Fly by Night
Fly By Night
Fly By Night International was founded by Douglas C. Mather in the mid 1970's. He started the company as a pilot training school. Then he branched out into government contracting. He used his “rent-an-enemy” fleet to the Navy and Air Force for use in fighter-pilot training. The company experienced great success during the first five years of its operations and the stock price almost doubled. However, in year 14 the company started a rapid descent. The company did not have enough cash flow to service its debt. Furthermore, the company found material misstatements in their financial statements. After analyzing the financial statements of the company it has become clear the causes of the cash flow problems. a. An important factor that indicates a company’s liquidity position is to analyze the change in current ratio and quick ratio over time. The liquidity position of the company declined significantly. Year 13 shows a huge decline in the liquidity.
Year Current Ratio Quick Ratio
Year 9 1.00 0.79
Year 10 0.40 0.35
Year 11 0.74 0.60
Year 12 0.94 0.65
Year 13 0.33 0.24
Year 14 0.15 0.09
Another important indicator is to compute the operating results of the company. An analysis of gross margin, operating margin, and net income margin will help summarize the company’s performance. Fly By Night shows a declining trend for all these. Management should have noticed this by year 13.
Year Gross Margin Operating Margin Net Income Margin
Year 9
Year 10 31.22% 8.60% 0.24%
Year 11 52.83% 22.80% 5.08%
Year 12 39.57% 14.66% 5.49%
Year 13 27.74% 10.88% 1.49%
Year 14 30.55% 2.02% -6.97%
The cash flow statements show significant increases in cash flows from operations. However, the primary source is the increase in accounts payable. This implies that the cash
Fly By Night International was founded by Douglas C. Mather in the mid 1970's. He started the company as a pilot training school. Then he branched out into government contracting. He used his “rent-an-enemy” fleet to the Navy and Air Force for use in fighter-pilot training. The company experienced great success during the first five years of its operations and the stock price almost doubled. However, in year 14 the company started a rapid descent. The company did not have enough cash flow to service its debt. Furthermore, the company found material misstatements in their financial statements. After analyzing the financial statements of the company it has become clear the causes of the cash flow problems. a. An important factor that indicates a company’s liquidity position is to analyze the change in current ratio and quick ratio over time. The liquidity position of the company declined significantly. Year 13 shows a huge decline in the liquidity.
Year Current Ratio Quick Ratio
Year 9 1.00 0.79
Year 10 0.40 0.35
Year 11 0.74 0.60
Year 12 0.94 0.65
Year 13 0.33 0.24
Year 14 0.15 0.09
Another important indicator is to compute the operating results of the company. An analysis of gross margin, operating margin, and net income margin will help summarize the company’s performance. Fly By Night shows a declining trend for all these. Management should have noticed this by year 13.
Year Gross Margin Operating Margin Net Income Margin
Year 9
Year 10 31.22% 8.60% 0.24%
Year 11 52.83% 22.80% 5.08%
Year 12 39.57% 14.66% 5.49%
Year 13 27.74% 10.88% 1.49%
Year 14 30.55% 2.02% -6.97%
The cash flow statements show significant increases in cash flows from operations. However, the primary source is the increase in accounts payable. This implies that the cash