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04-09-2018

Product code: Accounts-AW671

 

The Vanguard Group, Inc. has compiled the following financial statements and comparative financial ratios for the year-end review.

 

Balance Sheet Vanguard Group, Inc.

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, 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

 

Historica 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

Complete the critical thinking assignment, ratio analysis and interpretation.

 

Messineo LLC borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal annual end of year payments. As the CFO of Messineo, LLC you must prepare a report of the pertinent information in a short summary for the CEO.

 

1. Calculate the annual end of year loan payment amount.

 

2. Prepare a loan amortization schedule showing the interest and principal break down of each of the three loan payments.

 

3. Prepare a one page executive summary for the CEO, Linda Messineo, with the loan payment schedule explaining why the interest portion of each payment declines with the passage of time.

 

Also, be sure to remind her that the interest portion of the loan payment is tax deductible. You should include your spreadsheet as an appendix to your executive summary to prove your figures in the loan payment schedule.

 

Hint: Using a spreadsheet, you will start with the PMT function to calculate the annual payment. Next you will use the IPMT function to find the interest portion for each of the three years.

 

Galaxy Satellite Co. is attempting to select the best group of independent projects competing for the firm's fixed capital budget of $10,000,000. Any unused portion of this budget will earn less than its 20 percent cost of capital. A summary of key data about the proposed projects follows.

1. Use the NPV approach to select the best group of projects. (Note that just the PV of inflows is given, you must subtract the initial investment to find the NPV.)

2. Use the IRR approach to select the best group of projects. (Note that the discount rate or the cost of capital is 20 %.)

3. Which projects should the firm implement based on your analysis of both techniques and given the capital rationing amount? Write an email to your boss, Andy Fast, the CFO, explaining your rationale proving the choices based on the considerations of shareholder value and the maximum investment budget.

 

1. Design your own project based on a real life situation. You will have to obtain approval from your instructor if you choose this option. The project must be regarding a presentation for a recommendation for financing or change in financing for a real company. You must include at a minimum the company’s WACC, Capital structure, dividend policy if applicable, and the reason for the change in financing. Your proposal presentation will be either for the source of financing (describe the use that has already been determined) or the use of the financing (describe the source that has already been decided). If neither the source nor use has been decided, you should present alternatives that meet the company’s expectations for increasing shareholder value. Write your proposal as a business report with executive summary and appendices if applicable. Or, you may prepare your project as a narrated PowerPoint presentation. See rubric for specific graded criteria.

 

2. Capital Budgeting Case – From the given case information, calculate the firm’s WACC then use the WACC to calculate NPV and evaluate IRR for proposed capital budgeting projects with a capital rationing constraint. After you choose the project(s), recalculate the capital structure based on the assumption that the project(s) are implemented and determine if the new capital structure will signal the investors either positively, negatively, or not at all. Write a business report on your findings. Include an executive summary and appendices if applicable. Or you may prepare your project as a narrated PowerPoint presentation. See rubric for specific graded criteria.

 

Download Questions

The aim of this report is to do ratio analysis of Vanguard Group using various financial ratios like Profitability, assets efficiency, Liquidity, Capital Structure and Market Performance ratios. This analysis is important so as to find out its performance compare to last year so that decision regarding investment in the company can be taken.

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