The Vanguard Group, Inc. has compiled the following financial statements and comparative financial raios for the year-end review. ________________________________________________________________________________ Balance Sheet Vanguard Group, Inc December 31, 2007 ________________________________________________________________________________ Assets Current assets Cash $118,750 Accounts receivable 296,250 Inventory 303,750 Total current assets $718,750 Gross fixed assets $625,000 Less: Accumulated depreciation 93,750 Net fixed assets 531,250 Total assets $1,250,000 Liabilities and stockholders' equity Current liabilities Accounts payable $111,250 Notes payable 211,250 Accruals 108,750 Total current liabilities $431,250 Long-term debt 235,000 Total liabilities $666,250 Stockholders' equity Common stock 318,750 Retained earnings 265,000 Total stockholders' equity $583,750 Total liabilities and stockholders' equity $1,250,000 ____________________________________________________________________________________ Income Statement Vanguard Group, Inc. for the Year Ended December 31, 2007 ____________________________________________________________________________________ Sales revenue $1,680,000 Cost of sales 1,362,480 Gross profits $317,520 Less: Operating expenses Selling expense $125,600 General and administrative expense 81,600 Depreciation expense 24,000 Total operating expense $231,200 Operating profits $86,320 Less: Interest expense 15,600 Net profits before taxes $70,720 Less: Taxes (40%) 28,288 Net profits after taxes $42,432 _____________________________________________________________________________________ _____________________________________________________________________________________ Historical and Industry Average Ratios Vanguard Group, Inc. _____________________________________________________________________________________ Ratio 2005 2006 2007 Industry Average ______________________________________________________________________________________ 2007 Current ratio 1.6 1.7 1.6 Quick ratio 0.9 1 0.9 Inventory turnover 6 5 8.4 Average collection period 40 days 50 days 40 days Total asset turnover 1.5 1.5 1.75 Debt ratio 60% 56% 50% Times interest earned 2.5 3.5 4 Gross profit margin 20% 19.70% 20% Operating profit margin 4.70% 4.80% 6% Net profit margin 2.00% 2.30% 3% Return on investment 3.00% 3.50% 5.25% Return on equity 7.50% 7.95% 10.50% ______________________________________________________________________________________ 1. Calculate the firm's 2007 financial ratios. 2. What is the meaning of each ratio looking at its trend and its comparison to the industry average?
| The Vanguard Group, Inc. has compiled the following financial statements and comparative | |||||||||
| financial raios for the year-end review. | |||||||||
| ________________________________________________________________________________ | |||||||||
| Balance Sheet | |||||||||
| Vanguard Group, Inc | |||||||||
| December 31, 2007 | |||||||||
| ________________________________________________________________________________ | |||||||||
| Assets | |||||||||
| Current assets | |||||||||
| Cash | $118,750 | ||||||||
| Accounts receivable | 296,250 | ||||||||
| Inventory | 303,750 | ||||||||
| Total current assets | $718,750 | ||||||||
| Gross fixed assets | $625,000 | ||||||||
| Less: Accumulated depreciation | 93,750 | ||||||||
| Net fixed assets | 531,250 | ||||||||
| Total assets | $1,250,000 | ||||||||
| Liabilities and stockholders' equity | |||||||||
| Current liabilities | |||||||||
| Accounts payable | $111,250 | ||||||||
| Notes payable | 211,250 | ||||||||
| Accruals | 108,750 | ||||||||
| Total current liabilities | $431,250 | ||||||||
| Long-term debt | 235,000 | ||||||||
| Total liabilities | $666,250 | ||||||||
| Stockholders' equity | |||||||||
| Common stock | 318,750 | ||||||||
| Retained earnings | 265,000 | ||||||||
| Total stockholders' equity | $583,750 | ||||||||
| Total liabilities and stockholders' equity | $1,250,000 | ||||||||
| ____________________________________________________________________________________ | |||||||||
| Income Statement | |||||||||
| Vanguard Group, Inc. | |||||||||
| for the Year Ended December 31, 2007 | |||||||||
| ____________________________________________________________________________________ | |||||||||
| Sales revenue | $1,680,000 | ||||||||
| Cost of sales | 1,362,480 | ||||||||
| Gross profits | $317,520 | ||||||||
| Less: Operating expenses | |||||||||
| Selling expense | $125,600 | ||||||||
| General and administrative expense | 81,600 | ||||||||
| Depreciation expense | 24,000 | ||||||||
| Total operating expense | $231,200 | ||||||||
| Operating profits | $86,320 | ||||||||
| Less: Interest expense | 15,600 | ||||||||
| Net profits before taxes | $70,720 | ||||||||
| Less: Taxes (40%) | 28,288 | ||||||||
| Net profits after taxes | $42,432 | ||||||||
| _____________________________________________________________________________________ | |||||||||
| _____________________________________________________________________________________ | |||||||||
| Historical and Industry Average Ratios | |||||||||
| Vanguard Group, Inc. | |||||||||
| _____________________________________________________________________________________ | |||||||||
| Ratio | 2005 | 2006 | 2007 | Industry Average | |||||
| ______________________________________________________________________________________ | 2007 | ||||||||
| Current ratio | 1.6 | 1.7 | 1.6 | ||||||
| Quick ratio | 0.9 | 1 | 0.9 | ||||||
| Inventory turnover | 6 | 5 | 8.4 | ||||||
| Average collection period | 40 days | 50 days | 40 days | ||||||
| Total asset turnover | 1.5 | 1.5 | 1.75 | ||||||
| Debt ratio | 60% | 56% | 50% | ||||||
| Times interest earned | 2.5 | 3.5 | 4 | ||||||
| Gross profit margin | 20% | 19.70% | 20% | ||||||
| Operating profit margin | 4.70% | 4.80% | 6% | ||||||
| Net profit margin | 2.00% | 2.30% | 3% | ||||||
| Return on investment | 3.00% | 3.50% | 5.25% | ||||||
| Return on equity | 7.50% | 7.95% | 10.50% | ||||||
| ______________________________________________________________________________________ | |||||||||
| 1. Calculate the firm's 2007 financial ratios. | |||||||||
| 2. What is the meaning of each ratio looking at its trend and its comparison to the industry average? | |||||||||
Related questions
Ratio Analysis
The Vanguard Group, Inc. has compiled the following financial statements and comparative financial ratios for the year-end review.
| Balance Sheet | ||
| Assets | ||
| Current assets | ||
| âCash | $ 118,750 | |
| âAccounts receivable | 296,250 | |
| âInventory | 303,750 | |
| âTotal current assets | $ 718,750 | |
| Gross fixed assets | $625,000 | |
| Less: Accumulated depreciation | 93,750 | |
| Net fixed assets | 531,250 | |
| Total assets | $1,250,000 | |
| Liabilities and stockholdersâ equity | ||
| Current liabilities | ||
| âAccounts payable | $ 111,250 | |
| âNotes payable | 211,250 | |
| âAccruals | 108,750 | |
| ââTotal current liabilities | $ 431,250 | |
| Long-term debt | 235,000 | |
| ââTotal liabilities | $ 666,250 | |
| Stockholdersâ equity | ||
| âCommon stock | 318,750 | |
| âRetained earnings | 265,000 | |
| ââTotal stockholdersâ equity | $ 583,750 | |
| Total liabilities and stockholdersâ equity | $1,250,000 | |
| Income Statement | |||
| Sales revenue | $1,680,000 | ||
| Cost of sales | 1,362,480 | ||
| Gross profits | $ 317,520 | ||
| Less: Operating expenses | |||
| Selling expense | $ 125,600 | ||
| General and administrative expense | 81,600 | ||
| Depreciation expense | 24,000 | ||
| âââTotal operating expense | $231,200 | ||
| Operating profits | $ 86,320 | ||
| Less: Interest expense | 15,600 | ||
| Net profits before taxes | $ 70,720 | ||
| Less: Taxes (40%) | 28,288 | ||
| Net profits after taxes | $ 42,432 | ||
| Historical and Industry Average Ratios | ||||
| Industry Average | ||||
| Ratio | 2005 | 2006 | 2007 | 2007 |
| Current ratio | 1.6 | 1.7 | â | 1.6 |
| Quick ratio | 0.9 | 1.0 | â | 0.9 |
| Inventory turnover | 6.0 | 5.0 | â | 8.4 |
| Average collection period | 40 days | 50 days | â | 40 days |
| Total asset turnover | 1.5 | 1.5 | â | 1.75 |
| Debt ratio | 60% | 56% | â | 50% |
| Times interest earned | 2.5 | 3.5 | â | 4.0 |
| Gross profit margin | 20% | 19.7% | â | 20% |
| Operating profit margin | 4.7% | 4.8% | â | 6% |
| Net profit margin | 2.0% | 2.3% | â | 3% |
| Return on investment | 3.0% | 3.5% | â | 5.25% |
| Return on equity | 7.5% | 7.95% | â | 10.5% |
1. Prepare an executive summary on the firmâs overall financial condition and performance. Your summary must be at least one page, but no more than 3 pages. Comment on the meaning of each ratio, discussing its trend and its comparison to the industry average.
