Exercise. 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, 2012
Assets
Current assets
Cash
Accounts receivable
Inventory
Total current assets
Gross fixed assets
Less: Accumulated depreciation
Net fixed assets
Total assets
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
Notes payable
Accruals
Total current liabilities
Long-term debt
Total liabilities
Stockholders’ equity
Common stock
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
$ 118,750
296,250
303,750
$ 718,750
$625,000
93,750
531,250
$1,250,000
$ 111,250
211,250
108,750
$ 431,250
235,000
$ 666,250
318,750
265,000
$ 583,750
$1,250,000
Income Statement
Vanguard Group, Inc.
for the Year Ended December 31, 2012
Sales revenue
Cost of sales
Gross profits
$1,680,000
1,362,480
$ 317,520
Less: Operating expenses
Selling expense
General and administrative expense
Depreciation expense
Total operating expense
Operating profits
Less: Interest expense
Net profits before taxes
Less: Taxes (40%)
Net profits after taxes
$ 125,600
81,600
24,000
$231,200
$ 86,320
15,600
$ 70,720
28,288
$ 42,432
Historical and Industry Average Ratios
Vanguard Group, Inc.
Ratio
Current ratio
Quick ratio
Inventory turnover
Average collection period
Total asset turnover
Debt ratio
Times interest earned
Gross profit margin
Operating profit margin
Net profit margin
Return on investment
Return on equity
2010
1.6
0.9
6.0
40 days
1.5
60%
2.5
20%
4.7%
2.0%
3.0%
7.5%
2011
1.7
1.0
5.0
50 days
1.5
56%
3.5
19.7%
4.8%
2.3%
3.5%
7.95%
2012
—
—
—
—
—
—
—
—
—
—
—
—
Industry
Average
2012
1.6
0.9
8.4
40 days
1.75
50%
4.0
20%
6%
3%
5.25%
10.5%
a.
Calculate the firm’s 2012 financial ratios.
b.
Analyze the firm’s performance from both time-series and cross-sectional viewpoints.
c.
Comment on the firm’s overall financial condition and performance.