## Corporate Financial Analysis

1. Ratio Calculations.

Current ratio                    = \$51,123,050 / \$50,584,750                                    = 1.01 times

Quick ratio                       = (\$51,123,050– \$20,149,650) / \$50,584,750 = 0.61 times

Total asset turnover         = \$611,582,000 / \$401,558,750                                  = 1.52 times

Inventory turnover          = \$431,006,000 / \$20,149,650                                    =21.39 times

Receivables turnover       = \$611,582,000 / \$18,681,500                                   = 32.74 times

Debt ratio                        = (\$401,558,750 – 181,714,000) / \$401,558,750       = 0.55 times

Debt-equity ratio                         = \$169,260,000 / \$181,714,000                                      = 0.93 times

Equity multiplier             = \$401,558,750 / \$181,714,000                                      = 2.21 times

Interest coverage             = \$87,531,900 / \$11,000,900                                         = 7.96 times

Profit margin                   = \$45,918,600 / \$611,582,000                                         = 7.51%

Return on assets              = \$45,918,600 / \$401,558,750                                           = 11.44%

Return on equity              = \$45,918,600 / \$181,714,000                                            = 25.27%

2. Comparison of East Coast Yacht to the Industry

Liquidity Ratios

The company has a lower current ratio compared to the median industry ratio. This indicates a lower liquidity for the company than the industry. Despite the low liquidity ratios, the current ratio for the company is higher than the lower quartile for the industry, meaning there are companies in the industry that with much lower liquidity.

Turnover Ratios

The firm has a higher turnover ratio compared to the industry median. This indicates that the company efficiently utilizes its assets in sales generation.

Leverage Ratios

East Coast Yacht’s leverage ratios are above the lower quartile but below the industry media, indicating that the company has less debts in comparison to other comparable firms.

Profit Margin

East Coast Yacht has a profit margin almost equivalent to the industry median, indicating that the firm may be performing within the industry’s profitability margin.

Generally, the company seems to be profitable, though based on the liquidity ratio results a closer and detailed analysis needs to be considered.

3. Sustainable Growth Rate of East Coast Yachts

To compute the firm’s sustainable growth rate, we first ROE and the firm’s retention ratio, so:

ROE = Net Income / Total Equity

ROE = \$45, 918,600 / \$181, 714,000 = .2527 or 25.27%

b = Addition to Receivables / Net Income

b = \$18,681,500 / \$45, 918,600 = 0.4068 or 40.68%

Therefore, the sustainable growth rate is:

Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]

Sustainable growth rate = [0.2527(.4068)] / [1 – 0.2527(.4068)]

0.1028/ 0.90 = 0.1146 or 11.46%

4. 2018 Pro forma financial statements at a 20% growth rate are:

So, the required external funds will be the total value that East Coast Yacht will need in order to get a loan. In this case, the long-term debt is constant, and thus, the external funds will be computed as;

Total assets – Total liabilities and equity

= \$481,870,500 - \$481,870,500

= 0

5. Apart from borrowing, East Coast Yacht management can formulate the firm’s financial strategy based on the following available options to achieve its goal of a 20% growth.

i. increasing its profit margin

ii. Lowering its percentage of total assets to sales.

iii. Selling its new equity.

6. The company will be increasing its fixed assets, which means that cash out flow will be increasing and with a constant sustainable growth rate of 11.46% and zero cash inflows. I would recommend the company to emphasize on boosting its cash inflows in order to survive its expansion plan and with a constant debt loan.