Question
Problem 14-15 (Static) 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
Problem 14-15 (Static) 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 companys financial statements, including comparing Lydexs performance to its major competitors. The companys financial statements for the last two years are as follows:
Lydex Company Comparative Balance Sheet | ||
---|---|---|
This Year | Last Year | |
Assets | ||
Current assets: | ||
Cash | $ 960,000 | $ 1,260,000 |
Marketable securities | 0 | 300,000 |
Accounts receivable, net | 2,700,000 | 1,800,000 |
Inventory | 3,900,000 | 2,400,000 |
Prepaid expenses | 240,000 | 180,000 |
Total current assets | 7,800,000 | 5,940,000 |
Plant and equipment, net | 9,300,000 | 8,940,000 |
Total assets | $ 17,100,000 | $ 14,880,000 |
Liabilities and Stockholders' Equity | ||
Liabilities: | ||
Current liabilities | $ 3,900,000 | $ 2,760,000 |
Note payable, 10% | 3,600,000 | 3,000,000 |
Total liabilities | 7,500,000 | 5,760,000 |
Stockholders' equity: | ||
Common stock, $78 par value | 7,800,000 | 7,800,000 |
Retained earnings | 1,800,000 | 1,320,000 |
Total stockholders' equity | 9,600,000 | 9,120,000 |
Total liabilities and stockholders' equity | $ 17,100,000 | $ 14,880,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||
---|---|---|
This Year | Last Year | |
Sales (all on account) | $ 15,750,000 | $ 12,480,000 |
Cost of goods sold | 12,600,000 | 9,900,000 |
Gross margin | 3,150,000 | 2,580,000 |
Selling and administrative expenses | 1,590,000 | 1,560,000 |
Net operating income | 1,560,000 | 1,020,000 |
Interest expense | 360,000 | 300,000 |
Net income before taxes | 1,200,000 | 720,000 |
Income taxes (30%) | 360,000 | 216,000 |
Net income | 840,000 | 504,000 |
Common dividends | 360,000 | 252,000 |
Net income retained | 480,000 | 252,000 |
Beginning retained earnings | 1,320,000 | 1,068,000 |
Ending retained earnings | $ 1,800,000 | $ 1,320,000 |
To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Companys industry:
Current ratio | 2.3 | |
---|---|---|
Acid-test ratio | 1.2 | |
Average collection period | 30 | days |
Average sale period | 60 | days |
Return on assets | 9.5% | |
Debt-to-equity ratio | 0.65 | |
Times interest earned ratio | 5.7 | |
Price-earnings ratio | 10 |
Problem 14-15 Part 3 (Static)
3. You decide, finally, to assess the companys 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 $1,560,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.)
e. The average sale period. (The inventory at the beginning of last year totaled $1,920,000.) (Use 365 days in a year. Round your intermediate calculations and final answers to 1 decimal place.)
f. The operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.)
g. The total asset turnover. (The total assets at the beginning of last year totaled $12,960,000.) (Round your final answers to 2 decimal places.)
a. Working capital This Year Last Year b. The current ratio c. The acid-test ratio d. The average collection period days days e. The average sale period days days f. The operating cycle days days g. The total asset turnover
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