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 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 receives a deposit on each order, 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 placed. Mark and Todd have provided the following financial statements. Chris has gathered the industry ratios for the light airplane manufacturing industry.

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?

Income statement S 25,698,709 COGS 18.678.098 ses ation EBIT S 3,201,612 Interest 450,987 S 2,750,625 1,100,250 S 1.650,375 axable income Taxes (40%) Net income S 250,875 Dividends Add to RE S 1,399,500 Balance sheet Assets Liabilities & Current Assets Current Liabilities 768,098 S 472.098 Accounts Payable 5 Accounts rec 1,798,076 Notes Payable Inventory 1,567,890 3,073,687 Total CA S 3,838,064 Long-term debt 540,987 Fixed assets Net PP&&E S 13,578,606 Shareholder E 234,098 13,567,898S Common stock Retained earnings 13,801,996 Total Assets S 17,416,670 Total L&E 17.416.670 Light Airplane Industry Ratios Lower Quartile Medlan Upper Quartile Current ratio Quick ratio Cash ratio Total asset turnover Invontory turnovor Receivables turnover Total debt ratio 4.89 10.89 9.82 6.27 Debt-equity ratio Equity multiplier Times interest earned Cash coverage ratico Profit margin 1.08 2.08 2.56 8.43 10.27 6.47% 13.21% 26.15% 4.05% 5.15% Return on assets 6.05% 10.53% Return on equity 9.93% 16.54% Income statement S 25,698,709 COGS 18.678.098 ses ation EBIT S 3,201,612 Interest 450,987 S 2,750,625 1,100,250 S 1.650,375 axable income Taxes (40%) Net income S 250,875 Dividends Add to RE S 1,399,500 Balance sheet Assets Liabilities & Current Assets Current Liabilities 768,098 S 472.098 Accounts Payable 5 Accounts rec 1,798,076 Notes Payable Inventory 1,567,890 3,073,687 Total CA S 3,838,064 Long-term debt 540,987 Fixed assets Net PP&&E S 13,578,606 Shareholder E 234,098 13,567,898S Common stock Retained earnings 13,801,996 Total Assets S 17,416,670 Total L&E 17.416.670 Light Airplane Industry Ratios Lower Quartile Medlan Upper Quartile Current ratio Quick ratio Cash ratio Total asset turnover Invontory turnovor Receivables turnover Total debt ratio 4.89 10.89 9.82 6.27 Debt-equity ratio Equity multiplier Times interest earned Cash coverage ratico Profit margin 1.08 2.08 2.56 8.43 10.27 6.47% 13.21% 26.15% 4.05% 5.15% Return on assets 6.05% 10.53% Return on equity 9.93% 16.54%