S&S Air Inc. Mini Case – Ch 3

Topics: Financial ratios, Financial ratio, Balance sheet Pages: 5 (1498 words) Published: April 30, 2013
Question 1
Current Ratio = Current assets/current liabilities
= $1,561,800/$2,085,000
= 0.75
Quick (or acid-test) Ratio = (Current Assets – Inventory)/Current liabilities
= ($1,561,800 - 740,800) /$2,085,000
= 0.39
Cash Ratio = Cash + Cash equivalents/Current Liabilities
= $315,000/$2,085,000
= 0.15
Total asset turnover = Sales/Total assets
= $21,785,300/$13,077,800
= 1.67 times
Inventory turnover = Cost of goods sold/Inventory
= $15,874,700/740,800
= 21.43 times
Receivables turnover = Sales/Accounts receivable
= $21,785,300/$506,000
= 43.05 times
Total debt ratio = [Total assets – Total equity]/Total assets
= [$13,077,800 - $7,192,800]/$13,077,800
= 0.45
Debt/equity ratio = Total debt/Total equity
= $5,898,096/$7,192,800
= 0.82
OR= $0.45/($1 - $0.45)
= 0.82
Equity multiplier = Total assets/Total equity
= $13,077,800/$7,192,800
= 1.82
OR= $1/$0.55
= 1.82
Times interest earned ratio = EBIT/Interest
= $2,171,900/341,600
= 6.36 times
Cash coverage ratio = [EBIT + Depreciation]/Interest
= [$2,171,900 + $976,200]/ 341,600
= 9.22 times
Profit margin = Net income/Sales
= $1,098,180/$21,785,300
= 5.04%
Return on assets (ROA) = Net income/Total assets
= $1,098,180/$13,077,800
= 8.40%
Return on Equity (ROE) = Net income/Total equity
= $1,098,180/$7,192,800
= 15.27%
Question 2
It would not be recommended to use Boeing as an aspirant company for comparison with S&S Air. This is because Boeing and S&S are in the same industry, but not the same market. While both companies manufacture airplanes, S&S Air manufactures small light airplanes for sale to individuals for recreational use, while Boeing manufactures large commercial aircrafts. As these companies produce and compete in two very different markets, it does not make sense to use Boeing as an aspirant company in order to analyze the performance of S&S Air. Boeing is also a much larger company than S&S Air with a wider realm of operations. The operations of S&S Air and Boeing also differ greatly in the cycle time of their order and use of parts to the manufacture and delivery to the customer. S&S Air can build an aircraft to order in as little as 5 weeks, where Boeing could take up to 2 years to build a commercial aircraft from the order. This means that the companies would have very different revenue collection and inventory cycles when compared. In order for an accurate comparison of ratios, the company used as an aspirant should be in the same market, and should be of similar size and operations, which Boeing is not. Bombardier Aerospace is a large company which designs, manufactures and supports innovative aviation products for the business, commercial, specialized and amphibious aircraft markets as well as jet travel solutions. They hold the number one position in business and regional aircrafts. As Bombardier manufactures a variety of aircrafts, most of which are commercial, Bombardier would also not be recommended as an aspirant company. This is because Bombardier and S&S Air operate in different markets with very different products. Embraer S.A. is a Brazilian aerospace company that concentrates on operations in 4 business segments and markets: commercial aviation, executive jets, defense systems (military) and agricultural aircrafts. It is also one of the largest aircraft manufacturers in the world. Due to the size of the company and diversity in products and operations, Embraer is not recommended as an aspirant company. Cirrus Aircraft is a smaller company that manufactures and sells a line of composite personal aircrafts for recreational use. Because Cirrus Aircraft and S&S Air are in the same market, these companies would very comparable in their operations, revenue collections and inventory cycle times. As the companies are also a similar size, they would be an excellent company to use as an aspirant company in preparing the...
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