Prepare a summary on the firms overall financial performance

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Reference no: EM131075074

PART 1

Critical Thinking assignment Module

Ratio Analysis

The Vanguard Group, Inc. has compiled the following financial statements and comparative financial ratios 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 Net fixed assets	93,750	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.
	Industry Average
Ratio	2005	2006	2007	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.

PART 2

It is important for companies, particularly retailers, to have strong liquidity. How does the current ratio compare with the quick ratio and why would these two ratios be important for retailers?

2-3 paragraphs with 1-2 sources. APA style

Reference no: EM131075074

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