1:
Calculate all of the ratios listed in the industry table for East
Coast Yachts.
0.43 Times
Quick Ratio Current AssetsInventory 14.651 .0006.316 .000
Current Liabilities 19.539 .000
Question No. 2:
Quick Ratio
Current Ratio
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Interpretation:
Current Ratio of East Coast is high as compared to Lower Quartile means better ability to
pay current liabilities but very low as compared Median and Upper Quartile which means
low solvency position.
Quick Ratio is high than Lower Quartile but low than Median and Upper Quartile
showing that less solvent if inventory is deducted from Current Assets.
Turnove Ratios Comparison
Receivables Turnover
Inventory Turnover
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Interpretation:
Total Asset Turnover Ratio is high as compared to all industry ratios which mean that
East Coast is utilizing its assets very well to generate revenues.
Inventory Turnover Ratio is high as compared to all industry ratios which mean that East
Coast is converting its inventory into cash maximum times a year.
Receivable Turnover Ratio is also high as compared to all industry ratios which mean that
East Coast is receiving cash from receivables maximum times a year.
Long Term Solvency Ratios Comparison
Equity Multiplier
Debt-Equity-Ratio
Debt Ratio
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Interpretation:
According to Debt Ratio, East Coasts is less able to pay its liabilities than Upper and
Median Quartile but more than Lower Quartile.
Debt to Equity Ratio is less than Upper and Median Quartile means portion of equity is
more than debt showing good solvency position of East Coasts. And Vice Versa
comparison to Lower Quartile.
Equity Multiplier shows that East Coasts equity is 1.96 times of the assets which is low
as compared to Upper and Median Quartile but more than Lower Quartile.
Coverage Ratios Comparison
Interest Coverage
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Interpretation:
According to the Ratio, East Coast can pay interest payments 7.96 times which is
low / not favorable than Upper and Median Quartile but high than Lower Quartile.
Profitibility Ratios Comparison
ROE
ROA
Profit Margin
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Interpretation:
Profit Margin of East Cost is high than Lower Quartile and Median showing high return
on sale but low as compared to Upper Quartile.
Return on Assets of East Cost is high than Lower Quartile and Median mean high
revenues in sale of assets but low as compared to Upper Quartile.
Return on Equity of East Cost is high than Lower Quartile and Median but low as
compared to Upper Quartile.
Long Term Solvency Negative Long Term paying ability is not too good as
Ratios compared to Industry.
Profitability Ratios Positive Al are positive as compared to Industry.
Question No. 3:
= 22%
Dividend Payout = Total Dividend / Net Income
= 0.6
= 9.08%
Amount Amount
Assets Liabilities & Equity
Current Asset Current Liability
Cash 33,18,213.6 Account Payable 70,47,658.8
Account Receivables 59,69,948.4 Notes Payable 1,42,65,482.4
Inventory 66,93,148.8 Total Current Liability 2,13,13,141.2
Total Current Asset 1,29,81,301.8
Long Term Debt 3,37,35,000
Fixed Assets (No Change)
Net Plant & Equipment 10,24,95,931.2
SHAREHOLDER'S
EQUITY
Common Stock 56,72 160
Retained Earnings 5,56,93,802.8
Total Equity 6.03.65,962.8
External Funds needed will be the value that a firm needs to take loan. Here Long Term
Debt is constant so External Fund Needed will be calculated as follows:
= 11,84,77,242 - 11,54,14,104
= 30, 63,186
0.29 Times
Quick Ratio Current AssetsInventory 1,29,81,301.866,93,148.8
Current Liabilities 2,13,13,141.2
0.1
0.08
0.08
0.06
0.04 0.03
0.02
0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Analysis:
Sustainable Growth Rate which is used to check to Firms ability of growing
without taking Loan. After calculating Sustainable Growth Rate, Long Term Debt,
Interest and Dividends are kept Constant to check it. According to the above
analysis, it is shown that Sustainable Growth Rate have no effect on Turnover,
Coverage, Equity Multiplier Ratios and Long Term Solvency Position but have an
effect on Profits and Equity Returns.
Question No. 4:
Here, the given Sustainable Growth Rate is 20%.Now according to that rate we
will form a new Balance Sheet and Income Statement.
13,03,38,000 11,89,59,168
Total Assets Total Liabilities & Equity
External Funds needed will be the value that a firm needs to take loan. Here Long Term
Debt is constant so External Fund Needed will be calculated as follows:
= 13,03,38,000 - 11,89,59,168
= 1,13,78,832
Conclusion:
If the East Coast Firm have a growth rate of 20% then its profit will be $
2,68,18,200 without taking loan and extra fund they will need is of $
1,13,78,832
Question No. 5
Most assets can be increased as a percentage of sales. For
instance, cash can be increased by any amount. However, fixed
assets often must be increased in specific amounts because it is
impossible, as a practical matter, to buy part of a new plant or
machine. In this case a company has a staircase or lumpy
fixed cost structure. Assume that East Coast Yachts is currently
producing at 100 percent of capacity. As a result, to expand
production, the company must set up an entirely new line at a
cost of $30 million.
Purchase of Fixed Asset will cause changes in Depreciation in Income Statement and in
Total Fixed Assets in Balance Sheet.
= 12,39,64,000
Effect on Depreciation
= 5.8%
= 7,203,221
14,15,45,200 11,89,59,168
Total Assets Total Liabilities & Equity
= 14,15,45,200 - 11,89,59,168
= 2,25,86,032
. Conclusion:
East Coast Yachts in increasing its fixed assets due to which there is cash
out flow but the growth rate for all is same 5.8% which means no cash
inflow. It will have to focus on generating more cash revenues to survive
because debt loan is already constant