You have just been hired as a financial analyst for LydexCompany, a manufacturer of safety helmets. Your boss has asked youto perform a comprehensive analysis of the companyâs financialstatements, including comparing Lydexâs performance to its majorcompetitors. The companyâs financial statements for the last twoyears are as follows:
Lydex Company
Comparative Balance Sheet This Year Last Year Assets Currentassets: Cash $ 960,000 $ 1,260,000 Marketable securities 0 300,000 Accounts receivable, net 2,700,000 1,800,000 Inventory 3,900,000 2,400,000 Prepaid expenses 240,000 180,000 Total currentassets 7,800,000 5,940,000 Plant and equipment,net 9,300,000 8,940,000 Total assets $ 17,100,000 $ 14,880,000 Liabilities andStockholders' Equity Liabilities: Current liabilities $ 3,900,000 $ 2,760,000 Note payable, 10% 3,600,000 3,000,000 Totalliabilities 7,500,000 5,760,000 Stockholders'equity: Common stock, $78 parvalue 7,800,000 7,800,000 Retained earnings 1,800,000 1,320,000 Total stockholders'equity 9,600,000 9,120,000 Total liabilitiesand stockholders' equity $ 17,100,000 $ 14,880,000
Lydex Company
Comparative Income Statement and Reconciliation This Year Last Year Sales (all onaccount) $ 15,750,000 $ 12,480,000 Cost of goodssold 12,600,000 9,900,000 Gross margin 3,150,000 2,580,000 Selling andadministrative expenses 1,590,000 1,560,000 Net operatingincome 1,560,000 1,020,000 Interestexpense 360,000 300,000 Net income beforetaxes 1,200,000 720,000 Income taxes(30%) 360,000 216,000 Net income 840,000 504,000 Commondividends 360,000 252,000 Net incomeretained 480,000 252,000 Beginning retainedearnings 1,320,000 1,068,000 Ending retainedearnings $ 1,800,000 $ 1,320,000
To begin yourassigment you gather the following financial data and ratios thatare typical of companies in Lydex Companyâs industry:
Current ratio 2.3 Acid-test ratio 1.2 Average collectionperiod 30 days Average saleperiod 60 days Return onassets 9.5 % Debt-to-equityratio 0.65 Times interestearned ratio 5.7 Price-earningsratio 10
3. You decide, finally, to assess the companyâs liquidity and assetmanagement. For both this year and last year, compute: (Use365 days in a year. Round "days" intermediate calculations andfinal answers to 1 decimal place. Round all other intermediatecalculations and final answers to 2 decimal places.)
a. Working capital. b. The current ratio. c. The acid-test ratio. d. The average collection period.(The accounts receivable at the beginning of last year totaled$1,560,000.) e. The average sale period. (Theinventory at the beginning of last year totaled $1,920,000.) f. The operating cycle. g. The total asset turnover. (Thetotal assets at the beginning of last year totaled$12,960,000.)
You have just been hired as a financial analyst for LydexCompany, a manufacturer of safety helmets. Your boss has asked youto perform a comprehensive analysis of the companyâs financialstatements, including comparing Lydexâs performance to its majorcompetitors. The companyâs financial statements for the last twoyears are as follows: |
Lydex Company Comparative Balance Sheet | ||||
This Year | Last Year | |||
Assets | ||||
Currentassets: | ||||
Cash | $ | 960,000 | $ | 1,260,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,700,000 | 1,800,000 | ||
Inventory | 3,900,000 | 2,400,000 | ||
Prepaid expenses | 240,000 | 180,000 | ||
Total currentassets | 7,800,000 | 5,940,000 | ||
Plant and equipment,net | 9,300,000 | 8,940,000 | ||
Total assets | $ | 17,100,000 | $ | 14,880,000 |
Liabilities andStockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 3,900,000 | $ | 2,760,000 |
Note payable, 10% | 3,600,000 | 3,000,000 | ||
Totalliabilities | 7,500,000 | 5,760,000 | ||
Stockholders'equity: | ||||
Common stock, $78 parvalue | 7,800,000 | 7,800,000 | ||
Retained earnings | 1,800,000 | 1,320,000 | ||
Total stockholders'equity | 9,600,000 | 9,120,000 | ||
Total liabilitiesand stockholders' equity | $ | 17,100,000 | $ | 14,880,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales (all onaccount) | $ | 15,750,000 | $ | 12,480,000 |
Cost of goodssold | 12,600,000 | 9,900,000 | ||
Gross margin | 3,150,000 | 2,580,000 | ||
Selling andadministrative expenses | 1,590,000 | 1,560,000 | ||
Net operatingincome | 1,560,000 | 1,020,000 | ||
Interestexpense | 360,000 | 300,000 | ||
Net income beforetaxes | 1,200,000 | 720,000 | ||
Income taxes(30%) | 360,000 | 216,000 | ||
Net income | 840,000 | 504,000 | ||
Commondividends | 360,000 | 252,000 | ||
Net incomeretained | 480,000 | 252,000 | ||
Beginning retainedearnings | 1,320,000 | 1,068,000 | ||
Ending retainedearnings | $ | 1,800,000 | $ | 1,320,000 |
To begin yourassigment you gather the following financial data and ratios thatare typical of companies in Lydex Companyâs industry: |
Current ratio | 2.3 | |||||||||||||||||
Acid-test ratio | 1.2 | |||||||||||||||||
Average collectionperiod | 30 | days | ||||||||||||||||
Average saleperiod | 60 | days | ||||||||||||||||
Return onassets | 9.5 | % | ||||||||||||||||
Debt-to-equityratio | 0.65 | |||||||||||||||||
Times interestearned ratio | 5.7 | |||||||||||||||||
Price-earningsratio | 10 |
|