Using the financial statements provided for S&S Air, calculate each of the ratios listed in the table for the light aircraft industry.
a)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement.
Answer to Problem 1M
The current ratio is 0.74 times.
Explanation of Solution
Given information:
The income statement of Company S provides that the current assets is $2,262,740 and current liabilities is $3,050,355.
Formula to calculate the current ratio:
Compute the current ratio:
Hence, the current ratio is 0.74 times.
b)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement
Answer to Problem 1M
Hence, the quick ratio is 0.39 times.
Explanation of Solution
Given information:
The income statement of Company S provides that the current assets is $2,262,740, current liabilities is $3,050,355, and inventory is $1,073,180.
Formula to calculate Quick ratio:
Compute the quick ratio:
Hence, the quick ratio is 0.39 times.
c)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement.
Answer to Problem 1M
The cash ratio is 0.15 times.
Explanation of Solution
Given information:
The income statement of Company S provides the information of cash as $456,435 and current liabilities of $3,050,355.
Formula to calculate the cash ratio:
Compute the cash ratio:
Hence, the cash ratio is 0.15 times.
d)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement
Answer to Problem 1M
The total asset turnover ratio is 2.01 times.
Explanation of Solution
Given information:
The income statement of Company S provides the following information of sales as $40,259,230 and total assets of $19,986,170.
Formula to calculate the total asset turnover ratio:
Compute the total asset turnover ratio:
Hence, the total asset turnover ratio is 2.01 times.
e)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement
Answer to Problem 1M
The inventory turnover ratio is 27.34 times
Explanation of Solution
Given information: The income statement of Company S provides the following information of cost of goods sold as $29,336,446 and inventory as $1,073,180.
Formula to calculate the inventory turnover ratio:
Compute the inventory turnover ratio:
Hence, the inventory turnover ratio is 27.34 times.
f)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement.
Answer to Problem 1M
The receivables turnover ratio is 54.91 times.
Explanation of Solution
Given information:
The income statement of Company S provides the following information as the sales is $40,259,230 and accounts receivables as $733,125.
Formula to calculate the receivables turnover ratio:
Compute the receivables turnover ratio:
Hence, the receivables turnover ratio is 54.91 times.
g)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement.
Answer to Problem 1M
The total debt ratio is 0.43 times.
Explanation of Solution
Given information: The income statement of Company S provides the following information as the total assets is $19,986,170 and total equity is $11,435,815.
Formula to calculate the total debt ratio:
Compute the total debt ratio:
Hence, the total debt ratio is 0.43 times.
h)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement
Answer to Problem 1M
The debt-equity ratio is 0.75 times.
Explanation of Solution
Given information:
The income statement of Company S provides the following information as total debt is $8,050,355 and total equity is $11,435,815.
Formula to calculate the debt-equity ratio:
Compute the debt-equity:
Hence, the debt-equity ratio is 0.75 times.
Note: The total debt is calculated by adding the total-long term debt and the total current liabilities.
i)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement.
Answer to Problem 1M
The equity multiplier ratio is 1.75 times.
Explanation of Solution
Given information: The income statement of Company S provides the following information.
Formula to calculate the equity multiplier:
Compute the equity multiplier ratio:
Hence, the equity multiplier ratio is 1.75 times.
j)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement
Answer to Problem 1M
The times interest earned are 6.37 times.
Explanation of Solution
Given information: The income statement of Company S provides the following information.
Formula to calculate the times interest earned ratio:
Compute the times interest earned ratio:
Hence, the times interest earned are 6.37 times.
k)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement.
Answer to Problem 1M
The cash coverage ratio is 9.23 times.
Explanation of Solution
Given information: The income statement of Company S provides the following information.
Formula to calculate the cash coverage ratio:
Compute the cash coverage ratio:
Hence, the cash coverage ratio is 9.23 times.
l)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement.
Answer to Problem 1M
The profit margin is 5.04%.
Explanation of Solution
Given information: The income statement of Company S provides the following information.
Formula to calculate the profit margin ratio:
Compute the profit margin:
Hence, the profit margin is 5.04%.
m)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement
Answer to Problem 1M
The return on assets is 0.1016.
Explanation of Solution
Given information: The income statement of Company S provides the following information.
Formula to calculate the Return on assets (ROA):
Compute the Return on assets (ROA):
Hence, the return on assets is 0.1016 or 10.16%
n)
Case synopsis:
Company S is an aircraft company, which was formed, by Person M and Person T before 10 years. This company manufactures and sells airplanes. However, the company has received fair reviews on its products for reliability and safety. It can complete its manufacturing process within 5 weeks.
Person C was hired recently by the Company S to assess and evaluate the financial performance of the company. He has a mastered Finance and so he has been employed in finance department of the company. Person M and T has given him the financial statement of Company S. Person C has collected the ratios of industry of light airplane manufacturing.
Characters in the case:
- Company S
- Person C
Adequate information:
- Company S has niche market in which it sells initially to individuals who own and fly their own airplanes
- Company S takes up a different method for its operations
To calculate: The ratios listed in the light-plane industries ratio using Company S financial statement
Answer to Problem 1M
The return on equity is 0.1775.
Explanation of Solution
Given information: The income statement of Company S provides the following information.
Formula to calculate the Return on equity (ROE):
Compute the Return on equity (ROE):
Hence, the return on equity is 0.1775 or 17.75%.
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Chapter 3 Solutions
Fundamentals of Corporate Finance with Connect Access Card
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