Financial ratios and performance analysis at East Coast Yachts

Ratios

In general East Coast Yachts has below average financial performance compared to its industry peers. With respect to solvency and liquidity, the company has a current ratio of 1.12 and a quick ratio of 0.66. Both of these lie below the median for the industry but are comfortably above the lower quartile. The debt ratio is 35.8% and the debt/equity ratio is 91.9%. These figures are also in the second quartile for the industry, with the debt ratio just above the cutoff for the lower quartile. Interest coverage is 7.95 times, again putting the company between the median and the lower quartile.

In terms of efficiency, total asset turnover is 1.51 times, inventory turnover is 19.2 times and receivables turnover is 30.6. The latter is in the upper quartile, indicating that the company has a good collections system. Total asset turnover is just above the lowest quartile while the inventory turnover is in the second-highest quartile. Taken as a whole, these figures are all over the map, but the receivables turnover and relatively high inventory turnover indicate that East Coast has a quick cash conversion cycle, which is positive in an industry with long product lead times.

The net margin at East Coast is 7.5%, which is right around the industry median of 7.48%. The return on assets is 11.3% and the return on equity is 21.7%. Both of these are above the median, with the latter being just below the cutoff for the upper quartile. These figures, and the others, when taken together, paint a picture of a middle-grade performer in the industry. There are no metrics in which East Coast is in the upper quartile and none in which it is in the upper quartile. The company's performance is soundly in the middle for its industry in every respect. Overall, there are more sub-par metrics for East Coast than there are metrics in which the company's performance is above par.

5. The efficient market hypothesis holds that in the long run, stock prices will reflect the accurate value of a company. This is because under EMH, all known information about the stock is incorporated into the stock price already (Malkiel, 2003). If an analyst can make a determination about mispriced stocks based on average prices, this should invalid EMH. The reason is that EMH should hold given all available knowledge, so there should not be any mispricing in the market, and any that might exist would only exist very temporarily until the knowledge is disseminated throughout the market. The type of knowledge that this analyst is using should not lead to identification of mispriced securities if EMH holds.

7. The implication of EMH is that it is impossible to beat the market. If weak-form EMH holds, then investors with inside knowledge that is not yet public could beat the market. But normally under EMH, and always under strong-form EMH, it is impossible to "beat the market" because securities are always accurately priced.