Problem $14-15($Algo$)$ Comprehensive Ratio Analysis $[$LO$14-2,$ LO$14-3,$ LO$14-4,$ LO$14-5,$ LO$14-6]$

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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:

Cash $ $1,010,000$ $ $1,250,000$

Marketable securities $0300,000$

Accounts receivable, net $2,900,0002,000,000$

Inventory $3,650,0002,000,000$

Prepaid expenses $270,000210,000$

Total current assets $7,830,0005,760,000$

Plant and equipment, net $9,620,0009,100,000$

Total assets $ $17,450,000$ $ $14,860,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $4,060,000$ $ $3,080,000$

Note payable, $10\%3,700,0003,100,000$

Total liabilities $7,760,0006,180,000$

Stockholders' equity:

Common stock, $$70$ par value $7,000,0007,000,000$

Retained earnings $2,690,0001,680,000$

Total stockholders' equity $9,690,0008,680,000$

Total liabilities and stockholders' equity $ $17,450,000$ $ $14,860,000$

Lydex Company

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $($all on account$)$ $ $15,910,000$ $ $14,080,000$

Cost of goods sold $12,728,00010,560,000$

Gross margin $3,182,0003,520,000$

Selling and administrative expenses $912,0001,624,000$

Net operating income $2,270,0001,896,000$

Interest expense $370,000310,000$

Net income before taxes $1,900,0001,586,000$

Income taxes $(30\%)570,000475,800$

Net income $1,330,0001,110,200$

Common dividends $320,000555,100$

Net income retained $1,010,000555,100$

Beginning retained earnings $1,680,0001,124,900$

Ending retained earnings $ $2,690,000$ $ $1,680,000$

To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company$$s industry:

Current ratio $2\mathrm{.}3$

Acid$-$test ratio $1\mathrm{.}1$

Average collection period $32$ days

Average sale period $60$ days

Return on assets $9\mathrm{.}8\%$

Debt$-$to$-$equity ratio $0\mathrm{.}7$

Times interest earned ratio $5\mathrm{.}8$

Price$-$earnings ratio $10$

Problem $14-15$ Part $2($Algo$)$

$2.$ You decide next to assess the company$$s stock market performance. Assume that Lydex$$s stock price at the end of this year is $$104$ per share and that at the end of last year it was $$72.$ For both this year and last year, compute: $($Round your "Percentage" answers to $1$ decimal place and other intermediate and final answers to $2$ decimal places.$)$

Required:

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 $$13,120,000.)$

e$.$ The return on equity. $($Stockholders$\text{'}$ equity at the beginning of last year totaled $$8,124,900.$ 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 earnings per share.

b$.$ The dividend yield ratio.

c$.$ The dividend payout ratio.

d$.$ The price$-$earnings ratio.

e the book value per share of common stock

a$.$ Working capital.

b$.$ The current ratio. $($Round your final answers to $2$ decimal places.$)$

c$.$ The acid$-$test ratio. $($Round your final answers to $2$ decimal places.$)$

d$.$ The average collection period. $($The accounts receivable at the beginning of last year totaled $$1,720,000.)($Use $365$ days in a year. Round your intermediate calculations and final answers to $2$ decimal place.$)$

e$.$ The average sale period. $($The inventory at the beginning of last year totaled $$2,080,000.)($Use $365$ days in a year. Round your intermediate calculations and final answers to $2$ decimal place.$)$

f$.$ The operating cycle. $($Round your intermediate calculations and final answers to $2$ decimal place.$)$

g$.$ The total asset turnover.