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FIN - RATIOS AND FINANCIAL PLANNING AT KIWI YACHTS LTD

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Question;Chris Guthrie was recently hired by Kiwi Yachts Ltd to help the company with itsFINANCIAL 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 nicheMARKET 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 followingFINANCIAL statements. Chris has gathered the industry ratios for the boating manufacturing industry:Kiwi Yachts Ltd2014 Income StatementSales$24?092?400Cost of goods sold17?982?000Other expenses2?878?800Depreciation786?000EBIT$?2?445?600Interest434?400Taxable income$?2?011?200Taxes?? 804?480Net income$?1?206?720Dividends$246?000Additions to retained earnings960?720Kiwi Yachts Ltd2014 Balance SheetAssetsLiabilities and EquityCurrent assetsCurrent liabilitiesCash$ 438?048Accounts payable$? 858?816Accounts receivable1?841?616Notes payable1?735?680Inventory1?486?200?Total current liabilities$ 2?594?496Total current assets$ 3?765?864Fixed assetsLong-term debt$ 4?590?000Net plant and equipment$14?778?816Shareholder equityOrdinary shares180?000Retained earnings11?180?184??Total equity$11?360?184?Total assets$18?544?680Total liabilities and equity$18?544?680Boating Manufacturing Industry RatiosLower QuartileMedianUpper QuartileCurrent ratio0.51.431.89Quick ratio0.210.380.62Cash ratio0.080.210.39Total asset turnover0.680.851.38Inventory turnover4.896.1510.89Receivables turnover6.279.8214.11Total debt ratio0.440.520.61Debt?equity ratio0.791.081.56Equity multiplier1.792.082.56Times interest earned5.188.069.83Cash coverage ratio5.848.4310.27Profit margin4.05%6.98%9.87%Return on assets6.05%10.53%13.21%Return on equity9.93%16.54&.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#48845 | Written in 18-Jul-2015

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