CHAPTER 3 Working with Financial Statements 95 CHAPTER CASE Ratios and Financial Planning at S&S Air, Inc. Chris partial payment before the order is complete. In con trast, a commercial airplane may take one and one-half 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 for the light airplane manufacturing Industry SES AIR, INC 2019 Income Statement hris 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 For tune 500 company since then. S&S Ait 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 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 opera- tions are different from commercial 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 re- ceives a deposit on each order, as well as another Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxas (21) Net income Dividendis Additions to retained earnings $26.501,600 19.780.200 3,166,700 864.500 $ 2,690,200 479,200 $ 2.211.000 454,310 $ 1,746,690 $270.500 1.476,090 SES AIR, INC 2019 Balance Sheet Assets Liabilities and Equity Current assets Currentes Cash $ 481852 Accounts payable $944,698 Accounts receivable 2,025,778 Notes payable 1.909 248 Inventory 1.634,820 Total currencies $2.853.946 Total current assets $ 4.142.450 Fixed assets Long term debet $ 5,050,000 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 abilities and equity $20,390 140 PART 2 Understanding Financial Statements and Cash Flow Light Airplane Industry Ratios Lower Quartile Median Upper Quartile .50 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 .64 .08 .68 4.89 6.27 .31 .58 1.58 5.18 5.84 4.05% 6.05% 9.93% 1.43 .84 21 .85 6.15 9.82 .52 1.08 2.08 8.06 8.43 6.75% 10.53% 16.54% 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
