Financial statement analysis - Essay Example

This implies that the firm has less liquidity as compared to the industry generally. However, both ratios are below the Third quartile and therefore there are companies in the industry with higher liquidity ratios than S&S Air. The company may therefore have less predictable cash flows and less access to short-term borrowing (Fridson, & Alvarez, F., 2002). A quick ratio of 0.37 is slightly higher than the industry median and this has the meaning that S&S has about the same value of inventory as the Current Liabilities.

Since the company has about the same inventory as the industry median, its inventory to current liabilities ratio is more or less the same as the median for the industry. The turnover ratios as compared to the industry median are all higher and even higher than the upper quartile. This implies the efficiency of S&S Air than the whole of the industry. On the other hand, the leverage ratios are all below the industry median depicting that the firm is less dependent on debt than related companies are.

In addition, the Profit Margin for the company is equal to that of the industry median while the ROA and the ROE are all above the industry median as well as the lower quartile. In short, the performance of the airline is good despite the liquidity ratios indicating that close monitoring is necessary in its operations. Using ROA of 10.61% and the retention ratio, we will be able to get the internal growth rate. The constant b= $9,233,930/$1,845,242 = 5.004; Using the internal growth rate equation: Internal growth rate = (0.1061 × 5.004) / [1 – (0.1061 × 5.004)] =113.18%. we go further to find the sustainability growth rate using ROE of 19.

31% as follows; Sustainable growth rate = (0.1931 × 5.004) / [1 – (0.1931 × 5.004)] = 28.65. Without outside financing of any sort, the company is able to achieve a growth rate of 113.18% and the growth rate would even be enormously higher when it gets funding externally (Robinson,