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Cango Financial Analysis

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Although CanGo is very successful in their market they have experienced some financial strains due to some of their financial decision making. In 2009 CanGo purchased an online gaming company paid partially with proceeds from IPO or initial public offering. The investment itself can be risky because at times it’s difficult to predict what the stock will do in its initial day of trading and in the near future, in addition most IPO’s are of companies going through a transitory growth period which are subject to additional uncertainty regarding their future values. The purchase of the online gaming company wasn’t really an investment CanGo had to make since their only profitable division is the online book sales division. This additional investment can potentially cause a strain on CanGo’s overall profitability if the online gaming division doesn’t pay for its initial investment.
After reviewing CanGo’s financial balance sheet from 2009, something that sticks out is CanGo’s efficiency ratio. The efficiency ratio is calculated by dividing the net sales by the average accounts receivable. The calculation of this ratio is important because it measures CanGo’s efficiency on collecting on credit and collection policies. With this ratio the lower the better because it shows the expenses are low whereas the income and earnings are high. When calculating CanGo’s efficiency ratio: $33,000,000/$50,000,000=.66 or 66%. Generally an efficiency ratio of 50% or less is good, however at 66% shows that 66 cents on every dollar that CanGo makes is used to pay for some type of expense. If they continue to operate with a high efficiency rate, it can have a negative effect on their possible profits. Normally ways to reduce the efficiency ratio is to reduce the operation expenses (Vane). CanGo’s advertising expenses experienced a major hike from the prior year 2008 from

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