CanGo’s Receivables Turnover Ratio 1.556
The receivable turnover ratio measures the company’s ability to collect cash from credit customers. A higher number would indicate a conservative credit policy and an aggressive collections department. On the contrary, a lower ratio may indicate an inadequate collections function or a non-existent credit policy. CanGo’s account receivables turned over 1.556 times during the past year, which means that CanGo collects on average once every 234.58 days.
Direct Management Solutions recommends reassessing the current credit policies and establishing a firm collection process. Consider the following:
• Shorten credit terms from net-30 to net-15. To encourage a customer to pay quicker, you may also offer a…show more content… • Create an Incentive Program for rapid payment of invoices.
CanGo’s Inventory Turnover Ratio 0.281
The Inventory Turnover Ratio measures the rate at which inventory is turned over a period of time. One might be able to indicate the inventory investment in comparison with its sales. This ratio depends on two main components of performance: stock purchasing and sales. If larger amounts of inventory is purchased, then sales should also increase. Without sufficient sales, CanGo will incur extra storage and holding costs for that given time period. Products also tend to deteriorate the more they sit.
Direct Management Solutions recommends devising a strategy to improve the turnover rate by either increasing goods sold or decreasing inventory investment. Consider the following:
• Increase demand for product lines by working with marketing team.
• Sales promotions to increase the amount of inventory that leaves the warehouse.
• Re-evaluate overall price for products to increase demand which will boosts turnover rates.
• Re-negotiate prices for materials with distributers to reduce inventory investment…show more content… This is important because it shows the proportion of equity and debt the company is using to finance its assets, and the ability for shareholder equity to fulfill its obligations. We can compare this ratio to the industries average and see if the company poses any higher risks, or identify if they are highly leveraged. A higher ratio would indicate the company has been very aggressive in financing its growth with borrowed funds, and is also associated with high levels of risk.
Direct Management Solution concludes that CanGo’s ability to maintain value within the company is not determined by borrowed assets. CanGo is using less leverage and has a stronger equity position. A lower debt-to-equity ratio usually implies a more financially stable business.
CanGo’s Current Ratio 5.387
The current ratio tells us the company's position in terms of your ability to pay current liabilities with current assets. This is an extremely important measurement as current liabilities are usually due within the next year. This ratio also helps investors and creditors understand the liquidity of your company.
Direct Management Solutions concludes that CanGo has an adequate amount of current assets and is able to pay 5 times the amount of its current liabilities; a very attractive number for investors.
CanGo’s Working Capital