Cango's Financial Ratio Analysis

The debt to equity ratio measures a company’s financial leverage by dividing its liabilities by its equity. A high ratio indicates a company is using too much financing to grow. Although financing is a great tool for increasing production and capital, it is significant that CanGo shows financial growth so that higher earnings can be distributed to shareholders rather than cash flow going to repaying debts. Barnes & Noble’s most recent debt to equity ratio is 0.33 (Businessweek.com, 2014), CanGo’s is 0.67 which is notably higher than the industry average. Still, other ratios tell us that CanGo is not financing its growth enough, and is being too cautious with its capital.

The current ratio is a liquidity ratio that shows a company’s ability to repay its immediate debts using its short-term assets, such as cash. It also reflects the company’s ability to generate cash from sales and inventory. The desired current ratio is above one (1.0), under (1.0) does not …show more content…
The industry average is 1.14 percent (Businessweek.com, 2014) and CanGo’s is 2%, which tells us CanGo is more asset-heavy than its competitors but generates better profits per sale. The return on sales ratio also referred to the operating profit margin or operating income margin, demonstrates how efficiently the company is operating by calculating profit after operational costs. Return on sales (ROS) is typically compared to previous quarter ratios as well as industry averages. A higher ratio implies efficiency at minimizing expenses thus retaining more revenue (Investopedia, Return on Sales, 2014). Amazon.com’s ROS is 0.74 percent, identical to industry average (CSIMarket, Inc., 2014). CanGo’s return on sales ratio is 11 percent, which implies it has good control of its expenses and is producing a very profitable return on each dollar per