Case Ratios and Financial Planning 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 Mark 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 company has two models: the Birdie, which sells for $53,000, and the Eagle, which sells for $78.000. While the company manufactures aircraft, its operations are different from comercial aircraft companies. S&S Air builds aircraft to order. By using prefabricated parts, the company is able to complete the manufacture of an airplane in only five weeks. The company also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, a comercial airplane may take one and one-half to two years to manufacture once the order is placed. Mark and Todd have provided the following financial statements. Chris has gathered the industry ratios for the light airplane manufacturing industry. S&S AIR. INC. 2022 Income Statement Sales $29.151.760 Cost of goods sold 21,758,220 Other expenses 3,483,370 Depreciation 952.300 EBIT 2,957,870 Interest 528.170 Taxable income 2,429,700 Taxes (21%) 510.237 Net income 1,919,463 Dividends $ 297,660 Additions to retained $1.621.803 S&S AIR, INC. 2022 Balance Sheet Assets Liabilities Current assets Current liabilities Cash 530.037 Account payable 1,039,168 Accounts receivable 2,228,356 Notes payable 2,100,173 Inventory 1.798.302 Total Current liabilities $3,139,341 Total current assets $ 4.556.695 Fixed assets Long-term debt $5,570,000 Net plant and equipment $17.882.368. Shareholder equity Common stock $210,000 Retained earnings 13,519,722 Total equity $13,729,722 Total assets $22,439,063 Total liabilities and equity $22,439,063 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 .58 1.08 1.56 Equity multiplier 1.58 2.08 2.56 Times interest earned 5.18 8.06 9.83 Cash coverage ratio 5.84 8.43 10.27 Profit margin 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 the 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? 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 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?