EC2 Q5

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 company's financial statements, including comparing Lydex's performance to its major competitors. The company's financial statements for the last two years are as follows: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: $ 1,350,000 Cash 965,000 Marketable securities 300,000 2,080,000 2,200,000 210,000 Accounts receivable, net 2,980,000 3,670,000 270,000 Inventory Prepaid expenses 7,885,000 9,660,000 Total current assets 6,140,000 9,120,000 Plant and equipment, net $17,545,000 $15,260,000 Total assets Liabilities and Stockholders' Equity Liabilities: $ 4,080,000 3,720,000 7,800,000 Current liabilities $2,500,000 3,120,000 Note payable, 10% Total liabilities Stockholders' equity Common stock, $70 par value Retained earnings 5,620,000 7,000,000 7,000,000 2,640,000 2,745,000 Total stockholders' equity 9,745,000 9,640,000 $17,545,000 $15,260,000 Total liabilities and stockholders' equity Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $ 14,280,000 $15,930,000 12,744,000 10,710,000 3,570,000 1,632,000 Cost of goods sold Gross margin Selling and administrative expenses Net operating income 3,186,000 2,206,857 979,143 1,938,000 372,000 312,000 1,626,000 487,800 Interest expense Net income before taxes 607,143 182,143 Income taxes (30%) Net income 425,000 1,138,200 569,100 320,000 Common dividends 569,100 2,070,900 Net income retained 105,000 2,640,000 Beginning retained earnings $ 2,745,000 $2,640,000 Ending retained earnings To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current ratio 2.3 Acid-test ratio 1.2 Average collection period Average sale period 32 days 60 days Return on assets 8.5 Debt-to-equity ratio 0.68 Times interest earned ratio 5.7 10 Price-earnings ratio Required 2 Required1 Present the balance sheet in common-size format. (Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.) Lydex Company Common-Size Balance Sheets This Year Last Year Assets Current assets: Cash % Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets % % Liabilities and Stockholders' Equity Liabilities: Current liabilities % % Note payable, 10% Total liabilities Stockholders' equity: Common stock, $70 par value Retained earnings Total stockholders' equity Total liabilities and equity % Required Required 2 Present the income statement in common-size format down through net income. (Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.) Lydex Company Common-Size Income State ments This Year Last Year Sales % % Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income % %