Current ratios show the number of times a company can pay its current debt obligations based on its assets while a company’s quick ratio indicates the ability of that company to meet its short-term obligations with its most liquid assets (Henry, Robinson, Greuning, 2011). The current ratio of Black Sparrow Aviation, Inc. is greater in contrast with Industry Norm. This shows that the company has a higher working capital as well as greater liquidity. However, the quick ratio of the company is less than the Industry Norm. Higher current ratio and lesser quick ratio than the Industrial Norm indicate that Black Sparrow Aviation, Inc. has higher inventory ad paid ahead of time expenses in its financial statement (Henry, Robinson, Greuning, 2011). I recommend the company to make the necessary strides in the sale of inventory. In order to be more liquid, the company should also analyze the optimal inventory level, and it should keep so that its quick ratio exceeds the Industrial Norm. I also recommend Black Sparrow Aviation, Inc., to dispose of unproductive assets.
The inventory turnover of Black Sparrow Aviation, Inc. is also lower than the Industrial Normal. This indicates that the company’s inventory cycle is poor (Henry, Robinson, Greuning, 2011). Therefore, I recommend the company to reduce the price of its products and services to increase sales. I recommend the company to lessen purchase quantity as well as evacuate old stock. This will ensure the inventory is sold out, increasing the inventory turnover, making the company more strong (Henry, Robinson, Greuning, 2011).
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The average collection period of Black Sparrow Aviation, Inc. is poor in comparison to the Industrial Norm. This indicates the company has immense receivables exceptional in financial statements (Henry, Robinson, Greuning, 2011). I recommend the company to issue timely invoices as well as change its credit policies and terms. By modifying credit terms and terms, the company will be able to charge interest on late installment to get early cash.
Lastly, the company’s average payment period is shorter than the industry norm, and this indicates that the company is not assuming the advantage of acknowledgment period completely. I recommend Black Sparrow Aviation, Inc. to utilize the credit period admirably. This will enable the company to make successful, timely payments.
References
Henry, E. Robinson, T. & Greuning, J. (2011). Financial analysis techniques. [Online]. Retrieve from: https://www.cfainstitute.org/-/media/documents/support/programs/cfa/2019-L1V3R26-footnotes.pdf . Accessed 6th August 2019.
