turnover 1.79 Times
Total Assets 103228400
Ratio
Inventory COGS 136125000 23.34
Turnover
Inventory 5832100 Times
Ratio
Receivable Sales
185250000 35.61
Turnover
Accounts Receivable Times
Ratio 5201500
Total Debt 50303700
Debt Ratio 0.49 Times
Total Assets 103228400
Debt-Equity Total Debt 50307000
0.95 Times
Ratio Total Equity 52924700
Equity Total Assets 103228400
1.95 Times
Multiplier Total Equity 529224700
Interest EBIT 20902000
6.27 Times
Coverage Interest 3336000
Profit Net Income
13877140 7.49%
Margin Sales
185250000
Return on Net Income
13877140 13.44%
Assets Total Assets
103228400
Return on Net Income 13877140
26.22%
Equity Total Equity 52924700
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2. The Performance of East Coast Yachts to the Industry as a Whole

Liquidity Ratio's Comparison

Quick Ratio

Current Ratio
5% 15% 25% 35% 45% 55% 65% 75% 85% 95%
Current Ratio Quick Ratio
LOWER QUARTILE 0.5 0.21
MEDIAN 1.43 0.38
UPPER QUARTILE 1.89 0.62
EAST COAST YACHT 0.76 0.44

Analysis:

 The East Coast's current ratio is higher than the Lower Quartile, indicating more
capacity to pay current liabilities, but it is significantly lower than the Median and
Upper Quartiles, indicating a low solvency position.
 The Quick Ratio is greater than the Lower Quartile but lower than the Median and
Upper Quartiles, suggesting that the company is less solvent when inventories are
removed from Current Assets.


Turnover Ratio's Comparison

Receivables Turnover
Inventory Turnover
Total Asset Turnover
5% 15% 25% 35% 45% 55% 65% 75% 85% 95%
Total Asset Turnover Inventory Turnover Receivables
Turnover
LOWER 0.68 6.85 6.27
QUARTILE
MEDIAN 0.85 9.15 11.81
UPPER 1.38 16.13 21.45
QUARTILE
EAST COAST 1.79 23.34 35.61
YACHT

Analysis:
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 The Total Asset Turnover Ratio is higher than all industry ratios, indicating that East
Coast has been making good use of its assets in terms of generating revenue.
 The Inventory Turnover Ratio is high when compared to all industry ratios, indicating
that East Coast converts its inventory into cash the most times each year.
 Receivable Turnover Ratio is quite high in comparison to all industry ratios,
indicating that East Coast receives cash from receivables the most times each year.

Long Term Solvency Ratio's Comparison

Equity Multiplier
Debt Equity Ratio
Debt Ratio
5% 15% 25% 35% 45% 55% 65% 75% 85% 95%
Debt Ratio Debt Equity Ratio Equity Multiplier

LOWER QUAR- 0.44 0.79 1.79

TILE
MEDIAN 0.52 1.08 2.08
UPPER QUAR- 0.61 1.56 2.56
TILE
EAST COAST 0.49 0.95 1.95
YACHT

Analysis:

 Debt Ratio suggests that the East Coast can pay its debts more than the Lower
Quartile but less than the Upper and Median Quartile.
 The East Coast's strong solvency is shown by the debt-to-equity ratio, which is below
the upper and median quartile, indicating that a larger percentage of equity exceeds
debt. Likewise, in relation to the Lower Quartile.
 East Coast equity, based to the Equity Multiplier, is 1.95 times assets, which is higher
than the Lower Quartile but lower than the Upper and Median Quartile.

Interest Coverage Ratio's Comparison

Interest Coverage

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

Interest Coverage
LOWER QUARTILE 5.18
MEDIAN 8.06
UPPER QUARTILE 9.83
EAST COAST YACHT 6.27
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Analysis:

 East Coast's ability to pay interest is 6.27 times, which is higher than the Lower
Quartile but lower than the Upper and Median Quartile.

Profittibility Ratio's Comparison

Return on Equity
Return on Assets
Profit Margin
5% 15% 25% 35% 45% 55% 65% 75% 85% 95%
Profit Margin Return on Assets Return on Equity

LOWER 0.0405 0.0605 0.0993

QUARTILE
MEDIAN 0.0698 0.1053 0.1654
UPPER 0.0987 0.1583 0.2814
QUARTILE
EAST 0.0749103373819 0.1344314161606 0.2622053596902
COAST 163 69 77
YACHT

Analysis:

 The East Cost profit margin is higher than the Lower Quartile, and the Median shows
a good rate of return on sales, but it is lower than the Upper Quartile.
 The East Cost Return on Assets is higher than the Lower Quartile, while the Median
represents significant asset sale revenues but a lower figure when compared to the
Upper Quartile.
 East Cost has a higher return on equity than the Lower Quartile and Median, but a
lower return than the Upper Quartile.
While East Coast's short-term solvency and turnover ratios are strong, its long-term and

interest-paying capabilities are questioned in relation to those of its sector rivals. The

organization might benefit from addressing these areas of weakness in order to strengthen and

stabilize its finances overall.

3. The Sustainable Growth Rate of East Coast Yachts, ENF, Pro Forma Statements,

Recalculation the Ratios

Sustainable Growth rate:

ROE∗(1−DIVIDEND PAYOUT RATIO)

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ROE=Net Income ÷ Equity

ROE=13877140 ÷52924700=26.22 %

Dividend Payout Ratio=Total Dividend ÷ Net Income

Dividend Payout Ratio=6340000 ÷ 13877140=0.46

SustainableGrowth Rate=26.22 % ( 1−0.46 )=14.16 %

Income Statement of East Coast Yacht

EAST COAST YACHTS

Pro Forma Income Statement (14.16% Growth Rate)
Sales $ 211,481,400.00
$ -
Cost of Goods sold 155,400,300.00
$ -
Other Expenses 25,308,130.40
Depreciation (Fixed Cost) $ -6,054,000.00
Earnings Before interest and taxes
(EBIT) $2,4,718,969.60
Interest (Fixed Cost) $ -3,336,000.00
Taxable income $ 21,382,969.60
Taxes (21%) $ -4,490,423.62
Net Income $ 16,892,545.98
Dividends $7,770,571
Additions to Retailed Earnings $9,121,975

Balance Sheet of East Coast Yacht

ASSETS LIABLITIES AND EQUITY

Current assets Current liabilities
Cash $3,300,822.24 Accounts payable $6,372,639.52
$
Account receivable $5,938,032.40 Notes payable 14,408,704.40
Inventory $6,657,925.36 Total $ 20,781,343.92
Total $ 15,896,780.00
Fixed assets Long-term debt $ 32,100,000.00
Net Plant and $
equipment 101,948,761.44
Shareholder's equity
Common stock $ 4,912,000.00
Retained earnings $ 57,134,674.83
Total Equity $62,046,674.83

$ Total liabilities and $

Total Assets 117,845,541.44 equity 114,928,018.75
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External Fund Needed:

The amount of external funds needed will be the minimum that a business can borrow. Since

there is no change in the long-term debt, the external funds needed will be determined as

follows:

External Fund Needed=Total Assets – Total Liabilities∧Equity

External Fund Needed=117845541.44 −114928018.75=2917522.69

Ratio Analysis of Sustainable Growth Rate of 14.16%

Ratio’s Formula’s Calculation’s Answers

Current Current Assets 15896780
0.76 Times
Ratio Current Liabilities 20781344
Current Assets−Inventory 15896780−6657925
Quick Ratio 0.44 Times
Current Liabilities 20781344
Total Asset Sales 211481400
Turnover 1.79 Times
Total Assets 117845541
Ratio
Inventory COGS 155400300 23.34
Turnover
Inventory 6657925 Times
Ratio
Receivable Sales
211481400 35.61
Turnover
Accounts Receivable Times
Ratio 5938032
Total Debt 52881344
Debt Ratio 0.45 Times
Total Assets 117845541
Debt-Equity Total Debt 52881344
0.85 Times
Ratio Total Equity 62046675
Equity Total Assets 117845541
1.90 Times
Multiplier Total Equity 62046674
Interest EBIT 24718970
7.41 Times
Coverage Interest 3336000
Profit Net Income
16892546 7.99%
Margin Sales
211481400
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Return on Net Income

16892546 14.33%
Assets Total Assets
117845541
Return on Net Income 16892546
27.23%
Equity Total Equity 62046675

Analysis:

The sustainable growth rate is used to assess a company's capacity to expand without

requiring loans. Sustainable Growth Rate is calculated and then checked by keeping

dividends, long-term debt, and interest constant. The aforementioned research demonstrates

that while sustainable growth rate affects profits and equity returns, it has no huge effect on

turnover, coverage, equity multiplier ratios, or long-term debt position.

4. Sustainable Growth Rate is 20% pro forma Balance Sheet and Income

EAST COAST YACHTS

2022 Income Statement
(20% Growth Rate)
$
Sales 22,23,00,000
$-
Cost of Goods sold 16,33,50,000
$ -
Other Expenses 2,66,02,800
Depreciation $ -60,54,000
Earnings Before interest and taxes $
(EBIT) 2,62,93,200
Interest $ -33,36,000
$
Taxable income 2,29,57,200
Taxes (21%) $ -48,21,012
$
Net Income 1,81,36,188
Dividends $76,08,000
$
Additions to retailed earnings 1,05,28,188

Statement.
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Balance Sheet as
(20% Growth Rate)
ASSETS LIABLITIES AND EQUITY
Current assets Current liabilities
Cash $ 34,69,680.00 Accounts Payable $66,98,640.00
Account $
receivable $ 62,41,800.00 Notes payable 1,51,45,800.00
$
Inventory $ 69,98,520.00 Total 2,18,44,440.00
$
Total 1,67,10,000.00
$
Fixed assets Long-term dept 3,21,00,000.00
Net Plant and $
equipment 10,71,64,080.00
Shareholder's equity
Common stock $49,12,000.00
$
Retained earnings 5,76,15,240.00
$
Total Equity 6,25,27,240.00
$ Total liabilities and $
Total Assets 12,38,74,080.00 equity 11,64,71,680.00

Calculation of External Fund Needed:

The value that a corporation needs to borrow will be determined by the amount of external

funds required. Long-term debt is constant in this situation, hence the amount of external

funding necessary is computed as follows:

External Fund Needed=Total Assets – Total Liabilities∧Equity

External Fund Needed=123874080−116471680=7402400

East Coast Firm has a growth rate of 20%, its profit will be $ 22,957,200 without obtaining a

loan, and the additional capital they will require is $ 7,402,400.

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5. East Coast Yacht’s producing at 100 percent of capacity. To expand production,

entirely new line at a cost of $30 million.

The purchase of a fixed asset will result in increases in depreciation in income

statement and the total fixed assets in the balance sheet.
Effect on Fixed Asset: New Asset Purchased=30,000,000
New Total ¿ Assets=89,303,400+30,000,000=119,303,400
Effect on Depreciation: New Depreciation is calculated on the basis of old
depreciation percentage.
Old Depreciaton Percentage=6054000÷ 89303400=6.78 %
New Depreciaton=119303400∗6.78 %=8,088,770.52

EAST COAST YACHTS

Income Statement (Fixed Asset Purchase)
$
Sales 18,52,50,000
Cost of Goods sold $ -13,61,25,000
Other Expenses $ -2,21,69,000
Depreciation $ -80,88,771
Earnings Before interest and taxes
(EBIT) $ 1,88,67,229
Interest $ -33,36,000
Taxable income $ 1,55,31,229
Taxes (21%) $ -32,61,558
Net Income $ 1,22,69,671
Dividends $ 63,40,000
Additions to retailed earnings $ 59,29,671

EAST COAST YACHTS

Balance Sheet (Fixed Asset Purchase)
ASSETS LIABLITIES AND EQUITY
Current assets Current liabilities
Cash $ 28,91,400.00 Accounts payable $ 55,82,200.00
Account receivable $ 52,01,500.00 Notes payable $1,26,21,500.00
Inventory $ 58,32,100.00 Total $1,82,03,700.00
Total $1,39,25,000.00
Fixed assets Long-term dept $3,21,00,000.00
Net Plant and $
equipment 1,93,03,400.00
Shareholder's equity
Common stock $ 49,12,000.00
Retained earnings $5,00,47,470.52
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Total Equity $5,49,59,470.52

$ Total liabilities and $
Total Assets 13,32,28,400.00 equity 10,52,63,170.52

External Fund Needed=Total Assets – Total Liabilities∧Equity

External Fund Needed=133228400−105263170.52=27965229.48

East Coast Yachts is increasing its fixed assets, resulting in cash outflow, but the overall

growth rate is the same, 6.78%, indicating no cash inflow. It will have to concentrate on

creating additional cash revenues to survive, because the debt repayment is already constant.

Conclusion & Recommendation

East Coast Yachts demonstrates remarkable short-term solvency by effectively managing its

existing financial obligations and increasing asset turnover to increase profitability. However,

the corporation should prioritize increasing its interest-paying ability and strengthening its

long-term financial stability as critical components of its strategic financial planning efforts.

By focusing on these areas, East Coast Yachts can strengthen its financial foundation, laying

the road for continued expansion and resilience in an increasingly competitive market

context. Taking proactive steps to strengthen its ability to meet interest obligations and ensure

long-term financial security will be critical in positioning the company for long-term success

and viability in a dynamic business environment that requires strategic foresight and

adaptability for sustainable growth and competitiveness.

Career Inspiration:

As the East Coast yacht Company being the Adventurous Company, Revolutionizing the

boating world and a premier choice in the yachting community and reputation for

unparalleled service and exceptional quality. We five of us as a team aspire to enhance our
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skills to excel in this ever-evolving industry. And to experience the role allows for extensive

travel and opportunities to meet a range of people and form lifelong friendships.

References

EAST COAST YACHT GROUP. (n.d.). EAST COAST YACHT GROUP.

https://www.eastcoastyachtgroup.com/

Murphy, C. B. (2021, April 24). How do the income statement and balance sheet differ?

Investopedia. https://www.investopedia.com/ask/answers/101314/what-difference-between-

income-statement-and-balance-sheet.asp

Team, C. (2023, November 29). Financial ratios. Corporate Finance Institute.

https://corporatefinanceinstitute.com/resources/accounting/financial-ratios/

Wikipedia contributors. (2024, February 2). Sustainable growth rate. Wikipedia.

https://en.wikipedia.org/wiki/Sustainable_growth_rate

Wilkins, G. (2023, October 13). 6 Basic financial ratios and what they reveal. Investopedia.

https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-

tell-you.aspx

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