Case Study: S&S Air Inc.
Founders of S&S Air, Inc. Mark Sexton and Todd Story recently hired Chris Guthrie to come on board as their financial planner. His job entailed gaining valuable information as to compare how their company was fairing with competing companies in the aircraft manufacturing industry. Through his research, Guthrie calculated many ratios through the careful examination of S&S Air’s balance sheet and income statement for the year ended 2009. With all of his research, Guthrie will be able to show the information he gathered to the board at S&S Air Inc. which in turn will help them make informed decisions based on the company’s valuation. When Guthrie got to S&S he only had a limited knowledge about the company. He had known that two friends Mark Sexton and Todd Story had founded the company 10 years prior, and that they manufacture and sell light airplanes. Their production of light airplanes was remarkable. They only sell two models of planes, which make for a much shorter production time. They sell the Birdie for $53,000 and the Eagle for $78,000, each only taking an average of five weeks to complete due to the prefabricated parts S&S uses to manufacture the aircrafts. As way of payments, they receive a deposit on each order, as well as a partial payment before the order is even completed. With their unusually fast manufacturing time, they are able to keep their current ratio at 1.45, which is almost dead even with the industry median average of 1.43. The current ratio measures a company’s ability to pay short-term obligations. The quick ratio of S&S, which is an indicator of a company’s short-term liquidity, is fairly liquid at .88 compared to a median industry average of .84. Guthrie calculated the ratio of the company’s total cash and cash equivalents to its current liabilities (cash ratio) to be .17, which is not too much lower than the median industry average of...
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