Question 2 You have been recently hired by A&A Air, Inc., to assist the company with its financial planning and to evaluate the company's performance. A&A Air was founded 10 years ago by friends Jeffry Anderson and Nick Alexander. 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 Charlie, which sells for $53,000, and the Angel, which sells for $78,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. A&A Air builds aircraft to order. By using prefabricated parts, the company can 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. Jeffry and Nick have provided the following financial statements. You have gathered the industry ratios for the light airplane manufacturing industry. A&A AIR, INC. Statement of Profit or Loss for the year ended 31st March 2022 Sales $ 30,499,420 Cost of goods sold $ 22,224,580 Other expenses $ 3,867,500 Depreciation $ 1,366,680 EBIT $ 3,040,660 Interest $ 478,240 Taxable income $ 2,562,420 Taxes (40%) $ 1,024,968 Net income $ 1,537,452 Dividends Add to retained earnings $ 560,000 $ 977,452 A&A AIR, INC. Statement of Financial Position as at 31st March 2022 Equity & Liabilities $ Assets $ Shareholder equity - Common stock 350,000 Fixed assets Retained earnings Total equity 9,719,920 Net plant and equipment 10,069,920 16,122,400 Long-term debt 5,320,000 Current Assets Current liabilities Inventory 1,037,120 Notes payable Accounts payable Total current liabilities 2,030,000 Accounts receivable 708,400 889,000 Cash 441,000 2,919,000 Total current assets 2,186,520 Total liabilities and equity 18,308,920 Total Assets 18,308,920 Light Airplane Industry Ratios Ratio Lower Medium Upper Current ratio 0.50 1.43 1.89 Quick ratio 0.21 0.38 0.62 Total asset turnover 0.68 0.85 1.38 Inventory turnover 4.89 6.15 10.89 Receivables turnover 6.27 9.82 14.11 Total debt ratio 0.44 0.52 0.61 Debt-equity ratio 0.79 1.08 1.56 Equity multiplier 1.79 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% 6.98% 9.87% Return on assets 6.05% 10.53% 13.21% 9.93% 16.54% 26.15% Return on equity Questions: 1. Using the financial statements provided by A&A Air, calculate the ratios listed in the table. 2. Jeffry and Nick 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? There are other aircraft manufacturers that A&A Air could use as aspirant companies. Discuss whether it is appropriate to use any of the following companies: Sonex Aircraft. Phantom Aeronautics. Air-Tech Inc.. and Aero Adventure.