Problem $16-15($Algo$)$ Comprehensive Ratio Analysis $[$LO$16-2,$ LO$16-3,$ LO$16-4,$ LO$16-5,$ LO$16-6]$

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$[$The following information applies to the questions displayed below.$]$

Lydex 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 $ $860,000$ $ $1,100,000$

Marketable securities $0300,000$

Accounts receivable, net $2,300,0001,400,000$

Inventory $3,500,0002,000,000$

Prepaid expenses $240,000180,000$

Total current assets $6,900,0004,980,000$

Plant and equipment, net $9,320,0008,950,000$

Total assets $ $16,220,000$ $ $13,930,000$

Liabilities and Stockholders' Equity

Liabilities:

Current liabilities $ $3,910,000$ $ $2,780,000$

Note payable, $10\%3,600,0003,000,000$

Total liabilities $7,510,0005,780,000$

Stockholders' equity:

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

Retained earnings $1,210,000650,000$

Total stockholders' equity $8,710,0008,150,000$

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 $12,608,0009,435,000$

Gross margin $3,152,0003,145,000$

Selling and administrative expenses $1,592,0001,564,000$

Net operating income $1,560,0001,581,000$

Interest expense $360,000300,000$

Net income before taxes $1,200,0001,281,000$

Income taxes $(30\%)360,000384,300$

Net income $840,000896,700$

Common dividends $280,000448,350$

Net income retained $560,000448,350$

Beginning retained earnings $650,000201,650$

Ending retained earnings $ $1,210,000$ $ $650,000$

The following financial data and ratios are typical of companies in Lydex Company$$s industry:

Current ratio $2\mathrm{.}3$

Acid$-$test ratio $1\mathrm{.}0$

Average collection period $30$ days

Average sale period $60$ days

Return on assets $8\mathrm{.}2\%$

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

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

Price$-$earnings ratio $10$

Problem $16-15$ Part $1($Algo$)$

Required:

$1.$ To assess the company$$s performance in terms of debt management and profitability, compute the following for this year and last year:

Note: Round your "Percentage" answers to $1$ decimal place and other answers to $2$ decimal places.

The times interest earned ratio.

The debt$-$to$-$equity ratio.

The gross margin percentage.

The return on total assets. $($Total assets at the beginning of last year were $$12,970,000.)$

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.$)$

Is the company$$s financial leverage positive or negative?