S&S Air Inc. Mini Case – Ch 3 Essay

1500 Words Apr 16th, 2013 6 Pages
Question 1
Current Ratio = Current assets/current liabilities = $1,561,800/$2,085,000 = 0.75
Quick (or acid-test) Ratio = (Current Assets – Inventory)/Current liabilities = ($1,561,800 - 740,800) /$2,085,000 = 0.39
Cash Ratio = Cash + Cash equivalents/Current Liabilities = $315,000/$2,085,000 = 0.15
Total asset turnover = Sales/Total assets = $21,785,300/$13,077,800 = 1.67 times
Inventory turnover = Cost of goods sold/Inventory = $15,874,700/740,800 = 21.43 times
Receivables turnover = Sales/Accounts receivable = $21,785,300/$506,000 = 43.05 times
Total debt ratio = [Total assets – Total equity]/Total assets = [$13,077,800 - $7,192,800]/$13,077,800 = 0.45
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Although they are in the light aircraft market with S&S Air, they manufacture aircrafts for commercial use, rather than for recreational use. They also have a much larger range of products than S&S Air, which means that their operations and cycle times would most likely be different when compared. For this reason, it would be recommended that Cessna Aircraft Company is not used as an aspirant company. Of the companies listed, S&S Air is most similar in size, market and operations to Cirrus Aircraft, and should therefore use Cirrus as an aspirant company for comparison of the ratio analysis.
Question 3
Short-term Solvency or Liquidity Measures
When compared with the industry, the current ratio of S&S Air at 0.75 is below the industry median of 1.43. This may mean that S&S Air are having liquidity problems.
When compared with the industry, the quick ratio of S&S Air at 0.39 is just over the industry median of 0.38. This indicates that S&S Air is not among the best or the worst at managing current accounts as indicated by liquidity.
When compared with the industry, the cash ratio of S&S Air at 0.15 is below the industry median of 0.21. Again, this could indicate liquidity problems within S&S Air or may need improvement in managing current accounts.
Asset Management, or Turnover Measures
When compared with the industry, the total asset turnover of S&S Air of 1.67 times is well above the

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