Problem 14-15 Comprehensive Ratio Analysis (LO14-2, LO14-3, LO14-4, LO14-5, LO14-6) [The following information applies to the questions displayed below.) 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: Last Year Lydex Company Comparative Balance Sheet This Year Assets Current assets: Cash $ 970,000 Marketable securities Accounts receivable, net 2,740,000 Inventory 3,610,000 Prepaid expenses 260.000 Total current assets 7,580,000 Plant and equipment, net 9.540,000 Total assets $17.120.000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $ 4,020,000 Note payable, 108 3,680,000 Total liabilities 7.700.000 Stockholders' equity: Common stock, $70 par value 7.000.000 Retained earnings 2.420.000 Total stockholders' equity 9,420,000 Total liabilities and stockholders' equity $17, 120,000 $ 1.210.000 300,000 1,840.000 2.100,000 200,000 5,650,000 9,060,000 $14.710.000 $3,000,000 3,080,000 6,080.000 7.000.000 1.630,000 3,630,000 $14,710,000 Lydex Company Comparative Income Statement and Reconciliation This Year Last Year Sales (all on account) $15,870,000 $13.680.000 Cost of goods sold 12.696.000 10,260,000 Gross margin 3, 174,000 3,420,000 Selling and administrative expenses 1,106,000 1,600,000 Net operating income 2.068,000 1,812,000 Interest expense 368.000 300,000 Net Income before taxes 1.700.000 1,504,000 Income taxes (30%) 510.000 451,200 Net Income 1,190,000 1,052,800 Common dividends 400,000 526,400 Net income retained 790.000 526,400 Beginning retained earnings 1,630,000 1,103,600 Ending retained earnings $ 2,420,000 $1,630,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 40 days 60 days 9.43 0.7 5.7 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 $1,680,000.) (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 $2,040,000.) (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 $14,620,000.) (Round your final answers to 2 decimal places.) This Year Last Year a. Working capital b. The current ratio c. The acid-test ratio d. The average collection period e. The average sale period f. The operating cycle 9. The total asset turnover days days days days