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

Total Assets

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

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

Liability & Equity

Current Liabilities
Account Payable
Notes Payable
Total
Long-term debt

6,461,000
13,078,000

$
$

19,539,999
33,735,000

93,964,000

$ 108,615,000

Shareholders Equity
Common Stock
Retained Earning
Total Equity
Total Liabilities and 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%

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

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

Quick Ratio

Current Assets
Current Liabilities

$
$

= Current Assets Inventory

Current Liabilities

Total Asset Turnover

Inventory Turnover

Sales
Total Assets
=

14,651,000
19,539,000
=

$
$

167,310,000
108,615,000
=

Receivables Turnover

Sales
Account Receivable

Debt Ratio

Total Assets Total Equity

Total Assets

Debt-Equity Ratio

0.435 times

1.540 times

117,910,000
6,136,000

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

19.216 times

30.57 times

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

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

Interest Coverage

EBITDA
Interest

EBIT + Depreciation + Amortization

Interest

$ 23,946,000 + 5,460,000 + 0
3,009,000

9.772 times

Profit Margin

Net Income
Sales

Return on Assets

Net Income
Total Assets

Return on Equity

Net Income
Total Equity

12,562,200
167,310,000

1.962 times

7.5 %

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

$
$

12,562,200
55,341,000

22.69 %

0.4904 times

0.962 times

$
$

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

Equity Multiplier

$
$

Total Assets
Total Equity

0.749 times

$ 14,651,000 - $ 6,136,000
$ 19,539,000

Cost of Goods Sold

Inventory

Total Debt
Total Equity

11.56 %

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
0.749
1.43
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

0.490
0.962
1.962

0.52
1.08
2.08
8.06

Upper
Quartile

0.435

1.89
0.62

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%

I.

6.98%
10.53%
16.54%

10.89
14.11
1.38

7.50%
11.56%
22.59%

19.216
30.57
1.540

9.87%
13.21%
26.15%

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, i 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.

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, i 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

III.

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, i 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, i 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, i believe that East Coast Yachts is doing good in Yachts Industry,
because i can tell that the inventory they have is not much, and when they have
inventory, it only takes short time to sell it. Also, i 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, i can see that the profit themselves is quite close with the
Upper Quartile company.
Under our thought, i think this represents how the inventory can cover the liabilities during
period. In East Coast Yachts matter, i 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, i
think that East Coast Yachts is not good comparing the Yachts Industry, because the ratio

Managerial Economics
Billy Biondi 1306356261; Khoe Ulung ; Stevanus Sendy

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.