MINICASE Ratio Analysis at S&S Air, Inc. Chris Guthrie was recently hired by S&S Aic, 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 Force 510 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 cwn airplanes. The company has two models: the Birdie, which sells for S103.000, and the Eagle, which sells for $178,000 Although the company manufactures aircraft, its operations are different from commercial aircraft companies. S&S Air huilds aircraft to order. By using prefabricated parts, the com- pany can complete the manufacture of an airplane in only five weeks. The company also receives a deposit on cach order, as well as another partial payment before the order is complete. In contrast, a corrimercial airplane may take one and one-half to two years to manufacture once the order is placed. Mark and Tudd have provided the following financial state- ments. Chris bas gathered the industry ratios for the light air- plane manufacturing industry SAS AIR, INC. 2018 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (259) Net ncome Dividends $ 705.000 Add to retained eamings 1,612,789 $46.298,115 34,536,913 5.870.865 2,074,853 $ 3,815,484 725,098 $ 3,090,386 772.597 $ 2317,789 5&S AIR, INC 2018 Balance Sheet Assets Current assets Cash Accounts receivable Inventory Total current assets $ 524,963 843,094 1.235,161 $ 2,603,218 Liabilities and Equity Currert liabilities Accounts payable $ 1,068.356 Notus payable 2,439,553 Total current liabilities $ 3,507,909 Long-term debt $ 6,300.000 Fixed assets Net plant and equipment $20.381945 Shareholder equity Common stock Retained earnings Tatal equity Total liabilities and equily $ 460.000 12,717.254 $13,177,254 $22.985,163 Tatal assets $22.985,163 Uppes Quartile 1.89 62 .39 1.38 Light Airplane Industry Ratios Lower Quartile Modian Current ratio 50 1.43 Quick ratio 21 .35 Cash ratio 08 .21 Total asset turnover 68 85 Inventory turnover 489 6.15 Receivables turnover 6.27 9.82 Total debt ratio 41 52 Debt-equity ratio .68 1.08 Equity multiplier 1.68 2.08 Times interest earned 5 18 8.06 Cash coverage ratia 5.84 9.41 Profit margin 4.05% 5.10% Return on ossets 6.05% 9.53% Retum on equity 9.93% 15.14% 1089 14.11 .61 1.56 2.56 983 10.27 7.15% 13 21% 19.15% QUESTIONS 1. Using the financial statements provided for S&S Air. calculate each of the ratios listed in the table for the hght aircraft industry, 2. Mark and Todd agree that a ratio analysis can pro vide 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? 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 Air- craft 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 rutio calculated as inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average! MINICASE Ratio Analysis at S&S Air, Inc. Chris Guthrie was recently hired by S&S Aic, 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 Force 510 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 cwn airplanes. The company has two models: the Birdie, which sells for S103.000, and the Eagle, which sells for $178,000 Although the company manufactures aircraft, its operations are different from commercial aircraft companies. S&S Air huilds aircraft to order. By using prefabricated parts, the com- pany can complete the manufacture of an airplane in only five weeks. The company also receives a deposit on cach order, as well as another partial payment before the order is complete. In contrast, a corrimercial airplane may take one and one-half to two years to manufacture once the order is placed. Mark and Tudd have provided the following financial state- ments. Chris bas gathered the industry ratios for the light air- plane manufacturing industry SAS AIR, INC. 2018 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (259) Net ncome Dividends $ 705.000 Add to retained eamings 1,612,789 $46.298,115 34,536,913 5.870.865 2,074,853 $ 3,815,484 725,098 $ 3,090,386 772.597 $ 2317,789 5&S AIR, INC 2018 Balance Sheet Assets Current assets Cash Accounts receivable Inventory Total current assets $ 524,963 843,094 1.235,161 $ 2,603,218 Liabilities and Equity Currert liabilities Accounts payable $ 1,068.356 Notus payable 2,439,553 Total current liabilities $ 3,507,909 Long-term debt $ 6,300.000 Fixed assets Net plant and equipment $20.381945 Shareholder equity Common stock Retained earnings Tatal equity Total liabilities and equily $ 460.000 12,717.254 $13,177,254 $22.985,163 Tatal assets $22.985,163 Uppes Quartile 1.89 62 .39 1.38 Light Airplane Industry Ratios Lower Quartile Modian Current ratio 50 1.43 Quick ratio 21 .35 Cash ratio 08 .21 Total asset turnover 68 85 Inventory turnover 489 6.15 Receivables turnover 6.27 9.82 Total debt ratio 41 52 Debt-equity ratio .68 1.08 Equity multiplier 1.68 2.08 Times interest earned 5 18 8.06 Cash coverage ratia 5.84 9.41 Profit margin 4.05% 5.10% Return on ossets 6.05% 9.53% Retum on equity 9.93% 15.14% 1089 14.11 .61 1.56 2.56 983 10.27 7.15% 13 21% 19.15% QUESTIONS 1. Using the financial statements provided for S&S Air. calculate each of the ratios listed in the table for the hght aircraft industry, 2. Mark and Todd agree that a ratio analysis can pro vide 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? 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 Air- craft 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 rutio calculated as inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average