Answer the questions at the bottom

CHAPTER CASE Ratios and Financial Planning at S&S Air, Inc. Choisis the company certy times dial planning and to hris Guthrie was recently hired by S&S Air, Inc., to partial payment before the order is complete. In con- trast, a commercial airplane may take one and one-half evaluate the company's performance. Chris graduated to two years to manufacture once the order is placed. from college five years ago with a finance degree. He Mark and Todd have provided the following finan- has been employed in the finance department of a For- cial statements. Chris has gathered the industry ratios tune 500 company since then. for the light airplane manufacturing industry. S&S Air was founded 10 years ago by friends Mark Sexton and Todd Story. The company has manufactured S&S AIR, INC. and sold light airplanes over this period, and the com- 2019 Income Statement pany's products have received high reviews for safety and reliability. The company has a niche market in that it $26,501,600 19.780,200 sells primarily to individuals who own and fly their own Cost of goods sold Other expenses 3,166,700 airplanes. The company has two models: the Birdie, Depreciation 864,500 which sells for $53,000, and the Eagle, which sells for EBIT $ 2,690,200 $78,000 Interest 479,200 While the company manufactures aircraft, its opera- Taxable income $ 2,211,000 tions are different from commercial aircraft companies. Taxes (21%) 464,310 S&S Air builds aircraft to order. By using prefabricated Net Income $ 1,746,690 parts, the company is able to complete the manufacture Dividends $270,600 of an airplane in only five weeks. The company also re- Additions to retained 1,476,090 earnings ceives a deposit on each order, as well as another Sales S&S AIR, INC. 2019 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash $ 481,852 Accounts payable $ 944,698 Accounts receivable 2,025,778 Notes payable 1,909,248 Inventory 1,634.820 Total current liabilities $ 2,853,946 Total current assets $ 4,142,450 Fixed assets Long-term debt $ 5,060,000 Net plant and $16,256,698 Shareholder equity equipment Common stock $ 190,000 Retained earnings 12,295,202 Total equity $12,485,202 Total assets $20,399,148 Total liabilities and equity $20,399,148 Upper Quartile Current ratio Quick ratio Cash ratio Total asset turnover Inventory turnover Receivables turnover Total debt ratio Debt-equity ratio Equity multiplier Times interest earned Cash coverage ratio Profit margin Return on assets Return on equity Light Airplane Industry Ratios Lower Quartile Median .50 1.43 .64 .84 .08 21 .68 .85 4.89 6.15 6.27 9.82 31 .52 1.08 1.58 2.08 5.18 8.06 5.84 8.43 4.05% 6.75% 6.05% 10.53% 9.93% 16.54% 58 1.89 1.05 39 1.13 10.89 11.51 .61 1.56 2.56 9.83 10.27 8.47% 13.21% 26.15% QUESTIONS 1. Calculate the ratios for S&S Air that are shown for 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 company? Why or why not? 3. Compare the performance of S&S Air to the indus- try. For each ratio, comment on why it might be 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? 4. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? CHAPTER CASE Ratios and Financial Planning at S&S Air, Inc. Choisis the company certy times dial planning and to hris Guthrie was recently hired by S&S Air, Inc., to partial payment before the order is complete. In con- trast, a commercial airplane may take one and one-half evaluate the company's performance. Chris graduated to two years to manufacture once the order is placed. from college five years ago with a finance degree. He Mark and Todd have provided the following finan- has been employed in the finance department of a For- cial statements. Chris has gathered the industry ratios tune 500 company since then. for the light airplane manufacturing industry. S&S Air was founded 10 years ago by friends Mark Sexton and Todd Story. The company has manufactured S&S AIR, INC. and sold light airplanes over this period, and the com- 2019 Income Statement pany's products have received high reviews for safety and reliability. The company has a niche market in that it $26,501,600 19.780,200 sells primarily to individuals who own and fly their own Cost of goods sold Other expenses 3,166,700 airplanes. The company has two models: the Birdie, Depreciation 864,500 which sells for $53,000, and the Eagle, which sells for EBIT $ 2,690,200 $78,000 Interest 479,200 While the company manufactures aircraft, its opera- Taxable income $ 2,211,000 tions are different from commercial aircraft companies. Taxes (21%) 464,310 S&S Air builds aircraft to order. By using prefabricated Net Income $ 1,746,690 parts, the company is able to complete the manufacture Dividends $270,600 of an airplane in only five weeks. The company also re- Additions to retained 1,476,090 earnings ceives a deposit on each order, as well as another Sales S&S AIR, INC. 2019 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash $ 481,852 Accounts payable $ 944,698 Accounts receivable 2,025,778 Notes payable 1,909,248 Inventory 1,634.820 Total current liabilities $ 2,853,946 Total current assets $ 4,142,450 Fixed assets Long-term debt $ 5,060,000 Net plant and $16,256,698 Shareholder equity equipment Common stock $ 190,000 Retained earnings 12,295,202 Total equity $12,485,202 Total assets $20,399,148 Total liabilities and equity $20,399,148 Upper Quartile Current ratio Quick ratio Cash ratio Total asset turnover Inventory turnover Receivables turnover Total debt ratio Debt-equity ratio Equity multiplier Times interest earned Cash coverage ratio Profit margin Return on assets Return on equity Light Airplane Industry Ratios Lower Quartile Median .50 1.43 .64 .84 .08 21 .68 .85 4.89 6.15 6.27 9.82 31 .52 1.08 1.58 2.08 5.18 8.06 5.84 8.43 4.05% 6.75% 6.05% 10.53% 9.93% 16.54% 58 1.89 1.05 39 1.13 10.89 11.51 .61 1.56 2.56 9.83 10.27 8.47% 13.21% 26.15% QUESTIONS 1. Calculate the ratios for S&S Air that are shown for 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 company? Why or why not? 3. Compare the performance of S&S Air to the indus- try. For each ratio, comment on why it might be 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? 4. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean