Liquidity & Cash flow
We used the current ratio to evaluate liquidity for the company. For the fiscal year ended 2017 we
calculated CAE’s current ratio to be 1.51.A look at the past ten years shows that the current ratios have been steadily increasing. While a lower ratio indicates a higher risk of short- term insolvency, it could also indicate a progressive use of capital to attain higher growth. We calculated the past ten years of operating cash
flow ratios to examine the health of the firm’s cash flows. For 2017 the ratio was .34, a number that has remained relatively stable over the past ten years. This indicates a low volatility in cash flows, which indicate lower risk.
We used the Asset turnover ratio to evaluate the firm’s asset management. CAE has a low turnover ratio due to the fact that their products are major investments, and are therefore have a
relatively small sales volume. We calculated Asset turnover to be .29 for this year, Generally speaking this number is a metric of how efficient the company is
using its assets to generate revenue. Typically, a higher value indicates more
efficient use of assets. The particular nature of CAE’s services leads to a
lower turnover of assets.
Long-term Debt Paying
CAE currently has a total debt of 964.85 million. They currently have a debt/equity ratio of .5988 compared to the current industry average of .04. This is a fairly significant difference. This ratio indicates the degree to which the company is financially leveraged. This larger D/E ratio means that CAE has been more aggressive in using debt to finance its growth. While this can lead to higher returns due to the higher potential for growth, the higher ratio is also associated with a higher level of financial risk. It is likely that this is an acceptable practice
for a company such as CAE that is not very cyclical. A look at the historical data shows that the past few years have been an all-time low for the ratio in this Industry