Financial Ratios for East Coast Yachts

marvel 1 Financial proportions for vitamin E Coast Yachts up-to-the-minute proportion = Current Assets Debt- justice balance = core liabilities Current Liabilities Total beauteousness = $14,651,000 = $19,539,000 + $33,735,000 $19,539,000 $55,341,000 = 0. 75 = 0. 96 pronto ratio = Current Assets Inventory Equity multiplier = Total assets Current Liabilities Total equity = $14,651,000 $6,136,000 = $108,615,000 $19,539,000 $55,341,000 = 0. 44 = 1. 96 Total asset turnover = gross sales Interest reporting = EBIT Total Assets Interest = $167,310,000 = $23,946,000 $108,615,000 $3,009,000 = 1. 54 = 7. 96 Inventory turnover = COGS Profit margin = scratch Income Inventory Sales = $117,910,000 = $12,562,200 $6,136,000 $167,310,000 = 19. 22 = 7. 51% Receivables turnover = Sales Return on assets = benefit Income Acc ounts receivable Total assets = $167,310,000 = $12,562,200 $5,473,000 $108,615,000 = 30. 57 = 11. 57% Debt ratio = Total assets Total equity Return on equity = Net Income Total assets Total equity = $108,615,000 $55,341,000 = $12,562,200 $108,615,000 $55,341,000 = 0. 49 = 22. 70% Question 2 East Coast Yachts Yacht Industry Ratios Lower Quartile Median Upper Quartile Current ratio 0. 75 0. 50 1. 43 1. 9 Quick ratio 0. 44 0. 21 0. 38 0. 62 Total asset turnover 1. 54 0. 68 0. 85 1. 38 Inventory turnover 19. 22 4. 89 6. 15 10. 89 Receivables turnover 30. 57 6. 27 9. 82 14. 11 Debt ratio 0. 49 0. 44 0. 52 0. 61 Debt-equity ratio 0. 96 0. 79 1. 08 1. 56 Equity multiplier 1. 96 1. 79 2. 08 2. 56 Interest coverage 7. 96 5. 18 8. 06 9. 83 Profit margin 7. 51% 4. 05% 6. 98% 9. 87% Return on assets 11. 57% 6. 05% 10. 53% 13. 21% Return on equity 22. 70% 9. 93% 16. 54% 26. 15%The liqui dity ratio shows that the company has less liquidity as compare to the whole industry. East Coast Yachts current ratio is on a lower floor the median industry ratio and the quick ratio is positioned at the median industry ratio. This indicates that the company may access to short-term borrowing. Referring to the turnover ratio, all the tether ratios, I. e. total asset turnover, inventory turnover and receivables turnover are high than upper quartile industry ratio. This indicates that the company is more efficient among the whole industry in using its assets to generate sales.The financial leverage ratios, which include the debt ratio, debt-equity ratio, equity multiplier and evoke coverage, are all below the median industry ratio, but higher than the lower quartile. This shows that East Coast Yachts is having less debt than the other companies in the industry, but is still within the normal range. The do good margin, return on assets as intumesce as return on equity of the com pany are higher than the industry median. This shows that the companys profitability is performing well among the whole industry.As an overall, East Coast Yachts is performing well in the industry, while more concentration would only be required to be placed on the liquidity ratios. Question 3 Return on equity = 22. 70% Retention ratio (b) = Net income Dividends Net Income = $12,562,200 $7,537,320 $12,562,200 = 40% Sustainable growth rate (SGR) = Return on equity x Retention ratio = 22. 70% x 0. 4 = 9. 08% amplification in assets = Assets x ? Sales Sales = $108,615,000 x (167,310,000 x 9. 08%) $167,310,000 = $9,862,242. 00 emergence in spontaneous liabilities = Spontaneous liabilities x ? Sales Sales = $6,461,000 x (167,310,000 x 9. 08%) $167,310,000 = $ 586,658. 80 Retention ratio (b) = addition to RE Net income = $5,024,880 $12,562,200 = 40% Profit margin = Net income Sales = $12,562,200 $167,310 ,000 = 8% Increase in equity = PM x Projected sales x retention ratio = 8% x ($167,310,000 x 1. 0908) x 0. 4 = $5,840,055. 94 External Funds Needed (EFN) = Increase in assets Increase in spontaneous liabilities Increase in equity = $9,862,242. 00 $586,658 $5,840,056 = $3,435,527. 26 East Coast Yachts Pro forma Income Statement Sales 182,501,748 Cost of goods sold 128,616,228 Other expenses 21,809,455 Depreciation 5,460,000 (Assume constant) loot before elicit and taxes (EBIT) 26,616,065 Interest 3,009,000 (Assume constant) rateable income 23,607,065 Taxes (40%) 9,442,826 Net Income 14,164,239 Dividends 8,221,709 Addition to RE 5,481,139 East Coast Yachts Pro forma Balance Sheet Assets Current assets Cash 3,318,214 Accounts receivable 5,969,948 Inventory 6,693,149 Total 15,981,311 Fixed assets Net plant and equipment 102,495,931 Total assets 118,477,242 Liab ilities Current liabilities Accounts payable 7,047,659 Notes payable 14,265,482 Total 21,313,141 Long term debt 33,735,000 Shareholders equity Common birth 5,200,000 Retained sugar 54,693,803 Total equity 59,893,803 Total liabilities and equity 114,941,944 EFN 3,535,298 Current ratio = Current Assets Debt-equity ratio = Total liabilities Current Liabilities Total equity = $15,981,311 = $21,313,141 + $33,735,000 $21,313,141 59,893,803 = 0. 75 = 0. 92 Quick ratio = Current Assets Inventory Equity multiplier = Total assets Current Liabilities Total equity = $15,981,311 $6,693,149 = $118,477,242 $21,313,141 $59,893,803 = 0. 44 = 1. 98 Total asset turnover = Sales Interest coverage = EBIT Total Assets Interest = $182,501,748 = $26,616,065 $118,477,242 $3,009,000 = 1. 54 = 8. 85 Inventory turnover = COGS Profit margin = Net In come Inventory Sales = $128,616,228 = $14,164,239 $6,693,149 $182,501,748 = 19. 22 = 7. 76% Receivables turnover = Sales Return on assets = Net Income Accounts receivable Total assets = $182,501,748 = $14,164,239 $5,969,948 $118,477,242 = 30. 57 = 11. 96% Debt ratio = Total assets Total equity Return on equity = Net Income Total assets Total equity = $118,477,242 $59,893,803 = $14,164,239 $118,477,242 $59,893,803 = 0. 49 = 23. 5% East Coast Yachts Original ratios Based on pro forma Current ratio 0. 75 0. 75 Quick ratio 0. 44 0. 44 Total asset turnover 1. 54 1. 54 Inventory turnover 19. 22 19. 22 Receivables turnover 30. 57 30. 57 Debt ratio 0. 49 0. 49 Debt-equity ratio 0. 96 0. 92 Equity multiplier 1. 96 1. 98 Interest coverage 7. 96 8. 85 Profit margin 7. 51% 7. 76% Return on assets 11. 57% 11. 96% Return on equity 22. 70% 23. 65% As noted from above, the liquidit y and turnover ratio forget remain constant assuming growth precisely at 9. 8%. Debt-equity ratio will decreased slightly while equity multiplier and interest coverage increased, assuming interest remain constant. Slight improvement also noted from profit margin, return on assets and return on equity. Question 4 Growth rate 20% Increase in assets = Assets x ? Sales Sales = $108,615,000 x (167,310,000 x 20%) $167,310,000 = 21,723,000. 00 Increase in spontaneous liabilities = Spontaneous liabilities x ? Sales Sales = $6,461,000 x (167,310,000 x 20%) $167,310,000 = $1,292,200. 00 Retention ratio (b) = Addition to RE Net income = $5,024,880 $12,562,200 = 40% Profit margin = Net income Sales = $12,562,200 $167,310,000 = 8% Increase in equity = PM x Projected sales x retention ratio = 8% x ($167,310,000 x 1. 2) x 0. 4 = $6,424,704. 00 External Funds Needed (EFN) = Increase in assets In crease in spontaneous liabilities Increase in equity = $21,723,000. 0 $1,292,200. 00 $6,424,704. 00 = $14,006,096. 00 East Coast Yachts Pro forma Income Statement Sales 200,772,000 Cost of goods sold 141,492,000 Other expenses 23,992,800 Depreciation 5,460,000 (Assuming constant) Earnings before interest and taxes (EBIT) 29,827,200 Interest 3,009,000 (Assuming constant) Taxable income 26,818,200 Taxes (40%) 10,727,280 Net Income 16,090,920 Dividends 9,044,784 Addition to RE 6,029,856 East Coast Yachts Pro forma Balance Sheet Assets Current assets Cash 3,650,400 Accounts receivable 6,567,600 Inventory 7,363,200 Total 17,581,200 Fixed assets Net plant and equipment 112,756,800 Total assets 130,338,000 Liabilities Current liabilities Accounts payable 7,753,200 Notes payable 15,693,600 Total 23,446,800 Long term debt 33,735,000 Shareholders equity Common stock 5,200,000 Retained earnings 60,169,200 Total equity 65,369,200 Total liabilities and equity 122,551,000 EFN 7,787,000 East Coast Yachts Original ratios Growth 9. 08% Growth 20% Debt-equity ratio 0. 96 0. 92 0. 87 Equity multiplier 1. 96 1. 98 1. 99 Interest coverage 7. 96 8. 85 9. 91 Profit margin 7. 51% 7. 76% 8. 01% Return on assets 11. 57% 11. 96% 12. 35% Return on equity 22. 70% 23. 65% 24. 62% The growth rate of 20% indicates that the EFN is $7,787,000.Debt-equity ratio will decrease by 0. 05. The profit margin, return on assets and return on equity shows improvement if the expansion plan was taken up, assuming interest and depreciation remain constant. The further expansion may be taken up as it will bring improvement to the companys profitability. Also, debt-equity ratio is still below 1 hence there is room for the expansion to be taken up. Question 5 Depreciation rate = Depreciation PPE = $5,460,000 $93 ,964,000 = 5. 81% Cost of new line 30,000,000 New depreciation charged 1,743,220. 81 East Coast Yachts Pro forma Income Statement Sales 200,772,000 (Assuming growth rate 20%) Cost of goods sold 141,492,000 (Assuming growth rate 20%) Other expenses 23,992,800 (Assuming growth rate 20%) Depreciation 1,743,221 Earnings before interest and taxes (EBIT) 33,543,979 Interest 3,009,000 (Assuming constant) Taxable income 30,534,979 Taxes (40%) 12,213,992 Net Income 18,320,988 Dividends 9,044,784 Addition to RE 6,029,856 East Coast Yachts Pro forma Balance Sheet Assets Current assets Cash 3,650,400 Accounts receivable 6,567,600 Inventory 7,363,200 Total 17,581,200 Fixed assets Net plant and equipment 141,013,579 Total assets 158,594,779 Liabilities Current liabilities Accounts payable 7,753,200 Notes payable 15,693,600 Total 23,446,800 Long term debt 33,735,000 Shareholders equity Common stock 5,200,000 Retained earnings 60,169,200 Total equity 65,369,200 Total liabilities and equity 122,551,000 New EFN 36,043,779 Existing EFN 7,787,000 Additional EFN 28,256,779 Depreciation charged from increase in fixed assets at SGR of 20% was $1,743,220. 81. The new plant would personify $30,000,000. The additional EFN would be $28,256,779. The total EFN would become $36,043,779. This would imply that the capacity utilization would be lower next year, since the new plant would expand capacity much(prenominal) more than the required under SGR.