Question

Respond to this scenario. Engage and express critical thinking through your response to promote an interactive learning experience.

The increase of current assets to total assets ratio will increase Black Sparrow’s investments in daily operations. Current assets are typically less profitable compared to fixed assets with a contact level of liabilities.

It will also increase the net working capital position. These together will show a decline in profitability. If there is an increase in the current assets to total asset ratio, there will be a decrease in risk measured by working capital because the net position of net working capital will remain constant allowing for the risk of the operation to go down.

Profitability and risk are affected by the changes in the ratio of current liabilities to total assets. An increase in the ratio will cause a decline in profitability which will decrease the net position of the net working capital at a constant asset level. The constant assets will trigger for the risk of the operation to increase.

Black Sparrow Aviation Inc. should be concerned that the ratio is increased because it will impact the profitability of the company. However, this will reduce the risk of not meeting the operational requirement. Black Sparrow Aviation Inc. should be ready to take risk in order to increase productivity.

Answer 1

Black Sparrow’s investments can be improved by having better current assets to total assets ratio. The profitability of current assets is limited than the fixed assets as it is also related to the liability and increased net working capital causing lower profitability. increase in the current assets to total asset ratio will cause reduced risk with the working capital due to constant net working capial. Ratio of current liabilities to total assets will have its impact on the Profitability and risk as ratio increases, the profitability will decrease. If the company aims to have constant assets, then there will be a greater risk. If the company does not meet the operational requirement, the risk can be mitigated and therefore the company has to be ready to take some risk.

The above passage indicates the relationship between the current assets to total asset ratio and the risk and profitability. The article indicates that of the operational expenses are not met then it will reflect in lower risk but then the company will not be able to fulfill the operational requirements. Therefore it is suggested to the company that it should be ready to take some risk to meet the operational requirements