Lydex Company Comparative Balance Sheet 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 $970,000 0 2,740,000 3,610,000 260,000 7,580,000 9,540,000 $ 17,120,000 $ 1,210,000 300,000 1,840,000 2,100,000 200,000 5,650,000 9,060,000 $ 14,710,000 $ 4,020,000 3,680,000 7,700,000 7,000,000 2,420,000 9,420,000 $ 17,120,000 $ 3,000,000 3,080,000 6,000,000 7,000,000 1,630,000 8,630,000 $ 14,710,000 Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Lydex Company Comparative Income Statement and Reconciliation This Year Sales (all on account) $ 15,870,000 Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings 12,696,000 3,174,000 1,106,000 2,068,000 368,000 1,700,000 510,000 1,190,000 400,000 Last Year $ 13,680,000 10,260,000 3,420,000 1,608,000 1,812,000 308,000 1,504,000 451,200 1,052,800 526,400 790,000 1,630,000 $ 2,420,000 526,400 1,103,600 $ 1,630,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current ratio 2.4 1.1 Acid-test ratio Average collection period 40 days Average sale period 60 days Return on assets 9.4% Debt-to-equity ratio 0.7 Times interest earned ratio 5.7 Price-earnings ratio 10 Required: 1. You decide first to assess the company's performance in terms of debt management and profitability. Compute the following for both this year and last year: (Round your "Percentage" answers to 1 decimal place and other answers to 2 decimal places.) a. The times interest earned ratio. b. The debt-to-equity ratio. c. The gross margin percentage. d. The return on total assets. (Total assets at the beginning of last year were $13,080,000.) e. The return on equity. (Stockholders' equity at the beginning of last year totaled $8,103,600. There has been no change in common stock over the last two years.) f. Is the company's financial leverage positive or negative? a. The times interest earned ratio b. The debt-to-equity ratio c. The gross margin percentage d. The return on total assets e. The return on equity f. Is the company's financial leverage positive or negative? This Year Last Year 5.62 5.88 0.82 0.70 20.0 % 25.0 % % % % 96