Ratio Anlysis Ar S&S Air Inc

Only available on StudyMode
  • Download(s) : 400
  • Published : May 21, 2013
Open Document
Text Preview
CASE STUDY: RATIOS AND FINANCIAL PLANNING AT S&S AIR

1.The calculations for the ratios listed are:

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

Quick ratio = ($3,138,220 – 1,238,500) / $2,162,080
Quick ratio = 0.88 times

Cash ratio = $365,040 / $2,162,080
Cash ratio = 0.17 times

Total asset turnover = $20,077,000 / $15,453,900
Total asset turnover = 1.30 times

Inventory turnover = $14,985,000 / $1,238,500
Inventory turnover = 12.10 times

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

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

Debt-equity ratio = ($2,162,080 + 3,825,000) / $9,466,820
Debt-equity ratio = 0.63 times

Equity multiplier = $15,453,900 / $9,466,820
Equity multiplier = 1.63 times

Times interest earned = $2,038,000 / $362,000
Times interest earned = 5.63 times

Cash coverage = ($2,038,000 + 655,000) / $362,000
Cash coverage = 7.44 times

Profit margin = $1,005,600 / $20,077,000
Profit margin = 0.0501 or 5.01%

Return on assets = $1,005,600 / 15,453,900
Return on assets = 0.0651 or 6.51%

Return on equity = $1,005,600 / $9,466,820
Return on equity = 0.1062 or 10.62%

2. Boeing is probably not a good aspirant company. Even though both companies manufacture airplanes, S&S Air manufactures small airplanes, while Boeing manufactures large, commercial aircraft. These are two different markets. Additionally, Boeing is heavily involved in the defense industry, as well as Boeing Capital, which finances airplanes.

.S&S is above the median industry ratios for the current and cash ratios. This implies the company has more liquidity than the industry in general. However, both ratios are above the 3rd quartile, so there are companies in the industry with higher liquidity ratios than S&S Air. The company may have more predictable cash flows, or more access to short-term borrowing. If you created an inventory to current liabilities ratio, S&S Air would have a ratio that is lower than the industry median. The current ratio is above the industry median, while the quick ratio is above the industry median. This implies that S&S Air has about the same inventory to current liabilities as the industry median. S&S Air has about the same inventory as the industry median, so the inventory to current liabilities ratio is about the same as the median for the industry.

The turnover ratios are all higher than the industry median; in fact, all three turnover ratios are above the upper quartile. This may mean that S&S Air is more efficient than the industry.

The financial leverage ratios are all below the industry median, but above the lower quartile. S&S Air generally has less debt than comparable companies, but still within the normal range.

The profit margin for the company is about the same as the industry median, the ROA and ROE are both below the industry median, but above the lower quartile.

Overall, S&S Air’s performance seems good, although the liquidity ratios indicate that a closer look may be needed in this area.

Below is a list of possible reasons it may be good or bad that each ratio is higher or lower than the industry. Note that the list is not exhaustive but merely one possible explanation for each ratio.

| Ratio| Good| Bad|
| Current ratio| Better at managing current accounts.| May be having liquidity problems.| | Quick ratio| Better at managing current accounts.| May be having liquidity problems.| | Cash ratio| Better at managing current accounts.| May be having liquidity problems.| | Total asset turnover| Better at utilizing assets.| Assets may be older and depreciated, requiring extensive investment soon.| | Inventory turnover| Better...
tracking img