Cango Analysis Financial Analysis of Cango Does Term Paper

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CanGo Analysis

Financial Analysis of CanGo

CanGo does not appear to be especially efficient given the two efficiency measures appearing here. With both the Receivables Turnover and the Inventory Turnover, higher ratios indicate better efficiency -- the company is able to collect on accounts and turnover inventory faster (Spiceland et al., 2009). In the case of the former, CanGo's ratio of 1.56 is very low, suggesting that it takes almost two-thirds of a year to actually collect on accounts receivable, which would give the company far less cash flow from operations during the period than would be desirable (Helfert, 2001). Even if the company is making money, that is, it is collecting so slowly that it could still face problems (Bragg, 2007). The latter ratio demonstrates a problem in actually moving product, or perhaps in over-inventorying; if the company cannot boost sales to improve this ratio, it should reduce the level of inventory it keeps on hand in order to reduce warehousing and other carrying costs (Bragg, 2007).

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The financial leverage ratio given, the Debt/Equity ratio, shows the company to be a relatively strong credit risk, with substantially more value in equity than in debt and other liabilities (Spiceland et al., 2009). This will have the effect of making borrowing cheaper, all else being equal, and depending on other factors is generally desirable (Helfert, 2001). The Current Ratio, which is a measure of liquidity rather than real financial leverage, is extremely high for CanGo and demonstrates that the company is highly liquid; this will also serve to cheapen debt and makes the company an attractive prospect for investors (equity holders and future equity holders), as well (Spceiland et al., 2009; Helfert, 2001; Bragg, 2007).

Two other liquidity ratios are….....

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