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 affect the company’s future sales revenue. The company’s capital structure is inefficient which a problematic situation is not as such if it is temporary. Liquidity ratios used to analyze the financial health of a business includes the current ratio and acid test ratio. CanGo has a current ratio of 5.39. This is an exceptionally high figure. A current ratio is calculated by dividing the current assets with current liabilities. This is a measure of company’s short-term liquidity position and assesses its ability to meet its short term obligations through its current assets. Generally if the ratio is high, it’s an indicator of a good liquidity position. The ideal situation is where current ratio is greater than 1 and less than 2. However, if it exceeds 2, this might result in inefficiencies. It shows that company’s assets are lying idle and the funds are not being utilized effectively. So CanGo should be paying attention in allocating its assets properly. Acid test ratio or quick ratio is pretty much similar to current ratio. It’s a stricter test of a company’s liquidity as it involves excluding inventory from the current assets figure. A quick ratio of greater than 1 is considered better than a quick ratio of lower than 1. This is...
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