hris Guthrie was recently hired by SES Air, Inc., to partial payment before the order is complete. In con- trast, a commercial airplane may take one and one-half assist the company with its financial planning and to evaluate the company's performance. Chris graduated from college five years ago with a finance degree. He has been employed in the finance department of a For- to two years to manufacture once the order is placed. Mark and Todd have provided the following finan- cial statements. Chris has gathered the industry ratios tune 500 company since then. for the light airplane manufacturing industry sas Air was founded 10 years ago by friends Mark Sexton and Todd Story. The company has manufactured and sold light airplanes over this period, and the com- pany's products have received high reviews for safety and reliability. The company has a niche market in that it SES AIR, INC. 2019 Income Statement Sales $26,501,600 Cost of goods sold Other expenses Depreciation 19,780,200 sells primarily to individuals who own and fly their own 3.166,700 airplanes. The company has two models: the Birdie, which sells for $53,000, and the Eagle, which sells for 864,500 $ 2,690,200 EBIT $78,000. Interest 479,200 While the company manufactures aircraft, its opera- Taxable income $ 2,211,000 Taxes (21%) 464,3 10 tions are different from commercial aircraft companies. S8S Air builds aircraft to order. By using prefabricated parts, the company is able to complete the manufacture $ 1,746,690 Net income Dividends $270,600 Additions to retained 1,476,090 of an airplane in only five weeks. The company also re- ceives a deposit on each order, as well as another earnings SaS AIR, INC. 2019 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities $ 481,852 Cash Accounts recelvable Accounts payable Notes payable Total current liabilities $ 2,853,946 944,698 1,909,248 2,025,778 Inventory 1,634,820 Total current assets 4,142,450 $ 5,060,000 Fixed assets Long-term debt Shareholder equity Common stock $16,256,698 Net plant and equipment 190,000 12,295,202 Retained earnings $12,485,202 $20,399,148 Total equity Total assets $20,399,148 Total labilities and equity Light Airplane Industry Ratios Lower Quartile Median Upper Quartile Current ratio .50 1.43 1.89 Quick ratio .64 .84 1.05 Cash ratio .08 .21 .39 Total asset turnover .68 .85 1.13 Inventory turnover 4.89 6.15 10.89 Receivables turnover 6.27 9.82 11.51 Total debt ratio .31 .52 .61 Debt-equity ratio Equity multiplier .58 1.08 1.56 1.58 2.08 2.56 Times interest earned 5.18 8.06 9.83 8.43 Cash coverage ratio Profit margin 5.84 10.27 4.05% 6.75% 8.47% Return on assets 6.05% 10.53% 13.21% Return on equity 9.93% 16.54% 26.15% QUESTIONS 1. Calculate the ratios for S&S Air that are shown for viewed as positive or negative relative to the in- dustry. Suppose you create an inventory ratio cal- culated by inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average? the industry. 2. Mark and Todd agree that a ratio analysis can pro- vide a measure of the company's performance. They have chosen Boeing as an aspirant com- pany. Would you choose Boeing as an aspirant 4. Calculate the internal growth rate and sustainable company? Why or why not? growth rate for S&S Air. What do these numbers mean? 3. Compare the performance of S&S Air to the indus- try. For each ratio, comment on why it might be