Preparing the Case Analysis

Step 1. Define the problem

• Be sure to identify the problem and not the symptom of a problem. For example, a decline in sales is a symptom of a problem; you must identify the actual cause of the decline in sales.

Step 2. Formulate alternative solutions to the problem

• It may be helpful to brainstorm as many solutions as you can and then narrow your list down to three or four solutions you feel are the strongest.

Step 3. Evaluate and compare the alternative solutions

• To evaluate alternative solutions you should consider their strengths (e.g., increased productivity) and their weaknesses (e.g., increased cost).

Step 4. Recommend and justify an effective solution

• Be sure to record the reasons why the chosen solution is most effective. In your analysis you must provide a recommendation that is supported by your analysis.

MINI CASE Ed Cowan was recently hired bu Tuxedo Air Inc. to assist the organization with its financial planning and to evaluate the organization's performance. Ed graduated from university six years ago with a finance degree. He has been employed in the finance department of a TSX100 company since then. Tuxedo Air was founded 12 years ago bu friends Mark Taulor and Jack Rodwell. The organization manufactured and sold light airplanes over this period, and its products have received high reviews for safety and reliability. The organization has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Sparrow, which sells for $53,000, and the Vulture, which sells for $78,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. Tuxedo Air builds aircraft to order. By using prefabricated parts, the organization can complete the manufacture of an airplane in only five weeks. The organization 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 Jack have provided the following financial statements. Ed has gathered the industry ratios for the light airplane manufacturing industry. Tuxedo Air Inc. 2015 Statement of Comprehensive Income Sales $36,59300 Cost of goods sold Other expenses 26,664496 4641,000 Depreciation 1640,200 $ 3,648,604 EBIT Interest 573,200 $ 3,075,404 Taxable income Taxes (40% ) 1230,162 Net income $ 1,845,242 $ 560,000 Dividends Add to retained earnings 1,285,242 Tuxedo Air Inc. 2015 Statement of Financial Position Lisbilities and Equity Assets Current assets CuIpt fabes $ 844,550 S 39%00 ouns poyable Notes poyebie Cash Accounts receivable 637,550 1928,500 Total curnent liobilities 2,773,050 Invenfory 933,400 Long-term debt Owners' equity $ 5,050,000 $1967,860 Total current assets Fixed assets $ 322,500 Net plant and equipment $15,411.620 Common stock Retained earnings 9,233,930 $ 556,430 $17,379 480 Total equity Total liabilities and owners' equity $17,379 480 Total assets Light Airplane Industry Ratios Median Upper Quartile Lower Quartile 1.89 143 0.50 0.62 0.38 Current ratio 0.21 Quick ratio Cash ratio 0.39 0.21 0.08 1.38 0.85 0.68 Total asset turnover 6.15 10.89 4.89 Inventory turnover Receivables turnover 9.82 14.11 6.27 0.52 0.61 0.44 Total debt ratio 1.08 Debt-equity ratio Equity multiplier Times interest earned 0.79 1.56 2.08 179 2.56 8.06 5.18 983 Cosh coverage ratio Profit margin 5.84 8.43 10.27 4.05% 6.48 % 987% Refurn on assets 6.05% 10.53 % 13.21% Return on equity 443% 16.54 % 26.15 % Questions 1 Using the financial statements provided for Tuxedo Air, calculate each the light aircraft industry. he ratios listed in the table f 2. Mark and Jack agree that a ratio analysis can provide a measure of the company's performance. They hae chosen Bombardier as an aspirant company. Would you choose Bombardier as an aspirant compan Why or why not? There are other aircraft manufacturers Tuxedo Air could use as aspirant companes Discuss whether it is appropriate to use any of the following companies: Boeing, XOJET, Piper Aircrat and AeroCentury 3. Compare the performance of Tuxedo Air to the industry. For each ratio, comment on why it might as inventory divided by current liabilities. How do you think Tuxedo Air would compare to the industy viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated average? MINI CASE Ed Cowan was recently hired bu Tuxedo Air Inc. to assist the organization with its financial planning and to evaluate the organization's performance. Ed graduated from university six years ago with a finance degree. He has been employed in the finance department of a TSX100 company since then. Tuxedo Air was founded 12 years ago bu friends Mark Taulor and Jack Rodwell. The organization manufactured and sold light airplanes over this period, and its products have received high reviews for safety and reliability. The organization has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Sparrow, which sells for $53,000, and the Vulture, which sells for $78,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. Tuxedo Air builds aircraft to order. By using prefabricated parts, the organization can complete the manufacture of an airplane in only five weeks. The organization 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 Jack have provided the following financial statements. Ed has gathered the industry ratios for the light airplane manufacturing industry. Tuxedo Air Inc. 2015 Statement of Comprehensive Income Sales $36,59300 Cost of goods sold Other expenses 26,664496 4641,000 Depreciation 1640,200 $ 3,648,604 EBIT Interest 573,200 $ 3,075,404 Taxable income Taxes (40% ) 1230,162 Net income $ 1,845,242 $ 560,000 Dividends Add to retained earnings 1,285,242 Tuxedo Air Inc. 2015 Statement of Financial Position Lisbilities and Equity Assets Current assets CuIpt fabes $ 844,550 S 39%00 ouns poyable Notes poyebie Cash Accounts receivable 637,550 1928,500 Total curnent liobilities 2,773,050 Invenfory 933,400 Long-term debt Owners' equity $ 5,050,000 $1967,860 Total current assets Fixed assets $ 322,500 Net plant and equipment $15,411.620 Common stock Retained earnings 9,233,930 $ 556,430 $17,379 480 Total equity Total liabilities and owners' equity $17,379 480 Total assets Light Airplane Industry Ratios Median Upper Quartile Lower Quartile 1.89 143 0.50 0.62 0.38 Current ratio 0.21 Quick ratio Cash ratio 0.39 0.21 0.08 1.38 0.85 0.68 Total asset turnover 6.15 10.89 4.89 Inventory turnover Receivables turnover 9.82 14.11 6.27 0.52 0.61 0.44 Total debt ratio 1.08 Debt-equity ratio Equity multiplier Times interest earned 0.79 1.56 2.08 179 2.56 8.06 5.18 983 Cosh coverage ratio Profit margin 5.84 8.43 10.27 4.05% 6.48 % 987% Refurn on assets 6.05% 10.53 % 13.21% Return on equity 443% 16.54 % 26.15 % Questions 1 Using the financial statements provided for Tuxedo Air, calculate each the light aircraft industry. he ratios listed in the table f 2. Mark and Jack agree that a ratio analysis can provide a measure of the company's performance. They hae chosen Bombardier as an aspirant company. Would you choose Bombardier as an aspirant compan Why or why not? There are other aircraft manufacturers Tuxedo Air could use as aspirant companes Discuss whether it is appropriate to use any of the following companies: Boeing, XOJET, Piper Aircrat and AeroCentury 3. Compare the performance of Tuxedo Air to the industry. For each ratio, comment on why it might as inventory divided by current liabilities. How do you think Tuxedo Air would compare to the industy viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated average