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.
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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
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Income Statement
Vanguard Group, Inc.
for the Year Ended December 31, 2007
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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
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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%
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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.
1. Calculate the firm`s 2007 financial ratios.