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Chris Guthrie was recently hired by Kiwi Yachts Lt...




Chris Guthrie was recently hired by Kiwi Yachts Ltd to help the company with its financial planning and to evaluate the company?s performance. Chris graduated from university five years ago with a finance degree. He has been employed in the finance department of an S&P/ASX 200 company since then. Kiwi Yachts was founded 10 years ago by friends Mark Kwan and Todd Jovanovich. The company has manufactured and sold large- to medium-sized yachts over this period, and the company?s products have received high reviews for safety, performance and reliability. The company has a niche market in that it sells primarily to individuals who own, sail and race their own yachts. The company has two base models: the Swordfish, which sells for $53?000; and the Shark, which sells for $78?000. While the company manufactures yachts, its operations are different from those of many commercial boating companies. Kiwi Yachts builds yachts to order. By using prefabricated parts, the company is able to complete the manufacture of a yacht in only five weeks. The company also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, other commercial yacht builders may take 18 months to two years to manufacture once the order is placed. Mark and Todd have provided the following financial statements. Chris has gathered the industry ratios for the boating manufacturing industry: Kiwi Yachts Ltd 2014 Income Statement Sales $24?092?400 Cost of goods sold 17?982?000 Other expenses 2?878?800 Depreciation 786?000 EBIT $?2?445?600 Interest 434?400 Taxable income $?2?011?200 Taxes ?? 804?480 Net income $?1?206?720 Dividends $246?000 Additions to retained earnings 960?720 Kiwi Yachts Ltd 2014 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash $ 438?048 Accounts payable $? 858?816 Accounts receivable 1?841?616 Notes payable 1?735?680 Inventory 1?486?200 ?Total current liabilities $ 2?594?496 Total current assets $ 3?765?864 Fixed assets Long-term debt $ 4?590?000 Net plant and equipment $14?778?816 Shareholder equity Ordinary shares 180?000 Retained earnings 11?180?184 ? ?Total equity $11?360?184 ?Total assets $18?544?680 Total liabilities and equity $18?544?680 Boating Manufacturing Industry Ratios Lower Quartile Median Upper Quartile Current ratio 0.5 1.43 1.89 Quick ratio 0.21 0.38 0.62 Cash ratio 0.08 0.21 0.39 Total asset turnover 0.68 0.85 1.38 Inventory turnover 4.89 6.15 10.89 Receivables turnover 6.27 9.82 14.11 Total debt ratio 0.44 0.52 0.61 Debt?equity ratio 0.79 1.08 1.56 Equity multiplier 1.79 2.08 2.56 Times interest earned 5.18 8.06 9.83 Cash coverage ratio 5.84 8.43 10.27 Profit margin 4.05% 6.98% 9.87% Return on assets 6.05% 10.53% 13.21% Return on equity 9.93% 16.54% 26.15% Based on the above information, answer the following questions: ?a) Calculate the following ratios for Kiwi Yachts: current ratio, quick ratio, cash ratio, total asset turnover, inventory turnover, receivables turnover, total debt ratio, debt?equity ratio, equity multiplier, times interest earned, cash coverage ratio, profit margin, return on assets and return on equity. ?b) Compare the performance of Kiwi Yachts to the industry. For each ratio, comment on why it might be viewed as positive or negative relative to the industry.


Paper#4082 | Written in 18-Jul-2015

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