Individual Financial Analysis Project

Individual Financial Analysis Project

Receivables Turnover

The ratio tells how efficiently a firm is utilizing its assets while extending credit and collecting debt. The receivable turnover of CanGo, Inc. is 1.56 times, which is above 1 and apparently showing good efficiency performance of the company. It shows that CanGo Inc. approximately collects trade receivables 1.56 times a year (CanGo, 2009). It might be due to relax credit policy or discount offers made by CanGo to its customers and trade debtors. Formula for receivable turnover is as follows (Baker & Powell, 2009):

Receivables Turnover=

Net Credit Sales

 

Average Accounts Receivable

Receivables Turnover=

$50,000,000

 

$32,120,000

 

Receivables Turnover=

1.56 times

In this case, significant portion of business efficiency is contributed by sales turnover. However, analysis of receivable turnover does not show a relatively strong position because company is less likely to recover most of credit sales during the same year. Hence, reassessment of company credit policy is recommended to efficiently realize credit sales into business income.

Inventory Turnover

The ratio provides information on how many times a firm replenishes its inventory. It sheds light on efficient utilization of cash investment and inventory management. Inventory turnover of CanGo Inc. is 1.56 times, which is a weak ratio. It means that CanGo sells and replaces its inventory by only 1.56 times a year. It may reflect inappropriate inventory and cash management at the company (CanGo, 2009). It is calculated by following formula (Baker & Powell, 2009):

Inventory Turnover=

Sales

 

Inventory

Inventory Turnover=

$50,000,000

 

$32,000,000

Inventory Turnover=

1.56 times

Debt to Equity Ratio

The ratio indicates proportion of total liabilities and equity used by a firm to finance business activities. At CanGo, 67.30% of financial leverage has been acquired to finance business assets and core operations (CanGo, 2009). It may increase the chances of bankruptcy and business risk due to increased level of financial leverage. The company should reassess its capital structure to identify an optimum ...