East Coast Yachts Cash Flow Analysis

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Analyze company cash flows East Coast Yachts has a strong operating cash flow highlighted by strong earnings before interest and taxes of $88,416,000. With the addition of $20,160,000 in depreciation and subtraction of $30,921,000 in taxes, they managed an operating cash flow of $77,654,400. East Coast Yachts appears to be in or approaching a growth mode with their capital spending on fixed assets increasing by $60,000,000 during the fiscal year. However, they made the wise move of reducing the effect of this expenditure with the sale of $6,786,000 of fixed assets already on the books.

Further growth is evidenced by the positive net working capital cash flow of $4,670,560, a sign of a growing company. East Coast Yachts is making effective use of their assets; this is demonstrated by their total cash flow generated by assets coming to $19,769,840 during the fiscal year. A positive sign in their cash flow to creditors is their $33,912,000 in debt service, which included the retirement of $22,800,000 in debt. It appears that they covered the cost of their debt service with the proceeds from the sale of long-term debt producing $40,000,000.

East Coast Yachts had a large cash flow to stockholders at $53,550,960. They minimized the amount of cash paid to stockholders by issuing new stock producing $30,000,000 in proceeds. The wise cash flow management implemented by East Coast Yachts should be emphasized on their cash flow financial statement. Evaluate cash flow statement East Coast Yachts generated $61. 5M in cash flow from their normal yacht building and sales operations to cover the cash flows from investing and financing activities. The positive net income of $46M shows that their sales were able to outpace the cost of goods sold.

An additional $20,160,000 in depreciation assisted in increasing the cash flow from operations. They increased their inventory of yachts by $5,392,800, which shows they are preparing for future growth. Accounts receivable increased as well, but this could be attributed to an increase in sales of yachts over the course of the year. East Coast Yachts manage to decrease their accounts payable and accrued expenses. The $844,560 decrease in accounts payable is significant due to the reduction of debt during a growth phase. This can be seen as an excellent move as they prepare for future growth.

The preparation for growth can be seen as East Coast Yachts increased their fixed assets by $60,000,000. However, they managed to reduce their cash flow by $6,786,000 through the sale of fixed assets. Although the investment of $53,214,000 appears significant, it can be seen as necessary if the company plans to grow and needs to keep up with increased demand. East Coast Yachts managed to payoff $22,800,000 of debt during the year, which could be attributed to the proceeds from long-term debt of $40,000,000. They also managed to reduce their notes payable by $1,495,000 during the fiscal year.

The $17,550,960 paid in dividends is another sign of company in a growth mode and making a significant impact in their respective market. East Coast Yachts did repurchase $36,000,000 in stock during the fiscal year. The assumption would be that they repurchased the stock and then reissued a small number of shares at a greater price then purchased. Given the amount of growth intended actions that East Coast Yachts made throughout the fiscal year, they still managed to come out with a positive change of cash of $480,000. This speaks to the financial management decision makers and their expert financial guidance during this period.

Summarize company expansion plans East Coast Yachts are current on solid financial footing according to their short-term solvency / liquidity financial ratios. They have a healthy current ratio and quick (acid-test) ratio of 1. 12 and . 66 respectively. This positive outlook is further supported by their long-term solvency / financial leverage ratios. East Coast Yachts have an average debt ratio at . 48. This reflects that for every dollar generated by assets $. 48 goes to cover their liabilities. But, that also means that $. 52 of every dollar generated by their assets goes to retained earnings.

East Coast Yachts really shines based on their asset utilization ratios. Their inventory turnover is excellent and shows they are currently turning over their inventory 19. 22 times a year. This is good given the current economy and companies do not want to keep a large amount of unsold inventory on hand. Another great indicator of their financial standing is a healthy accounts receivable turnover ratio of 30. 57. This indicates that they are retiring and issuing new credit every 30. 57 days. This is an outstanding number given that their product is a high-end, expensive luxury item.

By gathering more information regarding East Coast Yachts profitability ratios it comes to light that they maintained an average profit margin and return on assets. Their profitability margin of 7. 51% is comparable to the industry average 7. 48%. This can also be said of their 11. 34% return on assets when compared to the industry average of 10. 67%. However, their return on equity is a strong 21. 76% when compared to the industry average of 22. 41%. East Coast Yachts appears to currently be at their sustainable growth rate of 15. 64%.

This is can be summarized by creating the pro forma balance sheet and recalculating the financial ratios. Comparing the current financial ratios and financial ratios based on projections for the sustainable growth rate shows that the ratios are very similar and extremely close in value. But to achieve the sustainable growth rate, East Coast Yachts will require $28,404,362 in external funding needed (EFN). The EFN will be used to cover the projected difference between the new assets and liabilities associated with the growth. East Coast Yachts is projecting an aggressive 20% growth rate for the following year.

With a projected growth rate of 20% the EFN is greatly increased to $72,203,120 to achieve the projected growth. And if the minimum fixed asset purchase is $95,000,000 the EFN is increased to an even greater number $110,513,720. This is important to know because the companies will most likely need to increase their fixed assets to achieve the projected growth and demand associated. Although, this EFN is a significant amount to request it will be realistically paid back using the net income generated by the investment and additional liability.