Chris Guthrie was recently hired by Kiwi Yachts Ltd to help
the company with itsFINANCIAL planning and to evaluate the companys 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 companys 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.
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FIN – RATIOS AND FINANCIAL PLANNING AT KIWI YACHTS LTD
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Mark and Todd have provided the followingFINANCIAL
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
Debtequity 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, debtequity 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.