Compare the performance of East Coast Yachts to the industry as a whole. For each, 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 would you interpret this ratio? How does East Coast Yachts compares to the industry average for this ratio?
The liquidity ratio of East Coast is below the industrial average for current ratio. This means that its liquidity is lower as compared to industry, however, the current ratio is above the lower quartile, and this indicates that there are companies with still lower liquidity than East Coast. This is negative since the liquidity is less than the industry
The turnover ratios are all higher than the industry median. The ratios are in the above quartile. This would imply that east coast is more efficient in the use of assets as compared to industry average. This is positive.
The financial leverage ratios are all below the industry median though they are above the lower quartile. This implies that East Coast Yachts has less debt than the industry average companies. This is positive.
The profit margin for the company is about the same as the industry median, the ROA is slightly higher than the industry median, and the ROE is quite above the industry median. East Coast Yachts seems to be performing well in the profitability area. This is positive.
Overall, East Coast Yachts’ performance seems good, although the liquidity ratios indicate that a closer look may be needed in this area. Inventory / Current Liabilities. This ratio would imply the amount of current liabilities that can be paid for from the sale of inventory. The ratio for East Coast is 0.31. Since the industry average is not known for this ratio, it cannot be compared.
Current ratio is lower than the industry median of 1.51 but higher than the lower quartile of .81. This could be viewed negatively by the industry because the lower the current ration the less liquid a company is. So East Coast Yachts is not as liquid of a company as some of the companies that are in the upper quartile. It could also be viewed as positively since the company has a higher current ratio than one. If the current ratio drops below one that means that the company has a negative networking capital. East Coast Yachts has a ratio of 1.12 which is fairly close to 1 so it would probably be viewed negatively by the industry especially by short term creditors.
East Coast Yachts quick ratio is .66. This is a little less than the industry median. It would be viewed as negatively because it is lower than most other companies in the industry. This means that the company has less of an ability to meet it short-term obligations with its most liquid assets than other companies in the industry.
Total asset turnover ratio would be viewed negatively because it is so low. It shows that for every dollar in assets the company only generates $0.66 in revenue. This is almost half of what the lower quartile of the industry is doing so they are not generating much revenue as other companies are compared to their assets.
Inventory turnover would be viewed positively. There are in the upper quartile of the industry when it comes to inventory turnover. This means that they are effectively managing their inventory because they have such a high inventory turnover rate.
Receivables turnover would be viewed very positively. They are in the upper quartile and this means that they are quickly able to collect on their accounts receivable.
The debt ratio of East Coast Yachts is .40 which means they have more assets than debt. This number is very close to the industry median and could viewed positively since it is less than one and means they have more assets than they do debt.
The debt to equity ratio of East Coast Yachts is 0.69. This puts them in the upper quartile in their industry. This could be viewed as negative because this means that they have a higher chance for a big loss than other companies in the industry because they have a higher debt to equity ratio. It can also be possibly viewed as positive because since they have a higher ration they can also have larger gains then other companies in the industry with lower debt to equity ratios.
The equity multiplier of East Coast Yachts is 1.66. This could be viewed negatively because is puts them in the upper quartile. Since they have a higher equity multiplier this means that they are relying more heavily on debt to finance their assets.
The interest coverage of East Coast Yachts is 7.96 which could be viewed negatively because it is lower than the industry median. This means that the company is more burdened with debt than most other companies in the industry.
The profit margin of East Coast Yachts is 7.51 which is just slightly above the industry median. This would be viewed positively because this means that the company is profitable, but it could also be viewed negatively because they are very close to the median which means there are many more companies that are more profitable and better at managing their costs than East Coast Yachts is.
East Coast Yachts has a ROA percentage of 13.11. This is higher than the industry median and very close to putting them in the upper quartile. This would be viewed positively because this means that the company is more profitable than most other companies in the industry in comparison to their assets.
East Coast Yachts has a ROE of 21.76% which is higher than the industry median and slightly below the upper quartile percentage. This would be viewed positively by the industry because this means that the company is profitable and close to being in the upper quartile in terms of profitability in the industry.
To compare the performance of East Coast Yachts to the industry as a whole, we need more information about their financial indicators. However, I can help you analyze the interpretation of an inventory ratio as requested.
The inventory ratio is calculated by dividing a company's inventory by its current liabilities. This ratio measures the ability of a company to cover its short-term obligations with its inventory.
Interpreting the ratio:
- A high inventory ratio indicates that a company has a large amount of inventory relative to its current liabilities. This could be viewed as positive because it suggests that the company has enough inventory to cover its short-term obligations.
- On the other hand, a low inventory ratio suggests that a company may struggle to meet its short-term obligations with its inventory. This could be seen as a negative factor, as it implies potential difficulty in fulfilling short-term liabilities.
Without specific data on East Coast Yachts' inventory ratio, it is challenging to make a direct comparison to the industry average. However, if East Coast Yachts has a higher inventory ratio than the industry average, it may suggest favorable financial health relative to its industry peers. Conversely, if its inventory ratio is below the industry average, it may indicate a potential weakness compared to the industry as a whole.
Please provide further financial information about East Coast Yachts for a more comprehensive analysis of its performance relative to the industry.
To compare the performance of East Coast Yachts to the industry as a whole, you need to gather financial data from both sources and analyze them. Here's how you can approach this task:
1. Collect financial data: Obtain the financial statements for East Coast Yachts, which include the income statement, balance sheet, and statement of cash flows. You'll also need the financial statements of other companies in the industry to determine the industry average.
2. Determine relevant performance metrics: Identify the key performance indicators (KPIs) that are commonly used in the industry for comparison. Some common metrics to consider are profitability ratios (e.g., profit margin, return on assets), liquidity ratios (e.g., current ratio, quick ratio), and efficiency ratios (e.g., inventory turnover, asset turnover).
3. Compare East Coast Yachts to industry benchmarks: Calculate the selected KPIs for East Coast Yachts and the industry average. Then, compare the values to see how East Coast Yachts' performance differs from the industry as a whole. For each comparison, evaluate whether the difference is positive or negative relative to the industry and provide an explanation.
For example, suppose you calculate the inventory ratio (inventory divided by current liabilities) for East Coast Yachts. This ratio measures the company's ability to pay off its short-term obligations using its inventory. Here's how to interpret this ratio and compare it to the industry average:
- Interpretation: A higher inventory ratio indicates that a company has more inventory relative to its current liabilities. This could be viewed positively as it suggests that the company has enough inventory to cover its short-term obligations.
- Comparing to industry average: Calculate the inventory ratio for East Coast Yachts and compare it to the average inventory ratio in the industry. If East Coast Yachts' ratio is higher than the industry average, it may indicate a positive performance relative to the industry. On the other hand, if the ratio is lower than the industry average, it may be viewed as negative.
To draw specific conclusions about East Coast Yachts' performance relative to the industry, you'll need to analyze multiple financial metrics and compare them systematically.