Finance Case Study S&S Air

1798 words - 8 pages

Ratios and financial planning 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 company's performance. Chris 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 ...view middle of the document...

50 | 1.43 | 1.89 |
Quick Ratio | 0.64 | 0.84 | 1.05 |
Cash Ratio | 0.08 | 0.21 | 0.39 |
Total Asset Turnover | 0.68 | 0.85 | 1.28 |
Inventory Turnover | 4.89 | 6.15 | 10.89 |
Receivables turnover | 6.27 | 9.82 | 11.51 |
Total Debt Ratio | 0.31 | 0.52 | 0.61 |
Debt-Equity Ratio | 0.58 | 1.08 | 1.56 |
Equity Multiplier | 1.58 | 2.08 | 2.56 |
Times Interest Earned | 5.18 | 8.06 | 9.83 |
Cash Coverage Ratio | 5.84 | 8.43 | 10.27 |
Profit Margin | 4.05% | 5.15% | 6.47% |
Return on Assets | 6.05% | 10.53% | 13.21% |
Return on Equity | 9.93% | 16.54% | 26.15% |

Questions and Answers:

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

Current ratio = Current assets/ Current liabilities
Current ratio = $3,138,220 / $2,162,080
Current ratio = 1.45 times

Quick Ratio = (Current assets – Inventory)/ Current liabilities
Quick Ratio = ($3,138,220 – 1,238,500) / $2,162,080
Quick Ratio = 0.88 times

Cash Ratio = Cash/ Current liabilities
Cash Ratio = $365,040 / $2,162,080
Cash Ratio = 0.17 times

Total Assets Turnover = Sales/ Total assets
Total Assets Turnover = $20,077,000 / $15,453,900
Total Assets Turnover = 1.30 times

Inventory Turnover = Costs of goods sold/ Inventory
Inventory Turnover = $14,985,000 / $1,238,500
Inventory Turnover = 12.10 times

Receivables Turnover = Sales/ Receivables
Receivables Turnover = $20,077,000 / $1,534,680
Receivables Turnover = 13.08 times

Total Debt Ratio = Total debt/ Total Assets
Total Debt Ratio = ($15,453,900 – 9,466,820) / $15,453,900
Total Debt Ratio = 0.39 times

Debt-Equity Ratio = Debt/ Equity
Debt-Equity Ratio = ($2,162,080 + 3,825,000) / $9,466,820
Debt-Equity Ratio = 0.63 times
Equity Multiplier = 1+ Debt-equity
Equity Multiplier = $15,453,900 / $9,466,820
Equity Multiplier = 1.63 times

Times Interest Earned = EBIT/ Interest
Times Interest Earned = $2,038,000 / $362,000
Times Interest Earned = 5.63 times

Cash Coverage = (EBIT + Depreciation)/ Interest
Cash Coverage = ($2,038,000 + 655,000) / $362,000
Cash Coverage = 7.44 times

Profit Margin = Net Income/ Sales
Profit Margin = $1,005,600 / $20,077,000
Profit Margin = 0.0501
Profit Margin = 5.01%

Return on Assets = Net Income/Total assets
Return on Assets = $1,005,600 / 15,453,900
Return on Assets = 0.0651
Return on Assets = 6.51%

Return on Equity = Net Income/ Total equity
Return on Equity = $1,005,600 / $9,466,820
Return on Equity = 0.1062
Return on Equity = 10.62%

2. Mark and Todd agree that a ratio analysis can provide a measure of a company’s performance. They have chosen Boeing as an aspirant company. Would you choose Boeing as an aspirant company? Why or why not?

Boeing probably would not be an ideal aspirant company for S&S Air to use for ratio analysis. This is because both companies...

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