Financial Ratio Analysis

Ratio Analysis at S & S Air, Inc.

Chris Guthrie was recently hired by S&S Air, Inc., to assist the

company with its financial planning and to evaluate the company's

performance. Chris graduated from college five years

ago with a finance degree. He has been employed in the finance

department of a Fortune 500 company since then.

S&S Air was founded 10 years ago by friends Mark

Sexton and Todd Story. The company has manufactured and

sold light airplanes over this period, and the company's products

have received high reviews for safety and reliability. The

company has a niche market in that it sells primarily to ind~

viduals who own and fly their-own airplanes. The company

has two models; the Birdie, which sells for $53,000, and the

Eagle, which sells for $78,000.

Although the company manufactures aircraft, its operations

are different from commercial aircraft companies. S&S

Air builds aircraft to order. By using prefabricated parts, the

company can complete the manufacture of an airplane in only

five weeks. The company also receives a deposit on each

order, as well as another partial payment before the order is

complete. In contrast, a commercial airplane may take one

and one-half to two years to manufacture once the order is

placed.

Mark and Todd have provided the following financial

statements. Chris has gathered the industry ratios for the light

airplane manufacturing industry.

Income Statement

Sales 30,499,420

Cost of goods sold 22,224,580

Other expenses 3,867,500

Depreciation 1,366,680

EBIT 3,040,660

Interest 478,240

Taxable income 2,562,420

Taxes (40%) 1,024,968

Net income 1,537,452

Dividends 560,000

Add to retained earnings 977,452

S&SAIR,INC.

2006 Balance Sheet

Assets

Current assets

Accounts receivable 708,400

Cash $ 441,000

Inventory 1,037,120

Total current assets $ 2,186,520

Fixed assets

Net plant and equipment $16,122,400

Total assets $18,308,920

Liabilities and...