The Vanguard Group, Inc. has compiled the following financial statements and com
ID: 2760133 • Letter: T
Question
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, 2012
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, 2012
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 2010 2011 2012 Industry Avg.
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
Debt ratio 60% 56% — 50%
Net profit margin 2.0% 2.3% — 3%
Return on equity 7.5% 7.95% — 10.5%
Required:
a. Calculate the firm’s 2012 financial ratios.
b. Provide a brief (one or two paragraphs) analysis of the firm’s performance from both time-series and cross-sectional viewpoints.
Explanation / Answer
Solution.
1. Calculation for Current ratio
Current ratio = 718,750 / 431,250 = 1.67%
2. Quick ratio = $415,000 / 431,20 = 0.96
3. Inventory turnover . = COGS / AVG. Inventory.
= 1,362,480 / 151,875 = 8.97
4. Average collection period. = Average accounts receivable / Annual sales ÷ 365 days
= 148,125 / ( 1,680,000 / 365 ) = 32.18.
5. Debt ratio = Total Libilities / Total asset.
= 666,250 / 1,250,000 =0.53
6. Net profit margin = Net income / Net sales.
= 42,432 / 1,680,000 = 2.52
7. Return on equity = Net income / Shareholder equty.
= 42,432 / 318,750 = 0.1331
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