Ratios and Financial Planning 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 companys 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 companys 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.

While 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 is able to 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.

2019 Income Statement

Sales $26,501,600

COGS 19,780,200

Other expenses 3,166,700

Depreciation 864,500 EBIT $ 2,690,200

Interest 479,200

EBT $2,211,000

Taxes (40%) 464,310

Net Income $1,746,690

Dividends $270,600

Additions to

Retained Earnings $1,476,090

S&S Air, Inc.

2019 Balance Sheet

Assets Liabilities & Equity

Current Assets Current Liabilities

Cash $ 481,852 AP $ 944,698 AR 2,025,778 Notes payable 1,909.248

Inventory 1,634,820 Total Current Liab. $ 2,853,946

Total Current Assets $4,142,450

Fixed Assets Long-term Debt

Net P&E $16,256,698 Shareholders Equity

Common Stock 190,000

Retained Earnings 12,295,202

Total Equity $12,485,202

Total Assets $20,399,148 Total Liabilities

and Equity $20,399,148

Light Airplane Industry Ratios

	Lower Quartile	Median	Upper Quartile
Current Ratio	.5	1.43	1.89
Quick Ratio	.64	.84	1.05
Cash Ratio	.08	.21	.39
Total Asset Turnover	.68	.85	1.13
Inventory Turnover	4.89	6.15	10.89
Receivables Turnover	6.27	9.82	11.51
Total Debt Ratio	.31	.52	.61
Debt-Equity Ratio	.58	1.08	1.56
Times Interest Earned	5.18	8.06	9.83
Cash Coverage Ratio	5.84	8.43	10.27
Profit Margin	4.05%	6.75%	9.47%
Return on Assets	6.05%	10.53%	13.21%
Return on Equity	9.93%	16.54%	26.15%

Questions

1. Calculate the ratios for S&S Air that are shown for the industry.

2. Mark and Todd agree that a ratio analysis can provide a measure of the companys performance. They have chosen Boeing as an aspirant company. Would you choose Boeing as an aspirant company? Why or why not. Outside research is necessary to answer this question.