S&s Air Case Study

Q2.) 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, Embracer, Cirrus Design Corporation, and Cessna Aircraft Company.

It is not appropriate for S&S to use Boeing as an aspirant company for its ratio analysis, for a number of reasons. First the size difference between the companies is far too great. For firms' ratios to be comparable, they should be at least approximately the same size. Another reason is that Boeing's operations are dramatically different. They have a wide range of businesses, including aeronautics and defense, not just the manufacture of commercial aircraft. This indicates that the target market for the two companies is also dramatically different. Defense spending and the global airline industry are two key drivers for Boeing, for S&S the drivers are more related to demand for recreational aircraft. The revenue profiles, of both companies, would be different. Apart from the revenue profile other variables like aircraft manufacture time, revenue collection, interest payments etc may be different. Any comparison, between the two companies, would yield incomparable results. To find a good comparable firm for S&S, the firm must be engaged in a roughly similar industry, with the same market. Therefore, it would not be advisable that S&S Air use Boeing as an aspirant company.

The four companies mentioned above, all manufacture for a position of the market. Bombardier manufactures both commercial and specialized aircrafts, Cirrus Design Corporation manufactures light aircraft and Cessna Aircraft also manufactures both commercial and business jets. Both S&S Air and Cirrus Design may be considered similar primarily because they manufacture crafts for similar position market for individuals passionate about flying.

Ratios

Current ratio Industry Median

0.75 S&S AIR

1.43 Effect

Negative Comments

A measure of how many times immediate assets are covered by liabilities. Higher the value the better.

Quick ratio 0.39 0.38 Positive Similar in many regards to the quick ratio

Cash ratio 0.15 0.21 Negative Determines the immediate liquidity of the firm. Higher the better.

Total asset turnover 1.67 0.85 Positive Measures the number of times the company utilizes its efforts in generating income.

Inventory turnover 29.41 6.15 Positive Similar to the total assets turnover ratio. Higher the better.

Receivables turnover 43.05 9.82 Positive Measures number of times sales is generated through credit sales.

Total debt ratio 82% 52% Negative Determines the total amount of debt that is included inthe firm. The lower