S&S AIR, INC. CASE STUDY Chris Guthrie was recently hired by S&S Air, Inc to assist the company with its financial plann

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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 F0rtune 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
Sales $26,501,600
Cost of goods sold $19,780,200
Other expenses $3,166,700
Depreciation $864,500
EBIT $2,690,200
Interest $479,200
Taxable Income $2,211,000
Taxes (21%) $464,310
Net Income $1,746,690
Dividends $270,600
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
Current Ratio​​​0.50​​​ 1.43​ 1.89
Quick Ratio​​​0.64​​​ 0.84​ 1.05
Cash Ratio​​​​0.08​​​ 0.21​ 0.39
Total asset turnover ​ 0.068​​​ 0.85​ 1.13
Inventory turnover ​ 4.89​​​ 6.15 10.89
Receivable 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%​​ 6.75% 8.47%
Return on assets ​6.05%​​ 10.53% 13.21%
Return on equity​ ​9.93% 16.54% 26.15%
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