ou 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 860,000 1,100,000 Marketable securities 0 300,000 Accounts receivable, net 2,300,000 1,400,000 Inventory 3,500,000 2,000,000 Prepaid expenses 240,000 180,000 Total current assets 6,900,000 4,980,000 Plant and equipment, net 9,320,000 8,950,000 Total assets 16,220,000 13,930,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities 3,910,000 2,780,000 Note payable, 10% 3,600,000 3,000,000 Total liabilities 7,510,000 5,780,000 Stockholders' equity: Common stock, $75 par value 7,500,000 7,500,000 Retained earnings 1,210,000 650,000 Total stockholders' equity 8,710,000 8,150,000

Total liabilities and stockholders' equity 16,220,000 13,930,000

Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) 15,760,000 12,580,000 Cost of goods sold 12,608,000 9,435,000 Gross margin 3,152,000 3,145,000 Selling and administrative expenses 1,592,000 1,564,000 Net operating income 1,560,000 1,581,000 Interest expense 360,000 300,000 Net income before taxes 1,200,000 1,281,,000 Income taxes (30%) 360,000 384,000 Net income 840,000 896,000 Common dividends 280,000 448,350 Net income retained 560,000 448,350 Beginning retained earnings 650,000 201,650 Ending retained earnings 1,210,000 650,000

To 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 1.0 Average collection period 30 days Average sale period 60 days Return on assets 8.2% Debt-to-equity ratio 0.7 Times interest earned ratio 5.8 Price-earnings ratio 10

You decide first to assess the companys performance in terms of debt management and profitability. Compute the following for both this year and last year: (Round your intermediate calculations and final percentage answers to 1 decimal place. and final 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 $12,970,000.)
e.	The return on equity. (Stockholders equity at the beginning of last year totaled $7,701,650. There has been no change in common stock over the last two years.)
f.	Is the companys financial leverage positive or negative?