Other Guidelines • The report with your solution should be formatted as a scientific report (or a mini-thesis) and sh
Posted: Thu Apr 28, 2022 11:10 am
Other Guidelines
• The report with your solution should be formatted as a scientific report (or a
mini-thesis) and should contain all the information necessary to be able to
o understand the procedures you used to arrive at your solution
o understand why you used these procedures (always give clear arguments)
o see the results of your computations (I do NOT accept references in the
text such as ‘see the Excel sheet’). In contrast, put your results in clearly
structured tables in your main text. I should be able to read and quote
your report without having to open additional files.
o see that you have thought about the interpretation of the results.
Case One: Ratio Analysis 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 Max 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. Thecompany has two models; the Birdie, which sells for GHS 53,000, and the Eagle, which
sells for GHS 78,000.
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 onehalf 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.
2021 Income Statement
GHS
Sales
30,499,420
Cost of goods sold
22,224,580
Other expenses
3,867,500
Depreciation
1,366,680
EBIT
3,040,660
Interest
478,240
Taxable Income
2,562,420
Taxes (40%)
1,024,968
Net income
1,537,452
Dividends
GHS560,000
Add to retained earnings
977,452Assets
Liabilities and Equity
GHS
GHS
Current assets
Current liabilities
Cash
441,000 Accounts payable
889,000
Accounts receivable
708,400 Notes payable
2,030,000
Inventory
1,037,120
Total current
liabilities
2,919,000
Total current
assets
2,186,520
Long-term debt
5,320,000
Fixed assets
Shareholder equity
Net plant and
equipment
16,122,400
Common stock
350,000
Retained earnings
9,719,920
Total equity
10,069,920
Total assets
18,308,920 Total liabilities and equity
18,308,920
Light Airplane Industry Ratios
Lower
Quartile Median
Upper
Quartile
Current ratio
0.50
1.43
1.89
Quick ratio
0.21
0.38
0.62
Cash ratio
0.08
0.21
0.39
Total asset turnover
0.68
0.85
1.38
Inventory turnover
4.89
6.15
10.89
Receivables turnover
6.27
9.82
14.11
Total debt ratio
0.44
0.52
0.61
Debt-equity ratio
0.79
1.08
1.56
Equity multiplier
1.79
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% 6.98%
9.87%
Return on assets
6.05% 10.53%
Return on equity
9.93% 16.54%
26.15%:
1. Using the financial statements provided for S&S Air, calculate each of the ratios
listed in the table for the light aircraft 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? There are
other aircraft manufacturers S&S Air could use as aspirant companies. Discuss
whether it is appropriate to use any of the following companies: Bombardier,
Embraer, Cirrus Design Corporation, and Cessna Aircraft Company.
3. 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?
• The report with your solution should be formatted as a scientific report (or a
mini-thesis) and should contain all the information necessary to be able to
o understand the procedures you used to arrive at your solution
o understand why you used these procedures (always give clear arguments)
o see the results of your computations (I do NOT accept references in the
text such as ‘see the Excel sheet’). In contrast, put your results in clearly
structured tables in your main text. I should be able to read and quote
your report without having to open additional files.
o see that you have thought about the interpretation of the results.
Case One: Ratio Analysis 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 Max 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. Thecompany has two models; the Birdie, which sells for GHS 53,000, and the Eagle, which
sells for GHS 78,000.
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 onehalf 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.
2021 Income Statement
GHS
Sales
30,499,420
Cost of goods sold
22,224,580
Other expenses
3,867,500
Depreciation
1,366,680
EBIT
3,040,660
Interest
478,240
Taxable Income
2,562,420
Taxes (40%)
1,024,968
Net income
1,537,452
Dividends
GHS560,000
Add to retained earnings
977,452Assets
Liabilities and Equity
GHS
GHS
Current assets
Current liabilities
Cash
441,000 Accounts payable
889,000
Accounts receivable
708,400 Notes payable
2,030,000
Inventory
1,037,120
Total current
liabilities
2,919,000
Total current
assets
2,186,520
Long-term debt
5,320,000
Fixed assets
Shareholder equity
Net plant and
equipment
16,122,400
Common stock
350,000
Retained earnings
9,719,920
Total equity
10,069,920
Total assets
18,308,920 Total liabilities and equity
18,308,920
Light Airplane Industry Ratios
Lower
Quartile Median
Upper
Quartile
Current ratio
0.50
1.43
1.89
Quick ratio
0.21
0.38
0.62
Cash ratio
0.08
0.21
0.39
Total asset turnover
0.68
0.85
1.38
Inventory turnover
4.89
6.15
10.89
Receivables turnover
6.27
9.82
14.11
Total debt ratio
0.44
0.52
0.61
Debt-equity ratio
0.79
1.08
1.56
Equity multiplier
1.79
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% 6.98%
9.87%
Return on assets
6.05% 10.53%
Return on equity
9.93% 16.54%
26.15%:
1. Using the financial statements provided for S&S Air, calculate each of the ratios
listed in the table for the light aircraft 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? There are
other aircraft manufacturers S&S Air could use as aspirant companies. Discuss
whether it is appropriate to use any of the following companies: Bombardier,
Embraer, Cirrus Design Corporation, and Cessna Aircraft Company.
3. 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?