Case Study: S&S Air Inc.
Founders of S&S Air, Inc. Mark Sexton and Todd Story recently hired Chris Guthrie to come on board as their financial planner. His job entailed gaining valuable information as to compare how their company was fairing with competing companies in the aircraft manufacturing industry. Through his research, Guthrie calculated many ratios through the careful examination of S&S Air’s balance sheet and income statement for the year ended 2009. With all of his research, Guthrie will be able to show the information he gathered to the board at S&S Air Inc. which in turn will help them make informed decisions based on the company’s valuation. When Guthrie
…show more content…
However, the low ratio may entice investors and lenders because in the event if the business declines, their investments will be better protected than a firm with a higher debt-equity ratio. The equity multiplier is a way of examining how a company uses debt to finance its assets. S&S has an extremely low equity multiplier at .33 compared to the industry average in the lower quartile of 1.58. A lower equity multiplier is favored because it means a company is using less debt to fund its assets. The times-interest-earned ratio is used to measure a company's ability to meet its debt obligations. A lower times interest earned ratio means fewer earnings are available to meet interest payments, which unfortunately for S&S is what they are dealing with, having a TIE ratio of 5.63 which falls just above the lower quartile of the industry comparisons of 5.18. Failing to meet these obligations in the future could force the company into bankruptcy. The cash flow coverage ratio is an indicator of the ability of the company to pay interest and principal amounts when they become due. S&S having a 7.44 ratio slightly below the 8.4 industry media, meaning that the company is in good financial health and it can meet its financial obligations through the cash generated by operating activities. A company’s profit margin is very important in comparing companies in