Subject: Finance and Accounting
Topic: LAKE OF EGYPT MARINA FINANCIALS
Language: English (U.S.)
Pages: 2
Instructions
Provide individual responses for the questions below: Spread the balance sheets and income statements of Lake of Egypt Marina, Inc., for 2015 and 2014 which are attached, Using the attached calculate the ratios for Lake of Egypt Marina, Inc., as of year-end 2015 What is “agency theory?” How can setting the appropriate goals for the firm minimize the agency problem? Differentiate between profit maximization and wealth maximization. Why must organizations focus on both shareholder wealth and the stakeholders? Differentiate between the three financial statements with which managers should be familiar. How are they linked?

Lake of Egypt Marina Financials

1.     Balance Sheet Spread

Total assets for 2015= $910,000,000

Total assets for 2014=$785,000,000

Lake of Egypt Marina Inc.

Balance Sheet as of December 31, 2014 and 2015

(in millions of dollars)

Assets

2015

2014

Liabilities and Equity

2015

2014

Current Assets:

Current Liabilities

Cash and marketable securities

8.24

8.28

Accrued wages and taxes

4.40

5.48

Accounts receivable

12.64

14.01

Accounts payable

9.89

10.19

Inventory

21.98

24.20

Notes Payable

8.79

8.92

Total

42.86

46.50

Total

23.08

24.59

Fixed Assets:

Long term debt

32.97

35.67

Stockholder’s Equity:

Gross Plant and Equipment

63.74

60

Preferred Stock

0.55

0.64

Less:

Depreciation

12.09

12.74

Common Stock and paid-in surplus

7.14

8.28

Net Plant and Equipment

51.65

47.26

Retained Earnings

36.26

30.83

Other long term assets

5.49

6.24

Total

57.14

53.50

Total

43.96

39.75

Total Assets

100.00%

100.00%

Total liabilities and equity

100.00%

100.00%








Income Statement Spread

Total sales in 2015=$515,000,000

Total sales in 2014=$432,000,000

Lake of Egypt Marina Inc.

Income Statement for Years Ending December 31, 2015 and 2014

(in millions of dollars)

2015

2014

Net Sales (all credit)

100.00%

100.00%

Less: Cost of Goods Sold

44.66

40.51

Gross Profit

55.34

59.49

Less:


Depreciation

4.27

4.63

Other Operating Expenses

5.83

5.79

Earnings before interest and taxes

45.24

49.07

Less: Interest

6.41

6.94

Earnings before taxes

38.83

42.13

Taxes

11.07

12.73

Net Income

27.77

29.40




2.     

Lake of Egypt Marina, Inc.

(dollar amounts are in millions for parts a through u).

a.      Current ratio

$310/$210=1.96 times

2.00 times

b.     Quick ratio

($390-$200)/$210=0.90 times

1.20 times

c.      Cash ratio

$75/$210=0.36 times

0.25 times

d.     Inventory turnover

$515/$200=2.58 times

3.60 times

e.      Days’ sales in inventory

($200*365)/$515=141.75 days

101.39 days

f.      Average collection period

($115*365)/$515=81.50 days

32.50 days

g.     Average payment period

($90*365)/$230=142.83 days

45.00 days

h.     Fixed asset turnover

$515/$520=0.99 times

1.25 times

i.       Sales to working capital

$515/($390-$210)=2.86 times

4.25 times

j.       Total asset turnover

$515/($910)= 0.57 times

0.85 times

k.     Capital intensity

$910/$515=1.77 times

1.18 times

l.       Debt ratio

($210+$300)/$910=56.04%

62.50%

m.   Debt to Equity

($210+$300)/$400=1.28 times

1.67 times

n.     Equity multiplier

($910/$400)=2.28 times

2.67 times

o.     Times interest earned

$233/$33=7.06 times

8.50 times

p.     Cash coverage

($233+$22)/$33=7.73 times

8.75 times

q.     Profit margin

$138/$515=26.80%

28.75%

r.       Basic earnings power

$233/$910=25.60%

32.50%

s.      ROA

$138/$910=15.16%

19.75%

t.       RCE

$138//4.94%

36.99%

u.     Dividend Payout

$65/$138=47.10%

35.00%

v.     Market-to-book ratio

$14.750/$6.077=2.43 times

2.55 times

w.   PE ratio

$14.750/$2.123=6.95 times

15.60 times

3.     Agency theory is concerned with solving problems that might arise between the principal and the agent. One main problem that can arise between the principal and the agent is when there is a conflict in interest between the two and the principal finds it difficult or expensive to verify the actions of the agent. A problem may also arise when both parties have different attitudes in regard to risk. Setting the appropriate goals for the firm can considerably minimize the agency problem. This is because the interests for both the principal and agent are encompassed in the goals. These goals are set with the interests of both parties in mind. The aligned goals will also ensure that the risk capabilities of both parties are taken into account when setting up the said goals.

4.     Profit maximization entails activities that are geared towards increasing the profit of the firm. On the other hand, wealth maximization refers to activities focused on accelerating the value or the worth of the firm. The main objective is to earn bigger profits while its ultimate goal is to improve the market value of its shares.

5.     An organization needs to focus on both shareholder wealth and stakeholders because it is a network of people working together towards common goals, which include profit maximization of shareholders. Even the stakeholders such as employees and the public also have interests in the company. The company needs its stakeholders in order to continue making a profit for the shareholders. The organization is viewed as a coalition that should serve all the parties involved. Therefore, it is imperative that an organization focuses on the interests of both its shareholders and stakeholders.

6.     The three financial statements that all managers need to be familiar with are the cash flow statement, the balance sheet, and the income statement. All these financial statements are interrelated and it is important to understand how they are linked. For instance, the cash flow statement will explain the cash inflows and outflows and ultimately reveal how much cash the organization has in hand. This information will also be reported in the balance sheet. The income statement demonstrates how the assets and liabilities were utilized in the specific accounting period. The net income arrived at in the statement of income will help determine the amount of retained earnings in the balance sheet.