Ratios and Financial Planning at S&S Air, Inc.

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Ratios and Financial Planning at S&S Air, Inc. 1, Profitability Ratios 1. Profit margin = net income/sales Profit margin = $1,005,600 / $20,077,000 Profit margin = 0.0501 or 5.01% 2. Return on assets (investment) = net income/total assets Return on assets = $1,005,600 / 15,453,900 Return on assets = 0.0651 or 6.51% 3. Return on equity = net income/stockholder’s equity Return on equity = $1,005,600 / $9,466,820 Return on equity = 0.1062 or 10.62% Asset Utilization Ratios 4. Receivables Turnover = sales (credit)/receivables Receivables turnover = $20,077,000 / $1,534,680 Receivables turnover = 13.08 times 5. Average collection period = accounts receivable/average daily credit sales…show more content…
Given these two assumptions, the maximum growth rate that S&S Air can achieve is 9.24%. If we compare both rates, the sustainable growth rate is larger than internal growth rate. The reason is that as the firm grows, it will have to borrow additional funds if it wants to maintain a constant debt ratio. This new borrowing is an extra source of financing in addition to internally generated funds, so S&S Air can expand more rapidly. 3, | Lower quartile | Median | Upper quartile | Current ratio | 0.50 | 1.43 1.45 | 1.89 | Quick ratio | 0.64 | 0.84 0.88 | 1.05 | Cash ratio | 0.08 0.17 | 0.21 | 0.39 | Total asset turnover | 0.68 | 0.85 | 1.28 1.30 | Inventory turnover | 4.89 | 6.15 | 10.89 12.10 | Receivables turnover | 6.27 | 9.82 | 11.51 13.08 | Total debt ratio | 0.31 0.39 | 0.52 | 0.61 | Debt-equity ratio | 0.58 0.63 | 1.08 | 1.56 | Equity multiplier | 1.58 1.63 | 2.08 | 2.56 | Times interest earned | 5.18 5.63 | 8.06 | 9.83 | Cash coverage ratio | 5.84 7.44 | 8.43 | 10.27 | Profit margin | 4.05% 5.01% | 5.15% | 6.47% | Return on assets | 6.05% 6.51% | 10.53%

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