# S & S Air Case Study

453 Words2 Pages
Finance MiniCase: Planning for Growth at S&S Air 1. Calculate the internal growth rate and sustainable growth rate for S&S Air. Internal Growth Rate: ROA x b / 1 – ROA x b ROA = Net Income/ Total Assets = 1, 537,452/ 18,308,920 = .084% B= Addition to retained earnings/ net income= 977,452/ 1,537,452 = .635% Internal growth rate= (.635 * .084) / (1- (.635 * .084)) = .564 This number is telling us that S&S Air can expand at a maximum rate of .564% per year without external financing, meaning retained earnings are the only source of financing. Sustainable Growth Rate: ROE x b / 1- ROE x b ROE = Net Income/ Total Equity (roa x em = net income/e) = 1,537,452/ 10,069,920 = .15 SGR= (.635 * .15) / 1- (.635 * .15) = .107 This number…show more content…
S&S Air is planning for a growth rate of 12 percent next year. Calculate the EFN for the company assuming the company is operating at full capacity. Can the company’s sales increase at this growth…show more content…
793,408 Notes Payable 2,030,000 Inventory 1,161,574 Total CL \$ 3,025,680 Total CA \$ 2,448,902 Long-term debt \$ 5,320,000 Shareholder Equity Common stock \$ 350,000 Fixed assets Retained earnings 10,899,117 Net PP&E \$ 18,057,088 Total Equity \$ 11,249,117 Total Assets \$ 20,505,990 Total L&E \$ 19,594,787 EFN = Change in assets- change in liabilities- change in retained earnings Change in Assets= 20,505,990- 18,308,920= 2,197,070 Change in Liabilities= 995,680- 889,000= 106, 680 Change in retained earnings: EBIT = (30,499,420- 22,224,580 – 3,867,500) * 1.12 – 1,366,680 = 3,569,541 3,569,541- 478,240= 3,091,301 (EBIT- Interest) 3,091,301 * (1-.40) * .635 = 1,179,270 EFN= 2,197,070 – 106,680 – 1,179,270= 911,120 Given this number, an increase in sales can only occur if we raise the amount of \$911,120 in financing for S&S Air, otherwise sales will not increase at this growth