Case :

Ratios and Financial Planning at East Cost Yachts

East Coast Yachts
Income Statement

For Period of 2009


Presented in USD
DESCRIPTION AMOUNT
Sales 167,310,000
Cost of Good Sold 117,910,000
Other Expenses 19,994,000
Depreciation 5,460,000
EBIT 23,946,000
Interest 3,009,000
Total Income 20,937,000
Taxes (40%) 8,374,800
Net Income 12,562,200
Dividends 7,537,320
Addition to RE 5,024,880

East Coast Yachts

Balance Sheet

For Period Ended on December 31, 2009


Presented
in USD
ASSETS LIABILITIES & EQUITY
Current Asset

Current Liability
Cash 3,042,000 Account Payable 6,461,000
Account Receivables 5,473,000 Notes Payable 13,078,000
Investory 6,136,000 Total Current Liability 19,539,000
Total Current Asset 14,651,000




Long Term Debt 33,735,000
Fixed Assets




Net Plant & Equipment 93,964,000 SHAREHOLDER'S EQUITY


Common Stock 5,200,000


Retained Earnings 50,141,000


Total Equity 55,341,000





Total Assets 108,615,000 Total Liabilities & Equity 108,615,000

1. All the ratios for East Cost Yachts:
1. Current Ratio =


=

= 0,75 times
2. Quick Ratio =


=

= 0,43 times
3. Total Assets Turnover =

= 1,54 times
4. Inventory Turnover =

= 19,22 times
5. Receivables Turnover =

= 30,77 times
6. Debt Ratio =


=

= 0,49 times
7. Debt-Equity Ratio =

8. Equity Multiplier =

9. Interest Coverage =

10. Profit Margin=

11. ROA=

11.57%
12. ROE =

22.7%



Comparison the East Coast Yachts Ratio to Yachts Industry Ratio
FINANCIAL RATIO VALUE
Yachts Industry Ratio
Lower
Quartile
Median
Upper
Quartile
Current Ratio

0.75

0.50

1.43 1.89
Quick Ratio

0.44

0.21

0.38 0.62
Total Asset Turnover 1.38
1.54 0.68 0.85
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%
ROA 11.57% 6.05% 10.53% 13.21%
ROE 22.70% 9.93% 16.54% 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.