Ratio Analysis The Vanguard Group, Inc. has compiled the following financial statements a nd comparative financial ratios for the year-end review. Balance Sheet Vanguard Group, Inc. December 31, 2007 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 stockholde rs’ 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 Historical 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 comp arison to the industry average.