Vanguard Case Financial Ratios
(1) Calculate the firm’s financial ratios for 2007:
Vanguard Group 2007 financial ratios
1. Current ratio = current assets/current liabilities
= 718,750/431,250
= 1.67
2. Quick ratio= (current assets-inventory)/current liabilities
= (718,750-303,750)/431,250
= 0.96
3. Inventory turnover= cost of sales/average stock
= 1,362,480/303,750
=4.49
4. Average collection period= (average debtors/annual credit sales)×365
= (296,250/1,680,000) ×365
= 64 days
5. Total asset turnover= annual sales/total assets
= 1,680,000/1,250,000
= 1.344
6. Debt ratio= total liabilities/total assets
= (666,250/1,250,000) ×100
= 53.3%
7. Times interest earned= income before interest and taxes(EBIT)/interest expense
= 86,320/15,600
= 5.53 times
8. Gross profit margin= (gross profit/sales)×100
= (317,520/1,680,000) ×100
= 18.9%
9. Operating profit margin= (operating profit before interest and taxes/sales) ×100
= (86,320/1,680,000) ×100
= 5.14%
10. Net profit margin== (net profit i.e. earnings after tax but before interest /sales) ×100
= …show more content…
There is a decline in both the return in investment and return on equity. This shows that the company profit generation in relation to investments is decreasing. The industrial averages of 5.25% for return on investment is higher than that of 3.45% for the company. This shows that the utilization of assets to generate returns is low and not up to the required standards. The industrial average 0f 10.5% for the return on equity is also higher than that of the company which is 7.27%. This shows that the company is not performing up to standards in maximizing shareholders wealth who have contributed capital to the firm. The return per every shilling contributed by investors is low.
Generally Vanguard group has low profitability and yet the financial and the gearing risks are high. The company is therefore a high risk, low return
Vanguard Group 2007 financial ratios
1. Current ratio = current assets/current liabilities
= 718,750/431,250
= 1.67
2. Quick ratio= (current assets-inventory)/current liabilities
= (718,750-303,750)/431,250
= 0.96
3. Inventory turnover= cost of sales/average stock
= 1,362,480/303,750
=4.49
4. Average collection period= (average debtors/annual credit sales)×365
= (296,250/1,680,000) ×365
= 64 days
5. Total asset turnover= annual sales/total assets
= 1,680,000/1,250,000
= 1.344
6. Debt ratio= total liabilities/total assets
= (666,250/1,250,000) ×100
= 53.3%
7. Times interest earned= income before interest and taxes(EBIT)/interest expense
= 86,320/15,600
= 5.53 times
8. Gross profit margin= (gross profit/sales)×100
= (317,520/1,680,000) ×100
= 18.9%
9. Operating profit margin= (operating profit before interest and taxes/sales) ×100
= (86,320/1,680,000) ×100
= 5.14%
10. Net profit margin== (net profit i.e. earnings after tax but before interest /sales) ×100
= …show more content…
There is a decline in both the return in investment and return on equity. This shows that the company profit generation in relation to investments is decreasing. The industrial averages of 5.25% for return on investment is higher than that of 3.45% for the company. This shows that the utilization of assets to generate returns is low and not up to the required standards. The industrial average 0f 10.5% for the return on equity is also higher than that of the company which is 7.27%. This shows that the company is not performing up to standards in maximizing shareholders wealth who have contributed capital to the firm. The return per every shilling contributed by investors is low.
Generally Vanguard group has low profitability and yet the financial and the gearing risks are high. The company is therefore a high risk, low return