Blackwell Automotive Company Ratio Analysis

Ratio Analysis of Blackwell Automotive Company
BN160722
BUS 550 Financial Management
Professor: Dr. Stephen Hawn
Westcliff University
19/02/2017

Abstract
This study is conducted to analyze the ratio analysis of Blackwell Automotive Company. This study shows the calculation of liquidity ratio of Blackwell Automotive Company in terms of current ratio and quick ratio. This study is conducted to analyze the days’ sales outstanding ratio, total assets turnover ratio and fixed assets turnover ratio of Blackwell Automotive Company with the help of its balance sheet provided. This study also shows the advantages and uses of these ratios in terms of financial decision making of an organization.

Introduction
Ratio analysis

The higher the quick ratio, the more the company will be able to repay its current assets without selling its long term assets. However, in case of Blackwell Automotive Company, the quick ratio is quite low which shows that the liquidity position of a company is not good.
Days’ Sales Outstanding Ratio
Days’ sales outstanding ratio is a ratio which measures the number of days taken by the organization so as to collect the cash from credit sales. The advantages of Days’ Sales Outstanding Ratio are:
- It helps the organization to know the efficiency of the account receivable department.
- It helps the investor in evaluating how fast the firm can collect the cash from its credit sales so as to pay its liabilities effectively.
Solution:
Given,
Account Receivable =

This shows that the Blackwell Automotive Company is efficiently and effectively utilizing its assets. The higher the turnover ratio, the better the company is utilizing the assets.
Fixed Assets Turnover Ratio
Fixed Assets Turnover Ratio is an efficiency ratio which measures the ability of an organization in effectively utilizing its fixed assets.
Solution
Given,
Net Sales = $4,063,589
Fixed Assets = $711,256
Now,
Fixed Assets Turnover Ratio = Net Revenue / Average Fixed Assets = $4,063,589 / $711,256 = 5.71
Therefore, the fixed assets turnover ratio of Blackwell Automotives Company is 5.71. This indicates that the Blackwell Automotive Company has generated 5.71 times more sales than the fixed assets. The higher the fixed turnover ratio the better for the company as it shows that the company is effectively utilizing its assets in generating the sales.