Ratio Analysis at S&S Air, Inc.

Ratio Analysis at S&S Air, Inc.

Q. 1 - Financial Ratios for S&S Air, Inc.

S&S Air Inc.

Ratios

Formula

2012

Current Ratio

Current Assets/Current Liabilities

0.71

Quick Ratio

(Current Assets - Inventory)/Current Liabilities

0.37

Cash Ratio

Cash/Current Liabilities

0.14

Total Assets Turnover

Sales/Total Assets

2.11

Inventory Turnover

Cost of Goods Sold/Inventory

28.57

Receivables Turnover

Sales/Accounts Receivable

57.41

Total Debt Ratio

(Total Assets - Total Equity)/Total Assets

0.45

Debt-equity Ratio

Total Debt/Total Equity

0.82

Equity Multiplier

Total Assets/Total Equity

1.82

Times Interest Earned

EBIT/Interest

6.37

Cash Coverage Ratio

(EBIT + Depreciation)/Interest

9.23

Profit Margin

Net Income/Sales

5.04%

Return on Assets

Net Income/Total Assets

10.62%

Return on Equity

Net Income/Total Equity

19.31%

Table 1: Ratio Computation (Jordan, 2013, p. 89)

Q. 2 - Aspirant Company for Performance Comparison

In the present scenario, Mark and Todd have chosen Boeing as an aspirant company to undertake the ratio analysis. The decision might not be suitable for S&S Air Inc due to a variety of reasons.

Size of Business

It is true that both, S&S and Boeing belong to airplane manufacturing operations. However, they do not stand parallel on the basis of company size. Boeing is involved in comparatively large size operations, which might create uneven ratio comparison between Boeing and S&S. Hence; Boeing is not a suitable choice for performance comparison basis (Jordan, 2013).

Differing Business Operations and Nature of Business

Another point of conflict is the drastic change in the business operations of Boeing and S&S. For example, Boeing has diversified its business processes by engaging in manufacturing of commercial aircrafts, in addition to defense and aeronautics. In addition to this, Boeing Capital is engaged in financing airplanes (McLaughlin, 2013).

Differing Market

Their size of product and target market is different. For instance, Boeing manufactures large aircrafts, and for commercial purposes; whereas, S&S manufactures small airplanes that target a relatively different market. Boeing is an established player of the aircraft industry, and it targets the global airline industry and defense spending. Contrary to this, S&S runs business operations by targeting and satisfying the demand for recreational aircrafts (McLaughlin, 2013).

In addition to above highlighted differences, Boeing and S&S can be distinguished on the basis of conflicting profile for business revenues and other factors including revenue collection, lead time and payment of interest (Jordan, 2013). Nonetheless, ratio analysis and performance comparison between S&S and Boeing cannot produce effective and comparable outcomes. In the pursuit of creating a competent and effectual comparison, S&S must choose a company, which is operating in the same market and the same industry. Thus, S&S is suggested to choose any other firm as an aspirant company instead of Boeing (McLaughlin, 2013).

Appropriate Company for Ratio Analysis

Bombardier, Cessna Aircraft Company, Cirrus Design Corporation, and Embraer are all players of the same market and industry (Jordan, 2013). According to analysis, Bombardier is involved in manufacturing specialized and commercial aircrafts. Cessna Aircraft is engaged in producing business jets and commercial aircrafts. Similarly, Embraer manufactures executive, military and commercial aircrafts along with the providence of aeronautical services; whereas, Cirrus Design produces light aircrafts (McLaughlin, 2013).

An overview of business operations and nature of the product offered by each of the four identified companies ...