Analyzing 2009 Performance Of Cango Report Example

Using the Income Statement and the Balance Sheet of CanGo for the year ending December 31, 2009, we have computed for the various ratio indicators to assess the overall performances of the firm. The following ratio results have made:

Receivable turnover – 1.57 times

The receivable turnover shows how many times does the firm was able to converts collection from the clients into cash. It is essential in determining the effectiveness of the management’s credit and collection policy in order to collect credit sales. CanGo’s 2009 receivable turnover is 1.57 times.

Inventory turnover - .28 times

The inventory turnover shows how many times does the firm was bale to convert its inventory into sales. It is another way of assessing the efficiency of management’s policy in controlling its inventory level and the effectiveness of its marketing activities. In 2009, CanGo’s inventory turnover is only .28 times. This ratio indicates slow inventory movement, thus, reflecting poor inventory control management.

Debt-to-Equity Ratio – 67.30%

Debt-to-Equity ratio determines what financing method does the firm is highly employing. It measures the total value of its asset that was purchased using financial resources from outside resources against shareholders’ contribution (Baker and Powel, p52). The 67.30% debt-to-equity ratio result of CanGo generally reflects that the primary financing scheme that the firm employs is the debt financing method.

Current Ratio – 5.28

Looking at the liquidity level or the ability of the firm to pay current obligations, the current ratio compares the total value of its current assets over its current liabilities. The result of 5.28 signifies that CanGo is highly liquid and have sufficient resources to repay creditors.

Quick Ratio – 4.53

Another way of measuring liquidity is by determining the level of quick assets over the value of the total debts. The quick ratio result of 4.53 means that the firm has enough readily-convertible-to-cash assets to finance obligations.

Working Capital - $160,020,000

CanGo’s 2009 working capital is valued at $160,020,000. This figure reflects how much capital the firm has to finance its daily operation (Gibson, p228).

Return on Assets – 2.33%

Return on assets represents how much of the total sales were generated using the total value of the firm’s operating asset. In 2009, only 2.33% of the total sales came from the utilization of CanGo’s total asset.

Return on Sales – 16.88%

Return on sales measures the amount of the total assets that will be left to the firm after deducting all the relevant cost of the products sold (accountingexplained.com). Only 16.88% of the $50,000 total net sales are left to the firm after deducting its cost of sales. It means that most of the revenue was consumed to pay the cost of products sold.

Conclusion

In terms of liquidity, CanGo’s management has done impressive strategies to keep its cash resources at a very high level. However, the firm is highly exposed to leverage by generating much of its finances from issuing debt security. Moreover, the firm failed to maximize other resources by getting a very low inventory turnover and managing collection for only 1.57 times. Returns from sales and assets were also low, which the management must reconsider.

Reference

Accountingexplain.com. Financial Accounting. Retrieved March 20, 2015 from http://accountingexplained.com/financial/ratios/operating-margin
Baker, H.K., and Powell, G. (2005). Understading Financial Management: A Practical Guide. USA: John Wiley & Sons.
Gibson, C. (2011). Financial Reporting and Analysis: Using Financial Accounting Information. USA: Cengage Learning.