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. Friends Mark Sexton and Todd Story founded S&S Air 10 years ago. 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 18 months - 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. SAS Air, Inc. 2014 Income Statement Sales $24,092,400 Sales Cost of goods sold 17,982,000 Other expenses 2,878,800 Depreciation 786,000 EBIT $ 2,445,600 Interest 434,400 Taxable income $ 2,011,200 Taxes (40%) 804,480 Net income $ 1,206,720 Dividends $246,000 Add. to retained earnings $960,720 SAS Air, Inc. 2014 Balance Sheet Assets Liabilities & Equity Current assets Current liabilities Cash $ 438,048 Accounts payable $ 858,816 Accounts receivable 1,841,616 Notes payable 1,735,680 Inventory 1,486,200 Total current liabilities $ 2,594,496 Total current assets $ 3,765,864 Long-term debt $ 4,590,000 Fixed assets Shareholder equity Net plant and equipment $14,778,816 Common stock $ 180,000 Retained earnings $11,180,184 Total equity $11,360,184 Total assets $18,544,680 Total liabilities & equity $18,544,680 Light Airplane Industry Ratios Lower Quartile Median Upper Quartile Current ratio 0.50 1.43 1.89 Quick ratio 0.64 0.84 1.05 Cash ratio 0.08 0.21 0.39 Total asset turnover 0.68 0.85 1.28 Inventory turnover 4.89 6.15 10.89 Receivables turnover 6.27 9.82 11.51 Total debt ratio 0.31 0.52 0.61 Debt-equity ratio 0.58 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% 5.15% 6.47% Return on assets 6.05% 10.53% 13.21% Return on equity 9.93% 16.54% 26.15% QUESTIONS: a. Calculate the ratios for S&S Air that are shown for the industry. b. 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? c. 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? d. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean?