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…
ROE indicates the amount of profit a company is generating with funds invested by the common stockholders. This ratio shows the return which is generated by the company on owner’s investment. It appears to be low for CanGo. However, this might not be a cause of concern as the initial public offering might have inflated the denominator. The senior management of the company is more concerned with measures like return on assets, while shareholders have a direct interest in return on assets.
The debt equity ratio helps to assess the gearing of a company. It shows the proportion of debt and equity in the company for the purpose of financing its assets. It indicates how dependant a company is on external sources of finance in order to finance its operations. The higher the debt equity ratio, the more heavily geared a company is. However, CanGo has low gearing which shows that company has an ability to utilize its own resources for managing its operations without being heavily dependent on external funds. Hence, more funds will be available for distribution as dividends to shareholders which otherwise would have been devoted towards excessive interest payments.
The efficiency ratios such as inventory turnover help to assess the company’s efficiency in selling off its stocks rapidly. CanGo seems extremely efficient in this area due to its just in time stock management system. 80% of its sales are managed through the JIT system. This greatly helps to save on inventory