Ratio Analysis
Critical Thinking Assignment Module 2
Ratio Analysis
The Vanguard Group, Inc. has compiled the following financial statements and comparative financial ratios for the year-end review.
___________________________________
Balance Sheet
Vangaurd Group, Inc.
December 31, 2007
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Assets
Current Assets
Cash $118,750
Accounts Recievable 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
Liabilites and Stockholders' Equity
Current Liabilities
Accounts Payable $111,250
Notes Payable 211,250
Accruals 108,750
Total Current Liabilites $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 ____ 0.9
Inventory turnover 6.0 5.0 ____ 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 _____ 4.0
Gross Profit Margin 20% 19.7% _____ 20%
Operating Profit Margin 4.7% 4.8% _____ 6%
Net Profit Margin 2.0% 2.3% ______ 3%
Return on Investment 3.0% 3.5% ______ 5.25%
Return on Equity 7.5% 7.95% ______ 10.5%
______________________________________________________________________________
1. Calculate the firm's 2007 financial ratios.
2. Prepare an executive summary on the firm’s 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.
Ratio Analysis
Name:
Subject:
Date of Submission
Ratio Analysis
Table SEQ Table \* ARABIC 1: Financial ratios for the Vanguard Group, Inc. for the period ending December 31, 2007
The gross profit margin for the organization is 19 percent while the gross profit margin for the industry is twenty percent. This means that the company is not controlling its overhead costs appropriately. The operating profit margin for the company has increased from the previous year, but it is still lower than the industry’s average. This implies that the company has looming financial troubles. Critical to the discussion is the fact that the net profit margin has also increased over the years implying the company is converting its 3 percent of its sales into income.
The return on investment for the company is six percent, which is higher than the industry’s average and has increased over the years. This indicates that the organization is using its assets to produce a ...
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