Cash coverage ratio, profit margin, return on assets

Assignment Help Finance Basics

Reference no: EM13283304

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.

Reference no: EM13283304

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