Question

1. Using the financial statements provided for S&S Air, calculate each of the ratios listed in the table above for the light aircraft industry.
2. 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.

AutoSave O on A 2. ) $ - P Search Extra 1 Ratio Irfan Butt A Share Design Mailings P Comments File References Review View Help Picture Format Home Insert Draw Layout Tom Smith was recently hired by S&S Air, Inc., to assist the company with its financial planning and to evaluate the company's performance. Tom graduated from college five years ago with a finance degree. He has been employed in the 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 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 own airplanes. The company has two models; the Birdie, which sells for $103,000, and the Eagle, which sells for $178,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. S&S Air builds aircraft to order. By using prefabricated parts, the company can complete the manufacture of an airplane in only five 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. Mark and Todd have provided the following financial statements. Tom has gathered the industry ratios for the light airplane manufacturing industry. S&S AIR, INC. 2018 Income Statement $46,298,115 Sales Cost of goods sold 34,536,913 5,870,865 Other expenses Depreciation 2.074.853 EBIT $ 3,815,484 Interest 725.098 Taxable income $ 3,090,386 Taxes (25%) 772.597 $ 2,317,789 Net income S 705,000 Dividends Add to retained earnings 1,612,789 D Focus Page 1 of 2 418 words 109% 1:01 PM P Start a search 1/29/2020

Answer 1

current ratio	current assets / current liabilities
	2018 ($)
total current assets	2603218
total current liabilities	3507909
current ratio	0.74
current ratio is below the industry
quick ratio	(cash + accounts receivable) / current liabilities
	2018 ($)
cash	524963
accounts receivable	843094
total	1368057
total current liabilities	3507909
quick ratio	0.39
quick ratio is below the industy
cash ratio	cash and cash equivalent / current liabilities
	2018 ($)
cash and cash equivalent	524963
total current liabilities	3507909
cash ratio	0.15
cash ratio is below the industry
total asset turnover	sales / ending total assets
	2018 ($)
sales	46298115
ending total assets	22985163
total asset turnover	2.01
total asset turnover is above the industry , hence	positive
inventory turnover	cost of goods sold / ending inventory
	2018 ($)
cost of goods sold	34536913
ending inventory	1235161
inventory turnover	27.96
inventory turnover is very high compared to industry, further investigation needs to be done
receivables turnover	sales / ending receivable
	2018 ($)
sales	46298115
ending receivable	843094
receivable turnover	54.91
receivable turnover is very high compared to industy, hence furhter investigation is required
total debt ratio	total liabilities / total assets
	2018 ($)
total liabilities
current liabilities	3507909
long-term debt	6300000
total liabilities	9807909
total assets	22985163
total debt ratio	0.43
below in the industry, low debt ratio is considered good
debt-equity ratio	total debt / equity
	2018 ($)
notes payable	2439553
long-term debt	6300000
total debt	8739553
equity	13177254
debt-equity ratio	0.66
its below the industry but considered good
equity multiplier	total assets / total equity
	2018 ($)
total assets	22985163
equity	13177254
equity multiplier	1.74
its below the industry
profit margin	net income / net sales
	2018 ($)
net income	2317789
net sales	46298115
profit margin	5.01%
profit margin is below the industry, hence not a good sign
return on assets	net income / ending total assets
	2018 ($)
net income	2317789
ending total assets	22985163
return on assets	10.08%
below the industry , not good
return on equity	net income / shareholders equity
	2018 ($)
net income	2317789
shareholders equity	13177254
return on equity	17.59%
above the industry , hence a good position