Question

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 company’s financialstatements, including comparing Lydex’s performance to its majorcompetitors. The company’s 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 Company’s 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

.

1. You decide, finally, to assess the company’s liquidity andasset management. For both this year and last year, compute:(Use 365 days in a year. Round "days" intermediatecalculations and final answers to 1 decimal place. Round all otherintermediate calculations and final answers to 2 decimalplaces.)

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.)