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You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a

You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the companys financial statements, including comparing Lydexs performance to its major competitors. The companys financial statements for the last two years are as follows:
Lydex Company
Comparative Balance Sheet
This Year Last Year
Assets
Current assets:
Cash $ 990,000 $ 1,230,000
Marketable securities 0300,000
Accounts receivable, net 2,820,0001,920,000
Inventory 3,630,0002,300,000
Prepaid expenses 260,000200,000
Total current assets 7,700,0005,950,000
Plant and equipment, net 9,580,0009,080,000
Total assets $ 17,280,000 $ 15,030,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities $ 4,040,000 $ 3,040,000
Note payable, 10%3,680,0003,080,000
Total liabilities 7,720,0006,120,000
Stockholders' equity:
Common stock, $70 par value 7,000,0007,000,000
Retained earnings 2,560,0001,910,000
Total stockholders' equity 9,560,0008,910,000
Total liabilities and stockholders' equity $ 17,280,000 $ 15,030,000
Lydex Company
Comparative Income Statement and Reconciliation
This Year Last Year
Sales (all on account) $ 15,890,000 $ 13,880,000
Cost of goods sold 12,712,00010,410,000
Gross margin 3,178,0003,470,000
Selling and administrative expenses 1,210,0001,616,000
Net operating income 1,968,0001,854,000
Interest expense 368,000308,000
Net income before taxes 1,600,0001,546,000
Income taxes (30%)480,000463,800
Net income 1,120,0001,082,200
Common dividends 470,000541,100
Net income retained 650,000541,100
Beginning retained earnings 1,910,0001,368,900
Ending retained earnings $ 2,560,000 $ 1,910,000
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:
Current ratio 2.4
Acid-test ratio 1.1
Average collection period 32 days
Average sale period 60 days
Return on assets 9.6%
Debt-to-equity ratio 0.7
Times interest earned ratio 5.9
Price-earnings ratio 10
3. You decide, finally, to assess the companys liquidity and asset management. For both this year and last year, compute:
a. Working capital.
b. The current ratio. (Round your final answers to 2 decimal places.)
c. The acid-test ratio. (Round your final answers to 2 decimal places.)
d. The average collection period. (The accounts receivable at the beginning of last year totaled $1,700,000.)(Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
e. The average sale period. (The inventory at the beginning of last year totaled $2,060,000.)(Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal place.)
f. The operating cycle. (Round your intermediate calculations and final answers to 2 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year totaled $13,100,000.)(Round your final answers to 2 decimal places.)

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