1. Using the financial statements provided for S&S Air, calculate each of the ratios listed in the table for the light aircraft industry.

Light Airplane Industry Ratios
	Lower Quartile	Median	Upper Quartile
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	.50 .21 .08 .68 4.89 6.27 .41 .68 1.68 5.18 5.84 4.05% 6.05% 9.93%	1.43 .35 .21 .85 6.15 9.82 .52 1.08 2.08 8.06 9.41 5.10% 9.53% 15.14%	1.89 .62 .39 1.38 10.89 14.11 .61 1.56 2.56 9.83 10.27 7.15% 13.21% 19.15%

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? 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: Bombardier, Embraer, Cirrus Aircraft Corporation, and Cessna Aircraft Company.

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 as inventory divided by current liabilities. How do you think S&S Airs ratio would compare to the industry average?

Chapter 9: Planning for Growth at S&S Air

1. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean?

2. S&S Air is planning for a growth rate of 12 percent next year. Calculate the EFN for the company assuming the company is operating at full capacity. Can the companys sales increase at this growth rate?

1. Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets must be increased in specific amounts because it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a staircase or lumpy fixed cost structure. Assume S&S Air is currently producing at 100 percent capacity. As a result, to increase production, the company must set up an entirely new line at a cost of $5,000,000. Calculate the new EFN with this assumption. What does this imply about capacity utilization for the company next year?

S&S AIR, INC. 2018 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (25%) Net income Dividends Add to retained earnings $46,298,115 34,536,913 5,870,865 2,074,853 $ 3,815,484 725,098 $ 3,090,386 772,597 $ 2,317,789 $ 705,000 1,612,789 S&S AIR, INC. 2018 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash Accounts receivable 524,963 843,094 1,235,161 $ 2,603,218 Accounts payable Notes payable Total current liabilities $ 1,068,356 2,439,553 $ 3,507,909 Inventory Total current assets Long-term debt $ 6,300,000 Fixed assets Net plant and equipment $20,381,945 $ 460,000 Shareholder equity Common stock Retained earnings Total equity Total liabilities and equity 12,717,254 $13,177,254 $22,985,163 Total assets $22,985,163 Light Airplane Industry Ratios Lower Quartile Upper Quartile Median .50 1.43 1.89 Current ratio Quick ratio .62 .39 1.38 .35 .21 .85 6.15 9.82 .52 10.89 14.11 .21 .08 .68 4.89 6.27 .41 .68 1.68 5.18 5.84 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 1.08 2.08 8.06 .61 1.56 2.56 9.83 10.27 9.41 4.05% 7.15% 6.05% 5.10% 9.53% 15.14% 13.21% 9.93% 19.15%