Air World Transportation (AWT), is a small but thriving manufacturer of private passenger Aircraft Company in the United States, had two of the most successful years in its history in 2018 and 2019. The companys sales of more than $57.3 million and profitability of almost $7.7 million were unprecedented; AWT had also issued more than two million dollars of common stock to retire $3.23 million of its long-term debt in 2019, both of which contributed to its low leverage.

Becoming and remaining financially sound was a difficult task in the Aircraft industry because of the typically long-life spans and hit-or-miss nature of the aircraft. Now, in January 2020, AWTs management was undergoing a financial policy review to determine whether the company could use its financial resources more efficiently and yet remain conservative.

Chris Andrews was hired recently by Air World Transportation Inc., to assist the company with its financial policy and to evaluate the companys performance. Chris graduated from college five years ago with a finance degree. He has been employed in the finance department of a Fortune 500 company since then.

Air World Transportation (AWT) was founded 10 years ago by two college engineers, John Saxton and Ted Parker. The Company has manufactured and sold light airplanes over this period and the companys products have received high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Birdie, which sells for $1,530,000, and the Eagle, which sells for $1,780,000. In 2018 the company sold 10 of each aircraft but was more successful of selling 20 of the Birdie and 15 of the Eagles.

Although the company manufactures aircraft, its operations are different from commercial aircraft companies. In contrast to commercial airplane companies that take one and one-half to two years to manufacture an airplane, the company can complete the manufacture of an airplane in less than six months. Below are the financial Statements for 2018-2019.

Income	2018	2019
Sales	$33,100,000	$57,300,000
COGS	$22,224,580	$38,473,367
Other expenses	$3,867,500	$6,695,098
Depreciation	$1,366,680	$2,365,884
EBIT	$5,641,240	$9,765,651
Interest	$478,240	$179,789
Taxable income	$5,163,000	$9,585,862
Taxes*	$2,065,200	$1,917,172
Net income	$3,097,800	$7,668,689
Dividends	$560,000	$2,684,041
Add to RE	$2,537,800	$4,984,648
*Company paid 40% in taxes 2018 and 20% in 2019

Assets	2018	2019	Liabilities & Equity	2018	2019
Current Assets			Current Liabilities
Cash	$441,000	$761,711	Accounts Payable	$889,000	$1,538,964
Accounts Receiv.	$708,400	$1,226,324	Notes Payable	$2,030,000	$2,030,000
Inventory	$1,037,120	$1,795,377	Total CL	$2,919,000	$3,568,964
Total CA	$2,186,520	$3,783,412
			Long-term debt	$5,320,000	$2,000,000
			Shareholder Equity
Fixed assets			Common stock ($.1 par)	$350,000	$2,550,000
Net PP&E	$16,122,400	$19,040,120	Retained earnings	$9,719,920	$14,704,568
			Total Equity	$10,069,920	$17,254,568
Total Assets	$18,308,920	$22,823,532	Total L&E	$18,308,920	$22,823,532

Part I- Using the financial statements calculate answer the following questions:

1. Explain the effect of capital restructuring on EPS in 2018 and 2019?
2. Explain the effect of government tax policy change of 2018 on net income of the company?
3. What are net profit margin and its effect on return on equity for 2018 and 2019?
4. What are the DuPont identities in 2018 and 2019?
5. What are interest coverage ratios in 2018 and 2019?
6. What are the total debt ratios in 2018 and 2019?
7. What are the total debt-to-equity ratios in 2018 and 2019?
8. What are the long-term debt-to-equity ratios in 2018 and 2019?
9. Explain the effect of debt retirement on financial policy of the company?

Part 2- After Chris answered the above questions, he was asked to project pro forma financial statements for the next two years. Chris was not sure about the growth rate of the company and at what rate sales will grow. The company sales had increased by almost 73% from 2018 to 2019.

10. Can you suggest how he should come up with a reasonable growth rate for the next two years?