Case One: Ratio Analysis at S&S Air Inc. Chris Guthrie was recently hired by S&S Air Inc., to 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 Fortune 500 company since then. S&S Air was founded 10 years ago by friends Max Sexton and Todd Story, The company has manufactured and sold light airplanes over this period, and the company's 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 Page 1 of 6 company has two modes; the Bindic, which scis for GHS 53,000, and the Eagle, which sells for GHS 78,000 Although the company manufactures craft. its operations are different from commercial aircraft companies. S&S Air builds arcraft to order. By using prefabricated parts, the company can complete the manufacture of an airplane in only five weeks. The company also receives a deposit on cachonder, as well as another partial payment before the order is complete. In contrast , a commercial airplane may take one and one- half to two years to manufacture once the order is place! Mark and Todd have provided the following financial statements. Chris has gathered the industry ratics for the light airplane manufacturing industry. S&S AIR.INC 2021 Income Statement GHS Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable Income Taxes (40%) Net income 30,499,430 22.224,580 3,867,500 1,366,680 3,040,660 478,240 2,562,420 1.024 968 1,537,452 Dividends Add to retained earnings GHS56000 97.452 Parol Assets Current assets Cash Accounts receivable Inventory Total current assets S&S AIR, INC. 2021 Balance Sheet Liabilities and Equity GHS GHS Current liabilities 441,000 Accounts payable 889,000 708,400 Notes payable 2,030,000 Total current 1,037,120 liabilities 2,919,000 2,186,520 Long-term debt 5,320,000 Shareholder equity 16,122,400 Common stock 350,000 Retained carnings 9,719,920 Total equity 10,069,920 18,308,920 Total liabilities and equity 18,308,920 Fixed assets Net plant and equipment Total assets Light Airplane Industry Ratios Lower Upper Quartile Median Quartile Current ratio 0.50 1.43 1.89 Quick ratio 0.21 0.38 0.62 Cash ratio 0.08 0.21 0.39 Total asset turnover 0.68 0.85 1.38 Inventory tumover 4.89 6.15 10.89 Receivables turnover 6.27 9.82 14.11 Total debt ratio 0.44 0.52 0.61 Debt-equity ratio 0.79 1.08 1.56 Equity multiplier 1.79 2.08 2.56 Times interest earned 5.18 8.06 9.83 Cash coverage ratio 5.84 8.43 Profit margin 4.05% 6.98% 9.87% Return on assets 6.05% 10.53% 13.21% 10.27 Page 3 of 6 Return on equity 9.93% 16.54% 26.15% QUESTIONS: 1. Using the financial statements provided for S&S Air, calculate each of the ratios listed in the table for the light aircraft industry. 2. Mark and Todd agree that a ratio analysis can provide a measure of the company's performance. They have chosen Boeing as an aspirant company. Would you choose Boeing as an aspirant company? Why or why not? There are other aircraft manufacturers S&S Air could use as aspirant companies. Discuss whether it is appropriate to use any of the following companies: Bombardier, Embraer, Cirrus Design Corporation, and Cessna Aircraft Company. 3. Compare the performance of S&S Air to the industry. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average