S&S AIR, INC. CASE STUDY 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 company has two models: the Birdie, which sells for $53,000, and the Eagle, which sells for $78,000 While 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. 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. Chris has gathered the industry ratios for the light airplane manufacturing industry. S&S AIR, INC 2019 Income Statement $26,501,600 Sales Cost of goods sold Other expenses Depreciation $19,780,200 $3,166,700 $864,500 506 words English (Canada) Accessibility: Good to go EBIT $2,690,200 Interest Taxable income Taxes (21%) $479,200 $2,211,000 $464,310 $1,746,690 $270,600 Net Income Dividends Additions to retained earnings $1,476,090 S&S AIR, INC 2019 Balance Sheet Assets Liabilities and Equity Current Assets Current Liabilities Cash $481,852 Accounts payable $944,698 Account receivable $2,025,778 Notes payable $1,909,248 Inventory $1,634,820 Total current Liab $2,853,946 Long-term debt $5,060,000 Total Current Assets $4,142,450 Shareholder equity Common stock $190,000 Fixed Assets Retained earnings $12,295,202 Net plant and Total Equity $12,485,202 equipment $16,256,698 Total Assets $20,399,148 Liabilities and equity $20,399,148 Light Airplane Industry Ratios Lower Quartile Median Upper Quartile 0.50 1.43 1.89 Current Ratio Quick Ratio 0.64 0.84 Cash Ratio 1.05 0.08 0.21 0.39 Total asset turnover 0.068 0.85 1.13 Inventory turnover Receivable turnover 4.89 6.15 10.89 6.27 9.82 11.51 Total debt ratio 0.31 0.52 0.61 0.58 1.08 1.56 Debt-equity ratio Equity multiplier Times interest earned 1.58 2.08 2.56 5.18 8.06 9.83 Cash coverage ratio 5.84 8.43 10.27 Profit margin 4.05% 6.75% 8.47% Return on assets 6.05% 10.53% 13.21% Return on equity 9.93% 16.54% 26.15% Questions 1. Calculate the ratios for S&S Air that are shown for the industry? 2. Mark and Todd agree that a ratio analysis can provide a measure of the company's performance. They have chosen Boeing as an aspirant company. Would you choose Boeing as an aspirant company? Why or why not? 3. Company 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 by inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average? 4. Calculate the internal growth rate and sustainable growth rate for S&S Air. What do these numbers mean