Need Answers on 1 and 2

You have j ust 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

$

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 current assets

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 and Stockholders' Equity

Liabilities:

Current liabilities

$

3,900,000

$

2,760,000

Note payable, 10%

3,600,000

3,000,000

Total liabilities

7,500,000

5,760,000

Stockholders' equity:

Common stock, $78 par value

7,800,000

7,800,000

Retained earnings

1,800,000

1,320,000

Total stockholders' equity

9,600,000

9,120,000

Total liabilities and stockholders' equity

$

17,100,000

$

14,880,000

Lydex Company Comparative Income Statement and Reconciliation

This Year

Last Year

Sales (all on account)

$

15,750,000

$

12,480,000

Cost of goods sold

12,600,000

9,900,000

Gross margin

3,150,000

2,580,000

Selling and administrative expenses

1,590,000

1,560,000

Net operating income

1,560,000

1,020,000

Interest expense

360,000

300,000

Net income before taxes

1,200,000

720,000

Income taxes (30%)

360,000

216,000

Net income

840,000

504,000

Common dividends

360,000

252,000

Net income retained

480,000

252,000

Beginning retained earnings

1,320,000

1,068,000

Ending retained earnings

$

1,800,000

$

1,320,000

o begin your assigment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:

Current ratio	2.3
Acid-test ratio	1.2
Average collection period	30	days
Average sale period	60	days
Return on assets	9.5	%
Debt-to-equity ratio	0.65
Times interest earned ratio	5.7
Price-earnings ratio	10

Required:

1.

Present the balance sheet in common-size format. (Round your percentage answers to 1 decimal place (i.e., 0.123 is considered as 12.3.) Due to rounding, figures may not fully reconcile down a column.)

Answer is complete but not entirely correct

Lydex Company
Common-Size Balance Sheets
	This Year		Last Year
Assets
Current assets:
Cash	5.6	%	8.5	%
Marketable securities	0.0		2.0
Accounts receivable, net	15.8		12.1
Inventory	22.8		16.1
Prepaid expenses	1.4		1.2
Total current assets	45.6		39.9
Plant and equipment, net	54.4		60.1
Total assets	100.0	%	100.0	%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	22.8	%	18.6	%
Note payable, 10%	21.1		20.2
Total liabilities	43.9		38.8
Stockholders equity:
Common stock, $78 par value	45.6		52.4
Retained earnings	10.5		8.9
Total stockholders equity	56.1		61.3
Total liabilities and equity	100.0	%	100.1	%

2.	Present the income statement in common-size format down through net income. (Round your percentage answers to 1 decimal place i.e., 0.123 is considered as 12.3. Due to rounding, figures may not fully reconcile down a column.)

Answer is not complete

Lydex Company
Common-Size Income Statements
	This Year		Last Year
Sales	100.0	%	100.0	%
Cost of goods sold	80.0
Gross margin	20.0
Selling and administrative expenses
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income		%		%