Ratio Analysis at S&S Air, Inc. 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. Although 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 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 Mark and Todd have provided the following financial statements. Chris has gathered the industry ratios for the light airplane manufacturing industry. S&S AIR, INC 2020 Income Statement Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income $ 40,259,230 29,336,446 5,105,100 1,804,220 $ 4,013,464 630,520 3,382,944 1,353,178 $ 2,029,766 Dividends Add to RE 610,000 1,419,766 S&S AIR, INC 2020 Balance Sheet Assets Liabilities & Equity Current Assets Current Liabilities Cash 456,435 Accounts Payable $ 929,005 Accounts rec. 733,125 Notes Payable 2,121,350 Inventory 1.073,180 Total CL $ 3,050,355 Total CA $ 2.262,740 Long-term debt $ 5,500,000 Fixed assets Net PP&E Shareholder Equity Common stock Retained earnings Total Equity $ 17.723,430 $ 400,000 11,035,815 $ 11,435,815 Total Assets $ 19.986,170 Total L&E $ 19.986.170 Light Airplane Industry Ratios Lower Quartile Median Current Ratio 0.5 1.43 Quick Ratio 0.21 0.35 Total Asset Tumover 0.68 0.85 Inventory Turnover 4.89 6.15 Receivables Turnover 6.27 9.82 Total Debt Ratio 0.44 0.52 Debt-to-Equity Ratio 0.68 1.08 Equity Multiplier 1.68 2.08 Times Interest Earned 5.18 8.06 Cash Coverage Ratio 5.84 9.41 Profit Margin 4.05% 5.10% Return on Assets 6.05% 10.53% Return on Equity 9.93% 18.14% Upper Quartile 1.89 0.62 1.38 10.89 14.11 0.61 1.56 2.56 9.83 10.27 7.15% 13.21% 26.15% QUESTIONS 1. Using the financial statements provided for S&S Air, calculate cach of the ratios listed in the table for the light aircraft industry. (6 points) 2. 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. (6 points) 3. Identify the components of the Dupont Identity for S&S Air Inc's ROE. Next using the industry as the benchmark what suggestions (if any) do you have to help boost S&S Air Inc's ROE, support your answer? (6 points) Professionalism will be worth 2 points
