Ratio Analysis At S&S Air, Inc. Chris Guthrie Was Recently Hired By S&S Air, Inc., To Assist Thecompany With Its Financial Planning And To Evaluate The Company'sperformance.

Ratio Analysis at S&S Air, Inc.

 Chris Guthrie was recently hired by S&S Air, Inc., to assist thecompany with its financial planning and to evaluate the company'sperformance. Chris graduated from college five yearsago with a finance degree. He has been employed in the financedepartment of a Fortune 500 company since then.

 S&S Air was founded 10 years ago by friends MarkSexton and Todd Story. The company has manufactured andsold light airplanes over this period, and the company's productshave received high reviews for safety and reliability. Thecompany has a niche market in that it sells primarily to individuals who own and fly their-own airplanes. The companyhas two models; the Birdie, which sells for $53,000, and theEagle, which sells for $78,000.

 Although the company manufactures aircraft, its operationsare different from commercial aircraft companies. S&SAir builds aircraft to order. By using prefabricated parts, thecompany can complete the manufacture of an airplane in onlyfive weeks. The company also receives a deposit on each

 order, as well as another partial payment before the order iscomplete. In contrast, a commercial airplane may take oneand one-half to two years to manufacture once the order isplaced.

 Mark and Todd have provided the following financialstatements. Chris has gathered the industry ratios for the lightairplane manufacturing industry.

 S&S Air INC.

2015 Income Statement

Sales $ 40,259,230

 Cost of goods sold 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 retained earnings 1,419,766

S&S Air Inc

                                                      2014 Balance Sheet

          Assets Liabilities & Equalities

Current assetsCurrent liabilities

 Cash $ 456,435 Accounts payable $ 929,005

Accounts receivable 733,125 Notes payable 2,121,350

 Inventory 1,037,180 Total current liabilities $ 3,050,355

 Total current assets $ 2,262,740

 Fixed assets Long-term debt $ 5,500,000

 Net plant and equipment$17,723,430 Shareholders equity common stock $ 400,000

                                                                             Retained earnings 11,035,815

                                                                             Total Equity $ 11,435,815

Total assets $19,986,170Total liabilities and equity$19,986,170

 Light Airplane Industry Ratios

Lower quartileMedianUpper quartile

Current Ratio .50 1.43 1.89

 Quick Ratio .21 .35 .62

 Cash Ratio .08 .21 .39

 Total Asset Turnover .68 .85 1.38

 Inventory Turnover 4.89 6.15 10.89

 Receivables turnover 6.27 9.82 14.11

 Total Debt Ratio .44 .52 .61

 Debt-Equity Ratio .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%

Instructions

In your textbook, Fundamentals of Corporate Finance, read:

Chapter 3, “Working with Financial Statements,” pages 57–80 (sections 3.3, 3.4, and 3.5)

Download and review the PowerPoint file Chapter 3 – Working with Financial Statements.ppt to help you further understand the chapter.

In your textbook, Fundamentals of Corporate Finance, complete the requirements of the Mini-case “Ratio Analysis at S&S Air, Inc.” on pages 89 and 90:

 Question # 1: Use an Excel spreadsheet to calculate each of the ratios listed in the table. Be sure to show your work.

Question #2: Briefly comment in your Excel spreadsheet on the appropriateness of Boeing and the other competitors as an aspirant company for comparison.

Question # 3: In your Excel spreadsheet, 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. (Exclude the second half of this question regarding the creation of an inventory ratio)