Finance Question 3

Finance Question 3

FINANCE 4

Finance

Question3

RatioAnalysis

Comparisonof the performance of S&ampS Air to the industry

Theliquidity ratios which include current ratio, quick ratio and thecash ratio of S&ampS Air are lower than those of the industrymedian. The company is having a current ratio of 0.7417 and a quickratio of 0.3899 while those of the industry is 1.43 and 0.38respectively. This implies that the liquidity ratios of S&ampS Airare much lower than the industry medians. These ratios signify thatthe firm is incapable of meeting its short-term obligations as theyfall due. The financial performance of the company is also poor, andit is more likely to face financial distress. The liquidity ratiosare also lower than the recommended level.

Also,when analysing the performance of the firm using the activity ratios,we can still conclude that S&ampS Air is performing poorly in theindustry. Activity ratios include total asset turnover, inventoryturnover, and receivables turnover. The total asset turnover comparesthe sales with the book value of assets. Therefore, it measures howefficiently the firm is utilizing its assets to generate sales(Arnold, 2010). The higher the ratios, the better. S&ampS Air ishaving a total assets turnover of -0.0394 which is much lower ascompared to that of the industry median. However, the firm has ahigher inventory turnover of 27.33 as compared to the industrymedian. This indicates good performance.

Theleverage ratios, which include total debt ratio, times interestearned, debt-equity ratio, and cash coverage ratios, are also lowerthan those of the industry median. This indicates that the firm isnot likely to face long-term solvency since its capital structure isless geared.

Theprofitability ratios of S&ampS Air are also much lower than those ofthe industry median. These ratios include profit margin, ROA andROE. It is clear that the company above is not capable of earninghigher levels of profits from its sales and assets.

Theratios of S&ampS Air can also be assessed in a positive way when weanalyse the company in the long term or as a going concern. Thecompany seems to be moving from long-term debt to short-term debtsand hence minimizing the chances of long-term solvency. The companymay also be more profitable in the long-run.

Inventoryratio

Inventoryratio = Inventory / Current liabilities = 887,660/4,912,140 = 0.1807

Thisratio seems to be much lower the industry average.

References

ArnoldG. (2010).Corporate financial management 4thedition.Britain: Pearson Education.