Problem 16-15 (Algo) Comprehensive Ratio Analysis [LO16-2, LO16-3, LO16-4, LO16-5, LO16-6] [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: Lydex Company Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities $ 1,160,000 300,000 1,640,000 2,100,000 Accounts receivable, net Inventory Prepaid expenses Total current assets 190,000 5,390,000 9,010,000 Plant and equipment, net Total assets $ 14,400,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities Note payable, 10% $ 2,900,000 3,040,000 Total liabilities 5,940,000 Stockholders' equity: Common stock, $75 par value 7,500,000 Retained earnings 960,000 Total stockholders' equity 8,460,000 Total liabilities and stockholders' equity $ 14,400,000 $ 920,000 0 2,540,000 3,560,000 250,000 7,270,000 9,440,000 $ 16,710,000 $ 3,970,000 3,640,000 7,610,000 7,500,000 1,600,000 9,100,000 $ 16,710,000 Lydex Company Comparative Income Statement and Reconciliation This Year Sales (all on account) Last Year $ 13,180,000 9,885,000 $ 15,820,000 12,656,000 3,164,000 Cost of goods sold Gross margin 3,295,000 Selling and administrative expenses 1,400,000 1,588,000 Net operating income 1,764,000 1,707,000 Interest expense 364,000 304,000 Net income before taxes 1,400,000 1,403,000 Income taxes (30%) 420,000 420,900 Net income 980,000 982,100 Common dividends 340,000 491,050 Net income retained 640,000 491,050 Beginning retained earnings 960,000 468,950 Ending retained earnings $ 1,600,000 $ 960,000 To begin your assignment you gather the following financial data and ratios that are typical of companies in Lydex Company's industry: Current ratio 2.3 1.1 Acid-test ratio Average collection period 40 days Average sale period 60 days Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 8.8% 0.7 5.8 10 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 $1,630,000.) (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 $1,990,000.) (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 $13,030,000.) (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 g. The total asset turnover days days days days days days