Ratios and financial planning at S&S Air

Chris Guthrie was recently hired by S&S Air, Inc., to asset 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 is sells primarily to individuals who own and fly their own airplanes. The company has two models: the Birdie, which sells for $103,000, and the Eagle, which sells for $178,000

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 contast, a commercial airplane may take one and one-half to two years to manufacture once the order is placed.

Mark and Todd have provided financial statements (which are to the left and below).In addition, Chris has gathered the industry ratios for the light airplance manufacturing industry (below).

2019 Income Statement

Sales $ 40,259,230

COGS 29,336,446

Other expenses 5,105,100

Depreciation 1,804,220

EBIT $4,013,464

Interest 630,520

Taxable income $3,382,944

Taxes (40%) $ 1,353,178

Net income $2,029,766

Dividends $610,000

Add to RE $1,419,766

2019 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

Shareholder Equity

Fixed assets

Common stock $400,000

Net PP&E $ 17,723,430

Retained earnings 11,035,815

Total Equity $11,435,815 Total Assets $ 19,986,170

Total L&E $19,986,170

Industry

Lower Quartile Median Upper Quartile

Current ratio 0.50 1.43 1.89

Quick ratio 0.21 0.35 0.62

Cash ratio 0.08 0.21 0.39

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 0.68 1.08 1.56

Equity multiplier 1.68 2.08 2.56

Times interest earned 5.18 8.06 9.83

Cash coverage ratio 5.84 9.41 10.27

Profit margin 4.05% 5.10% 7.15%

Return on assets 6.05% 10.53% 13.21%

Return on equity 9.93% 18.14% 26.15%

Questions

1.Using the financial statements provided above, calculate each of the ratios listed in the industry table for S&S Air (all 14 of them).

2.Mark and Todd agree a ratio analysis can provide a measure of the company's performance.They have chosen Boeing as an aspirant (comparison) 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 is appropriate to use any of the following companies: Bombadier, Embraer, Cirrus Aircraft Corporation, and Cessna Aircraft Company.

3.Compare the performance of S&S Air to the industry, using the 14 ratios you calculated in part 1 and the industry table provided.For each ratio, comment on whether it would be viewed as positive or negative (favorable or unfavorable) to the industry and why.

4.calculate each of the ratios listed in the table.Be sure to show your work.

5.Briefly comment on the appropriateness of Boeing and the other competitors as an aspirant company for comparison

6.compare each calculated ratio to the industry ratios given in the table.Briefly explain whether the calculated ratio would be viewed positively or negatively relative to the industry and why.Note it is not enough to simply say whether a particular ratio is higher or lower than the industry.You need to interpret whether the ratio would be viewed favorably or unfavorably, demonstrating your understanding of each ratio.