1 Calculate all of the ratios listed in the industry table f

1. Calculate all of the ratios listed in the industry table for East Coast Yachts. (current ratio, quick ratio, total asset turnover, inventory turnover, receivables turnover, debt ratio, debt equity ratio, equity multiplier, interest coverage, profit margin, return on assets, return on equity)

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?

3. Calculate the sustainable growth rate of East Coast Yachts.

4. Compute operating cash flow for each year

Solution

1) Ratios East Coast Yachts 1 Current Ratio Current assets/Current Liabilities 15823700/21320300                           0.74 2 Quick Ratio Current assets - Inventory/ Current Liabilities (15823700-6627300)/21320300                           0.43 3 Total Asset Turnover Sales/Total assets 210900000/117304900                           1.80 4 Inventory Turnover COGS/Inventory 148600000/6627300                         22.42 5 Receivables Turnover Sales/Accounts Receivable 210900000/5910800                         35.68 6 Debt Ratio Total Assets - Total Equity/ Total assets (117304900-59584600)/117304900                           0.49 7 Debt Equity Ratio Total Debt/ Total Equity (21320300+36400000)/59584600                           0.97 8 Equity Multiplier Total Assets/Total Equity 117304900/59584600                           1.97 9 Interest Coverage EBIT/Interest 30229000/3791000                           7.97 10 Profit Margin Net Income/Sales 15862800/210900000 7.52% 11 Return on assets Net Income/ Total assets 15862800/117304900 13.52% 12 Return on Equity Net Income/Total Equity 15862800/59584600 26.62% 2) Current Ratio Quick Ratio Lower Quartile 0.5 0.21 Median 1.43 0.38 Upper Quartile 1.89 0.62 East Coast Yachts 0.74 0.43 Explanation The current ratio of East Yachts is higher as compared to the lower quartile which means better solvency position or liquidity position but the current ratio is lower than the median and upper quartile which shows lower solvency position of the company The Quick ratio is high than the lower quartile and median but lower than the upper quartile which shows the solvency position if inventory is deducted from current assets Total Asset Turnover Inventory Turnover Receivables Turnover Lower Quartile 0.68 6.85 6.27 Median 0.85 9.15 11.81 Upper Quartile 1.38 16.13 21.45 East Coast Yachts 1.80 22.42 35.68 Total Asset Turnover Ratio is higher as compared to the industry ratios meaning the company is using its assets effectively to generate income. Inventory Turnover Ratio is higher as compared to the industry ratios meaning the company is converting its inventory into cash maximum times a year. Receivable Turnover Ratio is also higher as compared to the industry ratios meaning the company is receiving the cash from its debtors maximum number of times a year. Debt Ratio Debt- Equity Ratio Equity Multiplier Lower Quartile 0.44 0.79 1.79 Median 0.52 1.08 2.08 Upper Quartile 0.61 1.56 2.56 East Coast Yachts 0.49 0.97 1.97 As per Debt Ratio, The company East Coasts is less able to pay its liabilities than Upper and Median Quartile but more than Lower Quartile. The Debt to Equity Ratio is less than Upper and Median Quartile means portion of equity is more than debt which shows good solvency position of the company and lower than the Lower Quartile. Equity Multiplier shows that East Coasts equity is 1.97 times of the assets of the company which is low as compared to Upper and Median Quartile but which is more than Lower Quartile. Interest Coverage Lower Quartile 5.18 Median 8.06 Upper Quartile 9.83 East Coast Yachts 7.97 East Coast is able to pay interest payments 7.97 times which is lower than the Upper and Median Quartile but higher than Lower Quartile. Profit Margin ROA ROE Lower Quartile 4.05% 6.05% 9.93% Median 6.98% 10.53% 16.54% Upper Quartile 9.87% 15.83% 28.14% East Coast Yachts 7.52% 13.52% 26.62% Profit Margin of East Cost is higher than Lower Quartile and Median which shows higher return on sale but lower as compared to Upper Quartile. Return on Assets of East Cost is higher than Lower Quartile and Median mean higher revenues in sale of assets but lower as compared to Upper Quartile. Return on Equity of East Cost is higher than Lower Quartile and Median but lower as compared to Upper Quartile. 3 Sustainable Growth Rate Return on Equity*(1-Dividend payout ratio) Return on Equity = 26.62% Dividend Payout = Total dividend/Net Income 4759301/15862800 0.300029062 Sustainable Growth rate 0.2662*(1-0.30) 0.18634 18.63% 4 Operating cash flow Net Income after taxes 15862800 Add: Depreciation 6879000 Operating cash flow 22741800