Dan Ervin was recently hired by East Coast Yachts to assist the company with its short-term financial planning and also to evaluate the company?s financial performance. Dan graduated from college five years ago with a degree in finance, and he has been employed in the treasury department of a Fortune 500 company since then.
East Coast Yachts was founded 10 years ago by Larisa Warren. The company?s operations are located near Hilton Head Island, South Carolina, and the company is structured as an LLC.
The company has manufactured custom midsize, high-performance yachts for clients over this period, and its products have received high reviews for safety and reliability. The company?s yachts have also recently received the highest award for customer satisfaction. The yachts are primarily purchased by wealthy individuals for pleasure use. Occasionally, a yacht is manufactured for purchase by a company for business purposes.
The custom yacht industry is fragmented, with a number of manufacturers. As with any industry, there are market leaders, but the diverse nature of the industry ensures that no manufacturer dominates the market. The competition in the market, as well as the product cost, ensures that attention to detail is a necessity. For instance, East Coast Yachts will spend 80 to 100 hours on hand-buffing the stainless steel stem-iron, which is the metal cap on the yacht?s bow that conceivably could collide with a dock or another boat.
To get Dan started with his analyses, Larisa has provided the following financial statements. Dan has gathered the industry ratios for the yacht manufacturing industry.
1. Calculate all of the ratios listed in the industry table for East Coast Yachts.
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 calculated as inventory divided by current liabilities. How do you interpret this ratio? How does East Coast Yachts compare to the industry average?