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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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%

 

 

 

 

 

 

 

 

 

  1. Complete the chart above comparing the company to the industry.
  2. Write your analysis of the changes that have been made in the company over the past two years.
  3. Write your analysis of the company as it compares to the industry ratios.
  4. What areas to you recommend the company to concentrate on to improve their financial health?
  5. Complete the cash flow statement for 20X2.
Expert Solution
Step 1 Answer 1
Particulars 20X1 20X2
Gross profit 8956 8274
Sales 28934 30499
Gross Profit %= (GP/ Sales)*100 30.95 27.13
Net Income 2573 1793
Net Profit %= (NP/Sales)*100 8.90 5.88
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