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QUESTION: Take a closer look at S&S Air’s ROE through DuPont identity. Can Chris recommend any changes that could improve it further?

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aements link, and lis link, select follow the Finan- View Excel Document. This link will allow you to nd all of the financial statements in one Excel document. Download the Excel on that investigation? t and copy into the next worksheet. Use these statements to calculate the ratios orksheet. Do you notice any changes in these ratios that might indicate further MINICASE Ratio Analysis 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. Ch years ago with a finance d 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 high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who ris graduated from college five egree. He has been employed in the received

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S&S AIR, INC 2018 Income Statement PART 2 Financial Statements and Long Term Financial Planning 90 $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 own and fly their own airplanes. The company has two mo the Birdie, which sells for $103,000, and the Eagle, which se for $178,000. Although the company manufactures aircraft, its operations Cost of goods sold are different from commercial aircraft companies. S&s Air Other expenses builds aircraft to order. By using prefabricated parts, the com- Depreciation pany can complete the manufacture of an airplane in only tive 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. Interest Taxable income Taxes (25%) Net income $. 705,000 Mark and Todd have provided the following financial state- ments, Chris has gathered the industry ratios for the light air- plane manufacturing industry Dividends 1,612,789 Add to retained earnings S&S AIR, INC 2018 Balance Sheet Liabilities and Equity Assets Current liabilities $1,068,356 2,439,553 $3,507.909 $6,300,000 Accounts payable Notes payable $ 524.963 843,094 1,235,161 2,603,218 Accounts receivable Inventory Total current liabilities Total curent assts$2.603218 Long-term debt as Shareholder equity Common stock Net plant and equipment $20,381,945 $460,000 12,717,254 $13,177 254 Total liabilities and equity $22,985,163 Retained earnings Total equity Total assets $22,985,163 QUESTIONS 1. Using the financial statements provided for S&S Air, Light Airplane Industry Ratios Lower calculate each of the ratios listed in the table for the light aircraft industry. Current ratio 50 2. Mark and Todd agree that a ratio analysis can p ro- Quick ratico Cash ratio Total asset turnover Inventory turnover Receivables turnover Total debt ratio Debt-equity ratio Equity multiplier Times interest earned Cash coverage ratio vide 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 Air- craft Corporation, and Cessna Aircraft Company .08 68 1.38 61 1.68 5.18 2.08 8.06 9.83 3. Compare the performance of S&S Air to the industry or 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 liabilitics. How do you think S&S Airs ratio would compare to the industry average Profit margin 4.05% 6.05% 9.93% 5.10% Return on assets Return on equity 9.53% 13.21% 19.15%

Extra information:

Financial analysis calculations:

current ratio = 0.74

quick ratio = 0.39

cash ratio = 0.15

total asset turnover = 2.01

inventory turnover = 27.96

receivables turnover = 54.92

total debt ratio = 0.43

debt-equity ratio = 0.74

equity multiplier = 1.74

times interest earned = 5.26

cash coverage ratio = 8.12

profit margin = 0.05

return on assets = 0.10

return on equity = 0.18

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