Problem 13-15A

1. 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:

a. The times interest earned ration

b. The debt-to-equity ratio

c. The gross margin percentage

d. The return on total assets.

e. The return on equity.

f. Is the company's financial leverage positive or negative? Explain

PROBLEM 13-15A Comprehensive Ratio Analysis [LO13-2, LO13-3, LO13-4, LO13-5, LO13-6] 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 34 comparing Lydex's performance to all two years are as follows: Lydex Ceresen Comparative Baltic Sheet This Year Last Year Assets Current assets: Cash. ... Marketable securities Accounts receivable.net Inventory ...... Prepaid expenses.... Total current assets .... Plant and equipment, net $ 960,000 0 2,700,000 3,900,000 240,000 7,800,000 9,300,000 $17,100,000 $ 1,260,000 300,000 1,800,000 2.400,000 180,000 5,940,000 8,940,000 $14,880,000 $ 3,900,000 3,600,000 7,500,000 2,760,000 3,000,000 5,760,000 Total assets ......... Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% Total liabilities .... Stockholders' equity: Common stock, S78 par value Retained earnings Total stockholders' equity.... Total liabilities and stockholders' equity ... 7,800,000 1,800,000 9,600,000 $17,100,000 7,800,000 1,320,000 9,120,000 $14,880,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Common dividends Net income retained Beginning retained earnings Ending retained earnings $15,750,000 12,600,000 3,150,000 1,590,000 1,560,000 360.000 1,200,000 360.000 840,000 360,000 480,000 1,320,000 $12,480,000 9,900,000 2,580,000 1,560,000 1,020,000 300,000 720,000 216,000 504,000 252,000 252.000 1,068,000 $ 1,320,000 $ 1,800,000 To begin your assigment you gather the following financial data and ratios that are typical of compa- nies in Lydex Company's industry: Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.2 30 days 60 days 9.5% 0.65 5.7 10