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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 Aircrafts Company.. What is Boeing? As stated by their company website, http://www.boeing.com, Boeing is the worlds leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. I would not choose Boeing as an aspirant company because Boeing and S&S Air carry out different operations. While S&S Air sells primarily to individuals who own and fly their airplanes, Boeing sells commercial jetliners; S&S Airs operations are extremely different from commercial aircraft companies such as Boeing. These companies also vary in the amount of time it takes to build aircrafts, while it would take S&S Air about 5 weeks to complete the manufacture of an airplane, a commercial airplane might take a company like Boeing one and a half to two years to manufacture. Also ratio analysis will be ineffective when comparing companies of different sizes, an aircraft from S&S Air could cost either 53,000 or 78,000 while an aircraft for tens or even hundreds of millions. It is not appropriate to use Bombardier as an aspirant company because it is a global company, and its operations differ for S&S Air because Bombardier is also involved in rail transportation as well as air transportation. Similar to Boeing and Bombardier, Embraer as well as Cessna Aircraft are all global companies, its revenue, number of employees, as well as prices of their aircraft are extremely large than that of S&S Air, these companies do not focus on personalize aircraft but on aircrafts that are large in size as well as in cost. Also, these companies might use different accounting methods which will make the use of ratios extremely inefficient. The only one of those companies that could be appropriate to use is Cirrus Design Company. This is because it focuses on designing and manufacturing personal aviation aircraft. It offers aircrafts for personal and regional business transportation. Cirrus Design companys operations seem very similar to S&S Air.

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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 by inventory divided by current liabilities. How do you think S&S Air's ratio would compare to the industry average. When comparing S&S Air current ratio to the industry we see that it has a current ratio(.74) higher than the industry lower quartile(.50) but lower than the median(1.43) in its industry. Current ratio is the measure of a firms short term liquidity. For S&S Air a high current ratio can be viewed as positive because it indicates liquidity, but it can be viewed as negative because it might indicate an inefficient use of cash and other short term assets. Quick ratio is also used to evaluate liquidity, similarly to Current Ratio is its high it indicates liquidity, however it may also indicate that the firm might be inefficient. In S&S Airs case its quick ratio of .393 is higher than both the industry lower quartile (.21) and its median (.38). Cash ratio is another measure of liquidity; S&S Air Cash ratio is (.15) which is higher than the industry lower quartile (.08) but lower than its median (.21). The ratios above are used to determine the firms ability to pay its bills over the short term, S&S Air liquidity measures are all above the lower quartile of their industry. Total Debt Ratio, Debt to Equity ratio as well as equity Multiplier Ratio are all long term solvency ratios. These ratios are intended to address the firms long term ability to meet its obligations. S&S Air Total debt ratio is (.45) very close to the industry average of (.44), this is good because the higher the total debt ratio the more undesirable. It means that for every dollar it is a 45 cent debt, a little less than half, but closer to the industry. S&S Air debt to equity Ratio is (.818) higher than the industry lower quartile of (.79) . S&S Air equity multiplier is (1.82) higher than the industry lower quartile of (1.79). Times Interest earned and Cash Coverage are also measures of long term solvency. In S&S Airs case its (6.35) which is higher than the industrys lower quartile of (5.18) , this indicates that S&S Air can cover its interest bill 6.35 times over. Cash coverage for S&S Air is (9.2) which is higher than both the industrys lower quartile (5.84) and its median of (8.43) . The cash coverage ratio is a measure of the firms ability to generate cash from operations. Inventory turnover, receivables Turnovers and Total assets turn over are all asset utilization measures. They describe how efficiently or intensively a firm uses its assets to generate sales. S&S Air Inventory turnover is (21.42) significantly higher than the

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industrys lower quartile of (4.89), the industrys median (6.15) and almost twice the industrys upper quartile of (10.89) as stated by the text the higher the inventory turnover is the more efficiently a firm is managing its inventory. S&S Air receivables turnover is (43.05) , significantly higher than the industrys lower quartile of (6.27), the industrys median (9.82) and almost triple the industrys upper quartile of (14.11), the higher the Receivables Turnover ratio the fastest the firm collects inventory. The higher a firms Total Asset Turnover ratio is the better in S&S Airs case its Total Asset Turnover is (1.65) which is higher than the than the industrys lower quartile of (.68), the industrys median (.85) and higher than the industrys upper quartile of (1.38). it mean that for every dollar S&S Air has in assets, 1.65 is generated in sales. Profit margin, Return on Assets and return on Equity are all profitability measures, they determine how efficiently a firm use its assets and managers operations. S&S Air Profit Margin is 5.04% , 1% higher than the industrys lower quartile of (4.05%), and lower than the industrys median (6.98%) as well as lower than the Industrys upper quartile of (9.87%). A low profit margin is undesirable because it indicates that for every dollar in sales it is generating 5 cents in profit. S&S Airs Return on Assets is 8.4% which higher than the industrys lower quartile of (6.05%), but lower the industrys median (10.53%) and lower the industrys upper quartile of (13.21%). ROA measures profit per dollar of assets. Lastly, return on equity for S&S air is 15%, which is higher than the industrys lower quartile of (9.93%), and just a bit lower than the industrys median of (16.54%) and lower the industrys upper quartile of (26.15% ). This means that for every dollar in equity S&S Air generates 15 cents in profit. If I created an inventory ratio for S&S Air defined as Inventory/Current Liabilities, I would receive .38. I believe it would be below the industry average because other liquidity measures for S&S Air such as Current, quick and Cash ratio were all greater than the lower quartile but less than its median and upper quartile . In this case the lower the inventory ratio the better if we weree trying to measure liquidity. Inventory is illiquid in comparison to cash, which is why it is subtracted from Current Assets when calculation Quick Ratio. As stated by the text large inventory are often signs of short term trouble. The firm could have underestimated the sales or overbought or over produced as a result. Inventory does not affect current ratio, but it reduces the quick ratio.