Problem 14-16 (Algo) Common-Size Financial Statements [LO14-1]

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	$ 1,050,000	$ 1,360,000
Marketable securities	0	300,000
Accounts receivable, net	3,060,000	2,160,000
Inventory	3,400,000	2,400,000
Prepaid expenses	240,000	220,000
Total current assets	7,750,000	6,440,000
Plant and equipment, net	9,700,000	9,140,000
Total assets	$ 17,450,000	$ 15,580,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$ 4,400,000	$ 3,160,000
Note payable, 10%	3,720,000	3,120,000
Total liabilities	8,120,000	6,280,000
Stockholders' equity:
Common stock, $70 par value	7,000,000	7,000,000
Retained earnings	2,330,000	2,300,000
Total stockholders' equity	9,330,000	9,300,000
Total liabilities and stockholders' equity	$ 17,450,000	$ 15,580,000

Lydex Company Comparative Income Statement and Reconciliation
	This Year	Last Year
Sales (all on account)	$ 15,950,000	$ 14,480,000
Cost of goods sold	12,760,000	10,860,000
Gross margin	3,190,000	3,620,000
Selling and administrative expenses	2,018,000	1,640,000
Net operating income	1,172,000	1,980,000
Interest expense	372,000	312,000
Net income before taxes	800,000	1,668,000
Income taxes (30%)	240,000	500,400
Net income	560,000	1,167,600
Common dividends	530,000	583,800
Net income retained	30,000	583,800
Beginning retained earnings	2,300,000	1,716,200
Ending retained earnings	$ 2,330,000	$ 2,300,000

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	32	days
Average sale period	60	days
Return on assets	8.7%
Debt-to-equity ratio	0.65
Times interest earned ratio	5.9
Price-earnings ratio	10

Required:

1. Present the balance sheet in common-size format.

2. Present the income statement in common-size format down through net income.

• Required 1
• Required 2

Present the balance sheet in common-size format. (Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.)

Lydex Company
Common-Size Balance Sheets
	This Year	Last Year
Assets
Current assets:
Cash		%		%
Marketable securities
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets	0.0		0.0
Plant and equipment, net
Total assets	0.0	%	0.0	%
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities		%		%
Note payable, 10%
Total liabilities	0.0		0.0
Stockholders equity:
Common stock, $70 par value
Retained earnings
Total stockholders equity	0.0		0.0
Total liabilities and equity	0.0	%	0.0	%

2. Required 2

Present the income statement in common-size format down through net income. (Round your answers to 1 decimal place. Due to rounding, figures may not fully reconcile down a column.)

Lydex Company
Common-Size Income Statements
	This Year	Last Year
Sales		%		%
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income
Interest expense
Net income before taxes
Income taxes (30%)
Net income		%		%