Minicase – Ratio Analysis at S&S Air Inc.

Questions:
1. Using the financial statements provided for S&S Air, calculate each of the ratios listed
in the table for the light aircraft industry.
Current ratio = $ 2,186,520 / 2,919,000
Current ratio = 0.75

Quick ratio = $ 441,000 + 708,400 / 2,919,000

= $ 1,149,400 / 2,919,000
Quick ratio = 0.39

Cash ratio = $ 441,000 / 2,919,000

Cash ratio = 0.15

Total asset turnover = $ 30,499,420 / 18,308,920

Total asset turnover = 1.67

Inventory turnover = $ 22,224,580 / 1,037,120

Inventory turnover = 21.43
Receivable turnover = $ 30,499,420 / 708,400
Receivable turnover = 43.05

Total debt ratio = ($ 2,919,000 + 5,320,000) / 18,308,920

Total debt ratio = 0.45

Debt-equity ratio = ($ 2,030,000 + 5,320,000) / 10,069,920

Debt-equity ratio = 0.73

Equity Multiplier = 1 + 0.73

Equity Multiplier = 1.73

Times Interest earned = $ 3,040,660 / 478,240

Times Interest earned = 6.36

Cash coverage = ($ 3,040,660 + 1,366,680) / 478,240

Cash coverage = 9.22

Profit margin = $ 1,537,452 / 30,499,420

Profit margin = 0.05 or 5.04%

Return on Assets = $ 1,537,452 / 18,308,920

Return on Assets = 0.08 or 8.40%

Return on Equity = $ 1,537,452 / 10,069,920

Return on Equity = 0.15 or 15.27%
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.
Boeing may probably not be a good aspirant company for Mr. Mark and
Todd. Even the two companies are both manufacture airplanes they still differ in
terms of the kind or size of airplane they manufacture. S&S Air manufactures
small or light airplanes while Boeing manufactures large airplanes or commercial
aircraft. In the market, there are different markets for small and large aircraft.

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?
S&S Air current and cash ratios implies that the company has less liquidity
than the industry in general. The company may probably have more future cash
flows. The quick ratio implies that S&S Air has about the same inventory to
current liabilities. In terms of financial leverage ratios, S&S Air generally has less
debt than comparable companies, but still within the normal range. Overall, S&S
Air’s performance seems good, although more attention at the inventory is
needed.