Financial Statement Analysis Lydex Company Comparative Balance Sheet Last Year This Year $1,260,000 300.000 1800,000 2400,000 180.000 Aasets 960,000 Curmene assets Cash Marketable securibes Accounts necevable, net aventory Prepaid expenses 2,700,000 3,900,000 240,000 7.800.000 9.300,000 5.940.000 8.940,000 Total current assets Pant and equipment, net $14,880.000 $17.100.000 fotal assets Liabiies and Stockholders' Equity $ 2.760.000 3000.000 Lablities Cument labilities Note payable, 10% Total lablities $ 3900,000 3600,000 7.500,000 5,760,000 Stockholders' equity Common stock, $78 par value Retained eamings. 7800,000 1,800.000 7800,000 1,320.000 9600.000 9,120.000 Tetal stockholders' equity.... Total labilities and stockholders' equity.... $17.100.000 $14.880,000- Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account Cost of goods sold Gross margin Seling and administrative expenses Not operating income Interest expernse $15,750.000 $12.480,000 12,600,000 3,150.000 1,590,000 1,560.000 360,000 9,900,000 2.580,000 1,560,000 1,020,000 300,000 Net income before taxes 1,200,000 360,000 840,000 360,000 480,000 720,000 216,000 Income taxes (30 % Net income Common dividends 504,000 252.000 Net income retained Beginning retained earningsJ Ending retained eamings 252,000 1,068,000 1,320,000 $1,800,000 $ 1.320.000 to begin your assignment you gather the following financial data and ratios that are typical of compa- ies in Lydes Company's iadustry Current ratio Acid-best ratio Average collection period Auerage sale perlod Retun on assets Debt to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.2 30 days 60 days 9.5% 0.65 5.7 10 Chapter 14 Required Compute the following for both this year and last year a. The times interest earned ratio, b. The debt-to-equity ratio. e. The gross margin percentage. d. The retarn on total assets., (Total assets at the beginning of last year were $12,960,000.) e. The return on equity, (Stockholders' equity at the beginning of last year totaled $9,048,000. There I You decide first to assess the company's performance in terms of debt management and profitability. has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? Explain. 2. You decide next to assess the company's stock market performance. Assume that Lydex's stock price at the end of this year is $72 per share and that at the end of last year it was $40, For both this year and last year, compute a. The earnings per share. b. The dividend yield ratio. c. The dividend payout ratio, d. The price-earnings ratio. How do investors regard Lydex Company as compared to other compnics in the industry? Explain. e. The book value per share of common stock. Does the difference between market value per Share and book value per share suggest that the stock at its current price is a bargain? Explain. 3. You decide, finally, to assess the company's liquidity and asset management. For both this year and last year, compuste 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. (The imnventory at the beginning of last year totaled $1,920,000.) The operating eycle. g. The total asset turnover. (The total assets at the beginning of last year totaled S12.960,000.) 4 Prepare a brief memo that summarizes how Lydex is performing relative to its competitors. PROBLEM 14-16 Common-Size Financial Statements LO14-1 Refer to the financial statement data for Lydex Company given in Problem 14-15 Required For both this year and last year I Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income 3 Comment on the resalts of your analysis. PROBLEM 14-17 Interpretation of Financial Ratios LO14-2, LO14-3, LO14-6 Pecunious Products, Inc.'s financial resalts for the past three years are summarized below: Year 3 Year 2 Year 1 Sales trend Current ratio 128.0 15.0 2.3 0.9 100.0 22 1.1 12.5 8.0 2.5 Acid-test ratio Accounts receivable turnoven Inventory turmover Dividend yield. 0.8 9.4 10.6 7.2 6.5% 50% $1.50 6.5 7.1 % Dividend payout ratio Dividends paid per share" 5.8% 40% $1.50 There have been no changes in common stock outstanding over the three-vear nerler 60 % $1.50 Your boss has asked. Financial Statement Analysis Lydex Company Comparative Balance Sheet Last Year This Year $1,260,000 300.000 1800,000 2400,000 180.000 Aasets 960,000 Curmene assets Cash Marketable securibes Accounts necevable, net aventory Prepaid expenses 2,700,000 3,900,000 240,000 7.800.000 9.300,000 5.940.000 8.940,000 Total current assets Pant and equipment, net $14,880.000 $17.100.000 fotal assets Liabiies and Stockholders' Equity $ 2.760.000 3000.000 Lablities Cument labilities Note payable, 10% Total lablities $ 3900,000 3600,000 7.500,000 5,760,000 Stockholders' equity Common stock, $78 par value Retained eamings. 7800,000 1,800.000 7800,000 1,320.000 9600.000 9,120.000 Tetal stockholders' equity.... Total labilities and stockholders' equity.... $17.100.000 $14.880,000- Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account Cost of goods sold Gross margin Seling and administrative expenses Not operating income Interest expernse $15,750.000 $12.480,000 12,600,000 3,150.000 1,590,000 1,560.000 360,000 9,900,000 2.580,000 1,560,000 1,020,000 300,000 Net income before taxes 1,200,000 360,000 840,000 360,000 480,000 720,000 216,000 Income taxes (30 % Net income Common dividends 504,000 252.000 Net income retained Beginning retained earningsJ Ending retained eamings 252,000 1,068,000 1,320,000 $1,800,000 $ 1.320.000 to begin your assignment you gather the following financial data and ratios that are typical of compa- ies in Lydes Company's iadustry Current ratio Acid-best ratio Average collection period Auerage sale perlod Retun on assets Debt to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.2 30 days 60 days 9.5% 0.65 5.7 10 Chapter 14 Required Compute the following for both this year and last year a. The times interest earned ratio, b. The debt-to-equity ratio. e. The gross margin percentage. d. The retarn on total assets., (Total assets at the beginning of last year were $12,960,000.) e. The return on equity, (Stockholders' equity at the beginning of last year totaled $9,048,000. There I You decide first to assess the company's performance in terms of debt management and profitability. has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? Explain. 2. You decide next to assess the company's stock market performance. Assume that Lydex's stock price at the end of this year is $72 per share and that at the end of last year it was $40, For both this year and last year, compute a. The earnings per share. b. The dividend yield ratio. c. The dividend payout ratio, d. The price-earnings ratio. How do investors regard Lydex Company as compared to other compnics in the industry? Explain. e. The book value per share of common stock. Does the difference between market value per Share and book value per share suggest that the stock at its current price is a bargain? Explain. 3. You decide, finally, to assess the company's liquidity and asset management. For both this year and last year, compuste 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. (The imnventory at the beginning of last year totaled $1,920,000.) The operating eycle. g. The total asset turnover. (The total assets at the beginning of last year totaled S12.960,000.) 4 Prepare a brief memo that summarizes how Lydex is performing relative to its competitors. PROBLEM 14-16 Common-Size Financial Statements LO14-1 Refer to the financial statement data for Lydex Company given in Problem 14-15 Required For both this year and last year I Present the balance sheet in common-size format. 2. Present the income statement in common-size format down through net income 3 Comment on the resalts of your analysis. PROBLEM 14-17 Interpretation of Financial Ratios LO14-2, LO14-3, LO14-6 Pecunious Products, Inc.'s financial resalts for the past three years are summarized below: Year 3 Year 2 Year 1 Sales trend Current ratio 128.0 15.0 2.3 0.9 100.0 22 1.1 12.5 8.0 2.5 Acid-test ratio Accounts receivable turnoven Inventory turmover Dividend yield. 0.8 9.4 10.6 7.2 6.5% 50% $1.50 6.5 7.1 % Dividend payout ratio Dividends paid per share" 5.8% 40% $1.50 There have been no changes in common stock outstanding over the three-vear nerler 60 % $1.50 Your boss has asked