Course Name Business Finance

Course Code FINA 321

Semester Fall 17/18
Assignment Mini Case: RATIOS AND FINANCIAL PLANNING AT EAST COAST
YACHTS

Submitted to

Dr. Sami alajlani

Submitted by

Ali Khamis Ali Al Hammadi

ID#:S0000000611
Answer 1

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 Answer 2
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 14.651.000
1. Current Ratio = = = 0,75 times
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 19.539.000

“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
ECY’s 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”
(rachmawati, 2017)

Current Assets−Inventory 14.651.000−6.316.000

2. Quick Ratio = = = 0,43 times
Current Liabilities 19.539.000

“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 ECY’s 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
industry’s current assets are bigger in amount because of the inventory
value” (rachmawati, 2017)

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 Sales 167.310.000
3. Total Assets Turnover = = = 1,54 times
Total Assets 108.615.000

“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” (rachmawati,
2017)
𝐶𝑂𝐺𝑆 117.910.000
4. Inventory Turnover = = = 19,22 times
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 6.136.000

“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” (rachmawati, 2017)
𝑆𝑎𝑙𝑒𝑠 167.310.000
5. Receivables Turnover = = = 30,77 times
𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 5.437.000

“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 ECY’s receivables
turnover are too high. This can be an indicator that ECY’s 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” (rachmawati, 2017)

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 Total Assets−Total Equity 108.615.000−55.342.000
6. Debt Ratio = = = 0,49 times
Total Assets 108.615.000

“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 doesn’t bear risks
more than average industry” (rachmawati, 2017)
Total Debt 53.274.000
7. Debt-Equity Ratio = = = 0.96 times
Total Equity 55.341.000

“Debt-Equity-Ratio 0.96 times means that financial ratio indicating the

relative proportion of shareholders' equity and debt used to finance
ECY’s 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” (rachmawati, 2017)
Total Assets 108.615.000
8. Equity Multiplier = = = 1.96 times
Total Equity 55.341.000

“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” (rachmawati, 2017)
EBIT 23.946.000
9. Interest Coverage = = = 7.96%
Interest 3.009.000

“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

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 8.06, It is a good sign because EYC can cover 7.96% from its earning to
cover the interest expense obligation” (rachmawati, 2017)
Net Income 12.562.200
10. Profit Margin = = = 7.51%
Sales 167.310.000

“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” (rachmawati, 2017)
Net Income 12.562.200
11.ROA = = = 11.57%
Total Assets 108.615.000

“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 ECY’s ROA still in a good position but ECY should be
more effective to manage their assets to get higher profit” (rachmawati,
2017)
Net Income 12.562.200
12. ROE = = = 22.7%
Total Equity 55.341.000

“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” (rachmawati, 2017)

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 Answer 3
“Regarding the liquidity ratios, East Coast Yachts current ratio is below the
median industry ratio. This implies the company has less liquidity than the
industry in general. However, the current ratio is above the lower quartile, so
there are companies in the industry with lower liquidity than East Coast
Yachts. The company may have more predictable cash flows, or more access to
short-term borrowing” (Luu, 2011)

“The turnover ratios are all higher than the industry median; in fact, all three
turnover ratios are above the upper quartile. This may mean that East Coast
Yachts is more efficient than the industry in using its assets to generate sales”
(Luu, 2011)

“The financial leverage ratios are all below the industry median, but above the
lower quartile. East Coast Yachts generally has less debt than comparable
companies, but is still within the normal range” (Luu, 2011)

“The profit margin for the company is about the same as the industry median,
the ROA is slightly higher than the industry median, and the ROE is well above
the industry median. East Coast Yachts seems to be performing well in the
profitability area” (Luu, 2011)

“Overall, East Coast Yachts’ performance seems good, although the liquidity
ratios indicate that a closer look may be needed in this area” (Luu, 2011)

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 References
Luu, V. (2011, January 21). East Coast Yachts key. Retrieved November 11,
2017, from https://ar.scribd.com:
https://ar.scribd.com/document/47304182/East-Coast-Yachts-key

rachmawati, f. (2017). Case : Ratios and Financial Planning at East Cost Yachts
East Coast Yachts Income Statement. Retrieved November 11, 2017,
from https://www.academia.edu:
https://www.academia.edu/4765916/Case_Ratios_and_Financial_Plann
ing_at_East_Cost_Yachts_East_Coast_Yachts_Income_Statement