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 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. 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 Cost of goods sold 19,780,200 3,166,700 Other expenses Depreciation 864,500 EBIT $ 2,690,200 Interest 479,200 $ 2,211,000 464,310 Taxable income Taxes (21%) Net income Dividends Additions to retained earnings $ 1,746,690 $270,600 1,476,090 Assets S&S AIR, INC. 2019 Balance Sheet Liabilities and Equity Current liabilities $ 481,852 Accounts payable 2,025,778 Notes payable 1,634.820 Total current liabilities $ 944,698 Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment 1,909,248 $ 2,853.946 $ 4,142,450 $ 5,060,000 $16,256,698 Long-term debt Shareholder equity Common stock Retained earnings $ 190,000 12,295,202 Assets Current assets Cash $ 481,852 Liabilities and Equity Current liabilities Accounts payable Notes payable Total current liabilities 944,698 Accounts receivable 2,025.778 1,909,248 Inventory 1,634,820 $ 2,853.946 Total current assets $ 4,142,450 $ 5,060,000 Fixed assets Net plant and equipment $16,256,698 $ 190,000 Long-term debt Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity 12,295,202 $12,485,202 Total assets $20.399,148 $20.399,148 Light Airplane Industry Ratios Lower Quartile Median Upper Quartile -50 1.43 1.89 .84 1.05 .64 .08 .21 .39 .68 .85 1.13 4.89 6.15 10.89 6.27 9.82 11.51 31 -52 .61 Current ratio Quick ratio Cash ratio Total asset turnover Inventory turnover Receivables turnover Total debt ratio Debt-equity ratio Equity multiplier Times interest earned Cash coverage ratio Profit margin Return on assets Return on equity -58 1.08 1.58 2.08 1.56 2.56 9.83 5.18 8.06 10.27 5.84 4.05% 6.05% 8.43 6.75% 10.53% 16.54% 8.47% 13.21% 26.15% 9.93% 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 company's performance. They have chosen Boeing as an aspirant company. Would you choose Boeing as an aspirant company? Why or why not? 3. 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. Suppose you create an inventory ratio calculated by inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average? 4. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean? 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 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. 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 Cost of goods sold 19,780,200 3,166,700 Other expenses Depreciation 864,500 EBIT $ 2,690,200 Interest 479,200 $ 2,211,000 464,310 Taxable income Taxes (21%) Net income Dividends Additions to retained earnings $ 1,746,690 $270,600 1,476,090 Assets S&S AIR, INC. 2019 Balance Sheet Liabilities and Equity Current liabilities $ 481,852 Accounts payable 2,025,778 Notes payable 1,634.820 Total current liabilities $ 944,698 Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment 1,909,248 $ 2,853.946 $ 4,142,450 $ 5,060,000 $16,256,698 Long-term debt Shareholder equity Common stock Retained earnings $ 190,000 12,295,202 Assets Current assets Cash $ 481,852 Liabilities and Equity Current liabilities Accounts payable Notes payable Total current liabilities 944,698 Accounts receivable 2,025.778 1,909,248 Inventory 1,634,820 $ 2,853.946 Total current assets $ 4,142,450 $ 5,060,000 Fixed assets Net plant and equipment $16,256,698 $ 190,000 Long-term debt Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity 12,295,202 $12,485,202 Total assets $20.399,148 $20.399,148 Light Airplane Industry Ratios Lower Quartile Median Upper Quartile -50 1.43 1.89 .84 1.05 .64 .08 .21 .39 .68 .85 1.13 4.89 6.15 10.89 6.27 9.82 11.51 31 -52 .61 Current ratio Quick ratio Cash ratio Total asset turnover Inventory turnover Receivables turnover Total debt ratio Debt-equity ratio Equity multiplier Times interest earned Cash coverage ratio Profit margin Return on assets Return on equity -58 1.08 1.58 2.08 1.56 2.56 9.83 5.18 8.06 10.27 5.84 4.05% 6.05% 8.43 6.75% 10.53% 16.54% 8.47% 13.21% 26.15% 9.93% 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 company's performance. They have chosen Boeing as an aspirant company. Would you choose Boeing as an aspirant company? Why or why not? 3. 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. Suppose you create an inventory ratio calculated by inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average? 4. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean