Financial analysis of CanGo
CanGo has been growing rapidly ever since its formation. It experienced a greater than expected growth in revenues. However, the company is faced with some financial difficulties and so there is a need to take certain financial decisions. Also, it faces problems of controlling logistics related to growth.
Rapid growth seems to be a blessing. However, it depends on the company’s ability how they deal with it. The holiday season of 2009 showed the company’s inability to handle the orders that it received. Orders were not sent on time. Moreover, it delivered wrong order at times. To make the matters worse, the company was totally unable to fill some orders at all. This customer dissatisfaction might adversely…show more content…
However, the ratio is still very high in comparison to CanGo’s industry.
The profitability ratios used to assess CanGo’s profitability are net profit margin, operating profit margin and return on assets. All these measures appear to be positive which provides good news for investors as well as management. Net profit margin indicates whether a company has been successfully controlling its costs or not. If net profit margin is high it demonstrates that a company has effectively converted sales into profit. This ratio can be compared with other firms in the industry. A high net profit margin provides competitive edge to a company which is required if it wishes to expand its scale of operation. Ratios | Formula used | 2009 | Debt equity ratio | Debt ÷ Equity | 0.67 | LIQUIDITY ANALYSIS | | | Current ratio | Current assets ÷ Current liabilities | 5.39 | Acid-test Ratio | Quick assets ÷ Current liabilities | 4.53 | EFFICIENCY RATIOS | | | Receivables turnover | Net sales ÷ Average Receivables | 1.52 | Inventory turnover | CGS ÷ Average inventory | 0.28 | PROFITABILITY RATIOS | | | Net Profit margin | Earnings ÷ Sales | 10.97% | Return on Equity | Net income ÷ Shareholder’s Equity | 3.9% | Return on Assets | Net income ÷ Assets | 2.33% | Operating Profit Margin | Profit before interest and tax ÷ Sales | 16.5% |
CanGo’s operating and net profit margins seem satisfactory at 10.97% and 16.5% respectively. Investors do