Ratio Analysis at S & S Air, Inc.Chris Guthrie was recently hired by S&S Air, Inc., to assist thecompany with its financial planning and to evaluate the company'sperformance. Chris graduated from college five yearsago with a finance degree. He has been employed in the financedepartment of a Fortune 500 company since then.S&S Air was founded 10 years ago by friends MarkSexton and Todd Story. The company has manufactured andsold light airplanes over this period, and the company's productshave received high reviews for safety and reliability. Thecompany has a niche market in that it sells primarily to ind~viduals who own and fly their-own airplanes. The companyhas two models; the Birdie, which sells for $53,000, and theEagle, which sells for $78,000.Although the company manufactures aircraft, its operationsare different from commercial aircraft companies. S&SAir builds aircraft to order. By using prefabricated parts, thecompany can complete the manufacture of an airplane in onlyfive weeks. The company also receives a deposit on eachorder, as well as another partial payment before the order iscomplete. In contrast, a commercial airplane may take oneand one-half to two years to manufacture once the order isplaced.Mark and Todd have provided the following financialstatements. Chris has gathered the industry ratios for the lightairplane manufacturing industry.Income StatementSales 30,499,420Cost of goods sold 22,224,580Other expenses 3,867,500Depreciation 1,366,680EBIT 3,040,660Interest 478,240Taxable income 2,562,420Taxes (40%) 1,024,968Net income 1,537,452Dividends 560,000Add to retained earnings 977,452S&SAIR,INC.2006 Balance SheetAssetsCurrent assetsAccounts receivable 708,400 Cash $ 441,000Inventory 1,037,120 Total current assets $ 2,186,520Fixed assetsNet plant and equipment $16,122,400Total assets $18,308,920Liabilities and EquityCurrent liabilitiesAccounts payable $ 889,000Notes payable 2,030,000Total current liabilities $ 2,919,000Long-term debt $ 5,320,000Shareholder equityCommon stock $ 350,000Retained earnings 9,719,920Total equity $10,069,920Total liabilities and equity $18,308,920Light Airplane Industry RatiosLower quartilemedianUpper quartileCurrent Ratio.501.431.89Quick Ratio.21.38.62Cash Ratio.08.21.39Total Asset Turnover.68.851.38Inventory Turnover4.896.1510.89Receivables turnover6.279.8214.11Total Debt Ratio.44.52.61Debt-Equity Ratio.791.081.56Equity Multiplier1.792.082.56Times Interest Earned5.188.069.83Cash Coverage Ratio5.848.4310.27Profit Margin4.05%6.98%9.87%Return on Assets6.05%10.53%13.21%Return on Equity9.93%16.54%26.15%Questions:1.Using the financial statements provided for S &S Air, calculate each of the ratios listed in the table for the light aircraft industry.2.Mark and Todd agree that a ratio analysis can provide a measure of a 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 S &S Air could use as aspirant companies. Discuss whether it's appropriate to use any of the following companies: Bombiardier, Embracer, Cirrus Design Corporation, and Cessna Aircraft Company.3.Compare the performance of S & S Air to the industry. For each Ratio comment why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How do you think S & S Air's ratio would compare to the industry average.