You have been hired to help Q&A Aviation to evaluate their current financial position and make recommendations to help them move forward. They have been in business for 10 years, and manufacture and sell light airplanes, mostly to individuals who own and fly their own planes. These planes have been praised for safety and reliability by industry analysts, and sales have been steadily growing. Q&A sells two models: the Eagle for $78,000 and the Kingfisher for $55,000. The company generally builds planes to order using prefabricated parts, which means that they can complete an order in about five weeks. They require a deposit at the time of the order, and get another partial payment around week three. Their competitors can take up to a year and a half to complete a plane once it is ordered. The founders are considering making some planes without orders that they would keep on hand and sell at a premium to someone who wanted one even faster than five weeks. They have provided you with the following financial information: Q&A Aviation Balance Sheet (000s) Assets 20X1 20X2 Liabilities and Equity 20X1 20X2 Cash 1067 440 Accounts Payable 654 889 Accounts Receivable 823 708 Notes Payable 2300 2030 Inventory 1296 1038 Accruals 267 275 Total Current Assets 3186 2186 Total Current Liabilities 3221 3194 Plant, Property and Eq. 21663 23804 Long Term Debt 6477 5044 Accumulated Dep’n (6314) (7682) Fixed Assets (Net) 15349 16122 Common Stock 350 350 Retained Earnings 8487 9720 Total Equity 8837 10070 Total Assets 18535 18308 Total Liabilities and Equity 18535 18308 Q&A Aviation Income Statement (000s) 20X1 20X2 Sales 28934 30499 Cost of Goods Sold 19978 22225 Gross Profit 8956 8274 Expenses 3612 3867 Depreciation 1145 1368 EBIT 4199 3039 Interest 523 478 EBT 3676 2561 Tax (30%) 1103 768 Net Income 2573 1793 Dividends Paid 520 560 Additions to Retained Earnings 2053 1233 In addition to the company information, they have acquired industry comparison information as shown in the following table: Industry Q&A 20X1 Q&A 20X2 Current Ratio 1.43 0.98 0.68 Quick Ratio 0.38 0.58 0.35 ACP 15 days 10 days 8 days Inventory Turnover 4.90 15.4 21 Fixed Asset Turnover 0.56 1.88 1.89 Total Asset Turnover 0.68 1.56 1.66 Debt Ratio 0.52 0.52 0.44 Times Interest Earned 8.06 8.02 6.35 Gross Profit Margin 35.2% Profit Margin 4.0% Return on Assets 10.5% 13.8% 9.79% Return on Equity 16.5% 29.1% 17.8% Complete the chart above comparing the company to the industry. Write your analysis of the changes that have been made in the company over the past two years.

Question

You have been hired to help Q&A Aviation to evaluate their current financial position and make recommendations to help them move forward. They have been in business for 10 years, and manufacture and sell light airplanes, mostly to individuals who own and fly their own planes. These planes have been praised for safety and reliability by industry analysts, and sales have been steadily growing. Q&A sells two models: the Eagle for $78,000 and the Kingfisher for $55,000.

The company generally builds planes to order using prefabricated parts, which means that they can complete an order in about five weeks. They require a deposit at the time of the order, and get another partial payment around week three. Their competitors can take up to a year and a half to complete a plane once it is ordered. The founders are considering making some planes without orders that they would keep on hand and sell at a premium to someone who wanted one even faster than five weeks.

They have provided you with the following financial information:

Q&A Aviation Balance Sheet (000s)
Assets	20X1	20X2	Liabilities and Equity	20X1	20X2
Cash	1067	440	Accounts Payable	654	889
Accounts Receivable	823	708	Notes Payable	2300	2030
Inventory	1296	1038	Accruals	267	275
Total Current Assets	3186	2186	Total Current Liabilities	3221	3194

Plant, Property and Eq.	21663	23804	Long Term Debt	6477	5044
Accumulated Dep’n	(6314)	(7682)
Fixed Assets (Net)	15349	16122	Common Stock	350	350
			Retained Earnings	8487	9720
			Total Equity	8837	10070
Total Assets	18535	18308	Total Liabilities and Equity	18535	18308

Q&A Aviation Income Statement (000s)	20X1	20X2
Sales	28934	30499
Cost of Goods Sold	19978	22225
Gross Profit	8956	8274
Expenses	3612	3867
Depreciation	1145	1368
EBIT	4199	3039
Interest	523	478
EBT	3676	2561
Tax (30%)	1103	768
Net Income	2573	1793
Dividends Paid	520	560
Additions to Retained Earnings	2053	1233

In addition to the company information, they have acquired industry comparison information as shown in the following table:


	Industry	Q&A 20X1	Q&A 20X2
Current Ratio	1.43	0.98	0.68
Quick Ratio	0.38	0.58	0.35
ACP	15 days	10 days	8 days
Inventory Turnover	4.90	15.4	21
Fixed Asset Turnover	0.56	1.88	1.89
Total Asset Turnover	0.68	1.56	1.66
Debt Ratio	0.52	0.52	0.44
Times Interest Earned	8.06	8.02	6.35
Gross Profit Margin	35.2%
Profit Margin	4.0%
Return on Assets	10.5%	13.8%	9.79%
Return on Equity	16.5%	29.1%	17.8%

Complete the chart above comparing the company to the industry.
Write your analysis of the changes that have been made in the company over the past two years.
Write your analysis of the company as it compares to the industry ratios.
What areas to you recommend the company to concentrate on to improve their financial health?
Complete the cash flow statement for 20X2.