Molly was recently hired by Karachi, Inc., to assist the company with its financial planning, and to evaluate the company’s performance. Molly graduated from college five years ago with a finance degree. He has been employed in the finance department of a Fortune 500 company since then. Karachi Inc was founded 10 years ago by Mr. A and Mr. B. The company has manufactured and sold light airplanes over this period, and the company’s products have received high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models, the Birdie, which sells for $53,000, and the Eagle, which sells for $78,000. While the company manufactures aircraft, its operations are different from commercial aircraft companies. Karachi Inc builds aircraft to order. By using prefabricated parts, the company is able to complete the manufacture of an airplane in only five weeks. The company also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, a commercial airplane may take one and one-half to two years to manufacture once the order is placed. Note: The following financial statements are provided by Mr. A and Mr. B. Molly has gathered the industry ratios for the light airplane manufacturing industry. Karachi air Inc. 2009 Income statement Sales $30,499,420 Cost of goods sold 22,224,580 Other Expense 3,867,500 Depreciation 1,366,680 Earnings before interest tax (EBIT) $3,040,680 Interest 478,240 Taxable income $2,562,420 Taxes (40%) 1,024,968 Net Income $1,537,425 Dividends $560,000 Add to retained earnings 977,452 Karachi air Inc. 2006 Balance Sheet Assets Liabilities and Equity Current assets: Current Liabilities: Cash $441,000 Accounts Payable $889,000 Account Receivables 708,400 Notes payable 2,030,000 Inventory 1,037,120 Total current liabilities $2,919,000 Total current asset $2,186,520 Fixed Assets Long-term debt $5,320,000 Net plant and equipment $16,122,400 Shareholdersâ€™ Equity: Common stock $350,000 Total Assets $18,308,920 Retained earnings 9,719,920 Total Equity $10,069,920 Total Liabilities and Equity $18,308,920 Question: 1. Using the financial statement calculate each of the ratios listed in the table for the light air craft industry 2. Mr. A and Mr. B 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 air craft manufacturers Karachi could use as aspirant companies, discuss whether it is appropriate to use any of the following companies bombardier, Embraer, Cirrus Design Corporation, and Cessna Aircraft Company. 3. Compare the performance of Karachi Air to the industry. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated by inventory divided by current liabilities. How do you think Karachi Air’s ratio would compare to the industry average? Financial Accounting Assignment Help, Financial Accounting Homework help, Financial Accounting Study Help, Financial Accounting Course Help
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