CHAPTER CASE Ratios and Financial Planning at S&S Air, Inc. Light Airplane Industry Ratios Lower Quartile Median Upper Quartile hris Guthrie was recently hired by S&S Air, Inc., to partial payment before the order is complete. In con- Cassist the company with its financial planning and to 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 Sales and reliability. The company has a niche market in that it $26,501,600 Cost of goods sold 19,780,200 sells primarily to individuals who own and fly their own 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. 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 Additions to retained 1,476,090 of an airplane in only five weeks. The company also re- earnings ceives a deposit on each order, as well as another 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 50 .64 .08 .68 489 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% Interest QUESTIONS S&S AIR, INC 2019 Balance Sheet Assets Liabilities and Equity Current assets Cash $ 481,852 Accounts receivable 2,025,778 Inventory 1,634,820 Total current assets $ 4.142.450 Fixed assets Net plant and $16.256,698 equipment Current liabilities Accounts payable $ 944,698 Notes payable 1,909,248 Total current liabilities $ 2,853,946 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? $ 5,060,000 Long-term debt Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity growth rate for S&S A. Vardo these pe $ 190,000 12,295,202 $12,485,202 $20,399.148 Total assets $20.399,148
