Question

d Long-Term Financial Planning S&S AIR, INC 2018 Income Statement Sales Cost of goods sold Other expenses Depreciation EBIT Interest Taxable income Taxes (25%) Net income $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 Dividends $705,000 1,612,789 Add to retained earnings

1. 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 Air’s ratio would compare to the industry average?

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

Answer 1

The competitive analysis of S&S Air to the industry is as follows -

Short-Term Solvency Ratios

S&S Air is below the median industry ratios for the current and cash ratios.This implies that the company has less liquidity than the industry in general.The company may have more predictable cash flows, or more access to short-term borrowing. The quick ratio is above the industry median. This implies that S&S Air has about the same inventory to current liabilities as the industry median.

Turnover Ratios

The turnover ratios are all higher than the industry median. In fact, all three turnover ratios are above the upper quartile. This may mean that S&S Air is more efficient than the industry.

Financial leverage ratios

The financial leverage ratios are all below the industry median, but above the lower quartile. S&S Air generally has less debt than comparable companies, but still within the normal range

Profitability ratios

The profit margin for the company is about the same as the industry median, the ROA and ROE are both above the industry median.

Overall performance

Overall, S&S Air’s performance seems good, although a closer look at the inventory is needed.

Inventory to Current Liabilities Ratio

The inventory is higher than the industry median and the current liabilities are around the industry median.