CanGo’s Financial Analysis Essay

Following up with our initial analysis last week, NewGen had the opportunity to review CanGos financial statement. The success of a business depends on its baron to remain profitable over the long term, while being able to pay all its financial obligations and earning above average pass offs. NewGen leveraged our knowledge of Investment rations, disruption our analysis down into four (4) key areas, efficiency, financial leverage, liquidity and profitability. Attached you will find our financial analysis summary matrix.1.Efficiency RatioWe began with a bet at your efficiency ratio, concentrating on your receivables turn over for the past year. This reflects the time between your sale and actual collection. If a companys Turnover commit is significantly lower than industry norms, there could be an underlying reason such as poor collection methods, high-risk customers or low sales. With CanGos Efficiency Ratio for receivables turnover was at 1.51, there is room for improvement and a closer look needs to be performed to pinpointed where the problem lies. We next looked at CanGos Inventory Turnover as a measure of CanGos inventory management efficiency. In general, a higher value indicates better military operation and lower value means inefficiency in controlling inventory levels CanGos was 1.56. This lower inventory turnover ratio whitethorn be an indication of overstocking which may pose risk of obsolescence and increased inventory holding costs (Accounting Explained, 2012).2.Financial LeverageTaking a look at CanGos equity ratio for how oftentimes they relied on their debt, we were surprise to see a low debt to equity ratio of 7.57, thereby enabling CanGo to utilize more of their revenue for their future plans (Financial Dictionary, 2012).3.Liquidity RatioOur reappraisal of CanGos Liquidity included the current ratio, the quick ratio and the operating cash flow ratio or Working Capital. a. Current Ratio reflected a 1, which is low if CanGo wishes to pos ition themselves to turn short-term assets into cash to cover debts or assist with the planned upgrades. b. Your Quick Ratio fell below a 1 to .95. As a common rule of thumb, a quick ratio of greater than 1.0 means a company is sufficiently able to meet their short-term liabilities. With CanGos falling below this threshold, could be indicative that your over-leveraged, struggling to maintain or grow sales, paying bills too quickly, or collecting receivables too slowly. This ties into our comments above on yor efficiency ratio (Investigatinganswers, 2012). c. Working Capital for the past year reflected a negative balance almost 8.5m that will seriously impact on banking institutions percentage against planned activities.4. ProfitabilityNewGens final analysis was on CanGos profitability looking at your Return on Assets and Sales. CanGos return on assets reflected a .023 indicative that your more asset-intensive and must reinvest more money to continue generating earnings (About.com, 2 012). Similarly, CanGos Return on Sales (ROS) was .17 (Investopedia, 2012).