Managerial Economics Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

EAST COAST YACHTS 2009 Income Statement Sales Cost of Goods Sold Other Expenses Depreciation Earning Before Interest and Taxes (EBIT) Interest Taxable Income Taxes (40%) Net Income Dividends Addition to RE $ 167,310,000 (117,910,000) (19,994,000) (5,460,000) 23,946,000 (3,009,000) 20,937,000 8,374,800 $12,562,200

$ $

7,537,320 5,024,880

EAST COAST YACHTS Balance Sheet as of December 31, 2009 Assets Current Assets Cash Account Receivable Inventory Total Fixed Assets Net Plant and Equipment Liability & Equity Current Liabilities Account Payable Notes Payable Total Long-term debt Shareholders Equity Common Stock Retained Earning Total Equity Total Liabilities and Equity

3,042,000 5,473,000 6,136,000 14,651,000 93,964,000

6,461,000 13,078,000 19,539,999 33,735,000

$ $

Total Assets

$ 108,615,000

5,200,000 50,141,000 $55,341,000 $ 108,615,000

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

YACHT INDUSTRY RATIO Lower Quartile Median 0.50 1.43 0.21 0.38 0.68 0.85 4.89 6.15 6.27 9.82 0.44 0.52 0.79 1.08 1.79 2.08 5.18 8.06 4.05% 6.98% 6.05% 10.53% 9.94% 16.54%

Upper Quartile 1.89 0.62 1.38 10.89 14.11 0.61 1.56 2.56 9.83 9.87% 13.21% 26.15%

Managerial Economics Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

Question: 1. Calculate all the ratios listed in the industry table for East Coast Yachts.
Current Ratio = Current Assets Current Liabilities = $ $ = 14,651,000 19,539,000 = 0.749 times

Quick Ratio

Current Assets Inventory Current Liabilities = Sales Total Assets = = $ $

$ 14,651,000 - $ 6,136,000 $ 19,539,000 167,310,000 108,615,000 = $ $ = 1.540 times

0.435 times

Total Asset Turnover

Inventory Turnover

Cost of Goods Sold Inventory Sales Account Receivable =

117,910,000 6,136,000

19.216 times

Receivables Turnover

$ 167,310,000 $5,473,000 =

30.57 times

Debt Ratio

Total Assets Total Equity Total Assets Total Debt Total Equity Total Assets Total Equity EBITDA Interest = =

$ 108,615,000 - $ 55,341,000 $ 108,615,000 =

0.4904 times

Debt-Equity Ratio

$ 108,615,000 - $ 55,341,000 $55,341,000 = 1.962 times

0.962 times

Equity Multiplier

$ 108,615,000 $ 55,341,000 = =

Interest Coverage

=
=

EBIT + Depreciation + Amortization Interest 9.772 times

$ 23,946,000 + 5,460,000 + 0 3,009,000 Net Income Sales Net Income Total Assets = Net Income Total Equity = $ $ =

Profit Margin

12,562,200 167,310,000 $ 12,562,200 108,615,000 = $ $

7.5 %

Return on Assets

11.56 %

Return on Equity

12,562,200 55,341,000

22.69 %

Managerial Economics Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

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 calculates as inventory divided by current liabilities. How do you interpret this ratio? How does East Coast Yachts compare to the industry average? Answer: We can summarize the ratio for all parameters regarding the ratio under Yachts Industry ratio and classified each ratio into following clasification:
YACHT INDUSTRY RATIO Lower Median Quartile SHORT TERM SOVENCY or LIQUIDITY MEASURES Current Ratio 0.50 1.43 0.749 Quick Ratio 0.21 0.38 LONG TERM SOLVENCY MEASURES Debt Ratio 0.44 Debt-Equity Ratio 0.79 Equity Multiplier 1.79 Interest Coverage 5.18 Upper Quartile

0.435

1.89 0.62

0.490 0.962 1.962

0.52 1.08 2.08 8.06

9.772

0.61 1.56 2.56 9.83

ASSET MANAGEMENT or TURNOVER MEASURES Inventory Turnover 4.89 6.15 Receivables Turnover 6.27 9.82 Total Asset Turnover 0.68 0.85 PROFITABILITY MEASURES Profit Margin 4.05% Return on Assets 6.05% Return on Equity 9.94%

10.89 14.11 1.38

19.216 30.57 1.540

6.98% 10.53% 16.54%

7.50% 11.56% 22.59%

9.87% 13.21% 26.15%

I.

SHORT TERM SOLVENCY OR LIQUIDITY MEASURES The goal of using ratios under this category is to provide information about the Companys liquidity (in this case, East Coast Yachts Liquidity), which primary concern to the firms ability to pay its bill over the short run without undue stress and focusing on current assets and current liabilities.

Managerial Economics Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

The components are: a. Current Ratio for East Coast Yachts is 0.749 times which lying between the Lower Quartile (0.50 times) and Median Ratio (1.43 times). We can say that East Coast Yachts has its current liabilities covered 0.749 times. We believe this is not so good, since the aim of this company is selling Yachts to clients, and the most assets the have are coming from net Plant and Equipment, not the Cash.

b. Quick Ratio for East Coast Yachts is 0.435 times which lies between the Median (0.38 times) and Upper Quartile (0.62 times). We believe it is pretty good, because the impact of inventory at East Coast Yachts is not much. Also, we can see at table that at the Upper Quartile, the differences between Current Ratio and Quick Ratio for Yachts Industry is much. We can generally said that the Assets of other company, in average, which focusing in Yachts Industry is pretty much coming from Inventory (which is not good, since it might come from overestimated sales and overbrought or overproduced of Yachts).

II.

LONG TERM SOLVENCY MEASURES The goal of using ratios under this category is to address the firm long run capabilities to meet its obligation or its financial leverage. The components are: a. Debt Ratio : for East Coast Yachts is 0.490 times which lies between the Lower Quartile (0.44 times) and Median (0.52 times). It means that the company uses 49% debt. In investors point of view, this must be a pretty good signal, because the for every $1 company has in Assets, the equity will be $0.51 (which more than 50%). Also, comparing with the competitor under the same industry, it must be pretty good sign, because the figure itself is pretty close with the Lower Quartile. b. Debt Equity Ratio : for East Coast Yachts is 0.962 times which lies between the Lower Quartile (0.729 times) and Median (1.08 times). We believe it is pretty good signal for investors, because the share that investor earned is bigger than the debt itself. Also, since the ratio of East Coast Yachts is close to the Lower Quartile, we believe it is a good signal for the progress of the Company.

Managerial Economics Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

c. Equity Multiplier Ratio : for East Coast Yachts is 1.962 times which lies between the Lower Quartile (1.79 times) and Median (2.08 times). The idea is kinda alike with the Debt Equity Ratio, because it is just 1+Debt Equity Ratio. d. Cash Coverage Ratio : for East Coast Yachts is 9.772 times which lies between the Median (8.06 times) and Upper Quartile (9.83 times). We believe it is pretty good signal for company, because it represents the companys ability to generate cash from operations and also can be considered as a measure of cash flow available to meet financial obligation. Comparing with the ratio of the competitors in Yachts industry, East Coast yachts actually doing pretty good, because their Cash Coverage Ratio is close with the Upper Quartile of the Yachts Industry.

III.

ASSET MANAGEMENT OR TURNOVER MEASURES a. Inventory Turnover: for East Coast Yachts is 19.216 times which way above the Upper Quartile (10.89 times). We believe it is so great, because this figure represents that company sold off (or turnover) the entire inventory 19.216 times during years. On the other hand, it shows that the inventory takes shorter time on average before it is sold. Comparing with the competitor under the same Yachts Industry, it is a great signal, because the Upper Quartile takes longer time.
b. Receivable Turnover for East Coast Yachts is 30.57 times which lies way above the

Upper Quartile (14.11 times). We believe it is good, because this figure represent the ratio of how fast company collect on the sales. Similar with Inventory Turnover, it shows that the company collect the credit sales under the shorter days than the competitor which even at the Upper Quartile. a. Total Assets Turnover for East Coast Yachts is 1.540 times which lies over the Upper Quartile (1.38 times). We believe it is good, because this figure represent the ratio of sales for every assets of the company (for East Coast Yachts, we can say that for every dollar they had in Assets, the generated $1.540). Also, compare to the other company on Yachts Industry, the Upper Quartile only generated $1.38 in sales for every dollar they have in Assets.

Managerial Economics Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

IV.

PROFITABILITY MEASURES The goal of using ratios under this category is to measure how efficiently the firm uses its assets and how efficiently the company manages its operations. The components are: a. Profit Margin : for East Coast Yachts is 7.50% which lies between the Median (6.98%) and Upper Quartile (9.87%). We believe it is a pretty good figure, because even though they can only generate few money for sales they sell (which is only $ 0.0751 in net income for every dollar in sales), the competitors which in Upper Quartiles is earned just a little much than East Coast Yachts. b. Return On Assets : for East Coast Yachts is 11.56% which lies between the Median (10.53%) and Upper Quartile (13.51%). Just like the Profit Margin, we believe it is a pretty good figure, because even though they can only generate few money for assets they have (which is only $ 0.1156 in net income for every dollar of assets), the competitors which in Upper Quartiles is earned just a little much than East Coast Yachts. c. Return On Equity : for East Coast Yachts is 22.69% which lies between the Median (16.54%) and Upper Quartile (26.15%). Just like the Return on Assets, we believe it is a pretty good figure, because company can generates $0.2269 in profit for every dollar in Equity which quite much comparing with the competitor under the Yachts Industry (which generates $ 0.2615 in profit for every dollar in Equity for company who is in the Upper Quartile). As conclusion, we believe that East Coast Yachts is doing good in Yachts Industry, because we can tell that the inventory they have is not much, and when they have inventory, it only takes short time to sell it. Also, we can see that the management are doing good on managing the turnover (such as Inventory, Receivable, and Total Assets). In the profitability manners, eventhough East Coast Yachts is not at the above of Upper Quartile company, we can see that the profit themselves is quite close with the Upper Quartile company.

Suppose you create an inventory ratio calculates as inventory divided by current liabilities. How do you interpret this ratio? How does East Coast Yachts compare to the industry average?

Managerial Economics Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

Under our thought, we think this represents how the inventory can cover the liabilities during period. In East Coast Yachts matter, we can see that: Inventory Ration = Inventory Current Liabilities = $ 6,136,000 $ 19,539,000 = 0.314 times

Well, judging by the Inventory Turnover of East Coast Yachts and Yachts Industry Ratio, we think that East Coast Yachts is not good comparing the Yachts Industry, because the ratio inventory turnover of East Coast Yachts is greater than Yachts Industry which means that East Coast Yachts do not have Inventory as much as other competitor in the Yachts Industry, which implies that East Coast Yachts could not cover the liabilities by using inventory as much as other competitor in East Coast Yachts.