CanGo Financial Analysis Report
The success of a business depends on its ability to remain profitable over the long term, while being able to pay all its financial obligations and earning above average returns for its shareholders. This is made possible if the business is able to maximize on available opportunities and very efficiently and effectively use the resources it has to create maximum value for all involved stakeholders. One way the performance of a company can be measured on critical areas such as profitability, its ability to stay solvent, the amount of debt exposure and the effectiveness in resource utilization, is performing financial analysis where a set of ...view middle of the document...
The different types of ratios which are used for analyzing a firm are defined below, and in the next section applied to CanGo number to get an understanding of its financial condition.
Inventory turnover ratios – The two inventory ratios determine the effectiveness with which the company is able to sell inventory and collect receivables, which is critical for successful utilization and an indicator of how effectively it is operating. The first ratio is called as inventory turnover ratio, which is calculated by dividing the cost of goods sold by average inventory. "The inventory turnover ratio is an indicator of how many times the company is able to turnover its inventory, meaning better utilization. The higher the ratio, the better the company is performing, which shows the company is very effectively using its resources and capabilities, to turn its inventory multiple times over. The second ratio in this type is the receivables turnover ratio, which is calculated by dividing the net credit sales by the total account receivables. The receivables turnover ratio is an indicator of a company's ability to collect cash from credit customers. This is an important ratio as a company would need to be able to actually get money for credit sales, if it has to be able to meet its capital and debt obligations
Profitability ratios – The profitability ratios of return on net sales and rate of return on total assets are indicators of profitability of company operations. Return on sales shows the percentage of each sales dollar earned as net income, essentially the amount of profits generated that translate into net income. The higher the number, the better it is for the company as a larger percentage of its sale is getting converted into income or profit for the company. Return on Assets is an indicator of how profitably a company uses its assets, essentially how best it has been able to put to use the capital and resources deployed to generate returns. The higher the returns, the better it is for the company.
Current ratios – The three measures include working capital, current ratio and quick ratio are very good indicators of the company’s ability to remain solvent and have the necessary resources to meet its business obligations. Working capital is the money that a company has after paying off its current...