Question
Problem 14-16 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
Problem 14-16 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 | $ | 950,000 | $ | 1,110,000 |
Marketable securities | 0 | 300,000 | ||
Accounts receivable, net | 2,500,000 | 1,600,000 | ||
Inventory | 3,550,000 | 2,000,000 | ||
Prepaid expenses | 250,000 | 190,000 | ||
Total current assets | 7,250,000 | 5,200,000 | ||
Plant and equipment, net | 9,420,000 | 9,000,000 | ||
Total assets | $ | 16,670,000 | $ | 14,200,000 |
Liabilities and Stockholders' Equity | ||||
Liabilities: | ||||
Current liabilities | $ | 3,960,000 | $ | 2,880,000 |
Note payable, 10% | 3,640,000 | 3,040,000 | ||
Total liabilities | 7,600,000 | 5,920,000 | ||
Stockholders' equity: | ||||
Common stock, $70 par value | 7,000,000 | 7,000,000 | ||
Retained earnings | 2,070,000 | 1,280,000 | ||
Total stockholders' equity | 9,070,000 | 8,280,000 | ||
Total liabilities and stockholders' equity | $ | 16,670,000 | $ | 14,200,000 |
Lydex Company Comparative Income Statement and Reconciliation | ||||
This Year | Last Year | |||
Sales (all on account) | $ | 15,810,000 | $ | 13,080,000 |
Cost of goods sold | 12,648,000 | 9,810,000 | ||
Gross margin | 3,162,000 | 3,270,000 | ||
Selling and administrative expenses | 1,183,714 | 1,584,000 | ||
Net operating income | 1,978,286 | 1,686,000 | ||
Interest expense | 364,000 | 304,000 | ||
Net income before taxes | 1,614,286 | 1,382,000 | ||
Income taxes (30%) | 484,286 | 414,600 | ||
Net income | 1,130,000 | 967,400 | ||
Common dividends | 340,000 | 483,700 | ||
Net income retained | 790,000 | 483,700 | ||
Beginning retained earnings | 1,280,000 | 796,300 | ||
Ending retained earnings | $ | 2,070,000 | $ | 1,280,000 |
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 | 40 | days |
Average sale period | 60 | days |
Return on assets | 8.7 | % |
Debt-to-equity ratio | 0.66 | |
Times interest earned ratio | 5.7 | |
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.
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