Financial Case Study: Cango Financial Ratio

CanGo is off to a good start financially. CanGo has done a great job of not taking on more debt than they can handle. CanGo also has very good current and quick ratios, with a current ratio of 5.39 and a quick ratio of 4.53 it is pretty clear that CanGo could easily pay of their debt if need be and still be able to keep running. CanGo has a working capital of 164,820,000 on again this shows that CanGo is more than capable of paying off its debts. When looking at CanGo’s level of solvency they seem to be doing very well in this area as well with a current debt ratio is40.23%. According to the Risk Management Association the average debt ratio for most companies is 62%, given that CanGo is at just over 40% should they need financing for a project banks will consider them as low risk and be more likely to give lower interest rates (Financial,2008) …show more content…
CanGo with its current inventory turnover ratio of only 0.28 needs to consider making some changes to its inventory policy to increase this rate. This number will send up a red flag to an investor or financing company as to their ability to sell their products. CanGo is a new company though and this number may just be low simply because they are so new. Generally a low inventory turnover ratio indicated one of two things, either they are having troubles selling their products which would also be notable in other ratios or they are keeping way to much stock on hand. Keeping too much stock on hand means paying un-needed storage and warehousing costs. Given that CanGo has a high sales revenues of 51,000,000 reported on its income statement it is likely that because they are a new company they are simple just overstocked and need to find a good balance of how much inventory they really need to keep on hand (CanGo,