Ratio Analysis the Vanguard Group,

Ratio Analysis

The Vanguard Group, Inc. -- Ratio Analysis

Financial Performances

The Vanguard Group, Inc. is one of the most reputable financial service organizations within the United States. For 2006, the organization proved that its growth was sustainable as it followed an ascendant trend. This was revealed by numerous ratios, such as the current ratio, the quick ratio, debt ratio, profitability ratios and return ratios. In 2007 however, it encountered more difficulties and the company reveals reduced levels of operational efficiency as well as an increased reliance on debt.

Financial Ratios

a) Current Ratio = Current Assets / Current Liabilities = 718,750 / 431,250 = 1.67

The calculation of the current ratio reveals a decreasing figure relative to 2006, meaning that the company is less able to pay its short-term debt; however, the index is higher than the industry average meaning that Vanguard is better able to pay its short-term liabilities than other players in the industry.

b) Quick ratio = (Current Assets -- Inventories) / Current Liabilities = 718,750 -- 303,750 / 431,250 = 0.96 -- higher than its 2005 value but lower than its 2006 value; it still remains higher than the industry average meaning that short-term liquidities are better able to 303,750 than to other competitors

c) Inventory Turnover = Sales / Inventory = 1,680,000 / 303,750 = 5.53 -- higher than its value in 2006 but lower that its value in 2005, revealing as such an ascendant trend; remains however significantly below the 8.4 industry average, meaning that Vanguard sells and replaces its inventory fewer times than other players in the industry

d) Average collection period = AR x Days / Credit Sales = 64 days, the highest value in both historical evolution of the organization, as well as industry average, meaning that the company encountered some difficulties in collecting its money throughout fiscal year 2007.

e) Total asset turnover = Revenues / Assets = 1,680,000 / 1,250,000 = 1.34 lower that its previous values in 2005 and 2006 and also inferior to the industry average, meaning that the financial service organization has revealed a reduced ability to generate sales through assets.

f) Debt ratio = Total Debt / Total Assets = 666,250 / 1,250,000 = 53.30% - reduced comparative historical evolutions meaning that the company's strength has increased as reliance on debt has been reduced; however, comparative to the industry average, the ratio remains superior, meaning that Vanguard relies on debt more than any other organizations

g) Times interest earned = EBIT / Interest Charges = 70,720 / 15,600 = 4.53 -- this is the highest ratio registered by Vanguard so far to reveal its strength. Significantly higher than its past values and the industry average, the times interest earned reveals that the company is highly capable to pay its debts.

h) Gross profit margin = (Revenues -- COGS) / Revenues = (1,680,000 -- 1,362,480) / 1,680,000 = 18.90% -- lower than past values and industry average meaning that the company gets to retain fewer dollars in profits after the sale of its products and the deduction of the costs incurred

i) Operating profit margin = Operating Income / Net Sales = 86,320 / 70,720 = 1.22 -- significantly lower than its past values as well as the industry average, meaning that operational efficiency at Vanguard is reduced

j) Net profit margin = Net Profit / Net Revenues = 42,432 / 70,720 = 0.6 -- also lower than its past values and the industry average, meaning that in 2007, the financial service organization has been only limitedly able to control its costs