Consider
Black Sparrow Aviation, Inc. is concerned they are not maintaining adequate liquidity. The accounting department has provided you, the newly hired finance manager, with the following ratios:
- Current ratio 4.5 Industry norm 4.0
- Quick ratio 2.0 Industry norm 3.1
- Inventory turnover 6.0 Industry norm 10.4
- Average collection period 73 days Industry norm 52 days
- Average payment period 31 days Industry norm 40 days
Discuss
- In your opinion, what do these ratios indicate about Black Sparrow Aviation, Inc.?
- What recommendations would you make based on these ratios? What results do you think you can achieve if your recommendations are followed? Why might your recommendations not be effective?