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 $ $980,000$ $ $1,220,000$

Marketable securities $0300,000$

Accounts receivable, net $2,780,0001,880,000$

Inventory $3,620,0002,200,000$

Prepaid expenses $260,000200,000$

Total current assets $7,640,0005,800,000$

Plant and equipment, net $9,560,0009,070,000$

Total assets $ $17,200,000$ $ $14,870,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $4,030,000$ $ $3,020,000$

Note payable, $10\%3,680,0003,080,000$

Total liabilities $7,710,0006,100,000$

Stockholders' equity:

Common stock, $$75$ par value $7,500,0007,500,000$

Retained earnings $1,990,0001,270,000$

Total stockholders' equity $9,490,0008,770,000$

Total liabilities and stockholders' equity $ $17,200,000$ $ $14,870,000$

Lydex Company

Comparative Income Statement and Reconciliation

This Year Last Year

Sales $($all on account$)$ $ $15,880,000$ $ $13,780,000$

Cost of goods sold $12,704,00010,335,000$

Gross margin $3,176,0003,445,000$

Selling and administrative expenses $1,208,0001,612,000$

Net operating income $1,968,0001,833,000$

Interest expense $368,000308,000$

Net income before taxes $1,600,0001,525,000$

Income taxes $(30\%)480,000457,500$

Net income $1,120,0001,067,500$

Common dividends $400,000533,750$

Net income retained $720,000533,750$

Beginning retained earnings $1,270,000736,250$

Ending retained earnings $ $1,990,000$ $ $1,270,000$

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

Current ratio $2\mathrm{.}4$

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

Average collection period $32$ days

Average sale period $60$ days

Return on assets $9\mathrm{.}5\%$

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

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

Price$-$earnings ratio $10$

Problem $14-15$ Part $3($Algo$)$

$3.$ You decide, finally, to assess the company$$s liquidity and asset management. For both this year and last year, compute:

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 $$1,690,000.)($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 $$2,050,000.)($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. $($The total assets at the beginning of last year totaled $$13,090,000.)($Round your final answers to $2$ decimal places.$)$