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cirrus design corporation financial ratios

Category: Business Paper Type: Homework Reference: APA Words: 1500

QUESTIONS

Using the financial statements provided for S&S Air, calculate each of the ratios listed in the table for the light aircraft industry.
S&S Air’s Ratios for Financial year 2014



Current ratio

0.74


Quick ratio

0.38


Cash ratio

0.15


Total asset turnover

2.01


Inventory turnover

27.3


Receivables turnover

54.9


Total debt ratio

0.43


Debt–equity ratio

0.75


Equity multiplier

1.75


Times interest earned

6.37


Cash coverage ratio

9.23


Profit margin

0.05


Return on assets

0.10


Return on equity

0.17


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 Aircraft Company.
No, I would not choose the Boeing as my aspirant company simply for a reason that they both work in different domains within the same industry and Boeing is a one of the largest manufacturer of commercial airplanes, while on the other hand, S&S air is involved in the manufacturing of light and small planes. Therefore, it would not be financially and strategically viable for a small company like S&S Airline to consider Boeing as accompany to look up to as a aspirant company. It should look for a company, which is a market leader in the domain it operates in.

If S&S considers the Bombardier as aspirant, it will not be realistic because, Bombardier is involved in the production of short-range airliners and fire-fighting amphibious aircraft business jets, and fire-fighting aircraft. Besides, it provides defense related services to the countries. Therefore, it should look for a company with in its market where it can specialize. Similarly, Embraer also deals in manufacturing of large commercial aircrafts and it will not be realistic and ideal for S&S to follow them, as they have global presence and it not only operates in commercial aviation but also in executive jets, defense security, agriculture aviation and other systems.

However, Cirrus Design Corporation, and Cessna Aircraft Company, both operate in similar market, and are operating for long period, and have experience in providing innovation, safety and quality to their customers, therefore, it can use any of these two companies as an aspirant company to build its business strategy for the future.

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 as inventory divided by current liabilities. How do you think S&S Air’s ratio would compare to the industry average?
Following graph shows the comparison between the financial position of S&S and median financial ratios for the industry it operates in.

Based on the facts, all the ratios are discussed in relation to industry median figures in the following points.

Current ratio: The current ratio of 0.73 as compared to 1.43 for the light Airlines, which shows that company, has lesser capacity to pay off its current liabilities. The ratio of 1.43 means that industry has more than 1% of the current assets to pay off its shirt term creditors, but S&S has less than 1% current assets to pay its current short term debt. Therefore, if it cannot secure the loans and more cash, it may have to sell off its non-current assets.
Quick ratio: The quick ratio of 0.39 is greater than the industry median of .35, this shows that company is marginally better than industry in having more cash to pay off its short term creditors.
Cash ratio: However, the cash ratio is lower than industry ratio, it shows that after paying for its operational costs and expenses, S&S has less cash available to pay for its interest expense as compared to industry, but the difference is marginal, therefore, company should try to reduce its operational expenses and its reliance on debt to finance its operations
Total Asset Turnover: The asset turnover ratio of S&S is 2.01 which is by far the greater number than the industry’s 0.85. This shows that company has shown greater efficiency than industry in utilizing its assets.
Inventory turnover: The inventory turnover ratio is significantly higher for S&S as compared to industry, which has ratio of 6.15. This shows that S&S’s sales, stock purchasing, and manufacturing department have weak coordination and they have to improve their inventory control management, because of heavy storage costs associated with inventory in stock.
Receivable turnover: The receivable turnover means that S&S collects its receivables 54.91 times a year, which is by far better than the industry, which only collects 9.82 times a year. Therefore, company has performed better in collecting its outstanding amount.
Total debt ratio: Total debt ratio of S&S is 0.43, which is lesser than the 0.52, which shows that S&S is a more stable business than the industry ratio. In addition, its ratio is less than 0.50, which shows that company is less risky as compared to the industry. In addition, it shows that company’s liabilities are less than 50% of its assets, which is another positive point. Therefore, nearly half of the company is owned by the creditors and rest is owned by the shareholders.
Debt to Equity ratio: S&S’s debt to equity ratio is 0.75 as compared to industry, which has very ratio of 1.08. This shows that S&S is less risky as compared to industry median ratio. Again, it can be argued that company is more stable and is considered better investment by the investors as compared to industry.
Equity Multiplier: This measures shows that more of the assets of the industry are funded by debt as compared to S&S, which has lower equity multiplier than industry. Therefore, it can be argued that S&S is less leveraged and is more conservative and favorable from investors’ point of view as compared to industry, which is again a positive aspect of the company.
Time Interest Earned: The time interest value is 6.37 for S&S and industry has ratio of 8.06, this shows that the capacity of S&S to pay interest on its debt is less than the industry. It can only pay its interest only 6.37 times as compared to 8 times by the industry. This can be considered negative relative to the industry.
Cash Coverage ratio: Cash coverage ratio of S&S is marginally less than the Light airline industry average as it is 9.23 and 9.41 for S&S and industry respectively. Therefore, based on this difference it can be stated that this value is marginally lower for S&S as compared to industry, depicting that both have almost similar amount of cash at their disposal after covering their operational expenses.
Profit Margin: Again, profit margin for the industry is just marginally better than the S&S at 5% and 5.10% respectively. This shows that percentage of sales made up of net income is almost similar in both S&S and industry.
Assignment Case Study- Ratio Analysis Date By QUESTIONS Using the financial statements provided for S&S Air, calculate each of the ratios listed in the table for the light aircraft industry. S&S Air’s Ratios for Financial year 2014 Current ratio 0.74 Quick ratio 0.38 Cash ratio 0.15 Total asset turnover 2.01 Inventory turnover27.3 Receivables turnover 54.9 Total debt ratio 0.43 Debt–equity ratio 0.75 Equity multiplier 1.75 Times interest earned 6.37 Cash coverage ratio 9.23 Profit margin 0.05 Return on assets 0.10 Return on equity 0.17 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 Aircraft Company. No, I would not choose the Boeing as my aspirant company simply for a reason that they both work in different domains within the same industry and Boeing is a one of the largest manufacturer of commercial airplanes, while on the other hand, S&S air is involved in the manufacturing of light and small planes. Therefore, it would not be financially and strategically viable for a small company like S&S Airline to consider Boeing as accompany to look up to as a aspirant company. It should look for a company, which is a market leader in the domain it operates in. If S&S considers the Bombardier as aspirant, it will not be realistic because, Bombardier is involved in the production of short-range airliners and fire-fighting amphibious aircraft business jets, and fire-fighting aircraft. Besides, it provides defense related services to the countries. Therefore, it should look for a company with in its market where it can specialize. Similarly, Embraer also deals in manufacturing of large commercial aircrafts and it will not be realistic and ideal for S&S to follow them, as they have global presence and it not only operates in commercial aviation but also in executive jets, defense security, agriculture aviation and other systems. However, Cirrus Design Corporation, and Cessna Aircraft Company, both operate in similar market, and are operating for long period, and have experience in providing innovation, safety and quality to their customers, therefore, it can use any of these two companies as an aspirant company to build its business strategy for the future. 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 as inventory divided by current liabilities. How do you think S&S Air’s ratio would compare to the industry average? Following graph shows the comparison between the financial position of S&S and median financial ratios for the industry it operates in. Based on the facts, all the ratios are discussed in relation to industry median figures in the following points. Current ratio: The current ratio of 0.73 as compared to 1.43 for the light Airlines, which shows that company, has lesser capacity to pay off its current liabilities. The ratio of 1.43 means that industry has more than 1% of the current assets to pay off its shirt term creditors, but S&S has less than 1% current assets to pay its current short term debt. Therefore, if it cannot secure the loans and more cash, it may have to sell off its non-current assets. Quick ratio: The quick ratio of 0.39 is greater than the industry median of .35, this shows that company is marginally better than industry in having more cash to pay off its short term creditors. Cash ratio: However, the cash ratio is lower than industry ratio, it shows that after paying for its operational costs and expenses, S&S has less cash available to pay for its interest expense as compared to industry, but the difference is marginal, therefore, company should try to reduce its operational expenses and its reliance on debt to finance its operations Total Asset Turnover: The asset turnover ratio of S&S is 2.01 which is by far the greater number than the industry’s 0.85. This shows that company has shown greater efficiency than industry in utilizing its assets. Inventory turnover: The inventory turnover ratio is significantly higher for S&S as compared to industry, which has ratio of 6.15. This shows that S&S’s sales, stock purchasing, and manufacturing department have weak coordination and they have to improve their inventory control management, because of heavy storage costs associated with inventory in stock. Receivable turnover: The receivable turnover means that S&S collects its receivables 54.91 times a year, which is by far better than the industry, which only collects 9.82 times a year. Therefore, company has performed better in collecting its outstanding amount. Total debt ratio: Total debt ratio of S&S is 0.43, which is lesser than the 0.52, which shows that S&S is a more stable business than the industry ratio. In addition, its ratio is less than 0.50, which shows that company is less risky as compared to the industry. In addition, it shows that company’s liabilities are less than 50% of its assets, which is another positive point. Therefore, nearly half of the company is owned by the creditors and rest is owned by the shareholders. Debt to Equity ratio: S&S’s debt to equity ratio is 0.75 as compared to industry, which has very ratio of 1.08. This shows that S&S is less risky as compared to industry median ratio. Again, it can be argued that company is more stable and is considered better investment by the investors as compared to industry. Equity Multiplier: This measures shows that more of the assets of the industry are funded by debt as compared to S&S, which has lower equity multiplier than industry. Therefore, it can be argued that S&S is less leveraged and is more conservative and favorable from investors’ point of view as compared to industry, which is again a positive aspect of the company. Time Interest Earned: The time interest value is 6.37 for S&S and industry has ratio of 8.06, this shows that the capacity of S&S to pay interest on its debt is less than the industry. It can only pay its interest only 6.37 times as compared to 8 times by the industry. This can be considered negative relative to the industry. Cash Coverage ratio: Cash coverage ratio of S&S is marginally less than the Light airline industry average as it is 9.23 and 9.41 for S&S and industry respectively. Therefore, based on this difference it can be stated that this value is marginally lower for S&S as compared to industry, depicting that both have almost similar amount of cash at their disposal after covering their operational expenses. Profit Margin: Again, profit margin for the industry is just marginally better than the S&S at 5% and 5.10% respectively. This shows that percentage of sales made up of net income is almost similar in both S&S and industry. Return on assets: Similarly, the return on assets is marginally better for industry as compared to S&S. This shows that effectiveness of industry is marginally better than S&S in earning the return on its investment in assets. Therefore, it can be argued that both the groups have almost similar ability in using the assets purchased into income. So, company is equally favorable besides rest of industry in attracting the investors based on its ROA. Return on Equity: Again, return on equity is better in industry as compared to S&S, but by very small margins. Therefore, it shows that how efficiently company can use its money generated from its shareholders to generate profits and grow. Based on these percentages, it can be stated that money made on investors’ investment is similar in both S&S and its competitors. Conclusion: To conclude, it can be argued that S&S is an impressive company with sound financial position in the industry. In addition, it has shown that company has been performing positively as compared to industry, though, some key ratios show that industry is marginally better but overall based on financial leveraging position and liquidity position, it can be stated that S&S is a better company to invest as compared to industry.

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